PETITIONER:
PANNALAL BINJRAJ
Vs.
RESPONDENT:
UNION OF INDIA.
DATE OF JUDGMENT:
21/12/1956
BENCH:
BHAGWATI, NATWARLAL H.
BENCH:
BHAGWATI, NATWARLAL H.
JAGANNADHADAS, B.
AIYYAR, T.L. VENKATARAMA
SINHA, BHUVNESHWAR P.
DAS, S.K.
CITATION:
1957 AIR 397 1957 SCR 233
ACT:
Income-tax-Transfer of cases-Discretion vested in the Com-
missioner or the Board,if discriminatory and violative of
fundamental rights-Omnibus wholesale order of transfer, if
constitutionally valid-Indian Income-tax Act(XI of 1922), as
amended by Amending Act XXVI of 1956, ss. 5(7A), 64(1), (2)-
Constitution of India, Arts.I4, 19(1)(g).
HEADNOTE:
These petitions on behalf of the assessees raised the common
question as to the constitutionality of s. 5(7-A) of the
Indian Income-tax Act, which was raised but not decided by
this Court in Bidi Supply Co. V. The Union of India, (1956)
S. C. R. 267. Reliance was placed on the observations of
Bose, J. in his Minority judgment in that case and it was
contended that the section read with the explanation,
subsequently added to it as a result of that
decision,conferred arbitrary and uncontrolled powers of
transfer on the Income-tax Commissioner and the Central
Board of Revenue, was discriminatory and violative of the
provisions of Art. 14 and imposed an unreasonable
restriction on the right to carry on trade or business in
contravention of Art. 19(1)(g) of the Constitution. It was
further contended that the omnibus wholesale orders of
transfer made without any reference to any particular case
or without any limitation as to time were inconvenient and
discriminatory and ran counter to the majority judgment in
that case. The contention of the Central Board of Revenue,
supported by affidavits filed on its behalf, was that the
section was intended to minimize administrative
inconvenience, there was no discrimination after transfer
because the same relevant provisions of the Act as applied
to others similarly situated, were applied after the
transfer and any resulting inconvenience to the assessee was
sought to be minimised by transferring his case either to
the nearest area or, where that was not feasible, by
examining his accounts or evidence, if required by him, at a
place suited to his convenience and that the wholesale
omnibus orders of transfer were covered by the explanation:
Held, that s. 5(7A) of the Indian Income-tax Act was a
measure of administrative convenience, was constitutionally
valid and did not infringe any of the fundamental rights
conferred by Arts. 14 and (19)(g) of the Constitution and
the orders of transfer in question were saved by the
explanation: to that section and. were constitutionally
valid.
30
234
The right conferred on the assessee by s. 64(1) and (2) of
the Act was not an absolute right and must be subject to the
primary object of the Act itself, namely, the assessment and
collection of income-tax, and where the exigencies of tax
collection so required, the Commissioner of Income-tax or
the Central Board of Revenue had the power under s. 5(7A) of
the Act to transfer his case to some other officer outside
the area where he resided or carried on business and any
difference in his position created thereby as compared to
that of others similarly situated would be no more than a
minor deviation from the general standard and would not
amount to a denial of equality before the law.
This discretionary power vested in the Authorities by the
section to override the statutory right of the assessee must
be distinguished from the discretion that has to be
exercised in respect of a fundamental right guaranteed by
the Constitution and the two tests to judge whether it was
discriminatory would be, (I) whether it admitted of the
possibility of any real and substantial discrimination and
(2) whether it impinged on a fundamental right guaranteed by
the Constitution and, so judged, the discretion vested in
the Authorities by s. 5(7-A) of the Act was not at all
discriminatory nor did the section impose any unreasonable
restriction on the fundamental -right to carry on trade or
business.
