9911796707
TMI Blog1959 (7) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... mission) Act, 1947, the case of the petitioner was referred to the Income-tax Investigation Commission. An application was then made under section 8A of the said Income-tax Investigation Commission Act, and the case of the petitioner was settled. The total quantum of income-tax alleged to have escaped assessment was estimated by the Commission at ₹ 19,81,302 and the amount which was found payable under the terms of the settlement was determined at ₹ 14,77,644. According to the petitioner this sum of ₹ 19,81,302 included a sum of ₹ 13,69,561 as the income of Jalan Industries Limited (Salvage Department) assessable for the assessment years 1947-48 to 1951-52. Out of the amount settled by the end of 31st January, 1956, a sum of ₹ 1,67,000 was paid. The case of the Hindu undivided family, Narsingdas Surajmal, of which the petitioner was the karta was also referred to the Income-tax Investigation Commission under section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947, which was also settled under section 8A and a sum of ₹ 6,46,777 was determined under the said settlement by the said Hindu undivided family. Out of this demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the earlier settlement was to be paid in instalments. The first instalment of ₹ 1,00,206 had to be paid on or before 30th September, 1956, the second instalment of ₹ 1,00,000 had to be paid on or before 31st December, 1956, the third instalment of ₹ 1,00,000 had to be paid on or before 30th September, 1957, the fourth instalment had to be paid on or before 31st December, 1957, and the fifth instalment had to be paid on or before 25th March, 1958. One of the clauses of the terms of settlement is that in default of payment of any of the instalments on the due date as specified in column 4 of the settlement, the entire sum then remaining due was to become payable forthwith with interest thereon at the rate of 6 per cent. from the date of default till realisation. By a notice dated the 10th February, 1956, the Income-tax Officer, Central Circle, Calcutta, made a demand of the sum of ₹ 7,33,206 found due under the settlement. This demand notice also specified the instalments and the dates when each instalment was payable. The first two instalments were paid in time by the petitioner. On 30th September, 1957, the petitioner sent two cheques of ₹ 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner on 12th March, 1958, stating that in view of the Board's decision refusing to alter the instalments, the petitioner was asked to inform the Department if the amount of ₹ 1,66,000 due on 28th February, 1958, had since been paid, and the letter also contained a reminder for the balance of the amount which fell due on the 25th March, 1958. Thereafter another letter dated 15th March, 1958, from Sri D.K. Dey, Income-tax Officer (Headquarters) for Commissioner of Income-tax, Assam, Tripura and Manipur at Shillong, was issued wherein the petitioner was informed that the instalment of ₹ 2,66,000 was due to be paid by the petitioner on 25th March, 1958, and he asked the petitioner to arrange for deposit of the amount. On the 17th May, 1958, the Income-tax Officer, Dibrugarh, passed an order to the effect that under the terms of the settlement ₹ 5,32,000 became payable, forthwith with interest thereon at the rate of 6 per cent. from the date of default, that is, 30th September, 1957, and that a sum of ₹ 2,660 was claimed as interest on the amount at 6 per cent. for one month for the entire amount of ₹ 5,32,000. Thereafter the petitioner by his lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. The Income-tax Officer, Dibrugarh, in pursuance of the aforesaid instructions issued notices under section 46(5A) of the Act to the persons specified in paragraph 35 of the petition. The petitioner then wrote a letter to the Income-tax Officer pointing out that this proceeding was illegal and asked him to withdraw the notices issued under section 46(5A) which was refused by the Commissioner of Income-tax. Thereupon the present petition was filed in this court on the 2nd April, 1959, with the prayers which I have already set out. To this petition the Income-tax Officer, Dibrugarh, the Commissioner of Income-tax, Assam, Tripura and Manipur, Central Board of Revenue, New Delhi, and the Union of India have been impleaded as respondents. In response to the notice issued by this court the Income- tax Officer, Dibrugarh, filed an affidavit in reply and has contested the allegations made and the points raised by the petitioner. Notices issued under section 46(5A) have been assailed by the petitioner on a number of grounds. Dr. Pal who represents the petitioner has canvassed mainly four points before us. His first contention is that the proceedings under Chapter VI start ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tember, 1939, and ending on the 31st day of March, 1946; and (ii) that the income, profits or gains which have so escaped assessment for any such year or years amount, or are likely to amount, to one lakh of rupees or more; he may, notwithstanding that the period of eight years or, as the case may be, four years specified in sub-section (1) has expired in respect thereof, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included 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 (i), and thereupon the provisions of this Act (excepting those contained in clauses (i) and (iii) of the proviso to sub-section (1) and in