1956 (3) TMI 2 - SC - Income Tax

Whether sub-section (7-A) of section 5 of the Indian Income-tax Act 1922 and the said order of transfer made thereunder are unconstitutional in that they infringe the fundamental rights guaranteed to the petitioner by articles 14 19(1)(g) and 31 of the Constitution? Held that - Its partners or principal officers will have to be away from the head office for a considerable period neglecting the main business of the firm. There may be no suitable place where they can put up during that period. There will certainly be extra expenditure to be incurred by it by way of railway fare freight and hotel expenses. Therefore the reality of the discrimination cannot be gainsaid. In the circumstances this substantial discrimination has been inflicted on the petitioner by an executive fiat which is not founded on any law and no question of reasonable classification for purposes of legislation can arise. Here the State which includes its Income-tax Department has by an illegal order denied to the petitioner as compared with other bidi merchants who are similarly situate equality before the law or the equal protection of the laws and the petitioner can legitimately complain of an infraction of his fundamental right under article 14 of the Constitution. In the view we have taken on the construction of sub-section (7A) of section 5 and the petitioner s rights under article 14 it is not necessary for us on this occasion to express any opinion on the contention that the inconvenience and harassment referred to above constitute an imposition of such an interference as amounts to an unwarranted restriction on the petitioner s rights under article 19(1)(g) or a violation of his rights under article 31. Appeal allowed.

Issues Involved:
1. Validity of the transfer order under Section 5(7A) of the Indian Income-tax Act, 1922.
2. Constitutionality of Section 5(7A) and Section 64(5)(b) of the Indian Income-tax Act, 1922, under Article 14 of the Constitution.
3. Infringement of fundamental rights under Articles 14, 19(1)(g), and 31 of the Constitution.

Issue-wise Detailed Analysis:

1. Validity of the Transfer Order under Section 5(7A) of the Indian Income-tax Act, 1922:
The petitioner, a firm engaged in the bidi business, was initially assessed by the Income-tax Officer, District III, Calcutta. However, the Central Board of Revenue transferred the case to the Income-tax Officer, Special Circle, Ranchi, without prior notice to the petitioner. The petitioner challenged this transfer order as unconstitutional, arguing it violated their fundamental rights under Articles 14, 19(1)(g), and 31 of the Constitution.

The court noted that Section 64 of the Indian Income-tax Act, 1922, specifies the place of assessment based on the principal place of business. The transfer of cases under Section 5(7A) should be specific to particular assessment years and not an omnibus transfer of all cases. The court found that the transfer order was issued in general terms without reference to any particular case or time limitation, which was beyond the competence of the Central Board of Revenue. Therefore, the order was invalid.

2. Constitutionality of Section 5(7A) and Section 64(5)(b) of the Indian Income-tax Act, 1922, under Article 14 of the Constitution:
The court examined whether Section 5(7A) and Section 64(5)(b) violated Article 14, which guarantees equality before the law and equal protection of the laws. The court reiterated that Article 14 forbids class legislation but allows reasonable classification if it meets two conditions: the classification must be based on an intelligible differentia and must have a rational relation to the objective of the statute.

The court observed that the transfer order issued under Section 5(7A) did not meet these criteria. The provision allowed for arbitrary and unguided transfers, which could result in discrimination. The court emphasized that the executive must act within the powers given by law and cannot interfere with the rights of individuals without legal support. The transfer order in question was found to be discriminatory and not based on any reasonable classification, thus violating Article 14.

3. Infringement of Fundamental Rights under Articles 14, 19(1)(g), and 31 of the Constitution:
The petitioner argued that the transfer order infringed on their fundamental rights under Articles 14, 19(1)(g), and 31. The court focused primarily on Article 14, finding that the transfer order was discriminatory and imposed undue inconvenience and harassment on the petitioner. The court did not find it necessary to delve deeply into the arguments under Articles 19(1)(g) and 31, given the clear violation of Article 14.

The court highlighted that the transfer order would require the petitioner to produce its books of account and attend proceedings in Ranchi, far from its principal place of business in Calcutta. This would result in significant inconvenience, additional expenses, and disruption to the business, thereby constituting substantial discrimination.

Separate Judgment by BOSE, J.:
BOSE, J. agreed with the Chief Justice on allowing the petition but provided different reasoning. He argued that Sections 5(7A) and 64(5)(b) themselves were ultra vires Article 14. He criticized the classification test as arbitrary and insufficient to address the issue of discrimination. He emphasized that the Constitution is meant to protect the common man and ensure justice is seen to be done. He concluded that uncontrolled powers of transfer without reasonable restrictions and without adherence to natural justice principles were unconstitutional.

Conclusion:
The petition was allowed, and the impugned transfer order was set aside. An injunction was issued to restrain the Income-tax Officer, Special Circle, Ranchi, from proceeding with the assessment. The petitioner was entitled to the costs of the application.

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