PETITIONER:
A. THANGAL KUNJU MUSALIAR
Vs.
RESPONDENT:
M. VENKITACHALAM POTTI AND ANOTHER(with connected appeal)
DATE OF JUDGMENT:
20/12/1955
BENCH:
BHAGWATI, NATWARLAL H.
BENCH:
BHAGWATI, NATWARLAL H.
DAS, SUDHI RANJAN
BOSE, VIVIAN
JAGANNADHADAS, B.
SINHA, BHUVNESHWAR P.
CITATION:
1956 AIR 246 1955 SCR (2)1196
ACT:
Constitution of India-Article 14-Travancore Taxation on
Income (Investigation Commission) Act, 1124(Act XIV of
1124), s. 5(1)-Whether ultra vires the Constitution-Read
along with s. 47(1) of Travancore Income-Tax Act, 1121 (Act
XXIII of 1121)High Court-Jurisdiction-Article 226 of the
Constitution-Writ Petition against authorise Official-
Appointed under s. 6 of the Travancore Act (XIV of 1124)-
Investigation Commission-Whether competent under the
provisions of the Travancore Act XIV of 1124 to investigate
cases not referred to it by Government.
HEADNOTE:
The petitioners native of Quilon within the Travancore State
-had been assessed to income-tax for the years 1942 and
1943, the final orders in his assessment having been passed
by the Chief Revenue authority of Travancore in December
1946 and November 1946 respectively. Travancore Taxation on
Income (Investigation Commission) Act, 1124 (Act XIV of
1124) modelled on the Indian Act XXX of 1947 was passed by
the Travancore Legislature, to provide for an investigation
into matters relating to taxation on income. In July 1949 ,
the United State of Travancore and Cochin was brought into
existence as a result of integration between the two States.
All existing laws of Travancore were to continue in force by
virtue of Ordinance I of 1124 which was later enacted as Act
VI of 1125. In November 1949 the Government of the ‘United
State of Travancore-
1197
Cochin issued orders under s. 5(1) of the Travancore Act XIV
of 1 124 referring the cases of the petitioner for the years
1942 and 1943 (called Evasion Cases Nos. 1 & 2 of 1125) for
investigation by the Travancore Income-Tax Investigation
Commission. Before the Commission could make its report the
Constitution of India came into force and the United State
of Travancore-Cochin became a part of India (Part B State)
and the Travancore Act XIV of 1124 was continued in force
until altered, amended or repealed by a competent authority.
In April 1950 Parliament passed Act XXXIII of 1950 whereby
Taxation on Income (Investigation Commission) Act, (Act XXX
of 1947) was extended to Travancore-Cochin and the law of
Travancore corresponding to Act XXX of 1947 was to continue
in force with certain modifications. In October 1951, a
notification issued by the Indian Investigation Commission
appointed Respondent No. 1 as an authorised official under
s. 6 of Travancore Act XIV of 1124 read with Act XXXIII of
1950. Respondent No. I sent a copy of that notification to
the petitioner on 21st November, 1951 for his information
and further intimated to him that the investigation proposed
to be conducted will not be confined to the years 1942 and
1943 but that it would be necessary for him to investigate
the petitioner’s income for the period from 1940 to the last
completed assessment year.
The petitioner filed a writ petition in the Travancore High
Court against Respondent No. I and Respondent No. 2 (Indian
Income-Tax Investigation Commission) for a writ of
prohibition or any other writ prohibiting the Respondents
from holding an enquiry into the cases registered as Evasion
Cases Nos. 1 & 2 of 1126 or from holding an investigation
into the income of the petitioner from the year 1940 to the
last completed assessment year. The Travancore High Court
held that the Respondent No. 2 had all the powers that the
Travancore Commission had under Travancore Act XIV of 1124
and no more and granted the writ prohibiting respondents
from conducting an enquiry into years other than 1942 and
1943. Both the parties appealed to the Supreme Court
against the order of the High Court. A preliminary
objection to the jurisdiction of the High Court to entertain
the writ petition was repeated in the Supreme Court by the
Attorney-General.
Held, that the High Court bad jurisdiction under Art. 226 of
the Constitution to issue a writ against Respondent No. 1
because under the provisions of s. 6 of the Travancore Act
XIV of 1124 the authorised official (Respondent No. 1) had
considerable powers conferred upon him in the conduct of the
investigation, and if he did anything as authorised official
which was not authorised by law or was violative of the
fundamental rights of the petitioner as in the present case
be would be amenable to the jurisdiction of the High Court
under Art. 226 of the Constitution.
Held, further that under the provisions of the Travancore
Act XIV of 1124 the Commission had no authority ‘to
investigate any case suo motu. It could only investigate
cases referred to it by
1198
Government. All that was done in the present case was that
by two separate orders made under s. 5(1) of the Act the
Government referred two cases of the petitioner for the two
years 1942 and 1943 to the Commission. There was no other
order under s. 5(1) at any time before 16th February 1950
and none could be made under that sub-section after that
date. Therefore neither Respondent No. 2 nor Respondent No.
1 who had been appointed as authorised Official by
Respondent No. 2 had jurisdiction to cover any period beyond
the two specific years 1942 and 1943 and the notice dated
21st November 1951 issued by Respondent No. 1 to investigate
the petitioner’s income for the period from 1940 to the last
completed assessment year was clearly illegal and without
jurisdiction.
Held, also that s. 5(1) of the Travancore Act XIV of 1124
which is to be read in juxta-position with s. 47 of the
Travancore Inc6me-Tax Act, 1121 (XXIII of 1121) is not
discriminatory and violative of the fundamental right
guaranteed under Art. 14 of the Constitution.
Section 47(1) of the Travancore Act XXIII of 1121 was
directed only against those persons concerning whom definite
information came into the possession of the, Income-tax
Officer and in consequence of which the Income-tax Officer
discovered that the income of those persons had escaped or
been under-assessed or assessed at too low a rate or had
been the subject of excessive relief. The class of persons
envisaged by s. 47(1) was a definite class about which there
was definite information leading to discovery within 8 years
or 4 years as the case may be of definite item or items of
income which had escaped assessment. The action to be taken
under Travancore Act XXIII of 1121 was not confined to
escapement from assessment of income made during the war
period (September 1939 to 1946). Action could be taken in
respect of income which escaped assessment even before the
war and also more than 8 years after the end of the war.
On the other hand under s. 5(1) of the Travancore Act XIV of
1124 the class of persons sought to be reached comprised
only these persons about whom there was no definite
information and no discovery of any definite item or items
of income which escaped taxation but about whom the
Government had only prima facie reason to believe that they
had evaded payment of tax to a substantial amount. Further,
action under s. 5(1) read with s. 8(2) of the Travancore Act
XIV of 1124 was definitely limited to the evasion of payment
of taxation on income made during the war period and
therefore s. 5(1) of the Travancore Act XIV of 1124 was not
discriminatory in comparison with s. 47(1) of the Travancore
Act XXIII of 1121.
Election Commission, India v. Saka Venkata Rao ([1953]
S.C.R. 1144), K. S. Rashid & Son v. The Income-tax
Investigation Commission, etc. ([1954] S.C.R. 738), Azmat
Ullah v. Custodian, Evacuee Property, U.P., Lucknow (A.I.R.
1955 All, 435), Burhanpur
1199
National Textile Workers Union, Burhanpur v. Labour
Appellate Tribunal of India at Bombay and others (A.I.R.
1955 Rag. 148), Joginder Singh Waryam Singh v. Director,
Rural Rehabilitation, Pepsu, Patiala and others (A.I.R. 1955
Pepsu 91), Chiranjit Lal Chowdhuri v. The Union of India
([1950] S.C.R. 869), Budhan Chowdhury and others v. The
State of Bihar ([1955] 1 S.C.R. 1045), Suraj Mall Mohta &
Co. v. A. V. Visvanatha Sastri and another ([1955] 1 S.C.R.
448), Shree Meenakshi Mills Ltd. v. Sri A. V. Visvanatha
Sastri and Another ([1955] 1 S.C.R. 787), Aswini Kumar
Ghose’s case ([1953] S.C.R. 1), Subodh Gopal Bose’s case
([1954] S.C.R. 587, 628), Kathi Baning Bawat v. The State of
Saurashtra ([1952] S.C.R. 435), Palser v. Grinling ([1948]
A.C. 291) and Kedar Nath Bajoria v. The State of West
Bengal ([1954] S.C.R. 30), referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 21 and 22
of 1954.
Appeals under Article 133(1) (c) of the Constitution of
India from the judgment and order dated the 18th September
1953 of the Travancore-Cochin High Court at Ernakulam in O.
P. No. 41 of 1952.
M.K. Nambiar, (N. Palpu, Sri Narain Andley and Rajinder
Narain) for the appellant in C. A. No. 21 of 1954 and
respondent in C. A. No. 22 of 1954.
M.C. Setalvad, Attorney-General of India (G. N. Joshi), R.
Ganapathy Iyer, Porus A. Mehta and R. H. Dhebar), for the
respondents in C. A. No. 21 of 1954 and appellants in C. A.
No. 22 of 1954.
1955. December 20. The Judgment of the Court was delivered
by
BHAGWATI J.-These two appeals with certificates under
article 133 of the Constitution are directed against a
judgment of the High Court of TravancoreCochin in a writ
petition filed by one A. Thangal Kunju Musaliar, hereinafter
called the petitioner.
The petitioner is a native of Quilon within the Travancore
State which was originally under the sovereignty of the
Maharaja of Travancore. He is the Managing Director of
Messrs A. Thangal Kunju. Musaliar & Sons Ltd., Quilon, and
bad been assessed to income-tax for the years 1942 and 1943
and the final orders in his assessment for the said years
were
1200
passed by the Chief Revenue Authority of Travancore on the
6th December 1946 and 30th November 1946 respectively.
On the 7th March 1949, the Travancore Legislature passed Act
XIV of 1124 (M.E.) modelled on our Act XXX of 1947, styled
the Travancore Taxation on Income (Investigation Commission)
Act, 1124, to provide for an investigation into matters
relating to taxation on income. Section 1(3) of the Act
provided that it was to come into force on such date as the
Travancore Government may by notification in the Government
Gazette appoint. ‘Under section 3, a Commission to be
called the Income-tax Investigation Commission was to be
constituted inter alia to investigate in accordance with the
provisions of the Act cases referred to it under section 5
and report thereon to the Government. The Commission was to
be appointed to act in the first instance up to the last day
of Karkadakom 1125 (16-8-1950) but the Government was
empowered to extend its appointment to any period up to the
last day of Karkadakom 1126 (16-8-1951). Section 5(1)
enacted that the Government might, at any time before the
last day of Makaram 1125 (15-2-1950) refer to the Commission
for investigation and report any case or points in a case in
which the Government had prima facie reasons for belief that
a person had to a substantial extent evaded payment of tax
on income together with such material as might be available
in support of such belief. Section 6 prescribed the powers
of the Commission and inter alia provided for the
appointment by the Commission of an authorised official to
examine accounts or documents, interrogate persons or obtain
statements from persons.