sub-sections (2) and (3) of this section) shall, so far as may be, apply accordingly: Provided that the Income-tax Officer shall not issue a notice under this sub-section unless he has recorded his reasons for doing so, and the Central Board of Revenue is satisfied on such reasons recorded that it is a fit case for the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in making a payment of income-tax, the Income-tax Officer may in his discretion direct that in addition to the amount of the arrears, a sum not exceeding that amount shall be recovered from the assessee by way of penalty. Section 46(5A) is as follows: The Income-tax Officer may, at any time or from time to time, by notice in writing (a copy of which shall be forwarded to the assessee at his last address known to the Income-tax Officer), require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee to pay to the Income-tax Officer either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of arrears of income-tax and penalty or the whole of the money when it is equal to or less than that amount. The Income-tax Officer may at any time or from time to time amend or revoke any such notice or extend the time for making any payment in pursuance of the notice. Any person making any paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46 are to be read together and no action can be taken under section 46(5A) of the Act unless the assessee is a defaulter within the meaning of section 45 of the Act. A person can only be a defaulter under section 45 if he has failed to deposit the amount in pursuance of the notice of demand under section 29. The petitioner has rightly contended that if a notice of demand is not in the proper form, the assessee cannot be regarded as a defaulter and no question of recovery under section 46 will arise. But in case the liability under the order of settlement is not a tax liability, section 29 of the Act will not be attracted and no notice of demand could be issued under that section. The result will be that an assessee who is liable to pay the amount under settlement could never be a defaulter and no action could ever be taken against him under Chapter VI. This will be nullifying the very purpose of section 34(1C) of the Act. It is a rule of construction that the various sections of an Act should be read harmoniously. The scheme of the Act seems to be that after the liability has been determined on settlement, the amount of settlement is to be recovered in the manner provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is none the less in respect of the tax which is due from the assessee for the period during which his income escaped assessment. This provision for settlement of the income-tax liability was introduced in the Income- tax Act for the first time by the Ordinance followed by the amending Act. It is to my mind for the benefit of the assessee. Instead of going through the procedure of reassessment after notice has been given under section 34(1A), the assessee has been given an opportunity to settle his liability with the Central Board of Revenue. The amount, therefore, will be a tax liability within the meaning of section 29 of the Act. In that view of the matter the next question to be considered is how far the notice given to the assessee on February 10, 1956, - annexure C to the petition-fulfils the requirements of section 29. It was contended by the counsel for the petitioner that the notice under section 29 is to be in a prescribed form. Rule 20 of the Rules framed under the Act provides that a notice of demand under section 29 shall be in the form given below, and is to be accompanied by the assessment form appended hereto; provided that the said assessment form need not accom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viding for the form of the notice of demand under section 29 and in the exercise of the aforesaid power rule 49 was framed. Section 29 itself does not give any power to frame rules and the power for enacting rule 49 is to be found in section 59. It is, therefore, not necessary to refer to section 29 in rule 49 itself. The fact that in rules 20 and 20A there is a reference to section 29 is not of much consequence. An argument was addressed in this connection to the effect that the power given to frame rules under section 59(2)(e) is confined to matters which are to be prescribed by this Act. Section 34(1B) does not prescribe for any notice. Any notice, therefore, of demand in respect of a sum due under the order passed under section 34(1B) cannot be said to be a matter which is prescribed by the Act. I have already pointed out section 29 also requires that a form of notice to be issued under section 29 is to be in the prescribed form and if a rule has been framed providing for the form the said rule is nothing else but one relating to a matter which is prescribed by the Act. Moreover, from the note appended to rule 20 it is clear that any of the particulars which are not required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fects the right of the assessee to hold and dispose of the property. The debt due to the assessee is a property and any power given to regulate the holding and disposal of such property unless saved by the article 19(5) must be struck down. It was urged that the power given is unrestricted; no provision has been made for appeal against the order issued under section 46(5A), no rules of guidance have been laid down in the section for the officer who has been empowered to issue an order under the aforesaid