1. These civil appeals and writ petitions have been placed before us forhearing in a group, because all of them raise a common question of law aboutthe validity of section 34(1A) of the Income-tax Act (No. XI of 1922)(hereinafter called 'the Act'). M/s. K. S. Rashid & Son, and its partner,Rashid Ahmed, are the appellants in Civil Appeals Nos. 37 to 40/1963, andpetitioners in W.Ps. Nos. 335 - 345/1960 335 - 345/1960 . The appeals arise out of the fourwrit petitions (Nos. 870 - 873 of 1956) filed by the firm and its partner inthe High Court of Allahabad challenging the validity of the notices served uponthem under s. 34(IA) of the Act in respect of their income for the years1941-42 to 1946-47. These writ petitions have been dismissed by the said HighCourt and it is with the certificate issued by it that the firm and its partnerhave come to this court in appeal. The Writ Petitions Nos. 335 - 345/1960 335 - 345/1960 havebeen filed by the same parties in this Court under Art. 32 of the Constitutionin respect of the notices served on them on the 19th March, 1956 and the orderof excess profits tax levied on them. In those petitions, the same point isurged by the parties; and that is that the notices are invalid, because s.34(IA) is itself ultra vires. The respondents to the appeals are : theCommissioner of Income-tax, U.P., Lucknow, and the Income-tax Officer, CentralCircle IV, Delhi. The respondents to the writ petitions are : the Income-taxOfficer, Central Circle IV, New Delhi, the Income-tax Officer, 'A' Ward, Meerut,the Commissioner of Income-tax, U.P., Lucknow, and the Central Board ofRevenue, New Delhi.
2. Civil Appeal No. 589 of 1963 has been brought to this Court in similarcircumstances by the appellant, M/s. Bhawani Prasad Girdharlal. The appellanthad challenged the validity of the notices issued against to it on the 16thAugust, 1955 under s. 34(IA) of the Act. The writ petition filed by theappellant had been dismissed by the Allahabad High Court and it is with thecertificate issued by the said High Court that the present appeal has beenbrought to this Court. That is how the only question which arises for ourdecision in this group of matters relates to the validity of s. 34(IA) of theAct.
3. The argument urged in support of the challenge to the validity of theimpugned section is that it suffers from the vice of contravening Art. 14 ofthe Constitution. It is urged that whereas under s. 34(1) which deals withsimilar cases of assessees, the remedy by way of appeals and revisions underthe relevant provisions of the Act is available to the assessees, that remedyis denied to the assessees against whom proceedings are taken under theimpugned section. Section 34(1) thus gives a preferential treatment to theassessees who are similarly placed with the assessees dealt with under s.34(IA); and that amounts to unconstitutional discrimination. It is also urgedthat in regard to cases falling under s. 34(I)(a) as it stood at the relevanttime, a period of limitation of 8 years had been prescribed beyond which theassessing authority could not act, and this protection of the prescribed periodof limitation is not available to the assessee against whom action is takenunder the impugned section. It is on these two grounds that the validity of s.34(IA) is challenged before us.
4. Section 34 deals with income which has escaped assessment. Section34(1)(a) deals with cases where income has, inter alia, escaped assessment,owing to the omission or failure on the part of the assessee to make a returnof his income under s. 22 for any year, or to disclose fully and truly allmaterial facts necessary for his assessment for that year, whereas s. 34(1)(b)refers to cases where income has escaped assessment notwithstanding that therehas been no omission or failure as mentioned in clause (a) on the part of theassessee. In respect of the first category of cases, s. 34(1) had provided atthe relevant time that the Income-tax Officer may, in cases falling underclause (a) at any time within eight years, and in cases falling under clause(b) at any time within four years of the end of that year, serve on theassessee 'a notice containing all or any of the requirements which may beincluded in a notice under sub-section (2) of s. 22, and may proceed to assessor re-assess such income, profits or gains, or recompute the loss ordepreciation allowance; and the provisions of this Act shall, so far as may be,apply accordingly as if the notice were a notice issued under thatsub-section'.
