1. These two petitions filed under Article 226 of the Constitution were heard together because they raise a common question, namely, whether the production of an Income-tax verification certificate can be made a condition precedent for the entertainment of an application for the grant of an import licence. The provisions relating to this subject are to be gathered from several rules and notifications and public notices made and issued from time to time by the Government.
They are contained in a Hand-book of Rules and Procedure relating to Import Trade Control published in 1952 by the Government of India, Ministry of Commerce and Industry, and the Import Trade Control Policy issued by the Government of India for different licensing periods. The Imports and Exports (Control) Act 1947, is in the barest terms and contains very little relevant information. Section 3(1) of the Act provides:
The Central Government may, by order published in the official Gazette, make provision for prohibiting, restricting or otherwise controlling in all cases or in specified classes of cases, and subject to such exceptions, if any, as may be made by or under the order.
(a) the import, export, carriage coastwise or shipment as ships' stores of goods of any specified description;
(b) the bringing into any port or place in the Provinces of goods of any specified description intended to be taken out of India without being removed from the ship or conveyance in which they are being carried."
Section 4 runs thus :
"All orders made under Rule 84 of the Defence of India Rules or that rule as continued in force by the Emergency Provisions (Continuance) Ordinance, 1946, and in force immediately before the commencement of this Act shall, so far as they are not inconsistent with the provisions of this Act, continue in force and be deemed to have been made under this Act."
2. There is a Notification dated 1-7-1943 by the Government of India, published in exercise of the powers conferred by Sub-rule (2) of Rule 84, Defence of India Rules, prohibiting the bringing into India by sea, land, or air, from any place outside India of any goods specified in the schedule annexed thereto except inter alia the following;
"(xii) any goods of the description specified in Part IV of the schedule which are covered by a special licence issued by an Import Trade Controller appointed in this behalf by the Central Government".
Though control of import trade originated in the circumstances which prevailed during the last War, it had to be continued even after the termination of the War, owing to several difficulties which arose from several causes, one of which was that the sterling and doller resources of the country were limited and had to be conserved.
One main feature of the licensing was the allocation of quota for specific classes of goods which would be allowed to be, imported from what are generally known as "hard currency" and "soft Currency", areas. The Government had to resort to a method of distribution of the available resources with reference to commodities, and a selection had to be made among the applicants, in view of the fact that the applications received for licences to import largely exceeded the available purchasing power of the country.
The applications for licences were entertained both from "established importers" and newcomers, and the allocation of the quota to an applicant was more or less on the basis of the quota certificates given to the applicants in the previous licensing periods. It is common ground that with every application for an import licence a certificate from the Income-tax authorities, known as Income-tax verification certificate had to be produced.
In the public notice dated 15-6-1953 issued by the Government of India, the procedure is thus laid down in this matter: All prospective applicants for import licence shall make application in the form prescribed to the proper incometax authority, who will verify the particulars from the record and subscribe the necessary verification certificates.
When a complete certificate is given, a registration number is allotted to the applicant, which is valid for the half yearly licensing period in which the certificate was issued, and for the next two half-yearly licensing periods. Certain classes of applicants were entitled to obtain exemption from production of such certificates from the proper incometax authority. The particulars contained in the certificate comprise information regarding the trade name and address of the assessee the year in which the business was established, the Incometax circle in which the applicant is assessed to income tax, and the line or lines in which the applicant is doing business.
The certificate to be granted by the Incometax officer should be in the following manner :
"In my opinion the applicant mentioned above has been doing everything possible to pay the tax demands promptly and regularly and to facilitate -the completion of the pending or outstanding proceedings".
In proper cases, the certificate would he that "this is a case for allotment of exemption number". Admittedly, neither the petitioners in W. P. No. 495 nor the petitioners in W. P. No. 605 produced the necessary incometax verification certificate along with their application, and consequently their applications were not considered by the Controller of Imports and Exports.
3. Before dealing with the contentions raised on behalf of the petitioners, the facts which are not in dispute may be set out. The petitioners in W. P. No. 495 are a firm doing business on a large-scale in imported oilman stores, drugs, toilet preparations etc. The firm consists of four persons. The annual income of the firm which was registered under the Indian Incometax Act, was assessed for incometax purposes, and the profits of each partner were added to his individual income, and the income-tax was assessed on the individual partners concerned.
