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TMI Blog1968 (12) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... a, by the inclusion of subsections (1A) and (1B) to section 34. Eight separate notices under section 34(1A) of the Income-tax Act, 1922, dated 15th June, 1955, were served upon the petitioner on June 30/31, 1955, relating to the accounting years 1939 to 1946. The petitioner at first challenged the notices by questioning the validity of section 34(1A) by a writ petition under article 226 of the Constitution. This petition, however, failed and an appeal preferred against it also failed. In the meantime, on or about 18th January, 1960, the petitioner filed eight separate returns pursuant to the said notices under section 34(1A). The reassessment proceedings are still continuing. On April 1, 1962, the Income-tax Act, 1961, came into operation and repealed the earlier Act of 1922, subject to certain savings. We are concerned in this case with section 297 of the 1961 Act, the relevant part whereof is set out below : " 297. (1) The Indian Income-tax Act, 1922 (11 of 1922), is hereby repealed. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),- (a) where a return of income has been filed before the commencement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon whom no such notice has been served, are to be governed by the less onerous provisions of the 1961 Act, and this is a clear discrimination, violative of the provisions of article 14 of the Constitution. Before we proceed to examine this argument, we make it clear that section 297 speaks about a number of circumstances, e.g., where a return of income has been filed before the commencement of the Act, etc. We are, however, concerned in this case with one circumstance only, namely, where a notice under section 34 of the 1922 Act had been served before 1st of April, 1962, when the 1961 Act came into operation. Our decision will be confined to this circumstance only. Mr. Gupta appearing on behalf of the respondent has argued that the provisions of section 297(2)(d)(i) are valid because it is a well-known principle of legislation that when an old Act is repealed and a new Act is introduced in its place, " pending proceedings " are exempted from the operation of the new Act, unless the provisions are made expressly retrospective in operation. In this particular case, " pending proceedings " including proceeding for reassessment, where notices under section 34 had been issued under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. In the case of the repealed Act of 1922, we find from the provisions of section 297(2)(d)(i) of the 1961 Act, that not only there is no expression of a " different intention ", but that there is an express provision which prevents the retrospective operation of the 1961 Act to reassessment proceedings already started under the 1922 Act. The first thing that should be noticed is that it is admitted that notices under section 34(1A) have been issued as long ago as June 1955, and these notices are not by themselves challenged. There is no provision in the new Act that notices for reassessment already issued under section 34 would lapse and that a fresh notice should be given under the new Act. The first objection that is taken is as follows : It is argued that, assuming that reassessment proceedings come within the heading of " pending proceedings ", it has been well established that a proceeding for reassessment under section 34 can only be said to have been initiated where the notice has been served. It has been held that service of a notice under section 34 is a pre-condition for initiation of proceedings for reassessment or reopening of assessment. It is argued that section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case cited upon this point is the Supreme Court decision of Ramjilal v. Income-tax Officer, Mohindargarh. In that case, the facts were as follows : In May, 1948, the then rulers of eight Punjab States including Patiala, Nabha and Kapurthala entered into a covenant with the Government of India agreeing to unite and integrate their territories into one State known as the Pepsu. Previous to the union, the Nabha State had no provision for payment of income-tax. The provision as to payment of income-tax in the Kapurthala State was more liberal than Patiala, the rates being much lower. The applicant before the Supreme Court, who was being sought to be assessed under section 34 for a period prior to the union, put forward the objection that while those residing in the Kapurthala State were being assessed at the lower rate which had been prevalent in Kapurthala, the petitioner who was resident of Nabha State, where there was no income-tax at all, was sought to be assessed at the highter rates prevalent in Patiala. According to him, this was clearly discriminatory and violative of the provisions of article 14. On behalf of the income-tax authorities it was stated that in terms of an Ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf calls for. There can arise no question as to such a saving provision infringing article 14 so long as no scope is left for any further discrimination inter se as between persons affected by such pending matters. " In Hukum Chand Mills Ltd. v. State of Madhya Pradesh, we are concerned with the Madhya Bharat Taxation of Income (Validation) Act, 1954, the vires of which was questioned. Wanchoo J. (as he then was) said as follows : " Coming now to the last point with respect to the Validating Act, we have not been able to understand how the Validating Act can be said to be discriminatory in nature. A validating Act is passed only when certain things have been done which require validation. This is exactly what the present Validating Act has done and we fail to see on what grounds it can be said to be discriminatory. Even when the Finance Act of 1960 was passed it would have been open to Parliament to leave the old assessment to be carried on under the old procedure and by officers appointed under the old law and such action could not be called discriminatory, for the simple reason