On the 1st July; 1949, the Travancore State and the Cochin
State integrated with each other and there was brought into
existence the United State of Travancore and Cochin. By
virtue of Ordinance I of 1124 promulgated on the same day,
called the United State of Travancore and Cochin Administra-
tion and Application of Laws Ordinance, 1124 (Ordinance I
was enacted later as Act VT of 1125),
1201
all existing laws of Travancore were to continue in force
till altered, amended or repealed by competent authority.
The existing law of Travancore was defined to mean any law
in force in the State of Travancore immediately prior to the
1st July 1949.
On the 26th July 1949, a notification was published in the
Travancore-Cochin Government Gazette whereby, in exercise of
the powers conferred by section 1(3) of the Travancore
Taxation oN Income Investigation Commission) Act XIV of 1124
as continued in force By the United State of Travancore and
Cochin Administration & Application of Laws (Ordinance, 1124
(I of 1124), the Government appointed the 7th Karkadakom
1124 (22-7-1949) to be the date on which the said Act was To
have come into force.
On the 26th November 1949 the Government of the United
State of Travancore and Cochin issued orders under section
5(1) of the Travancore Act XIV of 1124 referring the cases
of the petitioner for the years 1942 and 1943 for
investigation by the Travancore Income-tax Investigation
Commission. These orders had specific reference to the
years 1942 and 1943 and the investigation to be made by the
Commission was with reference to the alleged evasion of tax
by the petitioner for those respective years. The cases
were registered as Evasion Cases I and 2 of 1125.
On the 10th December 1949 the petitioner received from the
Secretary of the Commission a notice in regard to the said
cases. The relevant portion of the said notice stated:
“Whereas the Income-tax Investigation Commission having
been informed that a substantial portion of your income for
1942 and 1943 has escaped assessment, has ordered
investigation into the matter, you are hereby required to
produce the following on or before 21-12-1949 before the
Commission.
1. The account books (day books and ledgers) for the years
1942 and 1943.
2. …. ….. …….
3. ….. ….. …….
4. ….. …… …….
1202
5. ….. …… …..
6. …. ….. …..
Pursuant to this notice the petitioner produced the
relevant books and the Commission duly completed its
investigation under the terms of the Travancore Act XIV of
1124.
Before the Commission could, however, make its report, the
Constitution of India came into force on the 26th January
1950 and the United State of Travancore and Cochin became a
part of the territory of India,, forming, a Part ‘B’ State.
Under article 372(1) of the Constitution, the Travancore
Taxation on Income (Investigation Commission) Act, 1124
(Travancore Act XIV of 1124) was continued in force “until
altered, amended or replaced by a competent authority”
An Indian States Finance Enquiry Committee had been
appointed in 1948-49 and it had made its recommendations
regarding the agreements to be entered into between the
President of the Union and the Rajpramukhs in regard to
financial arrangements. In accordance with the
recommendations of the Committee, an agreement was entered
into on the 25th February 1950 between the President of the
Union and the Rajpramukh of Travancore-Cochin in regard to
these matters and on the 31st March 1950 the Finance Act,
1950 (Act XXV of 1950) came into force and the Indian
Income-tax Act, 1922 (XI of 1922) was extended to
Travancore-Cochin.
On the 18th April 1950, the Opium and Revenue Laws
(Extension of Application) Act, 1950, being Act XXXIII of
1950, was passed by Parliament extending to Travancore-
Cochin the Taxation on Income (Investigation commission)
Act, 1947 (XXX of 1947) and section 3 of that Act provided
that the law of Travancore corresponding to the Taxation on
Income (Investigation Commission) Act, 1947 (XXX of 1947)
shall continue to remain in force with the following
modifications, viz.,
(a) that all cases referred to or pending before the
State Commission (by whatever name called) in respect of
matters relating to taxation on income
1203
other than agricultural income shall stand transferred to
the Central Commission for disposal; and
(b) that the State law shall, so far as may be, apply
to determine the procedure that may be followed and powers
that may be exercised by the Central Commission in the
disposal of cases transferred under clause (a).
The Travancore Commission bad been appointed in the first
instance to act up to the last -day of Karkadakom 1125
116-8-1950). Neither the Travancore Commission nor the
Indian Commission to which the pending cases before the
Travancore Commission were transferred as aforesaid made any
report on these cases of the petitioner before the expiry of
this period nor was any extension of the term of appointment
of the Travancore Commission made up to the last day of
Karkadakom 11 26 (16-8-1951) as originally contemplated. On
the 25th August 1951, therefore, the Opium and Revenue Laws
(Extension of Application) Amendment Act, 1951, being Act
XLIV of 1951, was passed amending Act XXXIII of 1950 whereby
it was provided that in the place of clause (b) of section 3
of Act XXXIII of 1960, the following clause shall be
substituted and shall be deemed always to have been
substituted, viz., “in the disposal of cases transferred to
the Central Commission, the Commission shall have and
exercise the same powers as it has and exercises in the
investigation of cases referred to it under the Taxation on
Income (Investigation Commission) Act, 1947 (XXX of 1947)
and shall be entitled to act for same term as under sub-
section (3) of section 4 of that Act” and it was further
provided that any decision given by the Chief Revenue
Authority of Travancore or of Travancore-Cochin shall be
deemed a decision of the Income-tax Authority for the
purposes of sub-section (2) of section 8 of the Travancore
Act XIV of 1124.
On the 18th October 1951, a notification was issued by
the Indian Income-tax Investigation Commission appointing M.
Venkitachalam Potty, Income-tax Officer on Special Duty,
Trivandrum, as an
152
1204
authorised official under section 6 of the Travancore
Taxation on Income (Investigation Commission) Act, 1124 read
with Act XXXIII of 1950. The authorised official,
hereinafter referred to as respondent 1, forwarded to the
petitioner on the 21st November 1951 for his information a
copy of that notification, investing him with the powers of
an authorised official and intimated that the investigation
proposed to be conducted will not be confined to the years
1942 and 1943, the two years originally covered by Evasion
Cases Nos. 1 and 2 of 1125 but that it would be necessary
for him to investigate the petitioner’s income for the
period from 1940 to the last completed assessment year
notwithstanding the fact that the erstwhile State Commission
had not specifically intimated to him that they proposed to
cover the full period.
The petitioner, by his registered letter dated the 23rd
February 1952 pointed out to respondent 1 the illegality of
the steps proposed to be taken by him to which, however, the
latter replied by his letter dated the 13th March 1952
stating that he proposed to consider income for the full
investigation period, viz., from 1940 to the last completed
assessment year.
The petitioner thereupon filed on the 6th May 1952 a writ
petition in the High Court of Travancore-Cochin, being 0. P.
41 of 1952 against respondent 1 as also the Indian Income-
tax Investigation Commission, hereinafter called respondent
2, for a writ of prohibition or any other appropriate writ
or direction prohibiting the respondents from holding any
enquiry into the cases registered as Evasion Cases Nos. I
and 2 of 1125 on the file of Income-tax Investigation
Commission of Travancore or from holding any investigation
into the income of the petitioner from 1940 to the last
completed assessment year or for any other period.
Respondent 1 filed a counter-affidavit in which it was
inter alia submitted:
“that the Commission by these proceedings is not trying
to clutch at non-existent jurisdiction. They are fully
prepared to shape their proceedings in accordance with the
directions of this Hon’ble Court”.
1205
This affidavit was stated to have been filed as the
answer of both the counter-petitioners, viz., respondents I
and 2 and respondent I stated that he had been fully
authorised to do so.
The writ petition was heard by a Bench of three Judges of
the High Court consisting of K. T. Koshi, C. J. and P. K.
Subramonia Iyer and M. S. Menon, JJ. The learned Judges held
that respondent 2 bad all the powers that the Travancore
Commission had under the Travancore Act XIV of 1124 and no
-mote and accordingly issued a writ prohibiting respondent I
from conducting an investigation into years other than 1942
and 1943 observing that any attempt to enlarge the scope of
the enquiry was without legislative warrant.
The petitioner appealed in so far as the order of the High
Court was against him permitting the enquiry for the years
1942 and 1943, his appeal being Civil Appeal No. 21 of 1954.
Respondents I and 2 appealed against the order of the High
Court in so far as it prohibited respondent 1 from
conducting investigation for the years which were not
covered by the Evasion Cases Nos. I and 2 of 1125, their
appeal being Civil Appeal No. 22 of 1954.
Both these appeals came for hearing and final disposal
before us on the 20th September 1955. After the arguments
had proceeded for some time Shri Nambiyar, for the
petitioner, asked for leave to urge additional grounds,
viz., (a) that section 5(1) of Travancore Act XIV of 1124
was ultra vires under articles 14 and 19, of the
Constitution, and (b) that in particular,the said section
5(1) infringed article 14 of the Constitution inasmuch as it
was not based on any rational classification whatsoever, and
the word “substantial” therein could not possibly be deemed
to be any form of classification. On, our giving him such
leave the learned Attorney-General, appearing for
respondents I and 2 asked for time to put in an affidavit
showing the background against which Travaneore Act XIV of
1124 bad been passed by the, Travancore Legislature. An
affidavit was accordingly filed before us by Gauri Shanker,
Secretary of
1206
respondent 2 setting out facts and events as and by way of
answer to these new contentions of the petitioner.
A preliminary objection to the jurisdiction of the High
Court to entertain the writ petition may be dealt with
first. This objection was not taken in the counter-
affidavit filed by the respondents, they having expressed
their readiness to shape their proceeding,s in accordance
with the directions of the Court. The learned Advocate-
General of Travancore-Cochin, however, urged before the High
Court that the Court was not competent to entertain the
petition in view of the fact that respondent 2 was not
amenable to i s jurisdiction and the argument was that as
respondent 2 functioned outside the State of Travancore-
Cochin and respondent I was a mere subordinate of respondent
2 it was beyond the competence of the High Court to grant
the prayer embodied in the petition. The High Court
overruled the objection observing that respondent I was
resident within the State of Travancore- Cochin, his office
was situated at Trivandrum, all his communications to the
petitioner had emanated from within the State and the
activities complained about were activities confined to the
State. It was of the opinion that the prayer in the
petition was, in essence, a prayer to paralyse the hands of
respondent I and thus prevent the mischief and that, by his
residence and the location of his office within the State,
respondent 1 was clearly amenable to the jurisdiction of the
Court under article 226 of the Constitution. It was further
of opinion that the writ against respondent 1, if issued,
was sufficient for stopping the mischief complained about
and therefore it was unnecessary for it to decide whether or
not a writ could be issued so far as respondent 2 was
concerned. It, therefore, issued the necessary writ of
prohibition against respondent 1.
