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TMI Blog1968 (9) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... s in Mahaboobnagar. For the assessment year 1964-65, the company was assessed on 15th June, 1965, by the Commercial Tax Officer, Hyderabad III, on a net turnover of Rs. 8,09,780.22, after exempting a turnover of Rs. 12,68,626.96 representing inter-State purchases made by the assessee from the States of Maharashtra, Gujarat etc. The Deputy Commissioner of Commercial Taxes, Hyderabad, issued a notice on 9th June, 1966, proposing to revise the assessment and levying a tax on Rs 12,68,626.96 treating them as intra-State purchases. The petitioner objected to the levy of tax on this amount and submitted a detailed statement in respect of these purchases, the out-of-State places from which the goods have moved, the invoice numbers, the contract numbers etc. The Deputy Commissioner however rejected the contentions and passed orders on 3rd September, 1966, directing the company to pay tax at 2 per cent. on Rs. 11,87,331.00 assessed by him as the turnover. Against this order, an appeal was filed before the Sales Tax Appellate Tribunal, but unless the tax levied as per the revised orders of the Deputy Commissioner, viz., Rs. 23,746.62 is paid, the petitioner's appeal cannot be entertained hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sastry, on behalf of the petitioner, has urged that dealers are discriminated against merely on the basis of the particular authority which exercises the revisional powers conferred under the Act, in that the right of appeal which has been conferred upon assessees is subject to certain onerous restrictions if the appeal is against an order passed in revision by a Deputy Commissioner under section 20(1), viz., that they should pay the entire tax demanded before the appeal could be entertained, while there is no such precondition if the appeal is against an order passed by the Board of Revenue in revision under section 20(1) or against an order revised by a Commercial Tax Officer or Deputy Commissioner under section 14(4-C). The restriction imposed under section 21(6) as a precondition to the exercise of the right of appeal, it is further contended, has the effect of taking away that right and is therefore unreasonable and arbitrary. The learned counsel submits that under the scheme of the Act, against an original assessment made by an assessing authority under section 14, an appeal lies to the Assistant Commissioner under section 19. There is no precondition for such an appeal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of Revenue under sub-section (1) of section 20 an appeal will lie to the High Court within the same period, under section 23. It is contended that in none of the appeals provided for against any of the orders passed by the prescribed authorities under section 19 or sub-section (4-C) of section 14 or under sub-section (1) or (2) of section 20 is any restriction imposed, except against orders passed by the Deputy Commissioner under section 20(2) an appeal against which can only be entertained by the Appellate Tribunal on satisfactory proof of the payment of tax, under sub-section (6) of section 21. It is this restriction imposed by sub-section (6) of section 21 that is challenged before us as being violative of Articles 14 and 19(1)(f) and (g) of the Constitution. Sri Ramachandra Reddy on behalf of the Government, on the other hand, contends that a right of appeal has been given against orders passed by the prescribed authorities as well as by the Deputy Commissioner whether the order is passed under sub-section (4-C) of section 14 or section 20(2), or against orders passed by the Board of Revenue under section 20(1). The Act, he submits, contemplates four types of assessments: (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant provisions of sections 14, 19, 20, 21 and 23, which we shall presently read, while appeals provided against orders passed by any authority higher than the assessing authority, except the Deputy Commissioner, and appeals against orders passed by the Board of Revenue, are not fettered by the dealer having to furnish proof of payment of the tax as a precondition for the entertainability of appeal, an appeal against an order of the Deputy Commissioner passed under section 20(2) requires proof of payment of tax, before the appeal can be entertained. The question is whether this is unreasonable, arbitrary or amounts to discrimination. We may now read the relevant provisions of sections 14, 19, 20, 21 and 23. Section 14(4): "In any of the following events, namely, where the whole or any part of the turnover of a business of a dealer has escaped assessment to tax, or has been under-assessed or assessed at a rate lower than the correct rate, or where the licence fee or registration fee has escaped levy or has been levied at a rate lower than the correct rate, the assessing authority may, after issuing a notice to the dealer, and after making such enquiry as he may consider nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 21, the stay, if any, ordered under sub-section (2-B) shall be operative till the disposal of the appeal by such Tribunal, and the stay, if any, ordered under sub-section (2-A) shall be operative till the disposal of the appeal by such Tribunal, only in a case where the Deputy Commissioner, on an application made to him by the dealer in the prescribed manner, makes a specific order to that effect. (3)................................................." Section 20: "The Board of Revenue may suo motu call for and examine the record of any order passed or proceeding recorded by any authority, officer or person subordinate to it, under the provisions of this Act, including sub-section (2) of this section, for the purpose of satisfying itself as to the legality or propriety of such order or as to the regularity of such proceeding and may pass such order in reference thereto as it thinks fit. (2) Powers of the nature referred to in sub-section (1) may also be exercised by the Deputy Commissioner and the Commercial Tax Officer in the case of orders passed or proceedings recorded by authorities, officers or persons subordinate to them. * * * *" Section 21 (1): "Any