that the old assessments stand on a different footing from the new assessments after the new law come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of income-tax and come within the ambit of section 34 of the Indian Income-tax Act. It is well settled that in its application to legal proceedings article 14 assures to everyone the same rules of evidence and modes of procedure ; in other words, the same rule must exist for all in similar circumstances. It is also well settled that this principle does riot mean that every law must have universal application for all persons who are not by nature, attainment or circumstance, in the same position. The State can be classification determine who should be regarded as a class for purposes of legislation and in relation to a taw enacted on a particular subject, but the classification permissible must be based on some real and substantial distinction bearing a just and reasonable relation to the objects sought to be attained and cannot be made arbitrarily and without any substantial basis. Classfication means segregation in classes which have a systematic relation, usually found in common properties and characteristics. There is nothing uncommon either in properties or in characteristics between persons who are discovered as evaders of income-tax during an investigation conducted unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment, and, therefore, the class of persons failing within section 5(1) of the Travancore Act of 1124 was not the same class of persons coming under section 47(1) of the Travancore Act of 1121 and was not discriminatory. Bhagwati J. said as follows : " It would be impossible in the normal Course to reach all substantial evaders of income-tax. Those persons falling within that category in respect of whom the Government had received the requisite information and in whose case the Government had prima facie reasons for believing that they have to a substantial extent evaded payment of taxation on income would have their cases referred by the Government for investigation by the Commission. Those persons in respect of whom no such information was available to the Government would certainly escape detection but that is the position with regard to each and every law which may be passe in order to detect evasion of payment of income-tax. Even under the provisions of section 47 of the Travancore Act 23 of 1121 (corresponding to section 34 of the Indian Income-tax Act as it stood before the amendment In 1948), those persons in respect of whom the Income-tax Officer had gathered definite in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en he is convinced that action should be taken, he places it before the Commissioner of Income-tax and obtains his approval. Then notice is issued and served and proceedings are commenced. Surely, on the principles established above, these persons can be rationally divided into a class by themselves. In any event, since the old Act has been repealed, the principle of separate classification in regard to " pending proceedings " would save such proceedings. Muthiah's case is of no relevance, because there we had a date, namely, September 1, 1948, which was found to be entirely arbitrary and having no rational connection with the object of the impugned legislation. Mr. Sen has cited another case which I will consider now. It is. S. C. Prashar v. Vasantsen Dwarkadas. In that case, what came to be considered was the second proviso to sub-section (3) of section 34. The factual position was thus stated by S. K. Das J. : " Now, I come to sub-section (3) and the second proviso thereto. Prior to 1956 sub-section (3) provided that every assessment or reassessment should be completed within eight years from the end of the relevant assessment year in those cases where the assessee had failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reof runs as follows : " 297. (1). . . . . .. . . . . . (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),-- ....... (g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act ". It was held that this provision was discriminatory and violative of article 14 and therefore ultra vires. In the instant case, we are not concerned with clause (g) of sub-section (2) of section 297. It was held there that the initial condition for initiating proceedings for imposition of penalty under the new Act is that proceedings in respect of which penalty has to be imposed must be one under the new Act itself. These are considerations alien to the provision of clause (d)(i) of sub-section (2) of section 297. In any, event, there are two reasons why I am reluctant to apply the reasonings of that case to the instant case. The first is that the learned judges considered the date, 1st of April, 1962, to be an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to classify is of ' wide range and flexibility ' so that it can adjust its system of taxation in all proper and reasonable ways. " I shall now deal with the point made by Mr. Sen that the provisions of the 1922 Act are more onerous than those of the new Act. He refers to section 34 of the repealed Act and quite a number of sections in the new Act, namely, sections 147, 148, 149, 151, and 153 of the Act of 1961. I do not think that this is the proper way of showing that the provisions of one Act are more onerous than those of the other. If two particular provisions of any existing statute were applicable at the same time to the same class of assessees, one being more onerous than the other, that would be a different matter. Here, however, what is said is that the provisions of a repealed Act are more onerous than the provisions of a repealing Act. It will, therefore, have to be considered as to whether the provisions of the repealed Act were more onerous than those of the repealing Act, as a whole. Generally speaking, this has not at all been clearly established. On an analysis of the various provisions of the Act of 1961, it does not seem to be more onerous than the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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