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M.M. Ispahani Ltd. Vs. Commissioner of Income-tax (Central) and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 265 of 1962
Judge
Reported inAIR1969Cal464,[1970]75ITR479(Cal)
ActsIncome-tax Act, 1961 - Section 297(2); ;Constitution of India - Article 14; ;Income-tax Act, 1922 - Section 34
AppellantM.M. Ispahani Ltd.
RespondentCommissioner of Income-tax (Central) and anr.
Appellant AdvocateSuhas Sen, Adv.
Respondent AdvocateA.C. Mitra and ;Dipankar Gupta, Advs.
DispositionApplication dismissed
Cases ReferredIn Khandige Sham Bhat v. Agricultural Income
Excerpt:
- sinha, c.j. 1. the facts in this case are briefly as follows: the petitioner before us is messrs. m. m. ispahani ltd. it was a company incorporated in india in 193-1, but in 1947 it transfrred its registered office to chitagong, eastern pakistan, for the accounting years 1939 to 1946 (assessment years 19-10 41 to 1947-48), the petitioner filed returns under the indian income-tax act, 1922 and was assessed to tax. in the year 1950, proceedings were commenccd against the petitioner under the taxation of income (investigation commission) act, 1947 inter alia for the accounting years 1939 to 1946. after the supreme court declared section 5 (4) of the taxation of income (investigation commission) act, 1947 as ultra vires, the proceedings started against the petitioner were dropped, after the.....
Judgment:

Sinha, C.J.

1. The facts in this case are briefly as follows: The petitioner before us is Messrs. M. M. Ispahani Ltd. It was a company incorporated in India in 193-1, but in 1947 it transfrred its registered office to Chitagong, Eastern Pakistan, For the accounting years 1939 to 1946 (assessment years 19-10 41 to 1947-48), the petitioner filed returns under the Indian Income-tax Act, 1922 and was assessed to tax. In the year 1950, proceedings were commenccd against the petitioner under the Taxation of Income (Investigation Commission) Act, 1947 inter alia for the accounting years 1939 to 1946. After the Supreme Court declared Section 5 (4) of the Taxation of Income (Investigation Commission) Act, 1947 as ultra vires, the proceedings started against the petitioner were dropped, After the Supreme Court Judgment of Surajmull Mohta and Co. v. A. V. Visvanatha Sastri : [1954]26ITR1(SC) the Ineome-tax Act, 1922 was amended inter alia by the inclusion of Sub-sections (1-A) and (1-B) to Section 34. Eight separate notices under Section 34 (1-A) of the Income-tax Act, 1922 dated 15th June 1955 were served upon the petitioner on June 30/31, 1955 relating to the accounting years 1939 to 1946. The petitioner atfirst challenged the notices by questioningthe validity of Section 34 (1-A) by a writ petition under Article 226 of the Constitution. This petition, however, failed and an appeal preferred against it also failed. In the meantime, on or about 18th January 1960 the petitioner filed eight separate returns pursuant to the said notices under Section 34 (1-A). The reassessment proceedings are still continuing. On April 1, 1962 the Income-tax Act, 1961 came into operation and repealed the earlier Act of 1922, subject to certain savings. We are concerned in this case with Section 297 of the 1961 Act, the relevant part whereof is set out below:--

'297. (1) The Indian Income-tax Act, 1922 (11 of 1922), is hereby repealed.

(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act)-

(a) where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed;

(d) where in respect of any assessment year after the year ending on the 31st day of March, 1940-

(i) a notice under Section 34 of the repealed Act had been issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed;

(ii) any income chargeable to tax had escaped assessment within the meaning of that expression in Section 147 and no proceedings under Section 34 of thy repealed Act in respect of any such income are pending at the commencement of this Act, a notice under Section 140, may, subject to the provisions contained in Section 149 or Section 150, he issued with respect to that assessment year and all the provisions of this Act shall apply accordingly;