section. The restriction, therefore, is unreasonable and cannot be sustained under article 19(5). It was contended by the Advocate-General in reply to the contention of the petitioner that the impugned law has been enacted by the Parliament in the exercise of its taxing power under article 265 of the Constitution read with article 245 and the legislative List. As such, its validity cannot be tested with reference to the requirements of article 19 of the Constitution. The contention is that articles 19, 21, 31(1) deal with what is known as the police power of the State in America. Article 31(2) deals with the power of eminent domain. The taxing power is an attribute of sovereignt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State and the obligation of such persons is to provide for the maintenance and conduct of the State. By extending special protection to certain rights of the citizen enumerated under article 19, it cannot be said to be the intention of the constitution-makers to affect the fundamental obligation of the citizen to provide for the maintenance and conduct of the State. Imposition of tax to some extent puts a restraint on the rights of a citizen; but the purposes of enacting a taxing legislation cannot be said to be a regulatory one. The primary object of a tax legislation is to provide for the revenue of the State. In the case of Brushaber v. Union Pacific Railroad Co. [1915] 60 Law Ed. 493 it was observed that it was well settled that the due process clause of the 5th amendment is not a limitation upon the taxing power conferred upon the Congress by the Constitution; in other words, that the Constitution does not conflict with itself by conferring upon the one hand, a taxing power, and taking the same power away, on the other by the limitation of due process clause. The matter came up for deci-w sion before the Madras High Court in the case of Ananthakrishnan v. State of Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to take out a licence and pay the fees prescribed therefor was challenged. At page 168 of the report the observation is as follows [1957] 8 S.T.C. 690, 715-16; A.I.R. 1958 Mad. 158, 168: Thus far we have proceeded on the basis, that unless the system of licensing introduced by rule 5 satisfied the test of reasonableness laid down by article 19(6) the restriction imposed would be unconstitutional. There is, however, one other approach to this problem which we consider worth pursuing.....The Constitution vests the Union and the States with a power of taxation, which, subject to a few exceptions........is plenary in its nature. The imposition of a tax on a trade or on the profits of a trade is undoubtedly a burden and unless the tax was validly imposed, it would be an illegal and undue interference with the freedom of trade guaranteed by article 19(1)(g) and so invalid. If a tax were a restriction which could be legally imposed on a business, the right to carry on which was guaranteed by the Constitution, the validity of the tax cannot be judged by standards applicable to regulations or restrictions imposed on the manner of carrying on the business--restrictions which f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 of the Patiala Income-tax Act, and it was the validity of this notice which was challenged by the petitioner under article 32 of the Constitution. It was contended by the counsel for the petitioner that the Patiala Income-tax Act did not apply to the petitioner and assessment of tax on the petitioner's income was illegal. The State by insisting on collecting the tax so illegally assessed was threatening to invade the petitioner's fundamental right to property guaranteed by article 31(1) of the Constitution. It was held in that case that the application was not one for the enforcement of the fundamental right under article 31(1). What the petitioner in that case intended to enforce was the right not to be taxed except in accordance with law under article 265 of the Constitution. It was observed that clause (1) of article 31 must be regarded as concerned with deprivation of property otherwise than by the imposition or collection of tax, for otherwise article 265 becomes wholly redundant. In the United States of America the power of taxation is regarded as distinct from the exercise of police power or of eminent domain. Our Constitution evidently has also treated tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and those for the collection of the said tax, may not be liable to be tested with reference to article 19 and that the activities enumerated under article 19 may not be immune from taxation. But when the procedure provided for the recovery of the amount is such as to result in infringement of the right guaranteed under article 19(1)(f), the law laying down such a procedure will be void under article 13 of the Constitution. This argument overlooks the distinction between the case where the law itself has the effect of infringing the fundamental right guaranteed under article 19 and the case where any action taken under a valid law results in the infringement of article 19 of the Constitution. If the law providing itself for the imposition of tax and for recovery of the said tax cannot be tested with reference to the requirements of article 19, it is difficult to hold that the result flowing from the exercise of power under the said law can be tested with reference to the provisions of article 19. Moreover, the result of acting under section 46(5A) is to deprive the assessee of his property and not