In 1952, one of the partners failed to pay the incometax assessed on Him. It was therefore not possible to obtain an incometax verification certificate. The Incometax Officer agreed to grant the necessary verification certificate if the other partners arranged for the payment of so much at least of the incometax due from the defaulting partner as was due in respect of the defaulter's income from the petitioner firm. Rut the other three partners were apparently not willing to do this. There appears to have been attempts at dissolving the firm, but nothing turns of this.
In W. P. No. 605, the petitioners were assessed for the assessment years 1948-49 and 1949-50 to a tax of Rs. 13,595-12-0 out of which only a sum of Rs. 2500 was paid. But the remaining amount of tax remained unpaid. The petitioners therefore could not get the required incometax verification certificate. It was alleged that the failure on the part of the petitioners to pay was due to the fact that the Government of Burma had imposed restrictions on remittances from Burma to India, and the tax assessed included the tax on income from Burma.
4. The main contentions on behalf of the petitioners were (1) that the condition requiring the production of an Incometax certificate alone with an application for the grant of an Import licence was an unreasonable restriction on the fundamental right of the petitioners to carry on business, and (2) that the condition was really intended to enable the Government to collect the incometax due from the applicants, and was, therefore, not in the bona fide exercise of the power of the Government to impose conditions for the grant of an Import licence.
5. In support of the first contention, reliance was placed on the decision in -- 'K. Raman & Co. v. State of Madras', (A). The petitioner in that case was a firm doing retail business in yarn. The firm had a licence under the Yarn Dealers' Control Order. When the firm applied for the further renewal of the licence, the Collector refused to renew it on the sole ground that the firm had not produced the incometax and excess profits tax verification certificates, because the firm was in arrears, and Subba Rao J. held that the action of the Collector was unreasonable. This is how he dealt with the legal aspect of the case.
"The petitioner is a citizen of India and has the fundamental right to carry on the trade which he has been doing. The State can only put a reasonable restriction upon his right in the interests of general public. But, in this case, the order of the Collector discloses that he is using his powers under the Yam Dealers' Control Order for the purpose of collecting the amounts duo to the Government of India. The fact that a person is in arrears of incometax is not germane to the issue of a licence under the Yarn Dealers' Control Order. It is a circumstance extraneous to the petitioner's right to carry on his business. The Incometax Act provides an adequate machinery for realising the arrears due from an assessee. I am of the view that the restriction imposed is unreasonable and is not in the interests of the general public."
6. Though we do not subscribe to everything that Subba Rao J. has said above, we are clearly of opinion that the decision was right. But there are certain circumstances present in the cases before us which were absent in that case. That case dealt with a person who had the right to carry on the business in the sale of yarn, and the licence which he had obtained was only intended for the Slate to regulate and control the conduct of that business.
There was no question there of selection between different applicants. Moreover, there is no relative between payment of incometax and the carrying on of the business in yarn. As Subba Rao J., pointed out, it was a circumstance extraneous to the right of the petitioner to carry on his business. The learned Judge was,, therefore, right in holding that the restriction imposed was unreasonable and was not in the interests of the general public.
Reference may well be made to another decision of a Division Bench of which one of us was a party in -- 'Vedachala Mudaliar v. Divisional Engineer Highways, Saidapet'. AIR 1935 Mad 365 (B). In that case, the Government insisted on the production of an incometax clearance certificate as a condition precedent to the Government entering into a contract with the petitioner for black-topping a public road. It was contended that the Government's insistence on the production of a clearance certificate infringed on the fundamental right of the petitioner under the Constitution.
But the contention was repelled on the ground that the petitioner, though he had the fundamental right to carry on the trade or business, had no such right to insist on the Government or any other individual doing business with him. Government could decide with whom they could enter into a contract, just as a private person could.
The Advocate General relied upon the statements made by the Deputy Chief Controller of Imports in the supplementary counter-affidavit filed by him in W. P. No. 605, which clearly shows that the Government had the final discretion to distribute the available resources among various applicants and in making a selection among the applicants the financial status and integrity of the applicant were very relevant considerations. The following paragraph in the supplemental affidavit sets out the policy pursued by the Government in the matter of granting an import licence ;
"It is respectfully submitted that it is wrong to suggest that this is a method of collecting incometax. The Import Control authorities take no action for the collection of the tax, and in fact cannot do so. The verification certificate gives important data relating to the status of the individual, Iris prior business in the field and his reliability. In considering applications for import, the Import Control authorities have to keep within the overall monetary ceiling fixed by the Central Government allowable for the particular goods, according to Hard and Soft currency areas from which they are allowed importation.