Bidi Supply Co. v. The Union of India, (1956) S.C.R. 267
M.K. Gopalan v. The State of Madhya Pradesh, (1955) I
S.C.R.168 ; The State of West Bengal v. Anwar Ali Sarkay,
(1952) S.C.R. 284; Dayaldas Kushiram v. Commissioner of
Income-tax, (Central),, I.L.R. 1940 Bom. 650; Dayaldas
Kushiram v. Commissioner of Income-tax, Central, (1943) 11
I.T.R. 67; and Wallace Brothers & Co., Ltd. v. Commissioner
of Income-tax, Bombay, Sind & Baluchistan, A.I.R. 1945 F.C.
9, discussed.
The explanation added to the section by the Amending Act
XXVI Of 1956, was intended to expand the connotation of the’
term ‘case’ used in the section and included both pending
proceedings as also other proceedings under the Act which
might be commenced in respect of any year after the date of
transfer and as such the orders in question were not
unconstitutional or void.
The Income-Tax Authorities, however, must be held bound by
the statements made in their affidavits and where an
assessee could make out a prima facie case of a mala fide or
discriminatory exercise of the discretion’ vested in them,
the Court will scrutinise the circumstances in the light of
those statements and where necessary quash an abuse of the
power under Arts. 226 and 32 Of the Constitution.
Ratanlal Gupta v. The District Magistrate of Ganjam, I.L.R.
1951 Cuttack 441 and Brundaban; Chandra Dhir Narendra v.
235
The State of Orissa (Revenue Department), I.L.R. 1952
Cuttack 529, referred to.
The Income-tax Authorities should follow the rules of
natural justice and, where feasible, give notice of the
intended transfer to the assessee concerned in order that
he may re_ resent his view of the matter and record the
reasons of the transfer, however
briefly, to enable the Court to judge whether such transfer
was mala fide or discriminatory, if and when challenged.
JUDGMENT:
ORIGINAL. JURISDICTION: Petitions Nos. 97, 97A, 44, 86 to
88, 111, 112, 85, 158, 211 to 251 and 225 to 229 of 1956.
Under Article 32 of the Constitution of India for the
enforcement of Fundamental Rights’
N. C. Chatterji A. K. Sen, B. P. Maheshwari and Tarachan
Brijmohan Lal, for the petitioners in Petitions Nos. 97 and
97A of 1956.
N. C. Chatterji and V. S. Sawhney, for the petitioners in
Petitions Nos. 44., 86 to 88, Ill and 112 of 1956.
N. C. Chatterji and D. N. Mukherji, for the petitioners in
Petition No. 85 of 1956.
Purshottam Tirukumdas and 0. P. Lal, for the petitioners in
Petitions Nos. 211 to 215 of 1956.
S. C. Isaacs and K. R. Chaudhuri. for the petitioners in
Petitions Nos. 225 to 229 of 1956.
Bhagirth Das and M. L. Kapur, for the petitioner in petition
No. 158 of 1956.
C. K. Daphtary, Solicitor-General of India, G. N. Joshi, Porpus
A. Mehta and R. H. Dhebar, for the respondents (Union, of
India, the Central Board of Revenue and various Income-tax
Officers in all petitions.)
B. Sen and P. K. Ghose, for the State of West Bengal
(Respondents Nos. 2 and 3 in Petitions Nos.211 to 215 of
1956).
1956. December 21. The Judgment of the Court was delivered
by
BHAGWATI J.-These petitions under Art. 32 of the
Constitution raise a common question of law whether s. 5
(7A) of the Indian Income-tax Act, hereinafter
236
called the Act, is ultra vires the Constitution as
infringing the fundamental rights enshrined in Art. 14 and
Art. 19 (1) (g).
The facts which led to the filing of the petitions ‘nay be
shortly stated.
petitions Nos. 97 & 97-A of 1956:
The petitioners are M/s. pannalal Binjrai, Oilmill owners,
merchants and commission agents, carrying on business at
Sahibganj in the district of Santhal Pargans, having their
branch at 94 Lower Chitpur Road, Culcutta, petitioner No. 1,
and R. B. Jamuna Das Chowdhury, resident of the same place
and erstwhile karta of the Hindu undivided family, which
carried on business in the name and style of M/S.