The learned Attorney-General pressed this preliminary
objection at the outset while arguing Civil Appeal No. 22 of
1954. He pointed out that respondent 2 had its office in
New Delhi and was permanently located there and the mere
fact of its having appointed res-
1207
pondent 1 to function and carry on the investigation within
the State. of Travancore under its direction did not make it
amenable to the jurisdiction of the High’ Court. He,
therefore, contended that the High Court had no jurisdiction
to entertain the writ petition against respondent 2. He
further contended that the High Court could not do
indirectly what it was not able to do directly and that it
could not issue any writ of prohibition against respondent 1
either even though he had his office at Trivandrum and had a
permanent location within the jurisdiction of the High Court
inasmuch as he was merely an arm of respondent 2 and any
writ issued against him would have the indirect effect of
prohibiting respondent 2 from exercising its legitimate
functions within the ambit of its powers under the
Travancore Act XIV of 11 24 read with Act XXX of 1950 and
Act XLIV of 1951.
Reliance was placed by him on the decision of this Court in
Election Commission, India v. Saka Venkata Rao(1). The
respondent in that case bad applied to the High Court of
Madras under article 226 for a writ restraining the Election
Commission, a statutory authority constituted by the
President and having its office permanently located at New
Delhi, from enquiring into his alleged disqualification for
membership of the Assembly, and a single Judge of the High
Court had issued a writ of prohibition restraining the
Election Commission from doing so. The Election Commission
filed an appeal to this Court and agitated the question of
the jurisdiction of the High Court under article 226 to
issue the writ against it. While discussing this question,
Patanjali Sastri, C.J., who delivered the judgment of the
Court, observed as under:-
“But wide as were the powers thus conferred, a two-fold
limitation was placed upon their exercise. In the first
place, the power is to be exercised “throughout the,
territories in relation to which it exercises jurisdiction”,
that is to say, the writs issued by the Court cannot run
beyond the territories subject to its jurisdiction.
Secondly, the person or authority to
(1) [1953] S.C.R. 1144.
1208
whom the High Court is empowered to issue such writs must be
“within those territories”, Which clearly implies that they
must be am-enable to its jurisdiction either by residence or
location within those territories”.
The learned Chief Justice then traced the origin and
development. of the power to issue prerogative writs as a
special remedy in England and observed at page 1151:-
“These writs were thus specifically directed to the
persons or authorities against whom redress was sought and
were made returnable in the Court issuing them and, in case
of disobedience, were enforceable by attachment for
contempt. These characteristics of the special form of
remedy rendered it necessary for its effective use that the
persons or authorities to whom the Court was asked to issue
these writs should be within the limits of its territorial
jurisdiction”.
The mere functioning, of the tribunal or authority
permanently located and normally carrying on its activities
elsewhere, within the territorial limits was not considered
sufficient to invest the High Court with jurisdiction under
article 226 nor was the accrual of the cause of action
within the territories considered sufficient for the
purpose. The residence or location within the territories
of the person or authority was considered a condition of the
High Court being empowered to issue such writs with the
result that the Election Commission having its office
permanently located at New Delhi was held not amenable to
the jurisdiction of the High Court for the issue of a writ
under article 226.
This decision in Saka Venkata Rao’s case was followed by
this Court in K. S. Rashid & Son v. The Income-tax
Investigation Commission, etc.(1). In that case, the
assesses who were within the state of U.P. and whose
original assessments were made by the income-tax authorities
of that State had filed writ petitions in the Punjab High
Court for the issue of writs tinder article 226 to the
Income-tax Investigation-Commission located in Delhi and
investigating
(1) [1954] S.C.R. 738.
1209
their cases under -section 5 of the Taxation on Income
(Investigation Commission) Act, 1947. The Punjab High Court
had sustained the objection urged on behalf of the
respondents to the effect that the assesses having belonged
to the State of U.P. their assessment was to be made by the
Income-tax Commissioner of that State and the mere fact that
the location of the Investigation Commission was in Delhi
would not confer jurisdiction on the Punjab High Court to
issue writs under article 226 and had dismissed the
petitions. This Court, on appeal, distinguished the
decision in Parlakimidi’s case which was sought to be relied
upon by the respondents before it and followed the position
in law as it bad been enunciated in Saka Venkata Rao’s case,
supra, and held that the Punjab High Court had jurisdiction
to issue a writ under article 226 to the Investigation
Commission which was located in Delhi in spite of the fact
that the assesses were within the State of U.P. and their
original assessments were made by the income-tax authorities
of that State.
The principle of these decisions would, it was urged by
the learned Attorney-General, eliminate respondent 2 and the
High Court of Travancore-Cochin would have no jurisdiction
to entertain the writ petition against it.
It was, however, urged on behalf of the petitioner that,
in the affidavit filed by the respondents, both the
respondents had submitted that they were fully prepared to
shape their proceedings in accordance with the directions of
the Court. This, it was submitted, was a voluntary
submission to the jurisdiction of the High Court investing
the High Court with jurisdiction to issue the appropriate,
writ against respondent 2. We need not, however, express any
opinion on this point because no writ was in fact issued by
the High Court against respondent 2 nor was any appeal filed
by the petitioner against that part of the decision of the
High Court.
The real question, however, is whether a writ could issue
against respondent 1 who is, it was submitted, a mere arm of
respondent 2 and a writ against whom
1210
would be equivalent to a writ issued by the High Court
against respondent 2 which it had no jurisdiction to do.
An authorised official derives his appointment from the
Commission under section 6 of the Travancore Act XIV of
1124. Section 6(4) of the Act provides that if in the
course of any investigation conducted by the Commission it
appears to the Commission to be necessary to examine any
accounts or documents or to interrogate any person or to
obtain any statement from any person the Commission may
authorise any income-tax authority not below the rank-of an
income-tax officer (called the “authorised official”) in
that behalf subject to such directions as may be issued by
the Commission from time to time and the authorised official
shall examine the accounts or documents, interrogate the
persons and obtain the statements from the persons. The
authorised official is invested, under section 6, sub-
section (5), subject to the direction of the Commission,
with the same powers as the Commission under sub-sections
(1), (2) and (3) which empower the Commission to require any
person or banking or other company to prepare and furnish
written statements of accounts and affairs giving
information on such points or matters as in the opinion of
the Commission may directly or indirectly be useful or
relevant to any case referred to it; to administer oaths and
exercise all powers of a Civil Court under the Code of Civil
Procedure for the purpose of taking evidence on oath,
enforcing attendance of witnesses and of persons whose cases
are being investigated, compelling the production of docu-
ments and issuing commissions for the examination of
witnesses and to impound and retain in its custody for such
period as it thinks fit any documents produced before it.
The authorised official is, under section 6, sub-section
(10), to have full and free access to all documents, books
and other papers which in his opinion are relevant to the
proceedings in any case or cases under the Act and if
specially authorised in this behalf by the Commission to any
buildings and places where he may have reason to believe
that such books,
1211
documents or papers may be found and also to have power to
place identification marks on such books, documents or
papers and to make extracts or copies therefrom or if he
considers it necessary to take possession of or seize -such
books, documents or papers. Under section 6, sub-section
(11), the authorised official is deemed to be a public
servant within the meaning of section 16 of the Travancore
Penal Code (I of 1074).
It is clear from the above provisions that the authorised
official has considerable powers conferred upon him in the
conduct of the investigation and even though he could be
called a mere arm of the Commission or an authorised agent
of the Commission, he has important functions to discharge
and is not merely a mouth-piece of the Commission or a con-
duit-pipe transmitting the orders or the directions of the
Commission. He is no doubt under the general control and
supervision of the Commission but he performs the various
functions assigned to him on his own initiative and in the
exercise of his discretion. If, therefore, he does anything
in the discharge of his functions as authorised official
which is not authorised by law or is violative of the
fundamental rights of the petitioner, he would be amenable
to the jurisdiction of the High Court under article 226.
Even though this is the prima facie position, it was urged
that he is acting under the directions of the Commission as
its authorised agent and as such no writ can issue against
him, because the principal who directs the activities and
not the agent would be liable for the same. This contention
is unsound. There can be no agency in the matter of the
commission of a wrong. The wrong doer would certainly be
liable to be dealt with as the party directly responsible
for his wrongful action. The relationship between principal
and agent would only be relevant for the purpose of
determining whether the principal also is vicariously liable
for the wrong perpetrated by his agent. On the analogy of
criminal liability, the
153
1212
offender could certainly not be heard to say that he was
committing the offence under the behest or directions of his
principal. On the analogy of a civil wrong, the tortfeasor
could certainly not protect himself against liability on the
ground of having committed the tort under the directions of
his principal. The
agent could in no event exculpate himself from liability for
the wrongful act done by him and if he is thus amenable to
the jurisdiction of the High Court the High Court could
certainly issue an appropriate writ against him under
article 226. The jurisdiction under article 226 is
exercised by the High Court in order to protect and
safeguard the rights of the citizens and wherever the High
Court finds that any person within its territories is guilty
of doing an act which is not authorised by law or is
violative of the fundamental rights of the citizen, it
exercises that jurisdiction in order to vindicate his rights
and redress his grievances and the only conditions of its
exercise of that jurisdiction are those laid down in the
passage from Patanjali Sastri, C.J.’s judgment cited above.
The argument that by issuing a writ against the agent under
those circumstances the High Court would be putting him in a
position whereby he would be compelled to disobey the
directions of his principal is also of no avail for the
simple reason that an agent is bound to obey all lawful
directions of his principal and not directions which the
High Court holds to be unlawful or not justified in law.
The agent could certainly be prohibited from obeying the un-
lawful directions of his principal and even if the principal
cannot be reached by reason of his being outside the
territories, the arm of the law could certainly reach the
agent who is guilty of having committed the wrong and the
High Court could certainly issue a writ against him under
article 226.
It was further contended that by issuing such a writ
against the authorised official the High Court would be
indirectly prohibiting the Commission from conducting the
investigation within the territories even though it could
not directly prohibit the Com-
1213
mission from doing so. If the Commission was doing
something within the territories through its authorised
official which was not justified in law, it would not lie in
the mouth of the Commission to urge that the High Court
could not issue a writ of prohibition against its agent, the
authorised official, who had his residence or permanent
location within the territories merely because it would be
indirectly prohibited from perpetrating a wrong within the
territories. The principal could, in no event, urge that
his agent should be allowed to function for him within the
territories in a manner which was not warranted by law or
had no justification in law. It is expected that once this
Court has declared the law the Investigation Commission
would comply with it and not place its agent in the wrong by
directing him to act contrary to the law so declared.
Our attention was drawn by the learned Attorney-General
in this connection to three recent decisions of the High
Courts of Allahabad, Nagpur and Pepsu which, according to
him, supported his contention, viz., Azmat Ullah v.