dealer objecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 20(2) of the Act. The contention of the learned Government Pleader is that there is no fetter imposed for a first appeal preferred against orders passed by any of the authorities provided under the Act, in all of which the Act further makes a provision for stay of tax pending that appeal. But since the Deputy Commissioner is the final authority, who alone can grant stay of tax, there is no provision to stay payment of tax pending appeal against his order to the Tribunal, which provision is not an unreasonable restriction. Nor can it be said to be discriminatory. This argument however does not explain why there should be discrimination between appeals against orders passed by authorities higher than the assessing authority and those below the Assistant Commissioner who exercise similar revisional powers to those exercisable by the Deputy Commissioner under section 20(2) and appeals against orders passed by the Deputy Commissioner. If appeals against orders passed by the former authorities are first appeals, appeals against orders passed by the latter authority, namely, the Deputy Commissioner, are equally first appeals. There is also no valid explanation why even where there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eprived of such a right. It is not as if revisional powers of the Deputy Commissioner are confined only to the reopening of cases of escaped turnover of any substantial amount which could be ascertained with reasonable certainty, as was justified in the case of T.K. Musaliar v. Venkatachalam[1956] 29 I.T.R. 349; A.I.R. 1956 S.C. 246, 269. In that case the Supreme Court was considering whether the class of persons who might fall within section 5(1) of the Travancore Act 14 of 1124 was not the same class of persons who may come under section 47(1) of the Travancore Act 23 of 1121, and whether it was not a discrimination falling under the vice of Article 14 of the Constitution. It was held that the class of persons who might fall within section 5(1) of Act 14 of 1124 was not the same class of persons who may come under section 47(1) of Act 23 of 1121, and further that action under section 5(1) read with section 8(2) of Act 14 of 1124 was definitely limited to the evasion of payment of taxation on income made during the war period, and that therefore it cannot be urged that section 5(1) of Act 14 of 1124 was discriminatory in comparison with section 47(1) of Act 23 of 1121, for the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not entitled to be present at those stages and take part in the enquiry, but after the material is ready and is placed on the record then he can be present and has to be given a reasonable opportunity of rebutting any evidence that may have been collected against him." Mahajan, C.J., delivering the judgment of their Lordships of the Supreme Court observed at page 550 that though the constitutionality of these provisions could not be challenged they being well within the legislative power of the Central Legislature when the impugned statute was passed, the validity of those provisions had to be decided against the touchstone of the new Constitution and all laws made before the coming into force of the Constitution have to stand the test for their validity on the provisions of Part III of the Constitution. It was contended by the learned Solicitor-General in that case that the Act was based on a broad and rational classification, that it only dealt with a group of persons who had evaded income-tax "from the beginning of the war, 1st January, 1939 to the period ending with 1st September, 1948" as a consequence of war controls resulting in black-marketing activities and huge prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discovered in the course of the investigation conducted under section 5(1) to have evaded payment of income-tax on their incomes." Mahajan, C.J., said at page 552: "The result is that some of these persons can be dealt with under the provisions of Act 30 of 1947, at the choice of the Commission, though they could also be proceeded with under the provisions of section 34 of the Indian Income-tax Act. It is not possible to hold that all such persons who evade payment of income-tax and do not truly disclose all particulars or material facts necessary for their assessment and against whom a report is made under sub-section (4) of section 5 of the impugned Act by themselves form a class distinct from those who evade payment of income-tax and come within the ambit of section 34 of the Indian Income-tax Act." In the result, the Supreme Court had struck down section 5(4) of the Act without expressing any opinion on the vires of section 5(1). In the Meenakshi Mills' case[1954] 26 I.T.R. 713; A.I.R. 1955 S.C. 13., section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947, came in for attack on the very same grounds mentioned in the judgment in Mohta's case(1). At the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in a notice under sub-section (2) of section 22, and may proceed to assess or reassess the income, profits or gains of the assessee for all or any of the years referred to in clause (1) and thereupon the provisions of this Act......shall, so far as may be, apply accordingly....." The argument which was urged both in Mohta's case[1954] 26 I.T.R. 1; A.I.R. 1954 S.C. 545. and Meenakshi Mills' case[1954] 26 I.T.R. 713; A.I.R. 1955 S.C. 13., namely, that the classification made in section 5(1) of the impugned Act was bad because the word "substantial" used therein was a word which had no fixed meaning and was an unsatisfactory medium for carrying the idea of some ascertainable proportion of the whole, and thus the classification being vague and uncertain, did not save the enactment from the mischief of Article 14 of the Constitution, was rejected on the ground that the amendment of section 34 by Act 33 of 1954 had given a definite and clear meaning to the word "substantial" by enacting that the evasion (sic) below a sum of one lakh is within the meaning of that expression, and accordingly, the provisions of Act 33 of 1954 were intended to deal with the class of persons who were said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duals