1959 (7) TMI 55 - HC - Income Tax

Summary

Issues Involved:
1. Validity of notices issued under section 46(5A) of the Income-tax Act.
2. Whether the liability under the settlement is a tax liability.
3. Legislative competence of sections 34(1B), (1C), and (1D) of the Income-tax Act.
4. Constitutionality of section 46(5A) concerning articles 14 and 19 of the Constitution.
5. Limitation period for initiating recovery proceedings under section 46(5A).

Issue-wise Detailed Analysis:

1. Validity of Notices Issued Under Section 46(5A):
The petitioner contended that the proceedings under Chapter VI initiated under section 46(5A) were illegal due to the absence of a proper notice of demand under section 29 of the Income-tax Act, which is a condition precedent for initiating proceedings under section 46. The court examined whether the liability under the settlement is a tax liability. If it is not a tax liability, section 29 is not attracted, and no notice of demand could be issued under section 29. The court concluded that even if the notice did not strictly conform to the form prescribed under section 29, as long as the assessee was aware of the liability and the period for payment, the proceedings under Chapter VI could proceed.

2. Whether the Liability Under the Settlement is a Tax Liability:
The court analyzed sections 34(1A) and 34(1B) and concluded that the liability under the settlement is a tax liability. The scheme of section 34(1A) allows for the reassessment of escaped income, and section 34(1B) provides for the settlement of such reassessments. The court held that the amount determined under the settlement is a tax liability within the meaning of section 29 of the Act.

3. Legislative Competence of Sections 34(1B), (1C), and (1D):
The petitioner argued that sections 34(1B), (1C), and (1D) were beyond the legislative competence of the Parliament as they do not deal with tax liability and thus do not fall under entry No. 82 of List I of the Seventh Schedule of the Constitution. The court held that the Income-tax Act, including provisions for the settlement of tax liabilities and their recovery, falls within the broad and liberal interpretation of entry No. 82. Therefore, sections 34(1B), (1C), and (1D) are within the legislative competence of the Parliament.

4. Constitutionality of Section 46(5A) Concerning Articles 14 and 19:
The petitioner contended that section 46(5A) violates articles 14 and 19 of the Constitution. The court held that the taxing power of the State is distinct from the exercise of police power and is not subject to the limitations imposed by article 19. The court also held that section 46(5A) does not violate article 14 as it provides a special and speedier method of tax recovery, which is justified due to the nature of the liability and the necessity of realizing tax dues promptly. The court concluded that section 46(5A) does not confer arbitrary power on the Income-tax Officer and does not result in substantial discrimination.

5. Limitation Period for Initiating Recovery Proceedings Under Section 46(5A):
The petitioner argued that the recovery proceedings were time-barred as the order under section 46(5A) was passed beyond one year from the last day of the financial year in which the notice of demand was given. The court held that when the sum is payable in instalments, the period of one year is to be counted from the date when the last instalment was due. The court concluded that the proceedings were within the limitation period as the last instalment was due on 25th March 1958, and the order under section 46(5A) was passed on 16th March 1959.

Conclusion:
The court dismissed the petition, holding that the notices issued under section 46(5A) were valid, the liability under the settlement was a tax liability, sections 34(1B), (1C), and (1D) were within the legislative competence of the Parliament, section 46(5A) did not violate articles 14 and 19 of the Constitution, and the recovery proceedings were within the limitation period. The petition was rejected with costs assessed at Rs. 300.