Custodian, Evacuee Property, U.P., Lucknow(1), Burhanpur
National Textile Workers Union, Burhanpur v. Labour
Appellate Tribunal of India at Bombay and others(2) and
Joginder Singh Waryam Singh v. Director, Rural
Rehabilitation, Pepsu, Patiala and others(2). These
decisions, however, are clearly not in point for, in each of
them, the order passed by the authority within the
territories and accordingly within the jurisdiction of the
High Court concerned had merged in the order of the superior
authority which was located outside the territories and was,
therefore, beyond the jurisdiction of that High Court. In
that situation, a writ against the inferior authority within
the territories could be of no avail to the petitioner
concerned and could give him no relief for the order of the
superior authority outside the territories would remain
outstanding and operative against him. As, therefore, no
writ could be issued against that outside authority and as
the
(1) A.I.R. 1955 All. 435. (2) A.I.R. 1955 Nag. 148.
(3) A.I.R. 1955 Pepsu 91.
1214
orders against the authority within the territories would,
in view of the orders of the superior authority, have been
infructuous, the High Court concerned had, of necessity, to
dismiss the petition. Such, however, was not the position
in the present petition before the High Court of Travancore-
Cochin. There was here no question of merger of any
judicial order of respondent I into the judicial order of
respondent 2. In this case respondent 1 was actually
claiming to exercise powers conferred upon him by certain
sections of the Travancore Act XIV of 1124 which, it was
submitted, were contrary to law or discriminatory and
consequently ultra vires the Constitution. The fact that
respondent 1 was the agent of respondent 2, which being
beyond its jurisdiction could not be reached by the High
Court, could not make his acts any the less objectionable or
discriminatory and ultra vires. It is sufficient to say
that if his action was contrary to law-or if the provisions
of law under which he was claiming to act became, after the
commencement of the Constitution, void under article 13(1)
as being repugnant to article 14 and the doer of the illegal
act was within the reach of the High Court, the High Court
had jurisdiction under article 226 to issue a writ against
respondent I and thereby prevent further infringement of the
petitioner’s fundamental rights. The preliminary objection
urged by the learned Attorney-General against the jurisdic-
tion of the High Court, therefore, fails.
The next question canvassed in Civil Appeal No. 22 of
1954 was that respondent 2 was entitled to investigate the
alleged evasion of tax by the petitioner not only for the
years 1942 and 1943 but also the other years from 1940 to
the last completed assessment year. The decision of this
question turns on a construction of the terms, of the
references made by the Government of the United State of
Travancore and Cochin under section 5(1) of the Travancore
Act XIV of 1124. A report dated the 17th November 1949 had
been made by the Board of Revenue in regard to the income-
tax assessment of the petitioner for the years 11 19 and
1120(M.E.) and two orders were passed
1215
on the 26th November 1949 by the Government on -the strength
of that report. The first of these orders related to
taxation on the petitioner’s income for 1119 and the second
related to the taxation on his income for 1120. The return
of income for the year ending the 31st December 1942 was the
subject-matter of the first order and after setting out the
materials in the order the Government stated that they had
prima facie reasons for believing that the petitioner had to
a substantial extent evaded payment of tax on his income for
1119 and they considered that this was a fit case for
reference to the Income-tax Investigation ‘Commission under
section 5(1) of the Act. The second order referred to the
petitioner’s return of income for the year ending the 31st
December 1943 and after ,setting out the materials, wound up
similarly by stating that the Government had Prima facie
reasons for believing that the petitioner bad to a
substantial extent evaded payment of tax on his income for
1120 and they considered that this was a fit case for ref-
erence to the Income-tax Investigation Commission under
section 5(1) of the Act.
A cursory perusal of the Travancore Act XIV of 1124 will
show that the Commission had no authority to investigate any
case suo motu. It could only investigate cases referred to
it by the Government. Thus under section 5(1), Government
might refer to it for investigation and report any case or
points in a case in which the Government had prima facie
reasons for believing that a person had to a substantial
extent evaded payment of taxation on income. Such
reference, however, could be made at anytime before the 16th
February 1950 but not later. Again, under sub-section (4)
of the same section, if in the course of investigation into
any case or points in a case referred to it under sub-
section (1) the Commission bad reason to believe that some
other person had evaded payment of taxation on income or
some other points required investigation, it might make a
report to the Government and the Government would forthwith
refer to the Commission for investigation the case of such
other person or such additional points as might
1216
be indicated in that report. All that was done in the
present case was that by two separate orders made under
section 5(1) of the Act the Government referred two cases of
the petitioner for the two years 1942 and 1943 to the
Commission and they were registered as Evasion Cases Nos. 1
and 2 of 1125. There was no other order under section 5(1)
at any time before the 16th February 1950 and none could be
made under that sub-section after that date. It was not
suggested that there was any report by the Commission or any
reference of any case or additional points in a case under
section 5(4). It was, therefore, contended for the
petitioner that the Commission had no jurisdiction to
enquire into any alleged evasion in any year prior or
subsequent to the years 1942 and 1943. The learned
Attorney-General, on the other hand, contended that the
Government could, under section 5(1) of the Act, only refer
the case of the petitioner who was reasonably suspected to
have evaded the tax and, therefore, the whole case of the
petitioner for all the years referred to in section 8(2) of
the Act was the subject-matter of the investigation which
bad been entrusted to the Commission.
We are unable to accept this contention. Under section
5(1) the Government could refer any case or points in a
case. There is nothing in that sub-section which requires
that a “case” referred thereunder must cover the entire
period mentioned in section 8(2). Indeed, the Government
might have reason to believe that an assessee evaded the tax
only in, say, two years and not in others and in such a case
the Government could only refer the case for investigation
of evasion during those two years only but could not refer
any case for other years as to which they had no reasonable
belief Therefore, in such a situation the reference must be
limited to the particular years in which the evasion was
believed to have taken place. It makes no difference
whether one calls the matter referred a “case” or “points in
a case”. It follows, therefore, that, in order to ascertain
whether, in a given case, the reference covers the entire
period or only a shorter period, one has only to look at the
order
1217
of reference. The operative parts of the two orders of
reference dated the 26th November 1949 in the present case
clearly record the fact that the Government had prima facie
reasons for believing that the petitioner had to a
substantial extent evaded payment of taxation on his income
for 1119 and 1120 (M.E.) and that they considered that “this
was a fit case for reference to the Income-tax Investigation
Commission under section 5(1) of Act XIV of 1124″. What was
a fit case for reference was described as “this” which
clearly referred back to the evasion of payment on taxation
on income for the two specific years in the two orders. It
is, therefore, clear that neither respondent 2 nor
respondent I who was appointed an authorised official by
respondent 2 had jurisdiction to cover any period beyond
those specific years 1942 and 1943 and the notice which was
issued by respondent I on the 21st November 1951 was,
therefore, not warranted by law. Respondent I had no
warrant or authority whatever for issuing the said notice
and we are of the opinion that the High Court was right in
the conclusion to which it -came that the action of
respondent 1 was clearly illegal, without jurisdiction and
unsupported by law. The writ of prohibition issued against
respondent I was, therefore, in order and Civil Appeal No.
22 of 1954 must stand dismissed with costs.
As regards Civil Appeal No. 21 of 1954, the petitioner
contended that respondent 2 had no power or authority to
conduct an investigation in regard to the alleged evasion of
tax by the petitioner for the years 1942 and 1943 also.
Shri Nambiyar urged that:
(1)The Travancore Act XIV of 1124 was not a law in force
prior to the integration and was not an “existing law”
continued in force by Ordinance I of 1124;
(2)The notification dated the 26th July 1949 which
purported to bring the Travancore Act XIV of 1124 into force
as from the 22nd July 1949 was in effective and invalid;
(3) Even if the Travancore Act XIV of 11 24 was
1218
in force, it could not apply to or override the assessment
orders concluded by the Chief Revenue Authority, Travancore;
(4) The Rajpramukh’s agreement read with article 245
of the Constitution precluded any investigation except in
accordance with the Travancore Act XIV of 1124 and Act
XXXIII of 1950 amended by Act XLIV of 1951 was invalid to
the extent that it authorised investigation otherwise than
in accordance with the Travancore Law;
(5) Assuming all the foregoing points were held
against the petitioner, section 5(1) of the Travancore Act
XIV of 1124 was in any event unconstitutional and void as
being inconsistent with article 14 of the Constitution.
Re. (1): The Travancore Act XIV of 1124 was passed by the
Travancore Legislature on the 7th March 1949. It was,
however, under section 1(3) to come into force on such date
as the Travancore Government might by notification in the
Government Gazette appoint. No such notification was issued
by the Travancore Government UP to the 1st July 1949 when
the Travancore State and the Cochin State integrated into
the United State of Travancore and Cochin. On the 1st July
1949, the United State of Travancore and Cochin promulgated
Ordinance I of 1124 whereby all existing laws of Travancore
were continued in force till altered, amended or repealed
by-competent authority and the “existing law of Travancore”
was therein defined to mean any law in force in the State of
Travancore immediately prior to the 1st July 1949. It was
only on the 26th July 1949 that a notification was issued
under section 1(3) by the United State of Travancore and
Cochin bringing Act XIV of 1124 into force retrospectively
from 22nd July, 1949.
The contention put forward on behalf of the petitioner was
that as no notification under section 1(3) of Act XIV of
1124 had been issued up to the 1st July 1949, that Act had
not been brought into force and was not in force on that
date and, therefore, was not then an “existing law” which
alone was given conti-
1219
nuity by Ordinance I of 1124 which was promulgated on that
very day. The contention further was that, in the
circumstances the Act was not continued by Ordinance I of
1124 but had lapsed and, therefore, the subsequent
notification issued on the 26th July 1949 was wholly
ineffective and consequently the reference of the cases of
the petitioner to the Commission for investigation under
section 5(1), the appointment of respondent I as the
authorised official and the notices issued by him were
unauthorised and wholly devoid of any authority of law. The
question for our consideration is whether Act XIV of 1124 or
any part of it was, on the 1st July 1949, an existing law.
The general rule of English law, as to the date of the
commencement of a statute, since 1797, has been and is that
when no other date is fixed by it for its coming into
operation it is in force from the date when it receives the
royal assent (33 Geo. 3. c. 13). The same rule has been
adopted in section 5 of our General Clauses Act, 1897. We
have not been referred to any Travancore Law which provides
otherwise. If, therefore, the same principle prevailed in
that State, Travancore Act XIV of 1124 would have come into
force on the 7th March 1949 when it was passed by the
Travancore Legislature. What prevented that result? The
answer obviously points to section 1(3) which authorises the
Government to bring the Act into force on a later date by
issuing a notificated. How could section 1(3) operate to
postpone the commencement of the Act unless that section
itself was in force? One must, therefore, concede that
section 1(3) came into operation immediately the Act was
passed, for otherwise it could not postpone the coming into
operation of the Act. To put the same argument in another
way, if the entire Act including section 1(3) was not in
operation at the date of its passing, how could the
Government issue any notification under that very section?
There must be some law authorising the Government to bring
the Act into force. Where is that law to be found unless it
were in section 1(3)? In answer, Shri Nambiyar referred
154
1220
is to the principle embodied in section 37 of the English
Interpretation Act which corresponds to section 22 of our
General Clauses Act. That section does not help the
petitioner at all. All that it does is to authorise the
making of rules or bye-laws and the issuing of orders
between the passing and the commencement of the enactment
but the last sentence of the section clearly says that
“rules, bye-laws or orders so made or issued shall not take
effect till the commencement of the Act or Regulation”.
