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TMI Blog1956 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... A., JAGANNADHADAS., N. H. BHAGWATI., S. K. DAS., T. L. VENKATARAMA AYYAR JUDGMENT The Judgment of the Court was delivered by BHAGWATI, J.--These petitions under article 32 of the Constitution raise a common question of law whether section 5(7A) of the Indian Income-tax Act, hereinafter called the Act, is ultra vires the Constitution as infringing the fundamental rights enshrined in article 14 and article 19(1)(g). The facts which led to the filing of the petitions may be shortly stated. Petitions Nos. 97 and 97A of 1956 : The petitioners are Messrs. Pannalal Binjraj, oil mill owners, merchants and commission agents, carrying on business at Sahibganj in the district of Santhal Parganas, having their branch at 94, Lower Chitpur Road, Calcutta, petitioner No. 1, and R. B. Jamuna Das Chowdhury, resident of the same place and erstwhile karta of the Hindu undivided family, which carried on business in the name and style of Messrs. Pannalal Binjraj, petitioner No. 2. Before 28th September, 1954, they were being assessed by the Income-tax Officer, Special Circle, Patna. On 28th September, 1954, the Central Board of Revenue made an order transferring their cases to the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, Hoshiarpur, but on that date their case was transferred under section 5(7A) of the Act by the Commissioner of Income-tax to the Income-tax Officer, Special Circle, Ambala. The said officer continued the said case and reopened the assessment for the years 1944-45 to 1950-51 and completed the assessment for the assessment years 1947-48, 1950-51 and 1951-52. These petitioners also thereupon filed the petition challenging the validity of the order of transfer made by the Commissioner of Income-tax on 20th October, 1953, and the proceedings entertained by the Income-tax Officer, Special Circle, Ambala, thereafter, on the same ground of the ultra vires character of section 5(7A) of the Act. Shri A. L. Sud, the petitioner in Petition No. 44 of 1956, is a member of the Hindu undivided family carrying on business in the name and style of Messrs. Bhagwan Das Sud Sons and the cases of both these petitioners were transferred to the Income-tax Officer, Special Circle, Ambala, as above, by the said respective orders. Petitions Nos. 86 of 1956, 87 of 1956, 88 of 1956, 111 of 1956, 112 of 1956, and 158 of 1956 : These petitions may be compendiously described as the Amritsar group. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garwalla, who is the sole proprietor of a business which he carries on under the name and style of ' Sriram Jhabarmull '. It is a business inter alia of import and export of piece-goods, as commission agents, and dealers in raw wool and other materials. The principal place of business is at Kalimpong, in the district of Darjeeling, though there is also a branch at Calcutta. These petitions concern the assessment of the petitioner to income-tax for the respective years 1944-45, 1945-46, 1946-47, 1947-48 and 1948-49. Prior to the orders of the Commissioner of Income-tax under section 5(7A) of the Act complained against, the petitioner was being assessed by the Income-tax Officer, Jalpaiguri, Darjeeling. On March 5, 1946, the cases of the petitioner were transferred from the Income-tax Officer, Jalpaiguri, Darjeeling, to the Income-tax Officer, Central Circle, Calcutta, and a couple of months thereafter, they were again transferred to the Income-tax Officer, Central Circle IV, Calcutta. On 8th June, 1946, there was a further transfer assigning the cases to the Income-tax Officer, Central Circle I, Calcutta, and on 27th July, 1946, orders were passed by the Commissioner of Income-tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(7A) ordering that the case of the petitioner should be transferred from the Additional Income-tax Officer, Raichur, to the Income-tax Officer, Special Circle, Hyderabad. The latter officer continued the assessment proceedings and issued notices under section 22(4) of the Act on 1st July, 1954, 2nd November, 1954, 30th November, 1954, 19th December, 1954, and 11th March, 1955, in respect of the said years of assessment. Assessments for the said years were made on 21st March, 1955, and on 24th April, 1955, the petitioner made an application under section 27 of the Act to reopen the assessment for the year 1950-51 as on default under section 23(4) of the Act. It appears, however, that shortly before 19th May, 1955, the Commissioner of Income-tax, Hyderabad, made another order under section 5(7A) and section 64(5)(b) of the Act transferring all the cases of the petitioner to the main Income-tax Officer, Raichur. Curiously enough, the petitioner challenged both the orders, one dated 21st December, 1953, and the other made sometime in May, 1955, under section 5(7A) of the Act and the proceedings continued and instituted by the respective officers thereunder as unconstitutional and void ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny limitation in point of time, a power which is unguided and uncontrolled and is discriminatory in its nature and it is open to the Commissioner of Income-tax or the Central Board of Revenue to pick out the case of one assessee from those of others in a like situation and transfer the same from one State to another or from one end of India