What is argued before us is that the provisions of Section 297(2)(d)(i) are ultra vires, as being violative of the provisions of Article 14 of the Constitution. The matter came up before Banerjee, J. who was of the opinion that the application involves a substantial question of law as to the interpretation of the Constitution and should be heard by a larger Bench. He has, therefore, made a report under Chapter V, Rule 3 of the Original Side Rules of this Court, This is how the matter has come up before us for hearing. The way that Mr. Sen appearing on behalf of the petitioner before us has argued, is as follows; He argues that assessees who are liable to pay tax andwhose income has escaped assessment of tax for the period 1st April 1940 to 31st March 19(i) are being divided into two Groups namely-- (i) in respect of whom notices under Section 34 of the repealed Act have been issued before 1st April 1961 and (ii) those in respect of whom no such notice has been issued. It is argued that the provisions under Section 34 (l-A) of the Act of 1922 were more onerous than those contained in the relevant sections of the 1961 Act, and yet a distinction is made between the same class of assessees, namely those whose income had escaped assessment, and while those upon whom notice has been issued under Section 34 are to be governed by the old and more onerous provisions of law, others belonging to the same class and upon whom no such notice has been served, are to be governed by the less onerous provisions of the 1961 Act, and this is a clear discrimination, violative of the provisions of Article 14 of the Constitution. Before we proceed to examine this argument, we make it clear that Section 297 speaks about a number of circumstances e.g. where a return of income has been filed before the commencement of the Act etc. We are, however, concerned in this case with one circumstance only, namely where a notice under Section 34 of the 1922 Act had been served before 1st of April, 1962 when the 1961 Act came into operation. Our decision will be confined to this circumstance only. Mr. Gupta appearing on behalf of the respondent has argued that the provisions of Section 297(2)(d)(i) are valid because it is a well-known principle of legislation that when an old Act is repealed and a new Act is introduced in its place, 'pending proceedings' are exempted from the operation of the new Act, unless the provisions are made expressly retrospective in operation. In this particular case, 'pending proceedings' including proceeding for reassessment, where notices under Section 34 had been issued under the old Act, have been expressly excluded from the operation of the new Act. 1 shall now deal with the arguments advanced. In order to consider the points raised, two things will have to be decided. The first point to be decided is as to whether, issue of a notice under Section 34, (in the instant case--notice under Section 34 (1-A)) can be said to initiate a proceeding which could be said to be pending when the said Act came into operation. The second point that has to be considered is as to whether persons who are subject, to such pending proceedings, can be reasonably classified in a separate group for the purpose of legislation. The basic principle to be applied in such cases has been laid down in the Supreme Court decision of, Budhan Choudhry v. State of Bihar. : 1955CriLJ374 where it has been held that Article 14 forbids class legislation, but it does not forbid reasonable classification for the purposes of legislation. But such classification must be based on an intelligible differentia which distinguishes a class of persons from others and that differentia must have a relationship with the object sought to be achieved by the statute.

2. The 1961 Act is an Act to consolidate and amend the law relating to income-tax and super tax. It provides for levy of such taxes, and lays down the machinery for determination of such taxes and the collection thereof. When the Act of 1961 came into operation there must have been innumerable assessees against whom proceedings under Section 34 of the 1922 Act had been taken, but had not been completed. There must also have been assessees who were liable to be proceeded under Section 34, but against whom no proceedings had in fact been taken. The point is as to whether, the Act of 1961 which is a consolidating and amending Act, can take into account these two types of cases and provide for a method and machinery as to how they should be dealt with, after the coming into operation of the new Act.

3. Coming now to the general law, we have Section 6 of the General Clauses Act It is provided therein, that where an Act has been repealed, then unless a different intention appears, the repeal shall not ...........

(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed.

(d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactmeat so repealed.

In the case of the repealed Act of 1922, we find from the provisions of Section 297(2)(d)(i) of the 1961 Act, that not only there is no expression of a 'different intention', but that there is an express provision which prevents the retrospective operation of the 1961 Act to reassessment proceedings already started under the 1922 Act. The first thing that should be noticed is that it is admitted that notices under Section 34 (l-A) have been issued as long ago as June 1955, and these notices are not by themselves challenged. There is no provision in the new Act that notices for reassessment already issued under Section 34 would lapse and that a fresh notice should be given under the new Act.