within the classification, it was observed at page 266: "It does not require much effort to pick out persons who would fall within this group or category of substantial evaders of income-tax and even though a definite amount be not specified in section 5(1) of the Act as constituting a substantial evasion of income-tax the Government, to whom the process of selection for the purposes of reference of the cases for investigation to the Commission is entrusted, would not have any difficulty in finding out the persons coming within this group or category. To use the language of Viscount Simon, the income-tax which has been evaded would have to be considerable, solid or big, and once that conclusion was reached by the Government, the cases of such persons would indeed be referred by them for investigation by the Commission under section 5(1) of the Act." These cases clearly illustrate that where the same class of persons are treated differently under different provisions, one harsher and the other less so, and there is no nexus between the classification and the object of the Act, such a provision suffers from the vice of Article 14 of the Constitution. In Anandji Haridas and C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless the tax has been paid, was held to be valid, inasmuch as it is a rule of public policy meant to make the realisation of taxes easy and has got nothing to do with the merits of the controversy or the nature of the cause on the basis of which the right of appeal depends. It was held that such a rule cannot be so construed as to destroy the right altogether and it should be so read as to harmonise with the right of appeal and yet to implement the intention of the Legislature to provide for an easy recovery of tax. Where an appeal is filed against an assessment order under section 46 payment of tax is not a precondition for the right of appeal, but under the proviso to section 30 for an appeal against an order levying penalty, payment of the tax is a precondition. It is pointed out by Sri Venkatappaiah Sastry that under the new Income-tax Act the proviso was deleted. It is not necessary for us, while considering whether sub-section (6) of section 21 discriminates the same class of persons against whom revisional powers are exercised under different provisions, to consider whether the rule insisting on proof of payment of the tax as a precondition for entertaining an appeal is v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question before us. It may be pointed out that Government servants hold office at the pleasure of the Governor under Article 310 and as long as reasonable opportunity is afforded under Article 311, no question of an appeal against the Governor's order will arise. M/s. Pannalal Binjraj v. Union of India [1957] 31 I.T.R. 565; A.I.R. 1957 S.C. 397. cited by Sri Ramachandra Reddy is a case where the impugned provision applied equally to all classes of persons within the classification and the restrictions imposed were not unreasonable. In that case, section 5(7A) of the Income-tax Act in the light of section 64 of that Act was considered. Section 64 of the Income-tax Act, it may be remembered, "was intended to ensure that as far as practicable an assessee should be assessed locally, and the area to which an Income-tax Officer is appointed must, so far as the exigencies of tax collection allow, bear some reasonable relation to the place where the assessee carries on business or resides." This provision was construed as not conferring any right as such, because whether a particular Incometax Officer should assess the case of any assessee depends on (i) the convenience of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le logic of this position, the learned judges who apply this test are forced to hedge it round with conditions which, to my mind, add nothing to the clarity of the law." In that case, while he agreed with the majority judgment that picking out the petitioner from among the beedi merchants and transferring all his cases by an omnibus order unlimited in point of time under section 5(7A) of the Income-tax Act was a substantial discrimination calculated to inflict considerable incovenience to the petitioner by an executive fiat, which was not founded on any law and no question of any reasonable classification for purposes of legislation could therefore arise, he, however, held that section 5(7A) and section 64 are themselves ultra vires Article 14 and not merely the order of the Central Board of Revenue. To sum up our conclusions in the light of the foregoing examination of the cases, to pass the vice of Article 14, the classification may be founded on different bases; namely, geographical, or according to objects or occupations or according to the authorities exercising similar powers in similar circumstances. But what is necessary is that there must be a nexus between the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al because he alone is treated as having greater efficacy, as without proof of payment of the entire tax, those orders cannot be challenged in appeal. Nor is the exercise of the power by the Deputy Commissioner based on the value of the escaped or under-assessed turnover so as to classify them on a rational and intelligible basis. In our view, there is no understandable rationale having a reasonable basis for this discrimination. On the other hand, the provisions of section 21(6) place in the hands of the Deputy Commissioner arbitrary powers because he will be tempted to exercise the power to the exclusion of the inferior authorities vested with co-equal powers, inasmuch as the assessee whose assessments are revised can be forced into paying the tax before he is able to agitate the matter in appeal, however sure and hopeful he may be of succeeding before the Tribunal, either because of concluded Supreme Court or High Court decisions, binding on it or of the Tribunal's own decisions taking a contrary view to that taken by the Deputy Commissioner, on whom all these decisions are binding. The provisions also show a further discrimination in respect of orders passed by the Deputy Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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