Pannalal Binjr petetioner No. 2. Before September 28, 1954,
they, being assessed by the Income-tax officer, Special
Circle, Patna. On September 28, 1954, the Central Board of
Revenue made an order -transferring their cases to the
Income.tax Officer, Central Circle XI, Calcutta. On January
22, 1955, the Central Board of Revenue transferred the cases
of petitioner No. 2 to the Income-tax Officer Central Circle
VI,Delhi, and on July 12, 1955, it similarly transferred the
cases of petitioner No. I to the same officer. After the
dates of such transfer to the Income-tax Officer, Central
Circle VI, Delhi, the said officer instituted several
proceedings against them and the petitioners challenged in
these petitions the validity of the said orders of transfer
and all the subsequent proceedings including the assessment
orders as well as the order levying penalty for non-payment
of the income-tax which had been assessed prior thereto, on
the ground that s. 5 (7A) of the Act was ultra Vires the
Constitution and all the proceedings which were entertained
against the petitioners by the Income-tax Officer Central
circle XI Calcutta, and by the Income-tax Officer Central
Circle VI, Delhi, were without jurisdiction and void.
petitions Nos. 44 and 85 of 1956
The petitioner in Petition No.44/56 is Shrii A. L. sud, the
sole proprietor of 14/B. Amritlal Sud (Construction)’ who
orginally belonged to Hoshiarpur district in the
237
State of Punjab but has since 1948 been residing and
carrying on business in Calcutta. Prior to June 29, 1959,
he had been assessed to income-tax by the Income-tax
Officer, Special Survey Circle VII, Calcutta. On June 29,
1955, the Central Board of Revenue transferred his case to
the Income-tax Officer, Special Circle, Ambala,, and the
said officer continued the proceedings in the transferred
case and also instituted further proceedings against the
petitioner and assessed him under s. 23 (4) of the Act for
the assessment years 1946-47 and 1947-48. Demands were made
upon the petitioner for payment of the amount of income-tax
thus assessed whereupon he filed this petition impeaching
the validity of the order of the Central Board ‘of Revenue
dated June 29, 1955, and the proceedings entertained by the
Income-tax Officer, Special’ Circle, Ambala,on the ground
that s. 5 (7A) of the Act was ultra vires the Constitution.
Petition No. 85/56 was filed by M/s. Bhagwan Das Sud &
Sons, Merchants, Hoshiarpur, carrying on business in rosin
and turpentine there. Before October 20, 1953, they were
being assessed by the Income-tax Officer,, Hoshiarpur, but
on that date their case was transferred under s. 5 (7A) of
the Act by the Commissioner of Income-tax to the Income-tax
Officer, Special Circle, Ambala. The said officer continued
the said case and reopened the assessment for the years
1944-45 to 1050-51 and completed the assessment for the
assessment, years 1947-48, 1950-51 and 1951-52. These
petitioners also thereupon filed the petition challenging
the validity of the order of transfer made by the
Commissioner of Income-tax on October 20, 1953, and the
proceedings entertained by the Income-tax Officer, Special
Circle, Ambala, thereafter, on the same ground -of the ultra
vires character of s. 5 (7A) of the Act.
Shri A. L. Sud, the petitioner in Petition No. 44/56 is a
member of the Hindu undivided family carrying on business in
the name and style. of M/s bhagwan Das Sud & Sons and the
cases of both these petitionrs were transferred to the
Income-tax Officer, Special
238
Circle, Ambala, as above, by the said respective orders.
Petitions Nos. 86, 87, 88, 111, 112 and 158 of 1956:
These petitions may be compendiously described as the
Amritsar group. The petitioner in Petition No. 86/56 is
Sardar Gurdial Singh, son of S. Narain Singh. The
petitioner in Petition No. 87/56 is Dr. Sarmukh Singh, son
of S. Narain Singh. The petitioner in Petition No. 112156
is S. Ram Singh, soil of S. Narain Singh. These three are
brothers and the petitioner in Petition No. 88/56 is the
father, S. Narain Singh, son of S. Basdev Singh. The father
and the three sons were the directors in the Hindustan
Embroidery Mills (Private) Ltd., petitioner No. 1 in
Petition No. 111/56, which is located at Chheharta near
Amritsar. All these petitioners were, prior to the orders
of transfer made by the Commissioner of Income-tax under s.
