1961 (4) TMI 8 - SC - Income Tax

Whether the proceedings taken against the petitioner in pursuance of the order under section 8A(2) are violative of the guarantee of equal protection of the laws under article 14 of the Constitution Held that - The true scope and effect of the sub-section is to enforce the terms of any settlement arrived at in pursuance of sub-section (1) and to recover any sum specified in such settlement as if it were income-tax or arrear of income-tax in accordance with the provisions of sections 44 and 46 of the Indian Income-tax Act, 1922. We are unable, therefore, to accept the construction which learned counsel for the petitioner seeks to put on the sub-section. In this case everything was concluded before January 26, 1950, when the Constitution came into force, including the issuance of a notice of demand. All that remained to be done was the recovery of the amount according to the notice of demand. Therefore, the crucial question is---is the recovery procedure discriminatory in any way, having regard to the undoubted validity of the proceedings which had been taken against the petitioner before January 26, 1950 ? We are unable to answer this question in favour of the petitioner. Appeal dismissed.

Issues Involved:
1. Legality of the demand notice dated December 2, 1949.
2. Constitutionality of the proceedings taken in pursuance of the demand notice.
3. Alleged violation of fundamental rights under Article 14 of the Constitution.
4. Necessity of a fresh assessment under Section 8A of the Taxation on Income (Investigation Commission) Act, 1947.

Issue-wise Detailed Analysis:

1. Legality of the Demand Notice Dated December 2, 1949:
The petitioner challenged the legality of the demand notice dated December 2, 1949, and subsequent proceedings on the ground that he received the notice in or about April 1950, after the Constitution of India had come into force. The respondents contended that the demand notice was issued and received by the petitioner in December 1949. The court found that the petitioner had been informed of the demand early in December 1949 and had made part payments without raising any objections about the receipt of the notice. The court concluded that the proceedings against the petitioner, culminating in the service of the notice of demand, were completed before the Constitution came into force. Therefore, the petitioner could not challenge those proceedings under Article 14, as the Constitution is prospective and not retrospective.

2. Constitutionality of the Proceedings Taken in Pursuance of the Demand Notice:
The petitioner argued that after the Constitution came into force, the demand notice could not be given effect to, and the proceedings taken in pursuance of that notice were unconstitutional. The court referred to earlier decisions, including Suraj Mall Mohta and Co. v. Visvanatha Sastri, Shree Meenakshi Mills Ltd. v. Visvanatha Sastri, and Muthiah v. Commissioner of Income-tax, which dealt with the operation of discriminatory procedures under the Act after the Constitution's commencement. The court emphasized that in the present case, the settlement, the order under Section 8A(2) of the Act, and the notice of demand all took place before the Constitution came into force. Therefore, the petitioner's contention that the proceedings violated Article 14 was not upheld.

3. Alleged Violation of Fundamental Rights Under Article 14 of the Constitution:
The petitioner contended that the proceedings taken against him violated the guarantee of equal protection of the laws under Article 14, as he was treated differently from other debtors of the State. The court rejected this argument, stating that the petitioner belonged to a special class of persons who had evaded income-tax and had entered into a settlement to pay the amount due. The classification was deemed reasonable and related to the objective of the provision. The court held that the procedure under Section 8A(2) applied equally to all persons in the same class and did not constitute discrimination.

4. Necessity of a Fresh Assessment Under Section 8A of the Act:
The petitioner argued that after the Central Government's order under Section 8A(2), a fresh assessment was necessary, and since no such assessment was made, subsequent proceedings for tax recovery were illegal. The court examined Section 8A and concluded that the scheme of Section 8A differed from Section 8. Section 8A(2) provided for enforcing the terms of settlement and recovering the specified sum as if it were income-tax or arrears of income-tax. The court found no requirement for a fresh assessment under Section 8A and upheld the legality of the proceedings for tax recovery.

Conclusion:
The court dismissed the petition, holding that the demand notice and subsequent proceedings were completed before the Constitution came into force, and thus could not be challenged under Article 14. The classification of the petitioner as part of a special class of tax evaders was reasonable and non-discriminatory. The court also found no requirement for a fresh assessment under Section 8A of the Act. The petition was dismissed with costs.

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