Suppose Shri Nambiyar is right in saying that the Government
could issue a notification under section 1(3) by virtue of
the principle embodied in section 22 of the General Clauses
Act, it will not take his argument an inch forward, for that
notification, by reason of the last sentence of section 22
quoted above, will not take effect till the commencement of
the Act. It will bring about a stalemate. It is,
therefore, clear that a notification bringing an Act into
force is not contemplated by section 22 of the General
Clauses Act. Seeing, therefore, that it is section 1 (3)
which operates to prevent the commencement of the Act until
a notification is issued thereunder by the Government and
that it is section 1(3) which operates to authorise the
Government to issue a notification thereunder, it must be
conceded that section 1(3) came into force immediately on
the passing of the Act. There is, therefore, no getting
away from the fact that the Act was an “existing law” from
the date of its passing right up to the 1st July 1949 and
was, consequently, continued by Ordinance I of 1124. This
being the position, the validity of the notification issued
on the 26th July 1949 under section 1(3), the reference of
the case of the petitioner, the appointment of respondent 1
as the authorised official and all proceedings under the
Travancore Act XIV of 1124 cannot be questioned on the
ground that the Act lapsed and was not continued by
Ordinance I of 1124.
Re. (2): It is urged that the notification issued on the
26th July 1949 was bad in that it purported to bring the Act
into operation as from the 22nd July 1949. The reason
relied upon is that the Govern-
1221
meat could not, in the absence of express provision,
authorising it in that behalf, fix the commencement of the
Act retrospectively. The reason for which the Court
disfavours retroactive operation of laws is that it may
prejudicially affect vested rights. No such, reason is
involved in this case. Section 1(3) authorises the
Government to bring the Act into force on such date as it
may, by notification, appoint. In exercise of the power
conferred by this section the Government surely had the
power to issue the notification bringing the Act into force
on any date subsequent to the passing of the Act. There
can, therefore, be no objection to the notification fixing
the commencement of the Act on the 22nd July 1949 which was
a date subsequent to the passing of the Act. So the Act has
not been given retrospective operation, that is to say, it
has not been made to commence from a date prior to the date
of its passing. It is true that the date of commencement as
fixed by the notification is anterior to the date of the
notification but that circumstance does not attract the
principle disfavouring the retroactive operation of a
statute. Here there is no question of affecting vested
rights. The operation of the notification itself is not
retrospective. It only brings the Act into operation on and
from an earlier date. In any case it was in terms
authorised to issue the notification bringing the Act into
force on any date subsequent to the passing of the Act and
that is all that the Government did. In this view of the
matter, the further argument advanced by the learned
Attorney-General and which found favour with the Court
below, namely, that the notification was at any rate good to
bring the Act into operation as on and from the date of its
issue need not be considered. There is no substance in this
contention also.
Re. (3): It was urged that, even if the Travancore Act XIV
of 1124 was in force on the 1st July 1949 and was validly
brought into operation from the 22nd July 1949, the terms of
section 8(2) of the Act could not apply to or override the
assessment orders of the petitioner for the years 1942 and
1943 which
1222
were concluded by the Chief Revenue Authority of Travancore.
Section 8(2) of the Act provided that, after considering the
report of the Commission, the Government shall, by an order
in writing, direct that such proceedings as they think fit
under the various Income-tax Acts of Travancore therein
mentioned or any other law shall be taken against the person
to whose case the report relates in respect of the income of
any period commencing after the last day of Karkadakom 1115
(16-8-1939) and upon such a direction being given such
proceedings may be taken and completed under the appropriate
law notwithstanding any decision to a different effect given
in the case by any income-tax authority or Income-tax
Appellate Tribunal. It was contended that the Chief Revenue
Authority was not included in the description of ”any
income-tax authority” and, therefore, even if the report of
respondent 2 was adverse to the petitioner the assessment
orders which were concluded by the Chief Revenue Authority
could not be affected by the provisions of section 8(2) and
could not be reopened.
This argument is based on a misconception of the true
position of the Chief Revenue Authority. The Chief Revenue
Authority was an income-tax authority mentioned in the
hierarchy under the Travancore Act VIII of 1096. When the
Travancore Act XXIII of 1121 came to be passed, the income-
tax authorities enumerated therein included the Board of
Revenue at the apex., substituting the Board of Revenue for
the Chief Revenue Authority which occupied a similar
position in the old Act. By section 10 of the Travancore
Act XIV of 1124, the Travancore Act VIII of 1096 was deemed
to be in force for the purpose of the Act and to the extent
necessary, with the result that in construing the provisions
of section 8(2) of the Act, the words “any income-tax auth-
ority” would include the Chief Revenue Authority which was
an income-tax authority under the Travancore Act VIII of
1096. It may also be noted that section 4 of the Travancore
Act XVII of 1122 continued all proceedings and petitions
pending before the
1223
Chief Revenue Authority and provided that the same may be
disposed of by the said authority or by such authority as
may be appointed by the Government for the purpose as if the
‘Said Travancore Act VIII of 1096 bad not been repealed.
It, therefore, follows that the Chief Revenue Authority was
included within the expression “any income-tax authority” in
section 8(2) of the Act and the assessment orders of the
petitioner for the years 1942 and 1943 which were concluded
by the Chief Revenue Authority could be affected or
overridden by any order which might be passed by the
Government under section 8(2) of the Act. This contention
of the petitioner also, there-fore, does not avail him.
Re. (4): The Indian States Finance Enquiry Committee 1948-
49 made two interim reports. It recommended in the first
interim report that subject to certain limitations indicated
therein which were designed to secure -legal “continuity” of
pending proceedings and “finality and validity” of completed
proceedings under the pre-existing State legislation, the
whole body of State legislation relating to “federal”
subjects should be repealed and the corresponding body of
Central legislation extended proprio vigore to the States
with effect from the prescribed date or as and when the
administration of particular “federal” subjects was assumed
by the Centre. All matters and proceedings pending under or
arising out of preexisting States Acts should be disposed of
under those Acts by, so far as may be, the “corresponding
authorities” under the corresponding Indian Acts. The
income, profits and gains accruing and arising in States of
all periods which were ‘previous years’ of the States
assessment years 1949-50 or earlier should be assessed
wholly and in accordance with the States’ laws and at the
States’ rates respectively, appropriate to the assessment
years concerned. Except in Travancore, there was no Income-
tax Investigation Commission in any State. Should the
Travancore Commission still be functioning at the time of
the federal financial integration, all cases pending before
it should be taken over by
1224
the Indian Commission. The disposal of those cases should,
however, (as in the case of pending assessments) be in
accordance with the pre-existing Travancore Law. It
recommended in the Second Interim Report that the Travancore
Commission should be wound up and the cases referred to it
should be transferred to the corresponding Commission in
India.
These recommendations of the Committee in so far as they
applied to Travancore-Cochin were accepted by and
incorporated into the agreement entered into between the
President of India and the Rajpramukh of Travancore-Cochin
on the 25th February 1950 subject to certain modifications
which are not relevant for the purpose of the present
enquiry. The result of the agreement was the enactment of
Act XXXIII of 1950 which extended to Travancore-Cochin the
Act XXX of 1947 and section 3 of that Act provided that the
law of Travancore corresponding to Act XXX of 1947 shall
continue to remain in force with the modification that all
cases referred to or pending before the Travancore
Commission shall stand transferred to the Central Commission
for disposal and that the State law shall determine the
procedure to be followed and the powers to be exercised by
the Central Commission in the disposal of those cases.
Evasion Cases Nos. 1 and 2 of 1125 which were pending before
the Travancore Commission thus became transferred to res-
pondent 2 and were to be disposed of in accordance with the
procedure laid down and the powers conferred on the
Travancore Commission by the Travancore Act XIV of 1124.
Two questions, however, arose in the matter of this
investigation by respondent 2, viz., (1) whether the life of
the Travancore Commission, not having been extended beyond
16-8-1950, respondent 2 had the power and authority to
continue the investigation of the cases of the petitioner
after 16-8-1950, and, (2) whether any orders passed by the
Government on the report made by respondent 2 would have the
effect of overriding the assessment orders concluded by the
Chief Revenue Authority, Travancore, in cases of the
petitioner for the years 1942 and 1943.
1225
In regard to the first question, it was urged by Shri
Nambiyar that the life of the Travancore Commission having
come to an end on the 16th August 1950, respondent 2 also,
which was its successor and to which the pending cases of
the petitioner were transferred, could not function beyond
16-8-1950. Parliament, however, passed, on the 26th August
1951, Act XLIV of 1951 amending Act XXXIII of 1950 whereby
it provided with retrospective effect that, in the disposal
of cases transferred to respondent 2, it shall have and
exercise the same powers as it has and exercises in the
investigation of cases transferred to it under Act XXX of
1947 and shall be entitled to act for the same term as under
sub-section (3) of section 4 of that Act thus extending the
life of respondent 2 beyond 16-8-1950. This) it was
submitted, Parliament was not competent to do by reason of
the terms of the agreement dated the 25th February, 1950,
the effect of the enactment of Act XLIV of 1951 being to
amend the law of the Travancore State which was to govern
the investigation of pending cases by respondent 2. The
agreement was one which was contemplated under article 295
of the Constitution and, being provided by the Constitution
itself, was a bar to the legislative competence of the
Central Legislature under article 245. The Central
Legislature, it was submitted, was, therefore, not competent
to pass Act XLIV of 1951 extending the life of respondent 2
beyond 16-8-1950 and respondent 2 was, therefore, not
entitled to carry on any further investigation in the
Evasion Cases Nos. 1 and 2 of 1125.
Considerable argument was addressed to us on the effect of
the agreement on the legislative competence of the Central
Legislature under article 245. We do not, however, consider
it necessary to decide this question as, in our opinion, the
life of respondent 2 was not a part of the law of Travancore
State which was to govern the procedure followed or the
powers exercised by it in the investigation of the cases of
the petitioner. Respondent 2 to which the pending cases of
the petitioner were transferred, was a body -with a longer
lease of life and the fact that the Travancore
1226
Commission had a shorter lease could not have the effect of
curtailing the life of respondent 2. The life of respondent
2 depended upon the law which established it and it was
extended from time to time by subsequent legislation up to
December, 1955, and that accident which gave to respondent 2
a longer lease of life did not contravene any provision of
the Travancore law which determined the procedure to be
followed and the powers to be exercised by the Travancore
Commission. The transfer to respondent 2 of the cases
pending before the Travancore Commission, of necessity
involved that those cases would be dealt with by respondent
2 which had a longer lease of life and respondent 2 could
conduct the investigation of these cases and complete the
same within the span of life which had been allotted to it
by the relevant provisions of the Indian Law, the only
limitations imposed upon the conduct of such investigation
being that the procedure to be followed as also the powers
to be exercised by it would be those obtaining in the
Travancore Law. Act XLIV of 1951 merely accepted this
position and there was nothing in that Act which ran counter
to the agreement.