5(7A) of the Act, being assessed by the Income-tax Officer,
‘A’ Ward, Amritsar, but their cases were transferred on or
about June 29, 1953, from the Income-tax Officer, ‘A’ Ward,
Amritsar, to the Income-tax Officer, Special Circle,
Amritsar. These cases were - continued by the latter
officer and notices under a. 34 of the Act were also issued
by him against them for the assessment years 1947-48 to’
1951-52. Each one of them filed a separate petition
challenging the said orders of transfer by the Commissioner
of Income-tax and the proceedings entertained by the Income-
tax Office r, Special Circle, Amritsar, against them -on the
score of the unconstitutionality of s. 5 (7A) of the Act.
The petitioner in Petition No. 158/56 is one Shri Ram Saran
Das Kapur, the head and karta of the Hindu undivided family
carrying on business outside Ghee Mandi Gate, Amritsar. His
case also whichprior to the order complained against, was
being entertained by the Income-tax Officer, ‘F’ Ward,
Amritsar, was transferred on some date in 1954 by an order
of the Commissioner of Income-tax under s. 5(7A) of the
Act to the Income-tax Officer, Special Circle, Amritsar.
No objection wag taken by the
239
petitioner to this order of transfer until after the assess.
ment order was passed against him but he also challenged the
validity of the said order of transfer and the proceedings
entertained by the Income-tax Officer, Special Circle,
Amritsar, thereafter, on the same grounds as the other
petitioners.
Petitions NOs. 211 to 215 of 1956:
These petitions may be described as the Sriram Jhabarmull
group. Though ‘ separately filed, the petitioner in each of
them is the same individuals Nandram Agarwalla, who is the
sole proprietor Of a business which he carries on under the
name and style of I Sriram Jhabarmull’. It is a business,
inter alia, of import and export of piece-goods’ as
commission agents, and dealers in raw wool and other
materials. The principal place of business is at Kalimpong,
in the district of Darjeeling, though there is also a branch
at Calcutta. These petitions concern the assessment of the
petitioner to income-tax for the respective years 1944-45,
1945-46, 1946-47, 1947-48 and 1948-49. Prior to the orders
of the Commissioner of Income-tax under s. 5(7A) of the Act
complained against, the petitioner was being assessed by the
Income-tax Officer, Jalpaiguri, Darjeeling. On March 5,
1946, the cases of the petitioner were transferred from the
Income-tax Officer, Jalpaiguri, Darjeeling, to the Income-
tax Officer, Central Circle 1, Calcutta, and a couple of
months thereafter they were again transferred to the Income-
tax Officer, Central Circle IV, Calcutta. On June 8, 1946,
there was a further transfer assigning the cases to the
Income-tax Officer, Central Circle 1, Calcutta, and on July
27, 1946, orders were passed by the Commissioner of Income-
tax Central, Calcutta, under s. 5(7A) transferring the cases
of the petitioner to the Income-tax Officer, Central Circle
IV, Calcutta. These are the orders which are complained
against as unconstitutional and void invalidating the
proceedings which were continued and subsequently instituted
by the Income-tax Officer, Central Circle IV, Calcutta,
against the petitioner on the score of the
unconstitutionality of s. 5(7A) of the Act. It may be
noted, however that these orders were all prior to the
Constitution and
240
having been made on July 27, 1946, as aforesaid were
followed up by completed assessment proceedings in respect
of the said respective years and also certificate
proceedings under S. 46(2) of the Act. There were further
orders dated December 15, 1947, and sometime in September,
1948, transferring the cases of the petitioner from the
Income-tax Officer, Central Circle IV, Calcutta, to the
Income-tax Officer, Central Circle 1, Calcutta, and back
from him to the Income-tax Officer, Central Circle,IV
Calcutta. These, however, are not material for our
purposes, the only order challenged being the order of the
Commissioner of Income-tax Central, Calcutta. dated July 27,
1946, which was passed under s. 5(7A) of the Act.
