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Issues Involved
1. Constitutionality of Section 37(2) of the Indian Income-tax Act, 1922 under Article 14. 2. Constitutionality of Section 37(2) of the Indian Income-tax Act, 1922 under Articles 19(1)(f) and 19(1)(g). 3. Validity of the exercise of power under Section 37(2) in the instant cases. 4. Validity of the action taken under Section 37(2) by the Income-tax Officers. Analysis of Judgment 1. Constitutionality of Section 37(2) of the Indian Income-tax Act, 1922 under Article 14 The court examined whether Section 37(2) violated Article 14 of the Constitution, which guarantees equality before the law. The petitioners argued that Section 37(2) provided a more onerous procedure compared to Section 37(1) and thus was discriminatory. The court acknowledged that both subsections address the same class of persons but provide different procedures. The court noted that Section 37(2) conferred police powers on the Income-tax Officer, whereas Section 37(1) conferred judicial powers. The court concluded that having two distinct procedures for the same class of persons, with one being more drastic, violated the principle of equality under Article 14. Therefore, Section 37(2) was held to be unconstitutional under Article 14. 2. Constitutionality of Section 37(2) of the Indian Income-tax Act, 1922 under Articles 19(1)(f) and 19(1)(g) The court examined whether Section 37(2) violated the fundamental rights to hold property and to practice any profession or to carry on any occupation, trade, or business, as guaranteed by Articles 19(1)(f) and 19(1)(g). The petitioners argued that the power of search and seizure under Section 37(2) constituted an unreasonable restriction on these rights. The court noted that the power under Section 37(2) was arbitrary and lacked adequate safeguards, such as the right to representation or judicial review. The court concluded that the restriction imposed by Section 37(2) was not reasonable and thus violated Articles 19(1)(f) and 19(1)(g). Therefore, Section 37(2) was held to be unconstitutional under these articles as well. 3. Validity of the exercise of power under Section 37(2) in the instant cases The court examined whether the exercise of power under Section 37(2) in the instant cases was valid. The petitioners contended that the Income-tax Officers did not form an independent opinion or have reason to believe that relevant documents would be found in the premises. The court noted that the warrants of authorization issued by the Commissioner of Income-tax did not specify the documents to be seized or the pending proceedings. The court found that the search and seizure were conducted in a high-handed manner, without proper application of mind by the Income-tax Officers. Therefore, the exercise of power under Section 37(2) in the instant cases was held to be invalid. 4. Validity of the action taken under Section 37(2) by the Income-tax Officers The court examined the validity of the action taken under Section 37(2) by the Income-tax Officers. The petitioners argued that the search and seizure were conducted in a mala fide manner, influenced by dismissed employees of the petitioner company. The court noted that the search was conducted with a large police force, creating a public spectacle and causing humiliation to the petitioners. The court found that the action taken by the Income-tax Officers was not in conformity with the provisions of Section 37(2) and was excessive and high-handed. Therefore, the action taken under Section 37(2) by the Income-tax Officers was held to be invalid and illegal. Conclusion The court held that Section 37(2) of the Indian Income-tax Act, 1922, was unconstitutional as it violated Articles 14, 19(1)(f), and 19(1)(g) of the Constitution. The exercise of power under Section 37(2) in the instant cases was found to be invalid, and the action taken by the Income-tax Officers was held to be illegal and mala fide. The court directed the respondents to return all the documents and books seized during the searches to the respective petitioners.
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