5. Let us now read the relevant portion of s. 34(1A). This provision laysdown, inter alia, that if, in the case of any assessee, the Income-tax Officerhas reason to believe :
(i) that income has escapedassessment for any year in respect of which the relevant previous year fallswholly or partly within the period beginning on the 1st day of September, 1939,and ending on the 31st day of March, 1946; and
(ii) that the said incomeamounts, or is likely to amount, to Rs. 1 lakh or more, he may, notwithstandingthat the period of eight years or, as the case may be, four years specified insub-section (1) has expired in respect thereof, serve on the assessee, or, ifthe assessee is a company, on the principal officer thereof, a noticecontaining all or any of the requirements which may be included in a noticeunder sub-section (2) of section 22, and may proceed to assess or reassess theincome, profits or gains of the assessee for all or any of the years referredto in clause (i), and thereupon the provisions of this Act (excepting thosecontained in clauses (i) and (iii) of the proviso to sub-section (1) and insub-sections (2) and (3) of this section) shall, so far as may be, applyaccordingly :
Provided that the Income-taxOfficer shall not issue a notice under this sub-section unless he has recordedhis reasons for doing so, and the Central Board of Revenue is satisfied on suchreasons recorded that it is a fit case for the issue of such notice :
Provided further that no suchnotice shall be issued after the 31st day of March, 1956.
6. It is urged that whereas in cases falling under s. 34(1), the Income-taxOfficer has to deal with the matter on the footing that the notice issuedagainst the assessee is a notice under s. 22(2), that obligation is not imposedon the Income-tax Officer while he deals with cases falling under s. 34(IA),because the words 'as if the notice were a notice issued under thatsub-section' which are found in s. 34(1) are omitted in s. 34(IA). It isnot seriously disputed that if the notice issued under s. 34(IA) is not deemedto be notice under s. 22(2), the remedies by way of appeals and revisions whichare prescribed by sections 30, 31, 32, 33, 33A and 33B of the Act would not beavailable to the assessee, and so, the main basis for the attack against thevalidity of s. 34(IA) rests on the hypothesis that the omission of the relevantwords in s. 34(IA) in substance deprives the assessee of the said remediesprescribed by the relevant provisions of the Act. If the assumption on whichthis challenge proceeds is well-founded, s. 34(IA) may suffer from theinfirmity that it contravenes Art. 14. Though, as we will later point out,there is a rational classification between the assessee falling under s. 34(1),and those falling under s. 34(IA), that rational classification would not justifythe denial of the right of appeal to the persons included in s. 34(IA). Thequestion thus presented is one of construction.
7. Before dealing with the construction of s. 34(IA), it would be necessaryto refer very briefly to the background of the enactment of the said section.This section was introduced by an amendment in the Act on the 17th July, 1954,and that was because s. 5(4) of the Taxation on Income (InvestigationCommission) Act (No. 30 of 1947) was struck down by this Court as unconstitutionalon May 28, 1954, in Suraj Mall Mohta and Another v. A. V. Viswanatha Sastri andAnother : 26ITR1(SC) . In that case, while examining the validity of s.5(4) of the Investigation Commission Act, this Court held that the personsbrought within the mischief of the said section belong to the same class ofpersons who fall within the ambit of s. 34 of the Act and are dealt with by s.34(1), and in view of the fact that the procedure prescribed by s. 5(4) of theInvestigation Commission Act was very much less favourable to the assesseesthan the one avail able to them if action was taken against them under s.34(1), the conclusion reached was that the impugned s. 5(4) wasunconstitutional. It is unnecessary to refer to the several grounds mentioned byMahajan C.J. who spoke for the Court in striking down the impugned section.
8. After this judgment was pronounced, the legislature intervened andenacted s. 34(IA). That, however, was not the end of the matter. When s. 34(IA)was introduced in the Act, there remained two statutory provisions dealing withsubstantially the same subject-matter, section 5(1) of the InvestigationCommission Act and s. 34(1) of the Act. In Shree Meenakshi Mills Ltd., Maduraiv. Sri A. V. Viswanatha Sastri and Another : 26ITR713(SC) , a point wasraised before this Court as to whether it was open to the Income-tax Departmentto invoke s. 5(1) of the Investigation Commission Act after s. 34(IA) of theAct was enacted, and this Court held that it was not, because on comparing thetwo relevant provisions, s. 5(1), according to the decision of his Court,contravened Art. 14 of the Constitution. That is how, s. 5(1) became a deadletter and the Investigation Commission, in consequence, ceased to function.The cases which had been referred to that Commission and which had not beencompleted had, therefore, to be taken up under s. 34(IA) of the Act. Thus, itwould be noticed that the present controversy has had a somewhat chequeredcareer. The first challenge was to s. 5(4) of the Investigation Commission Act;when the challenge succeeded and the said section was struck down in the caseof Suraj Mall Mohta : 26ITR1(SC) the legislature intervened and s.34(IA) was added in the Act. Nevertheless, the cases pending before the InvestigationCommission were sought to be continued before the said Commission under s. 5(1)and this section was struck down in the case of Shree Meenakshi Mills Ltd. : 26ITR713(SC) ; and, now, that proceedings against the same class ofassessees are sought to be continued under s. 34(IA), it is urged that s.34(IA) of the Act itself is invalid. It is in the light of this background thatthe controversy between the parties in the parties in the present proceedingshas to be judged.