Petitions Nos. 225 to 229 of 1956:
These Petitions may be classed as the Raichur group. They
concern the assessment for the respective assessment years
1950-5l, 1951-52, 1952-53, 1953-54 and 1954-55. The
petitioner in each of them is the same individual, one
Kalloor Siddannal who resides and carries on business in
Raichur in the State of Hyderabad as commission agent and
distributor of agricultural products. Income-tax was first
imposed in the Hyderabad State in 1946 by a special Act of
the Legislature and the petitioner was assessed under the
Hyderabad Income-tax Act by the Additional Income-tax
Officer, Raichur, for the assessment years 1948-49 and 1949-
50. As from April 1, 195o, the Indian Income-tax Act was
applied to Hyderabad but the Additional Income-tax Officer,
Raichur, continued to assess the petitioner. The cases in
respect of -the assessment years 1950-51, 1951-52 and 1952-
53 were pending before that officer and proceedings were
taken in connection with the -assessment for those years.
On December 21, 1953, however, the Commissioner of Income-
tax Hyderabad, issued a notification under S. 5(7) ordering
that the case of the petitioner should be transferred from
the Additional income-tax Officer, Raichur, to the Income-
tax Officer, Special Circle, Hyderabad. The latter officer
continued the assessment proceedings and issued notices
under s. 22(.4) of the Act on July 1, 1954, November 2,
1954, November 30,1954,
241
December 19, 1954, and March 11, 1955, in respect of the
said years of assessment. Assessments for the said years
were made on March 21, 1955, and on April 24, 1955, the
petitioner made an application under s. 27 of the Act to
reopen the assessment for the year 1950-51 as on default
under s. 23 (4) of the Act. It appears, however, that
shortly before May 19, 1955, the Commissioner of Income-tax,
Hyderabad, made another order under s. 5 (7A) and s. 64
(5)(b) of the Act transferring all the cases of the
petitioner to the main Income-tax Officer, Raichur.
Curiously enough, the petitioner challenged both the orders
one dated December 21, 1953, and the other made sometime in
May, 1955, under s. 5 (7A) of the Act and the proceedings
continued and instituted by the respective officers
thereunder as unconstitutional and void on the ground that
s. 5 (7A) was ultra vires the Constitution even though
ultimately he was being assessed by the main Income-tax
Officer, Raichur, under the latter order.
This is the common question in regard to the ultra vires
character of s. 5 (7A) of the Act which is raised in all
these petitions, though in regard to each group there are
several questions of fact involving the consideration of the
discriminatory character of the specific orders passed
therein which we shall deal with hereafter in their
appropriate places.
Section 5 (7A) of the Act runs as under:
“ 5 (7A) : The Commissioner of Income-tax may transfer any
ease from one Income-tax Officer subordinate to him to
another, and the Central Board of Revenue may transfer any
case from any one Income-tax Officer to another. Such
transfer may be made at any ‘stage of the proceedings, and
shall not render necessary the reissue of any notice already
issued by the Income-tax Officer from whom the case is
transferred.”
This sub-section was inserted by s. 3 of the Indian Income-
tax Amendment Act, 1940 (XL of 1940) which was passed as a
result of the decision of the Bombay High Court in Dayaldas
Kushiram v. Commissioner of Income-tax, (Central)
(1) I.L.R. 194o Bom. 650,
31
242
By the Indian Income-tax Amendment Act, 1956 (XXVI of 1956)
an explanation was added to s. 5(7A) in the terms following
as a result of the decision of this Court in Bidi Supply Co.
v- The Union of India(1):
” Explanation :-In this sub-section, I case’ in relation to
any person whose name is specified in the order of transfer
means all proceedings under this Act in respect of any year
which may be pending on the date of the transfer,, and
includes all proceedings under this Act which may be
commenced after the date of the transfer in respect of any
year.”