4. The first objection that is taken Is as follows: It is argued that, assuming that reassessment proceedings come within the heading of 'pending proceedings' it has been well established that a proceeding for reassessment under Section 34 can only be said to have been initiated wherethe notice has been served. It has been held that service of a notice under Section 34 is a pre-condition for initiation of proceedings for reassessment or reopening of assessment. It is argued that Section 297 (2) (d) (i) only speaks of the 'issue' of notice, which does not initiate any proceedings. The first case cited is a Supreme Court decision, Commissioner of Income-tax. Kerala v. Thayaballimulla : [1967]66ITR147(SC) . It was held there that service of the notice prescribed by Section 34 of the Income-tax Act, 1922, for the purposes of commencing proceedings for reassessment is not a mere procedural requirement: It is a condition precedent to the initiation of proceedings for assessment under Section 34. Service of the notice under Section 34 (1) (a) within the period of limitation was held to be a condition precedent to the exercise of jurisdiction. If the Income-tax Officer was unable to prove that the notice was duly served upon the assessee within the prescribed period, he would have no jurisdiction to proceed with the assessment. In : [1965]55ITR406(Cal) it has been held that service of notice under Section 34 was the foundation of jurisdiction.

5. The proposition that the issue and service of a notice under Section 34 is a pre-condition to jurisdiction, and that there cannot be a 'pending proceeding' without it, is not contested before us. The word 'issued' which occurs in Section 297(2)(d)(i) is however, an expression which has been judicially construed. It has been held by the Supreme Court in Banarsi Debi v. Income-tax Officer : [1964]53ITR100(SC) that the word 'issued' should be interpreted in its wider meaning and thus includes the service thereof. In that case, what happened was that a notice under Section 34 (1) (a) was issued within, but served beyond, the prescribed time. It was held that the notice can be said to have been 'issued' within the prescribed time in the larger sense, and was thus served under Section 4 of the Indian Income-tax (Amendment) Act, 1959. It was held that the expressions 'issued' and 'served' are used as interchangeable terms and in the legislative practice of our country, they are sometimes used to convey the same idea. In my opinion, for the same reason it should he held that the word 'issued' in Section 297(2)(d)(i) should include the 'service' of a notice under Section 34. The next question to be considered is as to whether it is a reasonable classification within the meaning of Article 14 of the Constitution to exclude the cases of assessees against whom there are 'pending proceedings' for assessment. The first case cited upon this point is the Supreme Court decision of Ramjilal v. Income-tax Officer Mohinder Garh : [1951]19ITR174(SC) . In that case, thefacts were as follows. In May 1948 the then rulers of eight Punjab States including Patiala, Nabha and Kapurthala entered into a covenant with the Government of India agreeing to unite and integrate their territories into one State known as the Pepsu. Previous to the union, the Nabha State had no provision for payment of income-tax. The provision as to payment of income-tax in the Kapurthala State was more liberal than Patiala, the rates being much lower. The applicant before the Supreme Court, who was being sought to be assessed under Section 34 for a period prior to the union, put forward the objection that while those residing in the Kapurthala State were being assessed at the lower rate which had been prevalent in Kapurthala, the petitioner who was a resident of Nabha State where there was no income-tax at all, was sought to be assessed at the higher rates prevalent in Patiala. According to him, this was clearly discriminatory and violative of the provisions of Article 14. On behalf of the income-tax authorities it was stated that in terms of an Ordinance which had been passed, only those assessees in Kapurthala State against whom assessment proceedings were already pending, were being assessed at the old rates, but others were being assessed at the higher rates prevalent in Patiala, because, under the Income-tax Act which was applicable to the union, namely the State of Pepsu, all assessees were to be assessed at the higher rate prevalent in Patiala. It was held that this exclusion of persons in Kapurthala State against whom assessment proceedings were pending was a reasonable classification and was not violative of the provision of Article 14. S. R. Das, J. (as he then was) said as follows:--

'The assessment of Kapurthala assessees for the year 2005 at the old Kapurthala rate was obviously made under the proviso to Section 3 of Ordinance No. 1 (1) if 2005, which was reproduced in the proviso to Section 3 (1) of the Ordinance No. XVI of 2006 and both of which required all pending proceedings to be completed according to the law applicable to those proceedings when they were initiated. No case of assessment was pending as against any Nabha assessee on 20-8 1948 for there was no Income-tax Act in Nabha prior to that date and, therefore, there could be no occasion for completing any pending proceedings against any of such assessees. In the premises, there can be no grievance by them on the score of discrimination. The discrimination, if any was not brought about by the two ordinances, but by the circumstance that there was no Income-tax Act in Nabha and consequently there was no case of assessment pending against any Nabha assessees. In any case the provision that pending proceedings should be concluded according to the law applicable at the time when the rights or liabilities accrued and the proceedings commenced is a reasonable law founded upon a reasonable classification of the assessees which is permissible under the equal protection clause and to which no exception can be taken. In our opinion the grievance of the alleged infringement of fundamental right under Article 14 is not well founded at all.'