only to regulate the use of the property or to restrain the right to hold and posse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to hold or dispose of it perishes with it and article 19(1)(f) cannot be invoked. Likewise, if life or personal liberty is taken away lawfully under article 21, no question of the exercise of fundamental rights under article 19(1)(a) to (e) and (g) can be raised. This case, therefore, is an authority for the proposition that if the liberty of a person has been affected under article 21 or if the individual has been rightfully deprived of his property under article 31 of the Constitution, the question of exercising the rights guaranteed under article 19 will not arise. It was strenuously contended that this case only deals with the question of arrest and not with the deprivation of property. It was further contended that this case is only an authority for the proposition that article 19 is subject to article 31 of the Constitution. But it is not an authority for the proposition that article 19 is subject to article 265 of the Constitution. What this case, to my mind, lays down is that once a person's personal liberty has been affected or that he has been deprived of his property, under a valid law, the question of infringement of the guarantee under article 19 will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and speedier method of recovery of the tax dues has been provided for in Chapter VI of the Act, cannot be disputed. That special and speedier method of recovery of the tax liability is justified having regard to the nature of the liability and the necessity of realising the tax dues speedily to maintain the Government can also not be denied. In America the necessity of summary modes of collection has been justified. In Willoughby's Constitution of the United States, second edition, at page 1883, it is observed as follows: For the collection of taxes, as well as for the appraisement of property for taxation, summary modes of procedure may be used; the justification for this being that, without such means, no Government could exist. Hence it has been held that, when a tax is assessed and collected according to customary modes and usages, or in subordination to the principles underlying them, the requirements of due process are satisfied. To the same effect is the observation in Cooly's Constitutional Limitations, Vol. II, at page 1103: What method shall be devised for the collection of a tax, the legislature must determine, subject only to such rules, limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitutional. In the case of Kedarnath v. State of West Bengal [1954] S.C.R. 30, 38 both these cases were considered and it was observed by Patanjali Sastri, C.J., that: Now, it is well settled that the equal protection of the laws guaranteed by article 14 of the Constitution does not mean that all laws must be general in character and universal in application and that the State is no longer to have the power of distinguishing and classifying persons or things for the purposes of legislation. To put it simply, all that is required in class or special legislation is that the legislative classification must not be arbitrary but should be based on an intelligible principle having a reasonable relation to the object which the legislature seeks to attain........................ It has been further contended that even assuming that the scheduled offences and the persons charged with the commission thereof could properly form a class in respect of which legislation could be enacted, section 4 of the Act is discriminatory and void, vesting, as it does, an unfettered discretion in the Provincial Government to choose any particular 'case' of a person alleged to have committ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being that public officials should not be unduly harassed by private prosecution unless, in the opinion of the Government, there were reasonable grounds for prosecuting the public servant which accordingly should condition the grant of sanction. That there should be a special and summary procedure for the recovery of the tax dues cannot be doubted. Having regard to the object of the Income-tax Act, it is fair to provide a special procedure for recovery of the tax dues and not to leave the authorities to realise the amount of tax dues through the normal procedure of courts. In the State Railroad Tax Cases [1876] 92 U.S. 575 the court said: It is a wise policy. It is founded in the simple philosophy derived from the experience of ages that the payment of taxes has to be enforced by summary and stringent means against a reluctant and often adverse sentiment; and to do this successfully, other instrumentalities and often mode of procedure are necessary, than those which belong to courts of justice. Chapter VI which, therefore, provides for special procedure cannot be struck down being in violation of article 14. The contention, as I have already referred to, was that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Halai v. B.M. Desai [1955] 28 I.T.R. 891 the validity of section 46(2) of the Income-tax Act and section 13 of the Bombay Revenue Recovery Act was upheld. The constitutionality of section 46(2) was attacked mainly on two grounds, firstly, on the ground that section 46(2) provided for two alternative modes of recovery and the authority had power to apply either of the two methods. This contention was repelled on the ground that the proviso does not indicate a different and alternative mode of recovery of