Section 5(7A) together with the explanation thus falls to be
considered by us in these petitions.
The argument on behalf of the petitioners is that a. 64,
sub-ss. (1) and (2) of the Act confer upon the assessee a
valuable right and he is entitled to tell the taxing
authorities that he shall not be called upon to attend at
different places and thus upset his business. Section 5(7A)
invests the Commissioner of Income-tax and the Central Board
of Revenue with naked and arbitrary power to transfer any
case from any one Income-tax Officer to another without any
limitation in point of time, a power which is unguided and
uncontrolled and is discriminatory in its nature and it is
open to the Commissioner of Income-tax or the Central Board
of Revenue to pick out the case of one assessee from those
of others in a like situation and transfer the same from one
State to another or from one end of India to the other
without ‘specifying any object and without giving any
reason, thus subjecting the particular assessee to
discriminatory treatment whereas the other assessees
similarly situated with him would continue to be assessed at
the places where they reside or carry on business under s.
64 (1) and (2) of the Act. Section 64(5) which provides
with retrospective effect that the provisions of s. 64 (1)
and (2) shall not apply, inter alia, where an order has been
made under s. 5(7A) was inserted simultaneously with s.
5(7A) and would not have the effect of depriving the
(1) [1956] S.C.R. 267.
243
assessee of the valuable right conferred upon him under s.
64 (1) and (2) unless and until s. 5(7A) was intra vires but
s. 5(7A), as stated above, being discriminatory in its
nature is ultra vires the Constitution and cannot save s.
64(5) which is merely consequential. The discrimination
involved in s. 5(7A) is substantial in character and,
therefore, infringes the fundamental right enshrined,in Art.
14 of the Constitution. It also infringes Art. 19 (1) (g)
in so far as it imposes an unreasonable restriction on the
fundamental right to carry on trade or business (Vide
Himmatlal Harilal Mehta v. The State of Madhya Pradesh(1)).
The very same question as regards the unconstitutionality of
s. 5(7A) of the Act had come up for decision before this
Court in Bidi Supply Co. v. The Union of India (supra). The
case of the assessee there had been transferred by the
Central Board of Revenue under s. 5(7A) of the get from the
Income-tax Officer, District 111, Calcutta, to the Income-
tax Officer, Special Circle, Ranchi. The -order was an
omnibus wholesale order of transfer expressed in general
terms without any reference to any particular case and with-
out any limitation as to time and was challenged as void on
the ground that s. 5(7A) under which it had been passed was
unconstitutional. This Court, by a majority judgment, after
discussing the general principles underlying Art. 14, did
not adjudicate upon that question, observing at p. 276:
“We do not consider it necessary, for the purpose of this
case, to pause to consider whether the constitutionality of
Sub-section.(7A) of section 5 can be Supported on the
-principle of any reasonable classification laid down by
this Court or whether the Act lays down any principle for
guiding or regulating the exercise of discretion by the
Commissioner or Board of Revenue or whether the sub-section
confers an unguided and arbitrary power on those authorities
to pick and choose individual assessee and place that
assessee at a disadvantage in comparison with other
assessees. it is enough for the purpose of this case to say
that the omnibus order made in this case, is-not
contemplated
(I) [1954] S.C.R. 1122.
244
or sanctioned by sub-section (7A) and that, therefore, the
petitioner is still entitled to the benefit of the
provisions of sub-sections (1) and (2) of section 64. All
assessees are entitled to the benefit of those pro. visions
except where a particular case or cases of a particular
assessee for a particular year or years is or are
transferred under sub-section (7A) of section 5, assuming
that section to be valid and if a particular case or cases
is or are transferred his right under section 64 still
remains as regards his other case or cases.”