6. In the next Supreme Court case cited, Shiv Bahadur Singh v. State of Vindhya Pradesh : 1954CriLJ1480 it was held as follows:--

'But there is no reason, why pending proceedings cannot be treated by the legislature as a class by themselves having regard to the exigency of the situation which such pendency calls for. There can arise no question as to such a saving provision infringing Article 14 so long as no scope is left for any further discrimination 'inter se' as between persons affected by such pending matters.'

In Hukum Chand Mills Ltd. v. State of Madhya Pradesh : [1964]52ITR583(SC) we are concerned with the Madhya Bharat Taxation of Income (Validation) Act, 1954 the vires of which was questioned. Wanchoo, J. (as he then was) said as follows:--

'Coming now to the last point with respect to the Validating Act, we have not been able to understand how the Validating Act can be said to be discriminatory in nature. A Validating Act is passed only when certain things have been done which require validation. This is exactly what the present Validating Act has done and we fail to see on what grounds it can be said to be discriminatory. Even when the Finance Act of 1960 was passed it would have been open to Parliament to leave the old assessments to be carried on under the old procedure and by officers appointed under the old law and such action could not be called discriminatory, for the simple reason that the old assessments stand on a different footing from the new assessments after the new law comes into force. It is true that Parliament provided otherwise in this case and the Finance Act of 1950 said that the old assessments would be carried on by the corresponding officers under the Indian Income-tax Act. By mistake, however, that provision was overlooked and the old assessments were made by the old officers under the old law. All that Parliament did by the Validating Act was to allow the old assessments to be made under the procedure provided under the old law and we can see no discrimination in the Validating Act on account of this fact. We are therefore, of opinion that the Validating Act is not hit by Article 14.'

I now proceed to deal with some decisions cited before us by Mr. Sen. The first case cited is the Supreme Court decision in : [1954]26ITR1(SC) . It was held there that the provisions of Sub-section (4) of Section 5 of the Taxation on Income (Investigation Commission) Act, 1947 dealt with the same class of persons who could be proceeded against under the provisions of Section 34 of the Income-tax Act 1922, although its provisions were more onerous. It was, therefore, held to be violative of Article 14 of the Constitution and declared to be void. Mahajan, C. J. said as follows:---

'That being the true scope or construction of Sub-section (4), it obviously deals with the same class of persons who fall within the ambit of Section 34 of the Indian Income-tax Act and are dealt with in Sub-section (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 Section 34 can be equated with persons who are discovered in the course of the investigation conducted under Section 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 30 of 1947, at the choice of the Commission, though they could also be proceeded with under the provisions of Section 34 of the Indian Income-tax 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-section (4) of Section 5 of the impugned Act by themselves form a class distinct from those who evade payment of income-tax and come within the ambit of Section 34 of the Indian Income-tax Act. It is well settled that in its application to legal proceedings Article 14 assures to everyone the same rules of evidence and modes of procedure; in other words, the same rule must exist for all in similar circumstances. It is also well settled that this principle does not mean that every law must have universal application for all persons who are not by nature, attainment or circumstance, in the same position. The State can by classification determine who should be regarded as a class for purposes of legislation and in relation to a law enacted on a particular subject, but the classification permissible must be based on some real and substantial distinction bearing a just and reasonable relation to the objects sought to be attained and cannot be made arbitrarily and without any substantial basis. Classification means segregation in classes which have a systematic relation, usually found in common properties andcharacteristics. There is nothing uncommon either in properties or in characteristics between persons who are discovered as evaders of income-tax during an investigation conducted under Section 5 (1) and those who are discovered by the Income-tax Officer to have evaded payment of income-tax. Both these kinds of persons have common properties and have common characteristics and therefore, require equal treatment. We thus hold that both Section 34 of the Indian Income-tax Act and Sub-section (4) of Section 5 of the impugned Act deal with all persons who have similar characteristics and similar properties, the common characteristics being that they are persons who have not truly disclosed their income and have evaded payment of taxation on income.'

