1956 (12) TMI 1 - SC - Income Tax

Whether section 5(7A) of the Indian Income-tax Act, hereinafter called the Act, is ultra vires the Constitution as infringing the fundamental rights enshrined in article 14 and article 19(1)(g)? Held that - Section 5(7A) of the Act is not violative of article 14 of the Constitution and also does not impose any unreasonable restriction on the fundamental right to carry on trade or business enshrined in article 19(1)(g) of the Constitution. If there is any abuse of power it can be remedied by appropriate action either under article 226 or under article 32 of the Constitution and what can be struck down is not the provision contained in section 5(7A) of the Act but the order passed thereunder which may be mala fide or violative of these fundamental rights. This challenge of the vires of section 5(7A) of the Act, therefore, fails. Appeal dismissed.

Summary

Issues Involved:

1. Constitutionality of Section 5(7A) of the Indian Income-tax Act.
2. Alleged infringement of fundamental rights under Article 14 and Article 19(1)(g) of the Constitution.
3. Validity of transfer orders and subsequent proceedings based on those transfers.
4. Discriminatory nature and administrative convenience of Section 5(7A).
5. Validity of omnibus transfer orders.
6. Specific challenges to individual transfer orders.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 5(7A) of the Indian Income-tax Act:

The primary issue was whether Section 5(7A) of the Indian Income-tax Act is ultra vires the Constitution as it allegedly infringes the fundamental rights enshrined in Article 14 and Article 19(1)(g). The petitioners argued that Section 5(7A) conferred arbitrary power to transfer cases without any limitation in point of time, which could lead to discriminatory treatment. The court held that Section 5(7A) is a measure of administrative convenience and is not discriminatory. The power vested in the Commissioner of Income-tax and the Central Board of Revenue is discretionary and not necessarily discriminatory. Abuse of power is not easily assumed, and the validity of the provision cannot be contested due to the apprehension of potential abuse.

2. Alleged Infringement of Fundamental Rights under Article 14 and Article 19(1)(g):

The petitioners claimed that Section 5(7A) infringes Article 14 by subjecting certain assessees to discriminatory treatment and Article 19(1)(g) by imposing unreasonable restrictions on the right to carry on trade or business. The court found that the power to transfer cases is guided and controlled by the purpose of the Act, which is to ensure the efficient collection of taxes. The court concluded that Section 5(7A) does not violate Article 14 or Article 19(1)(g) and any abuse of power can be remedied through appropriate legal action.

3. Validity of Transfer Orders and Subsequent Proceedings:

The petitioners challenged the validity of the transfer orders and subsequent proceedings, arguing that they were without jurisdiction and void. The court examined the circumstances under which the transfer orders were made and found them to be administrative measures aimed at efficient tax collection. The court held that the transfer orders were valid and not discriminatory.

4. Discriminatory Nature and Administrative Convenience of Section 5(7A):

The court emphasized that Section 5(7A) is a provision for administrative convenience and is not discriminatory. The power to transfer cases is vested in high-ranking officials who are presumed to act honestly and in accordance with the law. The court noted that while there may be a possibility of discriminatory treatment, it does not necessarily invalidate the legislation. The court also highlighted that the inconvenience to the assessee is minimized by the authorities, ensuring a balance between the rights of the assessee and public interest.

5. Validity of Omnibus Transfer Orders:

The petitioners argued that omnibus transfer orders are unconstitutional and void. The court referred to the explanation added to Section 5(7A) by the Indian Income-tax Amendment Act, 1956, which expanded the connotation of the word "case" to include all proceedings under the Act pending on the date of the transfer and those commenced after the date of transfer. The court held that the omnibus transfer orders are saved by the explanation and are not unconstitutional.

6. Specific Challenges to Individual Transfer Orders:

Petitions Nos. 211 to 215 of 1956 (Sriram Jhabarmull group): The court found that the transfer orders were made before the Constitution came into effect, and thus, the petitioners could not challenge them as unconstitutional.

Petitions Nos. 225 to 229 of 1956 (Raichur group) and Petitions Nos. 86, 87, 88, 111, 112, and 158 of 1956 (Amritsar group): The court noted that the petitioners did not raise any objections to the transfer orders until after the decision in Bidi Supply Co. v. Union of India. The court held that the petitioners acquiesced in the jurisdiction of the Income-tax Officers and were not entitled to relief.

Petitions Nos. 97 and 97A of 1956: The court found that the transfers were made for administrative convenience due to the widespread activities and substantial tax evasion by the petitioners. The court held that the transfer orders were valid and not discriminatory.

Petitions Nos. 44 of 1956 and 85 of 1956: The court found that the transfers were necessary for proper assessment due to the inter-related transactions and widespread activities of the petitioners. The court held that the transfer orders were valid and not discriminatory.

Conclusion:

The court dismissed all the petitions, holding that Section 5(7A) of the Indian Income-tax Act is not ultra vires the Constitution and does not violate Articles 14 and 19(1)(g). The transfer orders were found to be valid and not discriminatory. The court emphasized the importance of administrative convenience and the presumption of honesty in public officials. The court also highlighted the need for a humane and considerate administration of the Income-tax Act to minimize inconvenience to assessees.