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TMI Blog1954 (5) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... the investigation of some other cases similarly referred to the Commission, it was said to have been discovered that the petitioner company had made secret profits which it had not disclosed and thus evaded taxation. On the 28th Aug., 1953, a report to this effect was made by the Commission to the Central Government under the provisions of s. 5(4) of the Act requesting that the case of the petitioner along with the cases of Suraj Mall Mohta and other members of his family may be referred to the Commission for investigation. On the 9th Sept., 1953, the Central Government referred these cases to the Investigation Commission under the provisions of s. 5(4) of the Act and these were numbered 831/64-69 on the records of the Commission. On the 15th Sept., 1953, the Commission notified the petitioners that their cases had been referred for investigation and they were called upon to furnish certain material, as detailed in Annexure "B" of the petition, to the Commission. On the 12th April, 1954, the present petition under Art. 32 of the Constitution was filed for the issue of appropriate writs restraining the Commission from taking any action against the petitioner under the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aded payment of taxation on income, or (b) that some points other than those referred to it by the Central Government in respect of any case also require investigation, it may make a report to the Central Government stating its reasons (2) for such belief and, on receipt of such report, the Central Government shall, notwithstanding anything contained in sub-s. (1), forthwith refer to the Commission for investigation the case of such other person or such other additional points as may be indicated in that report." The powers possessed by the Commission while conducting an investigation are provided for in s. 6 which is in these terms : "(1) The Commission shall have power to require any person or banking or other company to prepare and furnish on or before a specified date written statements of accounts and affairs verified in such a manner as may be prescribed by the Commission and, if so required by the Commission, also duly verified by a qualified auditor, giving information on such points or matters as in the opinion of the Commission may, directly or indirectly, be useful for, or relevant to, any case referred to it, and any person or banking or other company so required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit and obtain from such person or banking or other company statements on oath or otherwise on such points or matters as may be specified; and for the purpose of any such enquiry, the Commission and the authorized official shall have all the powers conferred on them by sub-ss. (1), (2), (2A), (3) and (4). (8) All materials gathered by the Commission or the authorised official and materials accompanying the reference under sub-s. (1) of s. 5 may be brought on record at such stage as the Commission may think fit." The procedure to be followed by the Commission is contained in s. 7 which provides that subject to the provisions of this Act the Commission shall have power to regulate its own procedure and that the powers of the Commission under sub-ss. (1), (2), (3), (7) and (8) of s. 6 and sub-ss. (2), (4) and (6) of this section, i.e., s. 7, may be exercised by any member thereof authorised by the Commission in this behalf. Sub-s. (2) of s. 7 provides as follows : "(2) In making an investigation under cl. (b) of s. 3, the Commission shall act in accordance with the principles of natural justice, shall follow as far as practicable the principles of the Indian Evidence Act, 1872, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeding shall be instituted against any person in any civil or criminal Court for any evidence given or produced by him in any proceedings before the Commission, and (b) no evidence so given or produced shall be admissible in evidence against such person in any suit, prosecution or other proceeding before such Court, except with the previous sanction of the Central Government." The last section that came in for objection is s. 8 which is in these terms : "(1) Save as otherwise provided in this Act, the materials brought on record shall be considered by all the three members of the Commission sitting together and the report of the Commission shall be in accordance with the opinion of the majority. (2) After considering the report, Central Government shall by order in writing direct that such proceedings as it thinks fit under the Indian IT Act, 1922, the EPT Act, 1940, or any other law shall be taken against the person to whose case the report relates in respect of the income of any period commencing after the 31st day of December, 1938; and upon such a direction being given, such proceedings may be taken and completed under the appropriate law notwithstanding the restriction c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... became a sovereign democratic Republic on 26th Jan., 1950, the validity of all laws had to be tested on 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. 