the certified amount of tax, but only confers additional powers on the Collector for the better and more effective application of the only mode of recovery authorised by sub-section (2) of section 46. The second ground on which the protection under article 14 was invoked was based on a comparison of different laws adopted by different States for the recovery of land revenue. This contention was repelled on the ground that the classification may be founded on different bases, namely, geographical or according to objects or occupation or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person it likes for the purposes of being associated with the transport service and there are no rules to guide its discretion, plainly the provision would offend against article 14 of the Constitution. In that case, however, it was held that the discretion to be exercised by the State was regulated discretion guided by statutory rules. In the case of Pannalal Binjraj v. Union of India [1957] 31 I.T.R. 565 the question was considered under what circumstances the law giving discretion to an executive body can be struck down as violative of article 14 of the Constitution. The validity of section 5(7A) of the Income-tax Act was up for decision. Section 5(7A) gives power to the Commissioner of Income-tax to transfer any case from one Income-tax Officer subordinate to him to another, and the Central Board of Revenue has been given power to transfer any case from one Income-tax Officer to another. Such a transfer can be made at any stage of the proceeding and shall not render necessary the reissuing of a notice already issued by the Income-tax Officer from whom the case is transferred. The validity was attacked on the ground that section 5(7A) invests the Commissioner and the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of cases........In other words, the discretion vested has to be looked at from two points of view, viz.,(1) does it admit of the possibility of any real and substantial discrimination, and (2) does it impinge on a fundamental right guaranteed by the Constitution? Article 14 can be invoked only when both these conditions are satisfied. Applying the two tests laid down in the above case, the counsel for the petitioner contends that there is a possibility of a real and substantial discrimination in the present case inasmuch as the procedure provided under section 46(5A) is much more stringent than the one provided under section 46(2). It also impinges upon the fundamental right guaranteed under article 19(1)(f) of the Constitution. Section 46(2) only gives power to the Income-tax Officer to forward to the Collector a certificate specifying the amount of arrears due and thereupon the Collector has to proceed to recover the amount specified therein as if it were an arrear of land revenue. If the Collector proceeds under the Land Revenue Act, the regular procedure for attachment is to be followed, opportunity is given to the assessee to file objections and the order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of recovery of tax liability, the discretion cannot be said to impinge upon any fundamental right. I am, therefore, of opinion that section 46(5A) does not violate the protection granted under articles 14, 19 and 31 of the Constitution. The last point raised was with regard to limitation. It was said that the order of the Central Board of Revenue under section 34(1B) was passed on the 31st of January, 1956. The notice of demand was given on the 10th of February, 1956. The order under section 46(5A) was passed on the 16th March, 1959. This order was thus clearly beyond one year of the last day of the financial year in which the notice of demand was given. The contention raised by the petitioner is that the proceedings for recovery of the amount could not have been initiated beyond one year from the last day of the financial year in which the notice of demand was given, or at any rate within one year of the 30th September, 1957, inasmuch as the instalment due on that date was not paid in time and the whole amount became immediately due. In the present case the default clause was taken advantage of by the Department when it passed the order on the 17th May, 1958 (annexure N to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lment was due. It is contended by the Advocate-General that the last instalment was due in this case on the 25th March, 1958, and if that is the starting point of limitation the present order was well within time. The contention of the counsel for the petitioner is that the proviso is attracted only where there is no default clause, and, secondly, it is urged that the entire amount became due by virtue of the default clause, on the 30th September, 1957, including the last instalment. Therefore, the last instalment was due on the 30th September, 1957, within meaning of proviso (iv) to section 46(7). A number of authorities were cited by the counsel for both sides. Reference was made by the Advocate-General to the case of Lasa Din v. Gulab Kunwar A.I.R. 1932 P.C. 207. The counsel for the petitioner on the contrary relied upon the case of Lalta Prasad v. Gajadhar Shukul A.I.R. 1933 All. 235. The Privy Council was considering the case of a suit upon a mortgage under article 132 of the Limitation Act. But the other case which is relied upon by the petitioner was a case under article 75 of the Limitation Act. It is not necessary to examine those cases in detail. The answer to the q ..... 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