JAGADISAN J. - The reference arises out of assessment proceedings under the the Indian Income-tax Act. The assessee, which is a private company incorporated under the Indian Companies Act, was originally assessed for the assessment year 1953-54 in respect of the previous accounting year ended March 31, 1953, on a total income of Rs. 29,086. The order of assessment was made on January 29, 1954. In March, 1958, action was taken by the Income-tax Officer under section 34 of the Act to reopen the assessment on the ground that some income had escaped assessment. As a result of the further enquiry the Income-tax Officer found that the total assessable income was Rs. 48,454. Thereupon an order of reassessment was passed computing the total income at Rs. 48,454. The assessee preferred an appeal to the Appellate Assistant Commissioner raising the contention that the Income-tax Officer erred in enhancing the annual letting value of one of the premises of the assessee at No. 11, Sembudoss Street, by Rs. 4,375. The appellate authority however affirmed the decision of the Income-tax Officer holding that the assessment made by him was correct. There was a further appeal before the Income-tax Appellate Tribunal and at this stage the assessee raised the contention that the proceedings under section 34 were wholly invalid as section 34(1)(b) of the Act is unconstitutional being violative of article 14 of the Constitution. The Tribunal rightly pointed out that it was not within its competence to go into the validity of the enactment and dismissed the appeal. The assessee filed an application was granted. The Tribunal has referred the following question : 'Whether the provision of section 34 of the Income-tax Act making a discrimination between re - opening under section 34(1)(a) and under section 34(1)(b) with regard to necessity of sanction of higher authorities for initiating the reassessment proceedings violate article 14 of the Constitution of India ?'
We shall briefly trace the history of section 34 from the inception. Section 34 of Act XI of 1922, prior to its amendment by the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), was as follows :
'If for any reason income, profits or gains chargeable to income-tax has escaped assessment in any year, or has been assessed at too low a rate, the Income-tax Officer may, at any time within one year of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or in the case of a company,. on the principal officer thereof a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22, and may proceed to assessee or reassess such income, profits or gains and the provisions of this Act shall, so far as may be apply accordingly as if the notice were a notice issued under that sub-section :
Provided that the tax shall be charged at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be.'
The Income-tax Officer had therefore sole power and discretion in setting the machinery of section 34 in motion. After the amendment under Act VII of 1939 the section was recast as follows :
'(1) If in consequence of definite information which has come into his possession the Income-tax Officer discovers that income, profits or gains chargeable to income-tax have escaped assessment in any year, or have been under-assessed or have been assessed to too low rate, or have been the subject of excessive relief under this Act, the Income-tax Officer may in any case in which he has reason to believe that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, at any time within eight years, and in any other case at any time within four years of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or in the case of a company, on the principal thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22, and may proceed to assess or reassess such income, profits or gains and the provisions of this Act shall so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. . . . . .
(2) No order of assessment under section 23 or of assessment or reassessment under sub-section (1) of this section shall be made after the expiry, in any case to which clause (c) of sub-section (1) of section 28 applies, of eight years, and in any other case, of four years from the end of the year in which the income-profits or gains were first assessable.'
This provision introduced a two-fold classification : (1) cases in which the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, and (2) other cases, A period of limitation of eight years and four years from the end of the year was prescribed to take action against the assessee covered by the two classes respectively. It must be noted that the Income-tax Officer could act at his sole discretion without reference to or consultation with any official occupying a higher administrative position.
The Income-tax and Business Profits Tax (Amendment) Act, 1948 (48 of 1948), introduced further changes. Section 34(1) of this Act reads :
'34. (1) If -
(a) the Income-tax Officer has reason to believe that be reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all materials facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax officer has in consequences of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (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 the assessee, or, if the assessee is a company on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act, shall so far as may be, apply accordingly as if the notice were a notice issued under that sub-section :
Provided that -
(i) the Income-tax Officer shall not issue a notice under this sub-section, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice. . . . . .'
The amendment maintains the previous grouping under the 1939 amendment of assessee into two categories as before. The first category is that defined under clause (a) and it takes in an assessee who has omitted to make a return under section and an assessee who has filed to disclose fully and truly all material facts necessary for the assessment. Clause (b) practically covers other kinds of assessee who have escaped full assessment and escaped taxation. The period of limitation of 8 years and 4 years with reference to cases governed by clauses (a) and (b) respectively. continues to exist even after the 1948 amendment. But the Income-tax Officer cannot act suo motu because of the proviso which states that the officer shall not issue a notice unless he has recorded his reasons for taking action and the Commissioner is satisfied of the adequacy of the recorded reasons.