to the other without specifying any object and without giving any reason, thus subjecting the particular assessee to discriminatory treatment whereas the other assessees similarly situated with him would continue to be assessed at the places where they reside or carry on business under section 64(1) and (2) of the Act. Section 64(5) which provides with retrospective effect that the provisions of section 64(1) and (2) shall not apply, inter alia, where an order has been made under section 5(7A) was inserted simultaneously with section 5(7A) and would not have the effect of depriving the assessee of the valuable right conferred upon him under section 64(1) and (2) unless and until section 5(7A) was intra vires but section 5(7A) as stated above being discriminatory in its nature is ultra vires the Constitution and cannot save section 64(5) which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht under section 64 still remains as regards his other case or cases. " The majority judgment then proceeded to consider the effect of such an omnibus order unlimited in point of time on the rights of the assessee and further observed in that context at pages 724-5 : " This order is calculated to inflict considerable inconvenience and harassment on the petitioner. Its books of account will have to be produced before the Income-tax Officer, Special Circle, Ranchi--a place hundreds of miles from Calcutta, which is its place of business. Its partners or principal officers will have to be away from the head office for a considerable period neglecting the main business of the firm. There may be no suitable place where they can put up during that period. There will certainly be extra expenditure to be incurred by way of railway fare, freight and hotel expenses. Therefore the reality of the discrimination cannot be gainsaid. In the circumstances this substantial discrimination has been inflicted on the petitioner by an executive fiat which is not founded on any law and no question of reasonable classification for purposes of legislation can arise. Here 'the State' which includes its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossible, and the reasons for the order must be reduced, however briefly, to writing so that men may know that the powers conferred on these quasi judicial bodies are being justly and properly exercised. " The answer furnished on behalf of the State to this argument is fourfold : (i) that the provision contained in section 5(7A) of the Act is a measure of administrative convenience enacted with a view to more conveniently and effectively deal with the cases of the assessees where the Commissioner of Income-tax considers it necessary or desirable to transfer any case from one Income-tax Officer subordinate to him to another or the Central Board of Revenue similarly considers it necessary or desirable to transfer any case from any one Income-tax Officer to another. The real object with which section 5(7A) was inserted by the Indian Income-tax Amendment Act, 1940 (XL of 1940), has been thus set out in the affidavit of Shri V. Gouri Shankar, Under-Secretary, Central Board of Revenue, dated November 19, 1956, which is the pattern of all the affidavits filed on behalf of the State in these petitions : " 4. I say that the provisions of section 5(7A) were inserted by the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that as a result of any transfer that may be made under the provisions of section 5(7A) there is no discriminatory treatment with regard to the procedure and that no privileges and rights which are given to the assessees by the Income-tax Act are taken away, nor is the assessee exposed to any increased prejudice, punitary consequences or differential treatment. I say that in cases where transfers under this section are made otherwise than on request from assessees, the convenience of the assessees is taken into consideration by placing the case in the hands of an Income-tax Officer who is nearest to the area where it will be convenient for the assessee to attend. If on account of administrative exigencies this is not possible and the assessee requests that the examination of accounts or evidence to be taken should be in a place convenient to him, the Income-tax Officer complies with the request of the assessee and holds the hearing at the place requested. " Even if there be a difference between assessees who reside or carry on business in a particular area by reason of such transfers the difference is not material. It is only a minor deviation from a general standard and does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Officer of the area in which the principal place of his business, profession or vocation is situate. (2) In all other cases, an assessee shall be assessed by the Income-tax Officer of the area in which he resides. " These provisions were construed by the Bombay High Court in Dayaldas Kushiram v. Commissioner of Income-tax, (Central), and Another, and Beaumont, C.J., observed at page 146 : " In my opinion, section 64 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. " Kania, J., (as he then was) went a step further and stated at page 149 : " A plain reading of the section shows that the same is imperative in terms. It also gives to the assessee a valuable right. He is entitled to tell the taxing authorities that he shall not be called upon to attend at different places and thus upset his