1954 (5) TMI 1 - SC - Income Tax

Whether certain sections of the Taxation on Income (Investigation Commission) Act, 1947, i.e., Act XXX of 1947, have become void from the date of the commencement of the Constitution of India by reason of Art. 14 of the Constitution? Held that - Sub-s. (4) of s. 5 and the procedure prescribed by the impugned Act in so far as it affects the persons proceeded against under that sub-section being a piece of discriminatory legislation offends against the provisions of Art. 14 of the Constitution and is thus void and unenforceable. In reaching this decision, we refrain from expressing any opinion, as above pointed out on the validity of s. 5(1) of the Act or on the question whether s. 6(5) of the impugned Act offends against the provisions of Art. 20, sub-cl. (3), of the Constitution. We accordingly direct that an appropriate writ be issued against the Investigation Commission prohibiting it from taking any proceedings under the provisions of the impugned Act against the petitioner.

Summary

Issues Involved:
1. Constitutionality of sections 5(1), 5(4), 6, 7, and 8 of the Taxation on Income (Investigation Commission) Act, 1947, under Article 14 of the Constitution of India.
2. Validity of section 6(5) of the Act concerning Article 20(3) of the Constitution.

Detailed Analysis:

1. Constitutionality of Sections 5(1), 5(4), 6, 7, and 8 under Article 14 of the Constitution of India

Principal Question:
The main issue was whether certain sections of the Taxation on Income (Investigation Commission) Act, 1947, became void after the Constitution of India came into force due to Article 14, which guarantees equality before the law and equal protection of the laws.

Petitioner's Argument:
The petitioner argued that sections 5(1), 5(4), 6, 7, and 8 were discriminatory. Specifically:
- Section 5(1) was attacked on the grounds that it was not based on a valid classification and allowed the Central Government to discriminate between individuals within the same class.
- Section 5(4) was argued to be void as it gave arbitrary power to the Commission to pick and choose cases and was highly discriminatory since it applied to both substantial and insubstantial tax evasion, unlike Section 34 of the Indian Income Tax Act.

Solicitor-General's Argument:
The Solicitor-General contended that the Act was based on a rational classification targeting war profiteers who evaded taxes during the war period, thus requiring special treatment. It was argued that the procedure under the Act was not substantially different from that under the Indian Income Tax Act and was a fair substitute.

Court's Analysis:
The court focused on the validity of Section 5(4) since the petitioner's case was referred under this section. It assumed, without deciding, that Section 5(1) was based on a valid classification. The court found:
- Section 5(4) was not limited to persons who substantially evaded taxes but applied to all tax evaders, thus overlapping with Section 34 of the Indian Income Tax Act.
- The procedure under the Act was more comprehensive and drastic than under the Indian Income Tax Act, depriving individuals of substantial and valuable rights such as appeals, second appeals, and revisions.
- The Commission's findings under Section 8 were final and conclusive, unlike the Indian Income Tax Act where findings could be challenged in appeals.
- The right to inspect documents was severely restricted under the Act, unlike the Indian Income Tax Act, which allowed full inspection rights.

Conclusion:
The court held that Section 5(4) and the related procedures were discriminatory and violated Article 14 of the Constitution. The court refrained from expressing an opinion on the validity of Section 5(1) or the question of whether Section 6(5) violated Article 20(3).

2. Validity of Section 6(5) concerning Article 20(3) of the Constitution

Petitioner's Argument:
The petitioner argued that Section 6(5) of the Act violated Article 20(3) of the Constitution, which protects against self-incrimination.

Court's Analysis:
The court did not find it necessary to address this issue in detail, as the decision on the constitutionality of Section 5(4) was sufficient to resolve the case.

Conclusion:
The court did not express an opinion on the validity of Section 6(5) concerning Article 20(3).

Final Judgment:
The court declared Section 5(4) and the related procedures under the Taxation on Income (Investigation Commission) Act, 1947, void and unenforceable due to their discriminatory nature, violating Article 14 of the Constitution. An appropriate writ was issued prohibiting the Investigation Commission from proceeding against the petitioner under the impugned Act. The petitioner was awarded the costs of the proceedings.