The next case cited is Shree Meenakshi' Mills Ltd Madurai v. A. V. Visvanatha Sastri. : [1954]26ITR713(SC) . In that' case, it was held that, assuming that the provisions of Section 5 (1) of the Taxation of Income (Investigation Commission) Act (30 of 1947) can be . saved from the mischief of Article 14 of the Constitution on the basis of a valid classification, that defence is not available in support of it, after the introduction of Sub-section (1-A) in Section 34 of the Income-tax Act 1922, by the Indian Income-tax (Amendment) Act (33 of 1954), which deals with the same class of persons dealt with by Section 5 (1), and as such, the provisions of Section 5 (1) of Act 30 of 1947 have become void and unenforceable as being discriminatory in character and violative of the provisions of Article 14 of the Constitution.

7. The next case cited is, Thangal Kunju Musaliar v. M. Venkatachalam Potti : [1956]29ITR349(SC) . In that case, it was held that, although the Travancore Taxation on Income (Investigation Commission) Act, 1124 was discriminatory as compared with the procedure prescribed by the Travancore Income-tax Act 1121, it was clear from the circumstances in which the Act was passed that the object sought to be achieved by the Act of 1121 was to catch substantial evaders of income-tax out of those who made huge profits during the war; they, therefore, formed a class by themselves and had to be specially treated under the procedure laid down in that Act; and the selection of cases of persons falling within that category by Government was a valid basis of classification. It was further held that Section 47 (1) of the Travancore Act of 1121, was directed only against those persons concerning whom definite information came to the hands of the Income-tax Officer, in consequence of which he discovered that the income of those persons had escaped assessment, and therefore, theclass of persons falling within Section 5 (1) of the Travancore Act of 1124 was not the same class of persons coming under Section 47 (1) of the Travancore Act of 1121 and was not discriminatory. Bnagwati, J. said as follows:--

'It would be impossible in the normal course to reach all substantial evaders of income-tax. Those persons falling within that category in respect of whom the Government had received the requisite information and in whose cases the Government had prima facie reasons for believing that they had to a substantial extent evaded payment of taxation on income would have their cases referred by the Government for investigation by the Commission. Those persons in respect of whom no such information was available to the Government would certainly escape detection but that is the position with regard to each and every law which may be passed in order to detect evasion of payment of income-tax. Even under the provisions of Section 47 of the Travancore Act 23 of 1121 (corresponding to Section 34 of the Indian Income-tax Act as it stood before the amendment in 1948), those persons in respect of whom the Income-tax Officer had gathered definite information and consequently discovered that income, profits or gains chargeable to income-tax had escaped assessment in any year could be dealt with under the relevant provisions of that Act. Those persons in respect of whom no such Information had been received by the Income-tax Officer could not be reached at all. The fact that some persons falling within a particular category may escape detection altogether is not necessarily destructive of the efficacy of the particular legislation. The only thing required is that, as between persons who fall within the same category and who can be dealt with under the same procedure, there should be no discrimination, some being treated in one way and others being treated in another.'

The next case cited is M. CT. Muthiah v. Commissioner of Income-tax, Madras : [1956]29ITR390(SC) . It was held that those substantial evaders whose cases had been referred by Government before September 1, 1948 did not form a class by themselves as against others belonging to the same class of substantial evaders to be dealt with by the ordinary procedure prescribed by the Indian Income-tax Act, because the date September 1, 1948 was an arbitrary date. After the advent of the Constitution, the procedure adopted by the Taxation on Income (Investigation Commission) Act 1947 was therefore discriminatory and viclative of Article 14 of the Constitution. In my opinion, none of the cases cited by Mr. Sen are relevant to the facts of the instant case. In Surajmall Mohta's case : [1954]26ITR1(SC) (supra) and in the Meenakshi Mills' case : [1954]26ITR713(SC) (supra) there were in existence, two provisions of law applicable to the same class of persons, one of which was more onerous than the other. This brought it directly within the mischief of Article 14. In Musaliar's case : [1956]29ITR349(SC) (supra) it was laid down that it was not possible to take action against all substantial evaders at once, and a classification of those against whom definite information had been received, in consequence of which it was discovered that there has been an evasion of tax, is constitutional and valid. Assessees who have evaded tax and could be brought to book under Section 34 are a class consisting of a very large number of persons. What actually happens is that the income-tax officer finds upon scrutiny that a particular assessee should be proceeded under its provisions. He has first to discover the acts of omissions and commissions, go into the matter in detail and when he is convinced that action should be taken, he places it before the Commissioner of Income-tax and obtains his approval. Then notice is issued and served and proceedings are commenced. Surely, on the principles established above, these persons can be rationally divided into a class by themselves. In any event, since the old Act has been repealed, the principle of separate classification in regard to 'pending proceedings', would save such proceedings. Muthia's case : [1956]29ITR390(SC) is of no relevance, because there we had a date, namely September 1, 1948 which was found to be entirely arbitrary and having no rational connection with the object of the impugned legislation.