Then there was the amendment introduced by Act XXV of 1953. It is not necessary to refer to the changes introduced by this by this Act. This was followed by the Income-tax (Amendment) Act, 1954 (33 of 1954), which introduced sub-sections (IA), (IB), (IC), (ID). This Act replaced the Indian Income-tax (Amendments) Ordinance, 1954, which was promulgated to counteract the decision of the Supreme Court in Suraj Mall Mohta and Co. v. A. V. Visvanatha Sastri For the purpose of the present case no detailed reference is necessary to these provisions brought in by way of amendment by the 1954 Act.
The Finance Act of 1956 brought in further legislative changes. What is of importance so far as this case is concerned is only the proviso. It may be mentioned that section 34(1)(a) and (b) remained substantially as before. But the time-limit of 8 years was omitted from sub-section (1) as regards cases falling under clause (a). The proviso is in these terms :
'Provided that the Income-tax Officer shall not issue a notice under clause (a) of sub-section (1) :-
(i) for any year prior to the year ending on the 31st day of March, 1941;
(ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount, to, or are likely to amount to, one lakh of rupees or more in the aggregate either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March, 1941.
(iii) for any year, unless he has recorded his reason for doing some, and in any case falling under clause (ii), unless the Central Board of Revenue, and, in any other case, the Commissioner, is satisfied on such reasons recorded that it is a fit case for the issue of such notice.'
We shall in the course of this judgment refer to this proviso as the proviso. The Income-tax Officer can act of his own accord to reopen the assessment of an assessee falling within section 34(1)(b). But he has not that liberty in respect of a case covered by section 34(1)(a). Cases falling under section 34(1)(a) are of two kinds. Where the escapement of the assessment or the under-assessment or the assessment 'at too low a rate' or where excessive relief had been granted or loss or depreciation allowance have been co putted in excess relates to an amount of about one lakh or rupees or more, there is no period of limitations. Where, however, the amount involved is less than a lakh of rupees the eight year period of limitation has been prescribed : the terminus-a-quo is the expiry of the assessment year in respect of which reassessment proceedings are stated. In regard to both classes of cases the Income-tax Officer must record his reasons and while he must get the approval of the Central Board of Revenue in the case where the escapement relates to one lakh or rupees and more, it is enough if he gets the approval of the Commissioner for other cases., It is, however, clear that the Income-tax Officer has got some preliminary step to take before he can initiate proceedings under section 34(1)(a) of the Act.
We may also refer to the provisions of the Income-tax Act, 1961, (43 of 1961), though the present case is not governed by them.
Section 147 of the 1961 Act runs thus :
(a) the income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year.
he may, subject to the provisions of section 148 to 153, assessee or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).'
'Section 148(2) : The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.'
'Section 149 : (1) No notice under section 148 shall be issued,
(a) in cases falling under clause (a) of section 147 -
(i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under sub-clause (ii);
(ii) for the relevant assessment year, if eight years but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year;
(b) in cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant assessment year.'
'Section 151 : (1) No notice shall be issued under section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice.
(2) No notice shall be issued under section 148 after the expiry of four years from the end of the relevant assessment year, unless the Commissioner is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice.
The Act of 1961 also maintains the classification of assessee into two groups : one group consists of defaulting assessees and the other comprising assessees who have escaped assessment for any assessment year. With regard to the reopening of the assessment of defaulting assessees falling within section 147 (a) a period of limitation of eight years or sixteen years has been fixed according to the quantum of the escaped assessment. Sanction of the Board or the Commissioner for initiating action to reopen assessments has been prescribed only in respect of assessee falling within section 147(a). Even in such cases, the Income-tax Officer can act without sanction if action is taken within fours years. After four years and before the expiry of eight years the Commissioners sanction is necessary. After eight years and before the expiry of sixteen years, the Boards sanction must be obtained.
The target of attack in this case is section 34 of the Act, as amended by the Finance Act, 1956. Article 14 of the Constitution is invoked on the ground of discrimination between the subjects covered by section 34(1)(a) and those covered by section 34(1)(b). It is pointed out n behalf of the assessee that the proviso requires the Income-tax Officer to record his reasons to the satisfaction of the Commissioner or the Central Board of Revenue, as the case may be, before he can take action under section 34(1)(a) but no such requirement has been prescribed under the proviso has not been followed, because in the view of the department it is not applicable to the present proceedings. Deprivation of the benefit of proviso to an action under section 34(1)(b) is characterised as hostile discrimination against the assessee whose assessment is reopened under that clause. The submission is that section 34(1)(a) deals with defaulters but not section 34(1)(b), and that while solicitude is shown to the former by insisting on the satisfaction of a higher authority than the Income-tax Officer before action is launched, the latter category of assessees. under section 34(1)(b) is left to the will and pleasure of the Income-tax Officer.