5. The points that require consideration in the case are whether the provisions of s. 5(1), ss. 5(4), 6, 7 and 8 or any parts thereof contravene the guarantee of equal protection of the laws and of the equality before the law, or whether the impugned provisions of the Act are based on a valid classification which is rational in view of the objects of the Act. A further point is whether s. 6 (5) of the Act offends against Art. 20(3) of the Constitution. Mr. P. R. Das for the petitioner attacked the provisions of s. 5(1) of the Act on a two-fold ground : (1) that the section was not based on any valid classification; the word "substantial" being vague and uncertain and having no fixed meaning, could furnish no basis for any classification at all; (2) that the Central Government was entitled by the provisions of the section to discriminate between one person and another in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntentions raised about the validity of sub-s. (4) of s. 5 of the Act because the case of the petitioner was referred to the Commission under the provisions of this section and was not referred to the Commission by the Central Government under the provisions of s. 5(1) and that being so, an enquiry into the validity of that section is really outside the scope of the present case. On the assumption therefore that s. 5(1) of the Act is based on a valid classification and deals with a group of persons who came within class of war-profiteers which required special treatment and that the classification is rational and that reasonable grounds existed for making distinction between those who fell within that class and the others who did not come within it, but without in any way deciding or even expressing any opinion on that question, we proceed to examine the question whether sub-s. (4) of s. 5 under which proceedings had been initiated against the petitioner offends against the guarantee of equal protection of the laws given in Art. 14 of the Constitution. 8. The first question that requires consideration is whether sub-s. (4) of s. 5 deals with the same class of persons as are said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any time evaded payment of taxation on income for whatever cause. 9. That being the true scope or construction of sub-s. (4), it obviously deals with the same class of persons who fall within the ambit of s. 34 of the Indian IT Act and are dealt with in sub-s. (1) of that section and whose income can be caught by proceeding under that section. Assessees who have failed to disclose fully and truly all material facts necessary for the assessment under s. 34 can be equated with persons who are discovered in the course of the investigation conducted under s. 5(1) to have evaded payment of income-tax on their incomes. The result is that some of these persons can be dealt with under the provisions of Act XXX of 1947, at the choice of the Commission, though they could also be proceeded with under the provisions of s. 34 of the Indian IT 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-s. (4) of s. 5 of the impugned Act by themselves form a class distinct from those who evade payment of income-tax and come within the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure under the impugned Act than following the procedure under the Indian IT Act. This argument, in our opinion, begs the question to be decided in all such cases. It is clear that if persons dealt with by the impugned Act are deprived of the substantial and valuable privileges which they would otherwise have if they were dealt with under the Indian IT Act, in that situation it is no defence to say that the discriminatory procedure also advances the course of justice. The matter has to be judged from the point of view of the ordinary reasonable man and not from the point of view of the Government. The ordinary reasonable man would say, when the stakes are heavy and serious charges of evasion of income-tax are made against him, why one person similarly placed should have the advantage substantially of the procedure prescribed by the Indian IT Act, while another person similarly situated be deprived of it. It is from this aspect that the application of Art. 14 to the facts of this case has to be considered. 11. The next question for consideration is whether the procedure prescribed by the impugned Act in regard to persons similarly situate with those who are proceeded with under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our opinion, the constitution of the Commission by itself cannot be held to be a sufficient safeguard and a good substitute for the rights of appeal and second appeal and revision given by the Indian IT Act and there can thus be no doubt that the procedure prescribed by the impugned Act deprives a person who is dealt with under that Act of these valuable rights of appeal, second appeal and revision to challenge questions of fact decided by the judge of first instance. There is thus a material and substantial difference between the two procedures, one prescribed by the impugned Act and the other prescribed by the Indian IT Act. 2. When an assessment on escaped or evaded income is made under the provisions of s. 34 of the Indian IT Act, all the provisions for arriving at the assessment provided under s. 23(3) come into operation and the assessment has to be made on all relevant material and on evidence and the assessee ordinarily has the fullest right to inspect the records and all documents and materials that are to be used against him. Under the provisions of s. 37 of the Indian IT Act the proceedings before the ITO are judicial proceedings and all the incidents of such judici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re prescribed by the impugned Act in ss. 6 and 7 was more drastic than the procedure prescribed in ss. 37 and 38 of the Indian IT Act. Again, so far as the procedure for reference under sub-s. (4) of s. 5 is concerned, it is also to a certain extent prejudicial to the assessee. There is no doubt that there is in this matter in the first stages some similarity in the procedure to be followed for catching evaded income both under s. 34 of the Indian IT Act and under the provisions of sub-s. (4) of s. 5 of the impugned Act; but the overall picture is that though under the Indian IT Act the same officer who first arrives at a tentative conclusion hears and decides the case, his decision is not final but is subject to appeal, while under the provisions of sub-s. (4) of s. 5 the decision of the Commission tentatively arrived at in the absence of the assessee becomes final when taken in his presence, and that makes all the difference between the two procedures. If there was a provision for reviewing the conclusions of the Investigation Commission when acting both as investigators and judges, there might not have been such substantial discrimination in the two procedures as would bring t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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