As regards the second question also, the Chief Revenue
Authority, as observed before, was an income-tax authority
within the meaning of the term as used in section 8(2) of
the Travancore Act XIV of 1124 read with section 10 of that
Act which continued in force the provisions of the
Travancore Act VIII of 1096 so far as it was necessary for
the purpose of the Act. There also Act XLIV of 1951 did not
make any changes in the existing Travancore Law which was to
govern the investigation of the pending cases by respondent
2. This contention of the petitioner, therefore, is equally
untenable.
Re. (5): This contention urged by Shri Nambiyar questions
the vires of section 5(1) of the Travancore Act XIV of 1124.
This section provides:
“Section5(1):Our Government may at any time before the
last day of Makaram 1125 refer to the Commission for
investigation and report any case or
1227
points in a case in which our Government have prima facie
reasons for believing that a person has to a substantial
extent evaded payment of taxation on income, together with
such material as may be available in support of such belief,
and may at any time before the last day of Meenam 1125 apply
to the Commission for the withdrawal of any case or points
in a case thus referred, and if the Commission approves of
the withdrawal, no further proceedings shall thereafter be
taken by or before the Commission in respect of the case or
points so withdrawn”.
It corresponds to section 5(1) of the Taxation on Income
(Investigation Commission) Act, 1947 (XXX of 1947) which
reads as under:
“Section 5 (1): The Central Government may at any time
before the last day of September 1948 refer to the
Commission for investigation and report any case or points
in a case in which the Central Government has prima facie
reasons for believing that a person has to a substantial
extent evaded payment of taxation on income, together with
such material as may be available in support of such belief,
and may at any time before the first day of September 1948
apply to the Commission for the withdrawal of any case or
points in a case thus referred, and if the Commission
approves of the withdrawal, no further proceedings shall
thereafter be taken by or before the Commission in respect
of the case or points so withdrawn”.
We may also at this stage refer to the provisions of
section 47 of the Travancore Act XXIII of 1121 which relates
to income escaping assessment:
“Section 47(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 at too low a 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 assessed has concealed the particulars
of his income or deliberately furnished inaccu-
155
1228
rate 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 officer thereof, a notice containing all or
any of the requirements which may be included in a notice
under subsection (2) of section 29, and may proceed to
assess or re-assess 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: ………………..”
The corresponding provision of the Indian Income tax Act
was contained in section 34 which provided:
“Section 34(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 assesses at too low a rate, or
have been the subject of excessive relief under this Act the
Income-tax Officer may, in any case in which be has reason
to believe that the assessed 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 officer thereof, a notice containing all or
any of the requirements which may be included in a notice
under subsection (2) of section 22, and may proceed to
assess or re-assess 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: ……………..”
Section 34 of the Indian Income-tax Act was amended by Act
XLVIII of 1948 which received the assent of the Governor-
General on the 8th September 1948. It was further amended
by the Indian Income-tax Act, 1954 (XXXIII of 1954) which
was assented to by the President on the 25th September
1229
1954 and introduced sub-sections (1-A) to (1-D) therein.
It may, however, be noted that no amendment was made in
section 47 of the Travancore Act XXIII of 1121 at any
subsequent period and the question as to whether the
provisions of section 5(1) of the Travancore Act XIV of 1124
became discriminatory and violative of the fundamental right
guaranteed under article 14 of the Constitution will have to
be determined with reference to the provisions of that sec-
tion set out above.
The true nature, scope and effect of article 14 of the
Constitution have been explained by this Court in a series
of cases beginning with Chiranjit Lal Chowdhuri v. The Union
of India(1) and ending with Budhan Chowdhury and others v.
The State of Bihar(2). It is, therefore, not necessary to
refer to the earlier cases and it will suffice to quote the
principle as summarised in the decision of the Full Court in
the last mentioned case at page 1049 in the following terms:
“It is now well-established that while article 14 forbids
class legislation, it does not forbid reasonable
classification for the purposes of legislation. 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 differentia 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 bet-
ween the basis of classification and the object of the Act
under consideration. It is also well-establisbed by the
decisions of this Court that article 14 condemns
discrimination not only by a substantive law but also by a
law of procedure”.
The principles underlying article 14 of the Constitution
are well-settled. The only difficulty which
(1) [1950] S.C.R. 869. (2) [1955] 1 S.C.R. 1045.
1230
arises is in regard to the application of those principles
to the facts of a particular case and the Court has to
consider the terms of the impugned legislation having regard
to the background and the surrounding circumstances so far
as it may be necessary to do so in order to arrive at a
conclusion whether it infringes the fundamental right in
question.
Section 5(1) of Act XXX of 1947 (which is in pari materia
with section 5(1) of the Travancore Act XIV of 1124) was
impugned in the case of Suraj Mall Mohta & Co. v. A. V.
Visvanatha Sastri and another(1). The references for
investigation in that case had been made in pursuance of a
report made by the Commission to the Central Government
under the provisions of section 5(4) of the Act requesting
that the ‘Case of the petitioner along with other cases may
be referred to the Commission for investigation. The
contention urged on behalf of the petitioner was that the
provisions of sections 5(1), 5(4), 6, 7 and 8 of Act XXX of
1947 had become void being discriminatory in character after
the coming into force of the Constitution. The attack made
against the provisions of section 5(1) of the Act was two-
fold: “(1) That the section was not based on any valid
classification; the word “substantial” being vague and
uncertain and having no fixed meaning, could furnish no
basis for any classification at all; (2) That the Central
Government was entitled by the provisions of the section to
discriminate between one person and another in the same
class and it was authorised to pick and choose the cases of
persons who fell within the group of those who bad
substantially evaded taxation. It could, if it chose, send
the case of one person to the Commission and show
favouritism to another person by not sending his case to the
Commission though both of these persons be within the group
of those who had evaded the payment of tax to a substantial
extent”.
As regards section 5(4), it was urged that it bad no
independent existence and was bound to fall with section
5(1) if his contention regarding its invalidity
(1) [1955] 1 S.C.R. 448.
1231
prevailed. In the alternative, it was urged that assuming
that section 5(1) was valid, even then section 5(4) had to
be declared void because it gave arbitrary power to the
Commission to pick and choose and secondly because the
clause was highly discriminatory in character inasmuch as an
evasion, whether substantial or insubstantial, came within
its ambit as well as within the ambit of section 34(1) of
the Indian Income-tax Act.
This Court considered it sufficient for the decision of
that case to examine the contentions urged against the
validity of section 5(4) of the Act because the case of the
petitioner was referred to the Commission under those
provisions of the Act and not under section 5(1) and decided
that case on the assumption that section 5(1) of the Act was
based on a valid classification and dealt with a group of
persons who came within the class of war-profiteers which
required special treatment, that the classification was
rational and that reasonable grounds existed for making a
distinction between those who fell within that class and
others who did not come within it, but without in any way
deciding or even expressing any opinion on that question.
This Court compared the provisions of section 5(4) of the
Act with those of section 34(1) of the Indian Income-tax Act
and came to the conclusion that section 5(4) dealt with the
same class of persons who fell within the ambit of section
34(1) of the Indian Income-tax Act and were dealt with in
sub-section (1) of that section and whose income could be
caught by a proceeding under that section. It held that
there was nothing uncommon either in properties or in
characteristics between persons who had been discovered as
evaders of income-tax during an investigation conducted
under section 5(1) of the Act and those who had been
discovered by the Income-tax Officer to have evaded payment
of income tax. Both those kinds of persons had common
properties and had common characteristics and therefore
required equal treatment. The Court thus held that both
section 34(1) of the Indian Income-tax Act and sub-sec-
1232
tion (4) of section 5 of the impugned Act dealt with persons
who had similar characteristics and similar properties, the
common characteristics being that they were persons who had
not truly disclosed their income and had evaded payment of
taxation on income.
The court then considered whether the procedure
prescribed by Act XXX of 1947 for discovering the concealed
profits of those who bad evaded payment of taxation on their
income was substantially different and prejudicial to the
assesses than the procedure prescribed in the Indian Income-
tax Act. After comparing the provisions of section 8 of Act
XXX of 1947 and those of sections 31, 32 and 33 of the
Indian Income-tax Act, this court came to the conclusion
that there was material and substantial difference between
the two procedures and there was no doubt that the procedure
prescribed by the impugned Act deprived a person who was
dealt with under that Act of those rights of appeal, second
appeal and revision to challenge questions of fact decided
by the judge of first instance. The procedure prescribed by
the impugned Act in sections 6 and 7 was also compared with
the procedure prescribed in sections 37 and 38 in the Indian
Income-tax Act and this Court held that the procedure
prescribed by the impugned Act was substantially more
prejudicial to the assessee than the procedure prescribed
under the Indian Income-tax Act. It was thus clear that
persons dealt with under Act XXX of 1947 were submitted to a
procedure which was more drastic and prejudicial than the
procedure which was available to those who were dealt with
under section 34 of the Indian Income-tax Act.
This Court, therefore, was of the opinion that section
5(4) and the procedure prescribed by the impugned Act in so
far as it affected the persons proceeded against thereunder
being a piece of discriminatory legislation offended against
the provisions of article 14 of the Constitution and were
thus void and unenforceable.
It was after this decision of this Court in Suraj
1233
Mall Mohta’s case supra that Parliament enacted the Indian
Income-tax Amendment Act, 1954 (XXXIII of 1954) introducing
sub-sections (1-A) to (1-D) in section 34 of the Indian
Income-tax Act. Though Act XXXIII of 1954 received the
assent of the President on the 5th September 1954 it was to
come into effect from the 17th July 1954.
Section 34(1-A) purported to meet two criticisms which had
been, in the main, offered against the constitutionality of
section 5(1) of the Act in Suraj Mall Mohtas case. One
criticism was that the classification made in section 5(1)
of the Act was bad because the word ‘substantial’ used
therein was a word which had no fixed meaning and was an
unsatisfactory medium for carrying the idea of some
ascertainable proportion of the whole, and thus the
classification being vague and uncertain, did not save the
enactment from the mischief of article 14 of the Constitu-
tion. That alleged defect was cured in section 34 (1-A)
inasmuch as the Legislature clearly indicated there what it
meant when it said that the said object of Act XXX of 1947
was to catch persons who, to a substantial extent, had
evaded payment of tax, in other words, what was seemingly
indefinite within the meaning of the word ‘substantial’ bad
been made definite and clear by enacting that no evasion
below a sum of one lakh was within the meaning of that
expression. The other criticism was that section 5(1) did
not necessarily deal with the persons, who, during the war,
had made huge profits and evaded payment of tax on them.
Section 34(1-A) remedied this defect also. It clearly
stated that it would operate on income made between the 1st
September 1939 and 31st March 1946 tax on which had been
evaded.