8. Mr. Sen has cited another case which I will consider now. It is S. C. Prashar v. Vasantsen Dwarkadas : [1963]49ITR1(SC) . In that case, what came to be considered was the second proviso to Sub-section (3) of Section 34. The factual position was thus stated by S. K. Das, J. :--

'Now, I come to Sub-section (3) and the second proviso thereto. Prior to 1956 subsection (3) provided that every assessment or reassessment should be completed within eight years from the end of the relevant assessment year in those cases where the assessee had failed to make a return or failed to disclose fully and truly all material facts necessary for his assessment. In 1956 the time limit was removed and the assessment or re-assessment in such cases might be completed at any time. In all other cases the period of limitation was still four years, as it was before 1956, for completion of assessmentunder Section 23 or of assessment or reassessment under Section 23 read with Section 34. The second proviso, after its amendment in 1953, constituted an exception to Sub-section (1) as well as Sub-section (3). The periods of limitation laid down in Sub-section (1) for initiating proceedings and in Sub-section (3) for making an order of assessment or reassessment were subject to the exception mentioned in the second proviso. I may now read that proviso: 'Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to a reassessment made under Section 27 or to an assessment or reassessment made on the assessee or any person in conseauence of or to give effect to any finding or direction contained in an order under Section 31, Section 33, Section 33-A Section 33-B, Section 66 or Section 66-A.'

I have stated earlier that the second proviso as amended was inserted by the Income-tax (Amendment) Act, 1953 (25 of 1953), with effect from April 1, 1952.' The problem was as to whether the second proviso was constitutional. It was held that there was no rational basis for differentiating between those who came under the provisions of Sub-section (3) of Section 3 and those who came under it but with regard to whom a finding or direction had been given. It must be remembered that this finding related to the period of limitation that was applicable to the two groups. It is correct to say that there can be no rational basis in prescribing a different period of limitation applicable to cases where a finding or direction has been given and where there is no such finding or direction. It is not an intelligible differentia. However, it has no analogy to the facts of the present case. Another case cited before us is a bench decision of the Bombay High Court, Shakti Offset Works v. Inspecting Commissioner of Income-tax : [1967]64ITR637(Bom) . This case dealt with Clause (g) of Sub-section (2) of Section 297 of the 1961 Act. The relevant part thereof runs as follows:--

'297.....

(2) Notwithstanding the repeal of the Indian Income-tax Act 1922 (11 of 1922) (hereinafter referred to as the repealed Act),--

(g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March 1962, or any earlier year, which is completed on or after the 1st day of April 1962, may be initiated and any such penalty may be imposed under this Act.' It was held that this provision was discriminatory and violative of Article 14 and therefore ultra vires. In the instant case, we are not concerned with Clause (g)of Sub-section (2) of Section 297. It was held there that the initial condition for initiating proceedings for imposition of penalty under the new Act is that proceedings in respect of which penalty has to be imposed must be one under the new Act itself. These are considerations alien to the provision of Clause (d) (i) of Subsection (2) of Section 297. In any event, there are two reasons why I am reluctant to apply the reasonings of that case to the instant case. The first is that the learned Judges considered the date, 1st of April, 1962 to be an arbitrary date, but this cannot be so. It is the date when the repealing Act itself came into force. The second thing is that the learned Judges noticed the point of 'pending proceedings', being a valid basis of classification and even noticed the decision of : 1954CriLJ1480 (supra) but failed to apply it or consider this point any further. In my opinion the argument put forward by Mr. Gupta namely that in the case of an assessment, the classification of assessees against whom proceedings were pending under the old Act into a separate class and to make the same subject to the law which was in force when the liability accrued, is perfectly constitutional and not violative of the provisions of Article 14 of the Constitution (sic.) Apart from any other case, the Supreme Court decision of : [1951]19ITR174(SC) (supra) is a direct authority on this point and must be followed. It may be pointed out here, however, that Ramjilal's case (supra) has been overruled by the Supreme Court in Jagannath Baksh Singh v. State of U. P. : [1962]46ITR169(SC) on another point viz., that a taxing statute can be attacked on the ground of legislative incompetence as also on the ground that the impugned legislation violates fundamental rights. It has not been overruled on the point of the legitimate classification of 'pending proceedings.' So far as classification is concerned, a greater flexibility is permitted in the case of fiscal legislation. In Khandige Sham Bhat v. Agricultural Income-tax Officer Kasaragod, AIR 1963 SC 591, the Supreme Court was dealing with Article 14, in the context of the Kerala Agricultural Income-tax Act, 1950 as amended by the Kerala Act 11 of 1959. Subba Rao, J. (as he then was) said as follows:--