business. " The learned Judges there appear to have treated the provisions of section 64(1) and (2) more as a question of right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rganizations in the way of his earning his income as to render such extra-territorial investigation necessary before he may be properly assessed. These are but instances of the various situations which may arise wherein it may be thought necessary by the Income-tax authorities to transfer his case from the Income-tax Officer of the area in which he resides or carries on business to another Income-tax Officer, whether functioning in the same State or beyond it. This aspect of the question was emphasized by Beaumont, C.J., in Dayaldas Kushiram v. Commissioner of Income-tax, (Central), at page 146 when he used the expression "as far as practicable" in connection with the assessee's right to be assessed locally and the expression " so far as exigencies of tax collection allow " in connection with the appointment of the Income-tax Officer to assess the tax payable by the particular assessee. In the later case of Dayaldas Kushiram v. Commissioner of Income-tax, (Central), Beaumont, C.J., expressed himself as follows : " The Income-tax Act does not determine the place of assessment. What it does is to determine the officer who is to have power to assess and in some cases it does so by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any other Income-tax Officer if the exigencies of tax collection warrant the same. It is further to be noted that the infringement of such a right by the order of transfer under section 5(7A) of the Act is not a material infringement. It is only a deviation of a minor character from the general standard and does not necessarily involve a denial of equal rights for the simple reason that even after such transfer the case is dealt with under the normal procedure which is prescribed in the Act. The production and investigation of the books of account, the enquiries to be made by the Income-tax Officer and the whole of the procedure as to assessment including the further appeals after, the assessment is made by the Income-tax Officer are the same in a transferred case as in others which remain with the Income-tax Officer of the area in which the other assessees reside or carry on business. There is thus no differential treatment and no scope for the argument that the particular assessee is discriminated against with reference to others similarly situated. It was observed by this Court in M. K. Gopalan v. State of Madhya Pradesh : " In support of the objection raised under art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so must fall with it. It is then contended that section 5(7A) is in itself discriminatory and violative of the fundamental right enshrined in article 14. The power which is vested in the Commissioner of Income-tax and the Central Board of Revenue is a naked and arbitrary power unguided and uncontrolled by any rules. No rules have been framed and no directions given which would regulate or guide their discretion or on the basis of which such transfers can be made and the whole matter is left to the unrestrained will of the Commissioner of Income-tax or the Central Board of Revenue without there being anything which could ensure a proper execution of the power or operate as a check upon the injustice that might result from the improper execution of the same. To use the words of Mr. Justice Matthews in the case of Yick Wo v. Hopkins : " ........ when we remember that this action or non-action may proceed from enmity or prejudice, from partisan zeal or animosity, from favouritism and other improper influences and motives easy of concealment and difficult to be detected and exposed, it becomes unnecessary to suggest or comment upon the injustice capable of being wrought under cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the area within which the assessees reside or carry on business, power is given by section 5(7A) to the Commissioner of Income-tax to transfer any case from one Income-tax Officer subordinate to him to another and to the Central Board of Revenue to transfer any case from any one Income-tax Officer to another. This is the administrative machinery which is set up for assessing the incomes of the assessees which are chargeable to income-tax. There is, therefore, considerable force in the contention which has been urged on behalf of the State that section 5(7A) is a provision for administrative convenience. Nevertheless this power which is given to the Commissioner of Income-tax and the Central Board of Revenue has to be exercised in a manner which is not discriminatory. No rules or directions having been laid down in regard to the exercise of that power in particular cases, the appropriate authority has to determine what are the proper cases in which such power should be exercised having regard to the object of the Act and the ends to be achieved. The cases of the assessees which come for assessment before the Income-tax authorities are of various types and no one case is simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner of Income-tax and the Central Board of Revenue who act on the information supplied to them by the Income-tax Officers concerned. This power is discretionary and not necessarily discriminatory and abuse of power cannot be easily assumed where the discretion is vested in such