Section 5(1) was again attacked in the case of Shree
Meenakshi Mills Ltd. v. Sri A. V. Visvanatha Sastri and
Another(1). This was a petition under article 32 of the
Constitution filed on the 16th July 1954 after the decision
in Suraj Mall Mohta’s case, supra, had been pronounced.
Section 5(1) of the Act-was attacked on the very same
grounds which were mentioned in
(1) [1955] 1 S.C.R. 787.
1234
the judgment in Suraj Mall Mohta’s case, supra, but had not
been dealt with by this Court it being considered sufficient
to strike down section 5(4) of the Act without expressing
any opinion on the vires of section 5(1). Even in this
case, section 5(1) was not struck down as void on a
comparison of its provisions with those of section 34(1) of
the Indian Incometax Act as was done in the case of section
5(4) in Suraj Mall Mohta’s case, supra. By the time this
petition came to be heard by this Court, the Parliament had
enacted Act XXXIII of 1954 which, as stated above,
introduced section 34(1-A) in section 34 of the Indian
Income-tax Act and this Court came to the conclusion on a
comparison of the provisions of section 5(1) of the Act with
section 34(1-A) of the Indian Income-tax Act that the new
sub-section inserted in section 34 by Act XXXIII of 1954 was
intended to deal with the class of persons who were said to
have been classified for special treatment by section 5(1)
of Act XXX of 1947. This Court reiterated the conclusions
to which- it had come in Suraj Mall Mohta’s case, supra,
that the procedure prescribed by the Act for making the
investigation under its provisions was of a summary and
drastic nature and it constituted a departure from the
ordinary law of procedure and in certain important aspects
was detrimental to the persons subjected to it and as such
was discriminatory. It did not again express an opinion on
the validity of section 5(1) as being based on a valid
classification and being thus saved from the mischief of
article 14 of the Constitution, but, on a comparison of the
provisions of section 5(1) of the Act with those of section
34(1-A) of the Indian Income tax Act which came into effect
from the 17th July 1954, came to the conclusion that this
defence of the provisions of section 5(1) being saved from
the mischief of article 14 of the Constitution on the basis
of a valid classification was no longer available in support
of it after the introduction of the new subsection in
section 34 of the Indian Income-tax Act which sub-section
dealt with the same class of persons dealt with by section
5(1) of the impugned
1235
Act. The result was that proceedings could no longer be
continued under the procedure prescribed by the impugned
Act and section 5 (1) was thus struck down as
unconstitutional and void after the coming into operation of
section 34(1-A) of the Indian Income-tax Act.
These two cases, viz., Suraj Mall Mohta’s case supra and
Shree Meenakshi Mills’ case, supra, did not directly
pronounce upon the vires of section 5(1) of the Act in
comparison with section 34(1) of the Indian Income-tax Act
though the vires were the subject matter of a direct
challenge therein. The ratio of these decisions is,
however, helpful in the determination of the question that
arises directly before us, viz., whether section 5(1) of the
Act is discriminatory in its character and thus violative of
the fundamental right guaranteed under article 14 of the
Constitution. In both these cases, this Court was of the
opinion that the procedure for investigation prescribed by
Act XXX of 1947 (corresponding with the Travancore Act XIV
of 1124) was of a summary and drastic nature and constituted
a departure from the ordinary law of procedure and in
certain aspects was detrimental to persons subjected to it
as compared with the procedure prescribed by the
corresponding provisions of the Indian Income-tax Act
(corresponding to the Travancore Act XXIII of 1121) and -was
as such discriminatory. The provisions of sections 5 (4)
and 5 (1) of the Act were compared respectively with the
provisions of section 34(1) and section 34(1-A) of the
Indian Income-tax Act and, on a comparison of these provi-
sions, this Court came to the conclusion that the classes of
persons who were said to have been classified for special
treatment by those respective sections of the Act were
intended to be and could be dealt with under section 34(1)
and section 34(1-A) of the Indian Income-tax Act and there
could, therefore, be no basis of a valid classification for
special treatment under the provisions of Act XXX of 1947
(corresponding with the Travancore Act XIV of 1124).
The procedure prescribed by the Travancore Act XIV of 1124
being thus discriminatory as compared
156
1236
with the procedure prescribed in the Travancore Act XXIII of
1121, the questions that arise for our consideration are,
(1) whether there is a rational basis of classification to
be found in the enactment of section 5(1) of the Act, and
(2) whether the same class of persons were intended to be
and could be dealt with under the provisions of section 47
of the Travancore Act XXIII of 1121.
In order to ascertain the scope and purpose of the
impugned section reference must first be made to the Act
itself. The preamble of a statute has been said to be a
good means of finding out its meaning and as it were a key
to the understanding of it. The preamble to the Travancore
Act XIV of 1124, like that of Act XXX of 1947, runs thus:
“Whereas it is expedient for the purpose of ascertaining
whether the actual incidence of taxation on income is and
has been in recent years in accordance with the provisions
of law and the extent to which the existing law and pro-
cedure for the assessment and recovery of such taxation is
adequate to prevent the evasion thereof, to make provision
for an investigation to be made into such matters. It is
hereby enacted as follows”. It does not unfortunately give
any assistance in the solution of the problem before us.
Section 5(1) itself, however, gives some indication as to
the real object of it. The condition on which the action of
the Government under that section is made dependent is that
the Government must have prima facie reasons for believing
that a person has to a substantial extent evaded payment of
taxation on his income. The powers conferred on the Commis-
sion by section 6 and the procedure prescribed for the
Commission by section 7 are clearly very drastic and harsh.
This unmistakably shows that the legislative authority took
the view that these stringent measures were necessary for
unearthing the tax evasions which had gone unnoticed before
when the usual procedure under the Income-tax law was
applied. Then comes section 8(2) which authorises the
Government after perusal of the report of the Commission to
direct proceedings to, be taken against the person to whose
1237
case the report relates in respect of the income of any
period commencing after the 16th August 1939. This
provision clearly evinces that the intention of the
legislative authority is to catch the income evaded from
after the 16th August 1939. Section 5(1) also provides that
the reference thereunder of a case must be made at any time
before the 16th February 1950. From these sections it will
appear that the object of this law was to uncover the
evasion of tax on income made after the 16th August 1939 and
before the 16th February 1950 about the existence of which
evasion the Government had prima facie reason to believe.
The question at once arises as to why it was that the
legislative authority took the view that there were possible
cases of tax evasion. It has been said that although the
statement of ‘the objects and reasons appended to a bill is
not admissible as an aid to the construction of the Act as
passed (see Aswini Kumar Ghose case(1)), yet it may be
referred to only for the limited purpose of ascertaining the
conditions prevailing at the time which necessitated the
making of the law (see Subodh Gopal Bose’s case(2)).
Similar observations were made by Fazl Ali, J. with ref-
erence to legislative proceedings being relevant for the
proper understanding of the circumstances under which an Act
was passed and the reasons which necessitated it in
Chiranjit Lal Chowdhuri v. The Union of India(3). Indeed,
in the case of Kathi Raning Rawat v. The State of
Saurashtra(4), this Court permitted the State to file an
affidavit stating in detail the circumstances which
prevailed at the time when the law there under consideration
bad been passed and which necessitated the passing of that
law. In the present case also, an affidavit has been filed
by Gauri Shanker, Secretary of respondent 2, stating the
reasons why it was thought necessary to enact the impugned
Act including section 5(1). This affidavit clearly brings
out the serious problem that faced the revenue authorities.
A war of unprecedented magnitude had raged from September
1939 to 1946. The
(1) [1953] S.C.R. 1. (2) [1954] S.C.R. 587, 628.
(3) [1950] S.C.R. 869, 879. (4) [1952] S.C R. 435.
1238
war conditions brought in their train a sudden rise in the
demand of all kinds of goods, both consumer and industrial,
which, naturally pushed up the prices to abnormal heights
affording a great opportunity to the producers,
manufacturers and merchants to reap huge profits. There was
good reason to believe that these abnormal profits were not
being brought into regular accounts but-were being
concealed. Faced with this situation, means bad to be
devised to enquire into the tax evasions and to realise the
legitimate dues of the State. If regard be had to this
background it is obvious that section 5(1) had reference to
a class of substantial evaders of income-tax who required to
be specially treated under the drastic procedure provided by
Act XXX of 1947.
It was, however, urged that the words ”substantial
extent” were of such vague import that they did not afford
any reasonable-basis of classification. Reference was made
to Stroud’s Judicial Dictionary, 3rd ed., Vol. 4, page 2901,
where the word “substantial” has been described to be:
“A word of no fixed meaning, it is an unsatisfactory
medium for carrying the idea of some ascertainable
proportion of the whole (Terry’s Motors, Ltd. v.Binder,
[1948] S.A.S.R. 167)”.
The word “substantial” has been used in various
legislative enactments and even though it is said to be a
word of no fixed meaning, Viscount Simon in Palser v.
Grinling(1) observed:
“One of the primary meanings of the word is equivalent
to considerable, solid, or big. It is in this sense that we
speak of a substantial fortune, a substantial meal., a
substantial man, a substantial argument or ground of
defence. Applying the word in this sense, it must be left
to the discretion of the judge of fact to decide as best he
can according to the circumstances in each case…….”
and it has been described at page 2902 of Stroud’s Judicial
Dictionary to be “equivalent to considerable,solid or big”.
Even though the word “substantial” by itself might
(1) [1948] A.C. 291, 817.
1239
not afford a definite measure or yard-stick for including
particular individuals within the classification, the
background and the circumstances mentioned in the aforesaid
affidavit of Gauri Shanker indicate with reasonable
certainty the class of persons who are intended to be
subjected to this drastic procedure. It does not require
much effort to pick out persons who would fall within this
group or category of substantial evaders of income-tax and
even though a definite amount be not specified in section
5(1) of the Act as constituting a substantial evasion of
income-tax the Government, to whom the process of selection
for the purposes of reference of the cases for investigation
to the Commission is entrusted, would not have any
difficulty in finding out the persons coming within this
group or category. To use the language of Viscount Simon,
the income-tax which has been evaded would have to be
considerable, solid or big, and once that conclusion was
reached by the Government, the cases of such persons would
indeed be referred by them for investigation by the
Commission under section 5(1) of the Act.
It was, however, urged that it would be open to the
Government within the terms of section 5(1) of the Act
itself to discriminate between persons and persons who fell
within the very group or category; the Government might
refer the case of A to the Commission leaving the case of B
to be dealt with by the ordinary procedure laid down in the
Travancore Act XXIII of 1121. The possibility of such
discriminatory treatment of persons falling within the same
group or category, however, cannot necessarily invalidate
this piece of legislation. It is to be presumed, unless the
contrary were shown, that the administration of a particular
law would be done “not with an evil eye and unequal band”
and the selection made by the Government of the cases of
persons to be referred for investigation by the Commission
would not be discriminatory.