'A law may treat persons who appear to be similarly situated differently, but on investigation they may be found not to be similarly situated. To state it differently, it is not the phraselogy of the statute that governs the situation but the effect of the law that is decisive .....

The Taxation law is not an exception to this doctrine. But in the application of the principles, the fiscal adjustment of diverse elements, permit a larger discretion to the Legislature in the matter of classification, so long it adheres to the fundamental principles underlying the said doctrine, the power of the Legislature to classify is of wide range and flexibility so that it can adjust its system of taxation in all proper and reasonable ways.'

I shall now deal with the point made by Mr. Sen that the provisions of the 1922 Act are more onerous than those of the new Act. He refers to Section 34 of the repealed Act and quite a number of sections in the new Act, namely Ss. 147, 148, 149, 151 and 153 of the Act of 1961. I do not think that this is the proper way of showing that the provisions of one Act are more onerous than those of the other. If two particular provisions of any existing statute were applicable at the same time to the same class of assessees, one being more onerous than the other, that would be a different matter. Here, however, what is said is that the provisions of a repealed Act are more onerous than the provisions of a repealing Act. It will, therefore, have to be considered as to whether the provisions of the repealed Act were more onerous than those of the repealing Act, as a whole. Generally speaking, this has not at all been clearly established. On an analysis of the various provisions of the Act of 1961, it does not seem to be more onerous than the provisions of the Act of 1922. For example, under Section 22 of the old Act, there were provisions for the issue of a public notice, as also individual notices expressly asking a person to file a proper return of his total income. Under Section 139 of the new Act, there is no such provision. Section 139 of the new Act which corresponds to Section 22 of the old Act does not provide for the issue of general or public notice expressly asking a person to file return of the total income in respect of which he is assessable under the Act, but requires a notice to call for a return within 30 days from the date of service of the notice. It does not give the assessee 30 clear days; does not allow a belated return after the expiry of five years; requires additional particulars to be furnished in case of an assessee engaged in business or profession and provides for extension of dates for return upto a certain period without charging any interest and beyond that period upon charging interest. The new section is certainly more onerous to the assessee. Sections 147 to 153 of the Income-tax Act 1961 deal with similar provisions in the old Act 1922. The period for which action can be taken is a maximum of 16 years. Under the old Act after various amendments it was stipulated that action could be taken at any time provided it did not go beyond the period of 31st March 1941.

9. Again, Section 153 of the new Act imposes an obligation on the Income-tax Officer to complete an assessment within a period of 4 years. This gives the asses-see an advantage and also puts him to a certain amount of disadvantage. There have been some changes in Section 159 which is more onerous for the assessee.

10. It :s further to be noted that once notice under Section 34 of the old Act has been issued, it must be carried out to its logical conclusion. There is no provision under the new Act whereby the old notice which has already been issued lapses on the passing of the new Act and a fresh notice under the new Act has to be given.

11. As T have stated, it is not disputed that the notice which has been served is under Section 3-4 (l-A) of the old Act and not under the new Act, and that in reassessment it is this notice which will have to be considered. Upon calculation it appears that in either case, that is to say, whether by applying the period of limitation under the old Act or the new Act, the period under assessment is fully covered. Upon consideration of all these facts, it does not appear that it can be firmly stated that the provisions of the repealed Act are more onorous than those of the repealing Act, so far as the applicants are concerned.

12. For the reasons aforesaid, we hold that the provisions of Section 207(21 fd) (i) are not discriminatory or violative of the provisions of Article 14 of the Constitution, but are intra vires and valid. There is no other point argued before us in support of the Rule. For the reasons aforesaid, this application must, therefore fail and is dismissed. The Rule is discharged. All interim orders vacated. There will be no order as to costs.

B.C. Mitra, J.

13. I agree.


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