high officials. (vide Matajog Dobey v. H. S. Bhari). There is moreover a presumption that public officials will discharge their duties honestly and in accordance with the rules of law : (vide People of the State of New York v. John E. Van De Carr, etc.). It has also been observed by this Court in A. Thangal Kunju Musaliar v. M. Venkitachalam Potti Another with reference to the possibility of discrimination between assessees in the matter of the reference of their cases to the Income-tax Investigation Commission that " It is to be presumed, unless the contrary were shown, that the administration of a particular law would be done 'not with an evil eye and unequal hand' and the selection made by the Government of the cases of persons to be referred for investigation by the Commission would not be discriminatory. " This presumption, however, cannot be stretched too far and cannot be carried to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power pointing out circumstances which prima facie and without anything more would make out the exercise of the power discriminatory qua him, it will be incumbent on the authority to explain the circumstances under which the order has been made. The court will, in that event, scrutinize these circumstances having particular regard to the object sought to be achieved by the enactment of section 5(7A) of the Act as set out in para 4 of the affidavit of Shri V. Gouri Shankar, Under Secretary, Central Board of Revenue, quoted above, and come to its own conclusion as to the bona fides of the order and if it is not satisfied that the order was made by the authorities in bona fide exercise of the power vested in them under section 5(7A) of the Act, it will certainly quash the same. The standard of satisfaction which would have to be attained will necessarily depend on the circumstances of each case and the court will arrive at the conclusion one way or the other having regard to all the circumstances of the case disclosed in the record. The court will certainly not be powerless to strike down the abuse of power in appropriate cases and the assessee will not be without redress. The observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istrative exigencies this is not possible and the assessee requests that the examination of accounts or evidence to be taken should be in a place convenient to him, by the Income-tax Officer complying with the request of the assessee and holding the hearing at the place requested. We are bound to take this statement contained in para. 5 of the affidavit of Shri V. Gouri Shankar at its face value and if this is done as it should be, the assessee will not be put to any inconvenience or harassment and the proper balance between the rights of the subject and public interest will be preserved. It is, therefore, clear that the power which is vested in the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, under section 5(7A) of the Act is not a naked and arbitrary power unfettered, unguided or uncontrolled so as to enable the authority to pick and choose one assessee out of those similarly circumstanced thus subjecting him to discriminatory treatment as compared with others who fall within the same category. The power is guided and controlled by the purpose which is to be achieved by the Act itself, viz., the charge of income-tax, the assessment and collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own is not the provision contained in section 5(7A) of the Act but the order passed thereunder which may be mala fide or violative of these fundamental rights. This challenge of the vires of section 5(7A) of the Act, therefore, fails. We may, however, before we leave this topic observe that it would be prudent if the principles of natural justice are followed, where circumstances permit, before any order of transfer under section 5(7A) of the Act is made by the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, and notice is given to the party affected and he is afforded a reasonable opportunity of representing his views on the question and the reasons of the order are reduced however briefly to writing. It is significant that when any question arises under section 64 as to the place of assessment and is determined by the Commissioner or Commissioners or by the Central Board of Revenue, as the case may be, the assessee is given an opportunity under section 64(3) of representing his views before any such question is determined. If an opportunity is given to the assessee in such case, it is all the more surprising to find that, when an order of transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commenced after the date of transfer in respect of any year whether it be the year of transfer or any year previous or subsequent thereto. The main structure of section 5(7A) was, however, maintained and the explanation was added thereto in order to expand the connotation of the word "case" which was used in section 5(7A). The manner in which this result was brought about is subject to criticism that the word " case " was thus really equated with the word "file" and when a case of a particular assessee was transferred under section 5(7A) it was meant that his whole file would be transferred from one Income-tax Officer to another. This inartistic mode appears, however, to be adopted by the supposed necessity of maintaining section 5(7A) in the form in which it stood but what we