1954 (10) TMI 5 - SC - Income Tax

Whether Section 5(1) of Act XXX of 1947 infringes Article 14 of the Constitution inasmuch as it is not based on a rational classification ? Whether, after the coming into force of the Indian Income-tax (Amendment) Act, 1954, which operates on the same field as Section 5(1) of Act XXX of 1947, the provisions of Section 5(1) of Act XXX of 1947, assuming they were based on a rational classification, have not become void and unenforceable, as being discriminatory in character ? Held that - Assuming the provisions of Section 5(1) of Act XXX of 1947 could be saved from the mischief of Article 14 of the Constitution on the basis of a valid classification, that defence is no longer available in support of it after the introduction of the new sub-section in Section 34 of the Income-tax Act, which sub-section is intended to deal with the same class of persons dealt with by Section 5(1) of the impugned Act. The result is that proceedings before the Investigation Commission can no longer be continued under the procedure prescribed by the impugned Act. We therefore direct that an appropriate writ be issued against the Commission prohibiting it from proceeding further with the cases of these petitioners under the provisions of Act XXX of 1947

Issues Involved:

1. Constitutionality of Section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947, under Article 14 of the Constitution.
2. Impact of the Indian Income-tax (Amendment) Act, 1954, on the validity and enforceability of Section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947.

Issue-Wise Detailed Analysis:

1. Constitutionality of Section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947, under Article 14 of the Constitution:

The petitioners challenged the constitutionality of Section 5(1) of Act XXX of 1947, arguing that it contravened the guarantee of equal protection of laws under Article 14 of the Constitution. Article 14 ensures equality before the law and equal protection of the laws within the territory of India, covering both substantive and procedural laws. The petitioners contended that the procedures under Act XXX of 1947 were discriminatory and more drastic compared to the ordinary procedures under the Indian Income-tax Act. They argued that they belonged to the same class of persons as those dealt with under Section 34 of the Indian Income-tax Act and should not be subjected to a different, more severe procedure.

The Court referred to its earlier decision in Suraj Mal Mohta's case, where it had held that sub-section (4) of Section 5 of Act XXX of 1947 was void and unenforceable as it was discriminatory and violated Article 14. However, the Court had not expressed an opinion on the constitutionality of Section 5(1) in that case. In the present case, the Court noted that the first question regarding the constitutionality of Section 5(1) need not be decided because the second issue was sufficient to determine the case in favor of the petitioners.

2. Impact of the Indian Income-tax (Amendment) Act, 1954, on the validity and enforceability of Section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947:

The petitioners argued that the relevant sections of Act XXX of 1947 had been impliedly repealed by the Indian Income-tax (Amendment) Act, 1954, and thus ceased to have any legal force. They contended that the amended Section 34 of the Indian Income-tax Act was comprehensive and covered all persons previously dealt with under Section 5(1) of Act XXX of 1947. As a result, there was no basis for giving them discriminatory treatment under the older Act.

The Court agreed with this contention, stating that the provisions of Section 5(1) of Act XXX of 1947 could only be justified if the persons dealt with under it constituted a separate class and the classification was rational. However, the amendment to Section 34 of the Indian Income-tax Act had brought those very persons within its ambit, thus eliminating any basis for differential treatment. The Court held that the continuance of discriminatory treatment under Act XXX of 1947 was now within the mischief of Article 14 of the Constitution.

The learned Attorney-General argued that the class of persons dealt with under Section 5(1) of Act XXX of 1947 was determined by the cases referred to the Commission before 1st September 1948, and thus could be treated differently. He also contended that proceedings already initiated under the old Act could not be affected by the amendment. The Court rejected both arguments, stating that the classification based on the date of reference had no rational nexus with the necessity for a drastic procedure and that the amended Section 34 was intended to cover the same class of persons.

The Court concluded that the proceedings before the Investigation Commission under Act XXX of 1947 could no longer be continued, as the discriminatory procedure was no longer justified after the amendment to Section 34 of the Indian Income-tax Act. The Court directed that an appropriate writ be issued prohibiting the Commission from proceeding further with the cases of the petitioners under the provisions of Act XXX of 1947. No order as to costs was made due to the peculiar circumstances of the case.

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