The argument referred to above is neither clear nor convincing. The proviso is not challenged as being violative of article 14. What the assessee wants is that the proviso should have been enacted to govern cases under section 34(1)(b) also. We cannot rewrite the Act in a manner which would eliminate discrimination, if any. We can only strike down any enactment in whole or in part if it is a discriminatory piece of legislation, giving rise to invidious distinction between persons in an arbitrary manner without any rationale behind them and without the support of logic or reason. The question, therefore, is whether section 34(1)(b), standing as it does, uncontrolled by the conditions enacted in the proviso, offends article 14 of the Constitution.
The object and purpose of the proviso is not manifest from the provisions of the Act or its scheme. It would not be an unreasonable guess to suppose that it is intended to provide an administrative check or control over zealous Income-tax Officers, acting impulsively on slender grounds. We do not understand the proviso as a limitation on the power or jurisdiction of the Income-tax Officer. The power is vested only in the Income-tax Officer to initiate proceedings under section 34, whether under sub-section (1)(a) or under sub-section 1(b), and so far as we are able to see the power is the same in respect of both classes of cases. that the officer acts off his own bat in a proceeding under section 34(1)(b), and that he has to get the approval of the higher authorities in dealing with a group under section 34(1)(a) is a matter of administrative detail in the working of the machinery which has no bearing on the rights of the assessee. What difference does it make to the assessee, whether the Income-tax Officer is obliged to record his reasons beforehand and to satisfy a higher officer or not We are unable to see any. The recorded reasons need not be communicated to the assessee. They are not justiciable in this court either in an application for the issue of a writ or in a reference application. |It is an official secret beyond the ken of the assessee and outside the purview of the court. the possibility, in a few cases, of the Commissioner of the Central Board of Revenue not permitting the Income-tax Officer to take action because of the unsatisfactoriness of the reasons recorded by the Income-tax Officer is without significance as the assessee comes into the picture only after the notice is served under section 34. That a few assessees can escape under section 34(1)(b) if there was the requisite of the Income-tax Officer recording the reasons and satisfying the Commissioner or the Central Board of Revenue is not a ground for holding that the absence of such a requirement would amount to discrimination.
In the Presidency Talkies Ltd., v. First Additional Income-tax Officer, Madras, a Division Bench of this court dealt with the nature of the assessees rights to call in question the adequacy of the reasons recorded by the Income-tax Officer and which induced the Commissioner to accord sanction to proceed under section 34. Satyanarayana Rao J., at page 448 observes thus :
'... . . . the proviso requires that the officer should record his reasons for initiating action under section 34 and obtain the sanction of the Commissioner who must be satisfied that the action under section 34 was justified. There is no requirement in any of provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under section 34 must also be communicated to the assessee. The requirement regarding the communication of the reasons to the Commissioner is, in our opinion, intended to safeguard the interests of the assessee against any hasty action on the part of the Income-tax Officer under section 34 or an action without any justification. It is not intended by the proviso that the reasons should be communicated to the assessee. The satisfaction mentioned is the satisfaction of the Commissioner, and the adequacy of the reasons is not a matter for consideration of the court, and it is not open to the assessee to agitate the question that the reasons were inadequate to sanction the initiation of the proceedings under section 34 by the Commissioner.'
To the same effect is the decision of the Allahabad High Court in Bhawani Prasad Girdhar Lal v. Income-tax Officer, Central Circle, Kanpur At page 412, Bhargava J. observes thus :
'The earlier proceedings for recording reasons for satisfaction by the Income-tax Officer and for recording satisfaction by the Central Board of Revenue are preliminary proceedings which are in the nature of administrative proceedings. In those proceedings, all that is required to be recorded is satisfaction with reasons. Reasons are for a belief of the Income-tax Officer relating to certain points and the satisfaction of the Central Board of Revenue. In such a case, the adequacy or inadequacy of the reasons is not justiciable. All that the assessee can challenge is whether in fact the reasons for belief of the Income-tax Officer were recorded in writing and whether, thereafter the Central Board of Revenue recorded its satisfaction. For that purposes, adequate information was given to the assessee. The assessed not being entitled to challenge the reasons for the belief or the satisfaction, there can be no point in requiring that those reasons should be communicated to the assessee.'