The majority judgment then proceeded to consider the effect
of such an omnibus order unlimited in point of time on the
rights of the assessee and further observed in that context
at p. 277:
“ This order is calculated to inflict considerable
inconvenience and harassment on the petitioner. Its books
of account will have to be produced before the Income-tax
Officer, Special Circle, Ranchi-a place hundreds of miles
from Calcutta, which is its place of business. Its partners
or principal officers will have to be away from the head
office for a considerable period neglecting the main
business of the firm. There may be no suitable place where
they can put up during that period. There will certainly be
extra expenditure to be incurred by it by way of railway
fare, freight and hotel expenses. Therefore the reality of
the discrimination cannot be gainsaid. In the circumstances
this substantial discrimination has been inflicted on the
petitioner by an executive fiat which is not founded on any
law and no question of reasonable classification for
purposes of legislation can arise. Here “the State” which
includes its Income-tax department has by an illegal order
denied to the petitioner, as compared with other Bidi mer-
chants who are similarly situate, equality before the law or
the equal protection of the laws and the petitioner can
legitimately complain of an infraction of his fundamental
right under Article 14 of the Constitution.”
The question as to the constitutionality of s. 5 (7A) of the
Act was thus left open and the decision turned merely on the
construction of the impugned order.
245
Learned counsel for the petitioners, however, lays
particular stress on the observations of Bose, J., in the
minority judgment which he delivered in that case whereby he
held that ss. 5 (7A) and 64 (5) (b) of the Act were
themselves ultra vires Art. 14 of the Constitution and not
merely the order of the Central Board of Revenue. The
learned Judge referred to a passage from the judgment of
Fazl Ali, J., in The State of West Bengal v. Anwar Ali
Sarkar(1) and also pointed out the decision of this Court in
M/S. Dwarka Prasad Laxmi Narain v. The State of Uttar
Pradesh and Two Others(2) and observed:
“ What is the position here? There is no hearing, no
reasons are recorded: just peremptory orders transferring
the case from one place to another without any warning; and
the power given by the Act is to transfer from one end of
India to the other; nor is that power unused. We have
before us in this Court a case pending in which a transfer
has been ordered from Calcutta in West Bengal to Ambala in
the Punjab.” (p. 283)
“ If the Legislature itself had done here what the Central
Board of Revenue has done and had passed an Act in the bald
terms of the order made here transferring the case of this
petitioner, picked out from others in a like situation, from
one State to another, or from one end of India to the other,
without specifying any object and without giving any reason,
it would, in my judgment, have been bad. I am unable to see
how the position is bettered because the Central Board of
Revenue has done this and not Parliament.” (p. 284-5)
” In my opinion, the power of transfer can only be conferred
if it is hedged round with reasonable restrictions, the
absence or existence of which can in the last instance be
determined by the courts; and the exercise of the power must
be in conformity with the rules of natural justice, that is
to say, the parties affected must be heard when that is
reasonably possible, and the reasons for the order must be
reduced, however briefly, to writing so that men may know
that
(1) [1952] S. C. R. 284, 309-310.
(2) [1954] S. C. R. 803.
246
the powers conferred on these quasi-judicial bodies are
being justly and properly exercised.” (p. 287)
The answer furnished on behalf of the State to this argument
is fourfold:
(i)that the provision contained in s. 5 (7A) of the Act is a
measure of administrative convenience enacted with a view-
to more conveniently and effectively deal with the cases of
the assessees where the Commissioner of Income-tax considers
it necessary or desirable to transfer any case from one
Income-tax Officer subordinate to him to another or the
Central Board of Revenue similarly considers it necessary or
desirable to transfer any case from any one Income-tax
Officer to another. The real object with which s. 5 (7A)
was inserted by the Indian Income-tax Amendment Act, 1940
(XL of 1940), has been thus set out in the affidavit of Shri
V. Gouri Shankar, Under Secretary, Central Board of Revenue,
dated November 19, 1956, which is the pattern of all the
affidavits filed on behalf of the State in these petitions:
“ 4…… I say that the provisions of s. 5 (7A) were
inserted by the Income-tax Amendment Act, XL of 1940, with
the object of minimising certain procedural difficulties.