When quotas are allotted to applicants, we take into consideration cases of persons whose applications on checking the incometax verification certificates and further enquiries from the Incometax authorities show that that the facts stated by the applicants are correct and also with further reference to the prior volume of trade handled by him. With regard to Established Importers, the allocation depends upon their basic performance. When we give a quota to one person to that extent, it is denied to others.
If we give quotas for a specific period to persons who have no financial status, they are unable for that reason to fulfil their contract and import the goods and the quotas get expired without being utilised. Other persons who have applied and who might have performed the contract will be kept out of the trade.
Therefore, it is respectfully submitted that on the general aspect of the question, the incometax verification certificate serves a useful purpose, firstly, for checking up the history of the persons, and secondly, for judging the financial and commercial, status both of which are most relevant when quotas have to be distributed among a large number of applicants by selection of some to the exclusion of others.
As mentioned above, the proper compliance with the Import Trade Control Regulations is a very important factor in the national economy. The status and respectability of a merchant is a guarantee and a reasonable ground for hoping that he will comply with these regulations."
7. In the report of the Import Control Enquiry Committee, 1950, Appendix C, Part II, item (4) we find the following explanation of the object of incometax registration:
"The system of income-tax registration was introduced with a view to ensuring that the persons receiving import and export licences did not evads taxes to Government. It was noticed that a person sometimes applied for licences in 4 or 5 different names. In the absence of a system of income-tax registration, it would not have been possible for the income-tax authority to find out if the same person was trading in different names. The present system has enabled the licensing authority to ascertain the status of a firm."
8. The learned Advocate General referred us to analogous instances in which it was held that default in payment of taxes could be taken into account in making a selection between applicants for a licence or a permit. In - 'Rasipuram U. M. S. Ltd. v. State of Madras', (S) (C), it was held that deliberate and habitual default in the payment of taxes was a circumstance which could be taken into consideration in arriving at a decision as to whether the grant of a permit under the Motor Vehicles Act to a person was in the interests of the general public.
In -- 'Lotus Industrials, Kallai v. State of Madras', (D), it was held that in allotting quota of yarn direct from the mills the State could make a distinction in favour of "consumer quota holders". That no one can be said to be entitled as of right to any "quota" was laid down in another decision of a Bench to which one of us was a party in - 'Srinivas v. Director of Controlled Commodities, Madras'. (E).
9. In our opinion, the contention on behalf of the petitioners is based on a wrong assumption that the petitioners have a fundamental right to obtain a quota under a licence. The refusal to grant a licence and allot a quota does not certainly prevent the petitioners from carrying on their business, If the appellants' contention should be accepted, it would mean that all the applicants for licences should be granted quotas, though the available resources are not sufficient to satisfy all the applicants.
The Advocate General is right in emphasising on the fact that the Government have necessarily to make a selection from among the applicants.
From this it follows that none of the applicants can be said to have a fundamental right to obtain the licence and the quota. When the Government have to make a selection, is it unreasonable that they should say that persons who are not in default in payment of tax to the Government should be preferred to defaulters? We think not.
10. There is another aspect of the matter on which also the learned Advocate General rightly laid emphasis namely, that the Incometax verification certificate is intended to satisfy the Controller that the applicant will be able to meet the financial commitments involved in the import trade, and the solvency and integrity of importers will have a bearing on international affairs foreign exchange problems and other matters of public interest. We hold that the condition requiring the production of an incometax verification certificate is not an unreasonable restriction on the petitioner's fundamental right to carry on business.
11. We see no substance in the suggestion that this condition is a device to collect arrears of incometax. When we remember that the number of applicants who are also defaulters in the payment of incometax will form a very insignificant proportion, of the total number of incometax asses-sees who have not paid the taxes due by them, it will be apparent that the object of the Government in laying down this condition was not to collect the income tax arrears.
Under the Incometax Act, the Government have large powers for the purpose of collecting the tax without recourse to civil courts and it is most unlikely that this condition was imposed to help the Incometax department to collect arrears,
12. It was not argued before us that the licensing and quota system itself was as such an unreasonable restriction on the fundamental right of the petitioners to carry on business.
13. In the view we have taken above, it is not necessary to discuss the circumstances under which the petitioners in the two cases were unable to produce incometax verification certificates along with their applications for licence and quota. It may be in some cases like for instance in W. P. No. 495 of 1954 the insistence on the condition might cause hardship; but that is a matter to be taken into account by the Import and Export Controller, and that would not by itself render the condition unconstitutional or invalid. The two applications are, therefore, dismissed. No costs.