have got to see is whether the desired result has been achieved by adding the explanation in the manner in which it was done. Reading section 5(7A) and the explanation thereto, it is clear that when any case of a particular assessee which is pending before an Income-tax Officer is transferred from that officer to another Income-tax Officer whether within the State or without it, all proceedings which are pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of any year " appropriately go with the words " which may be commenced " and read in this juxtaposition render the inclusive part of the explanation susceptible of a proper meaning. The language of the explanation read in the manner suggested above is thus sufficient to dispel this contention of the petitioners. It follows, therefore, that the omnibus wholesale orders of transfer made against the petitioners by the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, are saved by the explanation to section 5(7A) and are not unconstitutional and void. It remains now to consider whether the individual orders against the petitioners are discriminatory in fact or are mala fide and an abuse of the power vested in the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, under section 5(7A) of the Act. Petitions Nos. 211 to 215 of 1956, i.e., the Sriram Jhabarmull group may be dealt with in the first instance as they have a peculiar characteristic of their own. The orders complained against in these petitions were all made by the Commissioner of Income-tax, Central, Calcutta, on July 27, 1946, and further proceedings were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 and 158 of 1956, i.e., the Amritsar group, all belong to the same category. In the first group, there was an order of transfer on December 21, 1953, passed by the Commissioner of Income-tax, Hyderabad, transferring the cases of the petitioner from the Additional Income-tax Officer, Raichur, to the Income-tax Officer, Special Circle, Hyderabad. There was, however, an order passed by the Commissioner shortly before May 9, 1955, transferring the cases of the petitioner from the Income-tax Officer, Special Circle, Hyderabad, to the main Income-tax Officer, Raichur. The petitioner thus reverted to the Income-tax Officer, Raichur, and it passes one's imagination what possible argument he can urge on the score of inconvenience and harassment. The whole attitude of the petitioner is motivated by an intention to delay the payment of income-tax legitimately due by him to the Revenue trying to take advantage of a mere technicality. In the second group, there were orders passed by the Commissioner of Income-tax, transferring the cases of the petitioners from the Income-tax Officer, 'A' Ward, Amritsar, or the Income-tax Officer, 'F' Ward, Amritsar, to the Income-tax Officer, Special Circle, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 34(1A) of the Income-tax Act. To dispose of these cases, "since they involved many back years' cases" quickly and promptly, special circles without reference to area were, created at Bombay and Calcutta, because the existing circles whose hands were full could not take up this extra work. These 320 cases were distributed between these circles on the basis of the geographical area to which these assessees belonged. The petitioners belonged to Bihar and had a branch at Calcutta and their cases were, therefore, allotted to one of the Central Circles at Calcutta. Later on in October, 1954, this Court struck down section 5(1) of the Taxation on Income Investigation Commission Act (XXX of 1947) in the Meenakshi Mills' case and as a result thereof cases referred under that section and pending with the Income-tax Investigation Commission on July 17, 1954, could not be proceeded with under the provisions of that Act. These cases numbering about 470 had to be reopened under section 34(1A) of the Income-tax Act. The Government thought that as in the earlier lot of cases, it would help speedier disposal of the cases, if they were allotted to Income-tax Officers appointed without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956 : The petitioner in Petition No. 44 of 1956 is Shri A. L. Sud who originally belonged to Hoshiarpur District in Punjab and since 1948 resides and has his office in Calcutta. He is the son of one Shri Bhagwan Das Sud and is a member of the Hindu undivided family styled Messrs. Bhagwandas Sud Sons with Shri Bhagwan Das Sud as the karta thereof. This Hindu undivided family has been carrying on business at Hoshiarpur and at various other places like Bareilly, Calcutta and Bombay. The petitioner has been carrying on business both as the member of the Hindu undivided family and also in his individual capacity since 1946. The said joint family of Bhagwan Das Sud Sons was alleged to have evaded income-tax to a large extent and had inter-related transactions in respect of their dealings, the petitioner being a co-parcener of the said joint family. It was, therefore, considered necessary in order to have a proper assessment of the petitioner's income that his case also should be dealt with by the Income-tax Officer assessing the joint family and the petitioner was informed that, in the matter of hearing, he would be put to least inconvenience. These were the circumstances under whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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