9. Reverting then to the question of construction, the narrow point whichneeds to be examined is, what is the effect of the omission to included in s.34(IA) the clause 'as if the notice were a notice issued under thatsub-section' which is to be found in s. 34(1) In dealing with thisquestion, we think it would not be unreasonable to bear in mind that when thelegislature enacted s. 34(IA), it must have desired to remove the infirmitieswhich had rendered s. 5(4) of the Investigation Commission Act invalid. Inother words, the legislature must have presumably wanted to afford to theassessees in respect of whom s. 34(IA) was intended to be invoked, the sameremedies that were available to the assessees covered by s. 34(1). Though theimportance or significance of this consideration cannot be unduly emphasised,it cannot be said that this consideration is altogether irrelevant.
10. We have already read the relevant portion of section 34(IA) and we haveseen that it requires that a notice containing all or any of the requirementswhich may be included in the notice under s. 22, sub-section (2) has to beissued. In other words, the notice which is required to be issued is, in terms,in a sense referable to s. 22(2), because the legislature has provided that itmust contain all or any of the requirements which would be included in such anotice. Then, s. 34(IA) provides that after issuing the notice on the assesseein the manner prescribed by it, the Income-tax Officer may proceed to assess orreassess the income, profits or gains of the assessee for the relevant years.In the context, it would, we think, be reasonable to hold that the assessmentor reassessment which has to follow the issue of the notice, must be assessmentor reassessment in accordance with the relevant provisions of the Act, and thisis made very clear by the clause that follows, because the said clause beginswith the word 'thereupon' which indicates that when the process ofassessment or reassessment commences, the clause beginning with the word'thereupon' comes into operation and this clause requires that theprovision of the Act shall, so far as may be, apply accordingly. The word'accordingly' like the word 'thereupon' seems to emphasisethe applicability of the relevant provisions of the Act to the proceedingstaken under s. 34(IA); otherwise there is no particular reason which would havejustified the further provision in the section excepting certain provisions ofthe Act which are held to be inapplicable to the proceedings under s. 34(IA).
11. It is true that s. 34(1) uses the clause 'as if the notice were anotice issued under that sub-section' and s. 34(IA) does not; but the twoprovisions were not inserted in the Act at the same time; s. 34(1) in thepresent form was enacted in 1948, whereas s. 34(IA) was enacted in 1954. It isquite likely that the draftsman who drafted s. 34(IA) took the view that the lastclause in question which occurred in s. 34(1) was really superfluous and thatmay account for its omission in s. 34(IA). In our opinion, therefore,construing the relevant words in s. 34(IA), it would be difficult to accede tothe argument that the said omission was deliberate and significant, and itsconsequence is that the provisions of s. 22 and all other provisions consequentupon the application of s. 22 become irrelevant in dealing with cases under s.34(IA).
12. If s. 22 is held to be inapplicable to proceedings under s. 34(IA), theconsequence would be entirely irrational and fantastic. The powers conferred onthe Income-tax Officer under s. 23(2) to take evidence would then not beavailable to him, and, indeed, all the powers prescribed and the procedure laiddown by s. 23 would become irrelevant. Likewise, the provisions in regard toappeals and revisions contained in sections 30, 31, 33, 33A and 33B would alsobe inapplicable. As we have already seen, the inapplicability of theseprovisions is the main foundation of the attack against the validity of s.34(IA). It is, however, urged that though the specific powers conferred by s.23 may not be available to the Income-tax Officer, he may, nevertheless,exercise similar powers, because the authority to assessee must itself includesuch powers as incidental to assessment. The best judgment assessment which isauthorised by s. 23(4) may, it is suggested, be made even in cases fallingunder s. 34(IA) under the inherent authority of the Income-tax Officer. In ouropinion, this approach is wholly misconceived. We are satisfied that it couldnot have been the intention of the legislature when it enacted s. 34(IA) thatthe procedure prescribed by the relevant provisions of the Act beginning withs. 22 should not be applicable to proceedings taken under s. 34(IA), and thatthe procedure to be followed in the said proceedings and the powers to beexercised by the Income-tax Officers dealing with them should be what isvaguely described as 'the inherent or incidental powers' of such officers.Therefore, we have no hesitation in holding that the challenge made to thevalidity of s. 34(IA) on the ground that the remedy by way of appeals orrevisions which is available to the assessee against whom proceedings are takenunder s. 34(1) is not available to the assessees who are covered by s. 34(IA),cannot be sustained.