This question was considered by this Court in two cases,
viz. , Kathi Raning Rawat v. The State of Sau-
1240
rashtra(1) and Kedar Nath Bajoria v. The State of West
Bengal(2). Mr. Justice Mukherjea, as he then was, dealt
with the argument in Kathi Raning Rawat v. The State of
Saurashtra(1) as under:-
“It is a doctrine of the American courts which seems to
be well-founded on principle that the equal protection
clause can be invoked not merely where discrimination
appears on the express terms of the statute itself, but also
when it is the result of improper or prejudiced execution of
the law. (Vide Weaver on Constitutional Law, p. 404). But a
statute will not necessarily be condemned as discriminatory,
because it does not make the classification itself but, as
an effective way of carrying out its policy, vests the
authority to do it in certain officers or administrative
bodies……………….. In my opinion, if the legislative
policy is clear and definite and as an effective method of
carrying out that policy a discretion is vested by the
statute upon a body of administrators or officers to make
selective application of the law to certain classes or
groups of persons, the statute itself cannot be condemned as
a piece of discriminatory legislation. After all “the law
does all that is needed when it does all that it can,
indicates a policy …. and seeks to bring within the lines
all similarly situated so far as its means allow” (Vide Buck
v. Bell, 274 U.S. 200,-208). In such cases, the power given
to the executive body would import a duty on it to classify
the subject-matter of legislation in accordance with the
objective indicated in the statute. The discretion that is
conferred on official agencies in such circumstances is not
an unguided discretion; it has to be exercised in conformity
with the policy to effectuate which the direction is given
and it is in relation to that objective that the propriety
of the classification would have to be tested. If the ad-
ministrative body proceeds to classify persons or things on
a basis which has no rational relation to the objective of
the legislature, its action can certainly be annulled as
offending against the equal protection clause. On the other
hand, if the statute
(1) [1952] S.C.R. 435, 459.
(2) [1954] S.C.R. 30, 41,
1241
itself does not disclose a definite policy or objective and
it confers authority on another to make selection at its
pleasure, the statute would be held on the face of it to be
discriminatory irrespective of the way in which it is
applied………………”
The same line of demarcation was also emphasized by
Patanjali Sastri, C. J., delivering the judgment of the
Court in Kedar Nath Bajoria v. The State of West Bengal(2).
It, therefore., follows that the mere fact that the
Government is entrusted with the power to select cases of
persons falling within the group or category of substantial
evaders of income-tax for reference to the Commission would
not render section 5(1) discriminatory and void.
The object sought to be achieved by the impugned piece of
legislation is quite definite and that is to catch
substantial evaders of income-tax out of those who have made
huge profits during the war period. They form a class by
themselves and have to be specially treated under the
procedure laid down in the Act. Being a class by
themselves, the procedure to which they are subjected during
the course of investigation of their cases by the Commission
is not at all discriminatory because such drastic procedure
has reasonable nexus with the object sought to be achieved
by the Act and therefore such a classification is within the
constitutional limitations. The selection of the cases of
persons falling within that category by the Government
cannot be challenged as discriminatory for the simple reason
that it is not left to the-unguided or the uncontrolled
discretion of the Government. The selection is guided by
the very objective which is set out in the terms of section
5 (1) itself and the attainment of that object controls the
discretion which is vested in the Government and guides the
Government in making the necessary selection of cases of
persons to be referred for investigation by the Commission.
It cannot, therefore, be disputed that there is a valid
basis of classification to be found in section 5(1) of the
Act.
(1) [1954] S.C.R. 30, 41.
1242
The validity of the classification was further attacked
on the ground that the limitation of the period within which
the cases of the substantial evaders of income-tax falling
within this group or category may be referred for
investigation by the Government to the Commission, viz.,
16th February 1950 imports a discrimination in so far as
those persons whose cases are referred before that date
would be treated under the procedure laid down in the
Travancore Act XIV of 1124 whereas those whose cases have
not been referred by that date would not be subjected to the
same treatment even though they fell within the same
category. This would bring about a discrimination between
the same class of persons some of whom would be subjected to
that special treatment and others who would escape the same.
Section 5(4) of the Act also would not cure this defect
because the cases contemplated therein are either the cases
which have been already referred for investigation to the
Commission under section 5(1) of the Act or cases of other
persons about whose alleged ‘evasion of income-tax the
Commission has gathered information during the course of
their investigations. Even if these other persons be thus
subjected to the special procedure prescribed in the Act
there would remain, outside the jurisdiction of the
Commission, numbers .of persons whose cases are not covered
by sections 5(1) or 5(4) but who nonetheless are comprised
within the class of substantial evaders of income-tax. They
would have to be dealt with under the ordinary law and
presumably under section 47 of the Travancore Act XXIII of
1121 if they could be dealt with thereunder. If they could
not be so dealt with, the only result would be that they
would escape the surveillance of the Government and the
escapement of income-tax in their cases would be without any
remedy. This, it was urged, was discriminatory and was
enough to strike down section 5(1) of the Act.
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
1243
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 XXIII 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 Incometax 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.
It was also urged that discrimination was inherent in the
terms of section 5(1) itself by reason of its operation
being limited only to those persons whose cases were
referred to the Commission on or before the 16th February
1950. It thus arbitrarily left out persons who evaded
payment of taxation on income made during the war period but
whose cases were not discovered or referred to the
Commission on or before that date although they were
otherwise similarly situated. Reliance was placed in support
of this position on the following passage from the judgment
of Mahajan, C. J. in Shree Meenakshi Mills’ case,
157
1244
supra, at pages 795-796:
“Assuming that evasion of tax to a substantial amount
could form a basis of classification at all for imposing a
drastic procedure on that class, the inclusion of only such
of them whose cases had been referred before 1st September,
1948, into a class for being dealt with by the drastic
procedure, leaving other tax evaders to be dealt with under
the ordinary law will be a clear discrimination for the
reference of the case within a particular time has no
special or rational nexus with the necessity for drastic
procedure…………”
These observations were made to repel the first argument
of the learned Attorney-General that the class of
substantial evaders who fall within section 5(1) were only
those whose cases had been referred within the date fixed.
It was pointed out that if the class was so circumscribed
then that by itself would make the classification
discriminatory by leaving out those substantial evaders
whose cases had not been referred by that date. By that
passage, however, this Court did not hold that in fact
section 5(1) was confined to such a limited class. We are
of the opinion that the fixation of the date for references
for investigation by the Government to the Commission, viz.,
the 16th February 1950 was not an attribute of the class of
substantial evaders of income-tax which were intended to be
specifically treated under the drastic procedure prescribed
in the Travancore Act XIV of 1124 but was a mere accident
and a measure of administrative convenience. The date of
such references could, without touching the nature and
purpose of the classification, be extended by the Travancore
Legislature by a necessary amendment of the Travancore Act,
XIV of 1124, and if such an amendment had been grafted on
the Act as originally passed, no one belonging to the
particular class or category of substantial evaders of
income tax could have complained against the same.
The next question to consider is whether the same class
of persons dealt with under section 5(1) of the Travancore
Act XIV of 1124 were intended to and
1245
could be dealt with under the provisions of section 47 of
the Travancore Act XXIII of 1121. Because, if that was the
position at any particular period of time, section 5(1) of
the Travancore Act XIV of 1124 would certainly be
discriminatory in so far as there will be two distinct
provisions simultaneously existing in the statute book, one
of which could be applied to some persons within the same
class or category and the other could be applied to others
also falling within the same class or category, thus
discriminating between the two groups.
Section 47 of the Travancore Act XXIII of 1121, as
already observed, was in the same terms as section 34(1) of
the Indian Income-tax Act as it stood before its amendment
in 1948. Each of the following conditions had to be
fulfilled before the Income-tax Officer could take action
under this section, viz.:
(i)that definite information bad come into the possession
of the Income-tax Officer that income, etc. had escaped;
(ii)that inconsequence of such definite information the
Income-tax Officer discovered that income, etc.
(a) had escaped assessment, or
(b) had been under-assessed, or
(c) had been assessed at too low a rate, or
(d) had been the subject of excessive relief;
(iii) that the Income-tax Officer had reason to belive
that
(a) the assessee had concealed the particulars of his
income, or
(b) deliberately furnished inaccurate particulars thereof
It is, therefore, abundantly clear that section 47(1) of
the Travancore Act XXIII of 1121 was directed only against
those persons concerning whom definite information came into
the possession of the Incometax Officer and in consequence
of which the Incometax Officer discovered that the income of
those persons bad escaped or been under-assessed or assessed
at too low a rate or had been the subject of excessive
relief. The class of persons envisaged by
1246
section 47(1) was a definite class about which there was
definite information leading to discovery within 8 years or
4 years as the case may be of definite item or items of
income which had escaped assessment. The Travancore Act
XIII of 11 21 was passed on the 9th July 1946. The action
to be taken under it was not confined to escapement from
assessment of income made during the war period (September
1939 to 1946). Action could be taken in respect of income
which escaped assessment even before the war and also more
than 8 years after the end of the war. Turning now to
section 5(1) it will be noticed that the class of persons
sought to be reached comprises only persons about whom there
was no definite information and no discovery of any definite
item or items of income which escaped taxation but about
whom the Government had only prima facie reason to believe
that they evaded payment of tax to a substantial amount.
The class of persons who might fall within section 5(1) of
the Travancore Act XIV of 1124 was, therefore, not the same
class of persons who may come under section 47(1) of the
Travancore Act XXIII of 1121. Further, action under section
5(1) read with section 8(2) of the ‘Travancore Act XIV of
1124 is definitely limited to the evasion of payment of
taxation on income made during the war period. It cannot,
therefore, be urged that section 5(1) of the Travancore
Act XIV of 1124 was discriminatory in comparison with
section 47(1) of the Travancore Act-XXIII of 1121, for the
persons who came under section 5(1) were not similarly
situated as persons who came under section 47(1), Section
5(1) of Act XXX of 1947 was struck down in Shree Meenakshi
Mills’ case, supra, as it comprised the same class of
persons who were brought in the amended section 34(1-A) of
the Indian Income-tax Act, 1922 but the same cannot be said
about section 5(1) as compared to section 47(1). These two
sections do not overlap and do not cover the same class of
persons.
The result, therefore, is that section 5(1) of the
Travancore Act XIV of 1124 which has to be read for
1247
this purpose in juxtaposition with section 47 of the
Travancore Act XXIII of 1121 cannot be held to be
discriminatory and violative of the fundamental right
guaranteed under article 14 of the Constitution. The
proceedings which took place in the course of investigation
by the Commission up to the 26th January 1950 were valid and
so also were the proceedings during the course of
investigation which took place after the inauguration of the
Constitution on the 26th January 1950 under which the
petitioner, as a citizen of our Sovereign Democratic
Republic acquired inter alia guarantee of the fundamental
right under article 14 of the Constitution.
The result, therefore, is that all the contentions urged
on behalf of the petitioner fail and Civil Appeal No. 21 of
1954 must be dismissed with costs.
Civil Appeals Nos. 21 and 22 of 1954 will accordingly be
dismissed with costs. There will be a set off for costs.