In our opinion the assessee who is proceeded against under section 34(1)(b) of the Act is not deprived of any legal right by reason of the absence of a provision that the Income-tax Officer should record his reasons so as to satisfy the Commissioner or the Central Board of Revenue. If he has no right to challenge the adequacy of reasons, and we have no doubt that he has no such right, the existence or otherwise of the necessity of a sanction by a higher authority is of no consequence to him. The fact that the legislature has thought fit to require sanction for a proceeding against an assessee under section 34(1)(a) cannot by itself amount to any discrimination.
The issue now before us is whether section 34(1)(b) is within the mischief of article 14 because of the difference in procedure caused by the proviso being confined only to the operation of section 34(1)(a). The scope and ambit of article 14 is now well settled by a long catena of cases decided by the Supreme Court. The Constitution guarantees equal security to everyone in his private rights. There can be no legislative victimisation of any person or class of persons by making them the special subject of discriminating legislation. All laws bcannot, however, have universal application for all persons. The legislative machinery would be impeded in its working if there is no freedom of movement to enable it to enact legal measures which are designed and intended to afford particular remedies and to suppress special kinds of mischiefs. It is true that article 14 condemns discrimination not only by a substantive law but also by a procedural law. A reasonable classification for the purpose of legislation is permissible, and if such classification exists the legislation does not suffer the odium of 'unequal law' prescribed by article 14. In Budhan Choudhry v. State of Bihar, the Supreme Court has laid down the following test of permissible classification at page 1049 :
'In order, however, to pass the test of permissible classification two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group; and (ii) that differntia must have a rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different bases, namely, geographical, or according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration.'
This observation which has been quoted with approval by subsequent decisions of the supreme Court lays down the guiding principle, if we may say so with respect, in clear terms. We have, therefore, to see whether there is intelligiable differentia which distinguishes between assessees filling under section 34(I)(a) and those under section 34(I)(b) and whether such differentia or basis of classification has a reasonable nexus to the object and purposes of the Act. Section 34(I)(a) deals with fraudulent assessees who by their own misconduct have escaped tax wholly or partially. They are not immune from reassessment until the lapse of 8 years if the amount involved is less than one lack of rupees. There assessment can always be reopened without any time-limit if the amount involved is one lakh of rupees or more. Under the 1961 Act, however, a period of limitation of 16 years has been prescribed. The assessees falling within section 34(I)(b) need not necessarily be one who can be charged with malpractice in having duped the assessing authority. In respect of such a case the assessment will become final if not reopened before the lapse of 4 years from the expiry of the assessment year. There is every reason and justification for creating two classes of assessees as under section 34(I)(a) and (b). It is not always easy to detect fraud and there is nothing unreasonable to provide for a larger period of limitation to bring to tax deliberate dodgers whose activities are secret and invisible than in respect of other kinds of assessees. The necessity of sanction by the Commissioner or the Central Board of Revenue in respect of a proceeding under section 34(I)(a) might be have been felt by the legislature to safeguard against assessments. It must be remembered that section 34 does not prescribe any period of limitation with regard to certain types of cases falling under it. No action can be taken under section 34(I)(b) beyond four years. If the legislature through that the Income-tax Officer can be trusted to use his discretion and power wisely and properly in regard to proceeding under that sub-clause and no check is necessary by any higher authority, it cannot be said that there is any discriminatory treatment condemnable under article 14. If it is permissible to have regard to the provisions of the 1961 Act, it is plain that the view of the legislature is that assessment more than four years old should be protected from the unguided action by the Income-tax Officer, but assessments less than four years old need no such protection. Subsequent legislation may sometimes for a key to construe ambiguous provisions of an earlier Act in respect of the same subject-matter. This is no doubt a rule of construction and may not serve as a guide to read the legislative mind. It is, however, clear that the under-laying conception of the request sanction of higher authorities like the Commissioner, or the Central Board, is to give a greater degree of finality to four years and more old assessments than to assessment not so old. There is no reason to suppose that this is irrational classification not linked or germane to the scheme of reassessment to tax or to the object and purpose of the Act. The answer to the constitutional question is that there is no discrimination and the difference, if any, is within the limits of permissible classification.
In our opinion, section 34(I)(b) does not offend article 14 of the constitution and is not unconstitutional.
The question is answered in the negative and against the assessee who will pay the costs of the department. Counsels fee Rs. 250.
Question answered in the negative.