13. The other contention raised against the validity of s. 34(IA) is basedon the fact that at the relevant time, s. 34(1)(a) dealt with cases similar tothose falling under s. 34(IA), and yet, whereas in the former category of casesa period of limitation was prescribed as eight years there is no suchlimitation in regard to the latter, and that, it is urged, meansunconstitutional discrimination. We are not impressed by this argument. It istrue that in a broad sense both s. 34(1)(a) and s. 34(IA) deal with cases ofincome which has escaped assessment, and in that sense, the assessees againstwhom steps are taken in respect of their income which has escaped assessees canbe said to form a similar class; but the similarity between the two categoriesdisappears when we remember that s. 34(IA) is intended to deal with assesseeswhose income has escaped assessment during a specified period between 1st of September,1939 and 31st of March, 1946. It is well-known that that is the period in whichas a result of the War, huge profits were made in business and industry.
14. The second point which is very important is that in regard to the casesfalling under s. 34(IA), action can be taken only where the income which hasescaped assessment is likely to amount to Rs. 1 lakh or more. In other words,it is only in regard to cases where the escaped income is of a high magnitudethat the restriction of the period of limitation has been removed. It isdifficult to accept the argument that the legislature was not justified intreating this smaller class of assessees differently on the ground that theprofits made by this class were higher and the income which had escapedassessment was correspondingly of a much larger magnitude. The object of thelegislature being to catch income which had escaped assessment, it would belegitimate for the legislature to deal with the class of assessees in whosecases the income which had escaped assessment was much larger, because thatwould be a basis for rational classification which has an intelligibleconnection with the object inteded to be achieved by the statute.
15. It was suggested that as a result of the provisions contained in s.34(1)(a) and s. 34(1A) one year would overlap; and that may be true. But theargument of overlapping has no significance because it makes no differencewhether action is taken under s. 34(1), or s. 34(1A) in respect of that year.Once the notice is served under s. 34(1) or s. 34(1A), the rest of theprocedure is just the same and all the remedies available to the assessees arealso just the same. Therefore, we see no substance in the argument that theabsence of the restriction as to period of limitation under s. 34(1A)introduces any infirmity in the said provision. In the result, we must holdthat s. 34(1A) is valid and has not contravened Art. 14 of the Constitution.That is the effect of the majority view taken by the Allahabad High Court inJai Kishan Srivastava v. Income-tax Officer, Kanpur and Another I.L.R. (1959)II All. 451.
16. There is one minor additional point which has been argued before us byMr. Setalvad in Civil Appeal No. 589 of 1963, and that point is based upon therequirement prescribed by the proviso to s. 34(1A) that the Income-tax Officershall not issue a notice unless he has recorded his reasons for doing so, andthe Central Board of Revenue is satisfied on such reasons recorded that it is afit case for the issue of such notice. The argument is that the requirementprescribed by the proviso constitutes a condition precedent for the exercise ofthe authority conferred on the Income-tax Officer by s. 34(1A) and since thatrequirement is not shown to have been satisfied in his case, the appellant inC.A. No. 589 of 1963 must succeed even if s. 34(1A) is held to be valid. We arenot impressed by this argument. What was urged before the High Court by theappellant was not that no reasons had been recorded by the Income-tax Officer asrequired by the proviso; the argument was that the appellant had not been givena copy of the said reasons and it appears to have been urged that the appellantwas entitled to have such a copy. This latter part of the case has not beenpressed before us by Mr. Setalvad, and rightly. Now, when we look at thepleadings of the parties, it is clear that it was assumed by the appellant thatreasons had been recorded and in fact, it was positively affirmed by therespondent that they had been so recorded; the controversy being, if thereasons are recorded, is the assessee entitled to have a copy of those reasons? Therefore, we do not see how Mr. Setalvad can suggest that no reasons had infact been recorded, and so, the condition precedent prescribed by the provisohad not been complied with.
17. The result is, all the Civil Appeals and Writ Petitions in this groupfail and are dismissed. There would be no order as to costs.
18. Appeals and Writ Petitions dismissed.