Before this amendment was passed there was no specific
provision in the Act for transferring a case from one
Income-tax Officer to -another except by a long and
circuitous course even at the request of the assessees. In
order therefore to be able to transfer the case from one 1.
T. 0. to another either because of the request of the
assessee or for dealing with cases involving special
features such as cases of assessees involving widespread
activities and large ramifications or inter-related
transactions, power to transfer cases was conferred upon the
Central Board of Revenue and the Commissioner of Income-tax
as the case may be. I say that the provisions of s. 5 (7A)
ate thus administrative in character……..
(ii)that the assessee whose case is thus transferred is
not subjected to any discriminatory procedure in the matter
of his assessment. The Income-tax Officer to whom his case
is transferred deals with it under the same procedure which
is laid down in the relevant
247
provisions of the Act. The decision of the Income-tax
Officer is subject to appeal before the Appellate Assistant
Commissioner and the assessee has the further right to
appeal to the Income-tax Appellate Tribunal and to approach
the High Court and ultimately the Supreme Court, as provided
in the Act. All assessees, whether they are assessed by the
Income-tax Officer of the area where they reside or carry on
business or their cases are transferred from one Income-tax
Officer to another, are subject to the same procedure and
are entitled to the same rights and privileges in the matter
of redress of their grievances, if any, and there is no dis-
crimination whatever between assessees and assessees;
(iii)that the right, if any, conferred upon the assessee
under s. 64 (1) and (2) of the Act is not an absolute right
but is circumscribed by the exigencies of tax collection and
can be negatived as it has been in cases where the
Commissioner of Income-tax or the Central Board of Revenue,
as the case may be, think it necessary or desirable to
transfer his case from one Income-tax Officer to another
under s. 5 (7A) of the Act having regard to all the
circumstances of the case. The argument of inconvenience is
thus sought to be met in the same affidavit:
” 5. 1 further say that as a result of any transfer that may
be made under the provisions of s. 5 (7A) there is no
discriminatory treatment with regard to the procedure and
that no privileges and rights which are given to the
assessees by the Income-tax Act are taken away nor is the
assessee exposed to any increased prejudice, punitary
consequences or differential treatment. I say that in cases
where transfers under this section are made otherwise than
on request from assessees, the convenience of the assessees
is taken into consideration by placing the case in the hands
of an Income-tax Officer who is nearest to the area where it
will be convenient for the assessee to attend. If on
account of administrative exigencies this is not possible
and the assessee requests that the examination of accounts
or evidence to be taken should be in a place convenient to
him, the I.T.O. complies with the request
248
of the assessee and holds the hearing at the place
requested.”
Even if there be a difference between assessees who reside
or carry on business in a particular area by reason of such
transfers the difference is not material. -It is only a
minor deviation from a general standard and does not amount
to a denial of equal rights;
(iv)that the power which is thus vested is a discretionary
power and is not necessarily discriminatory in its nature
and that abuse of power is not to be easily assumed where
discretion is vested in such high officials of the State.
Even if abuse of power may sometimes occur, the validity of
the provision cannot be contested because of such
apprehension. What may be struck down in such cases is not
the provision itself but the discriminatory application
thereof.
The petitioners rejoin by relying upon the following passage
from the judgment of Fazl Ali, J., in The State Of West
Bengal v. Anwar Ali Sarkar, (Supra), which was referred to
by Bose, J., in his minority judgment in Bidi Supply Co. v.
The Union of India, (Supra), at page 281:
” It was suggested that the reply to this query is that the
Act itself being general and applicable to all persons and
to all offenses, cannot be Said to discriminate in favour of
or against any particular case or classes of persons or
cases, and if any charge of discrimination can be leveled at
all, it can be levelled only against the act of the
executive authority if the Act is misused. This kind of
argument however does not appear to me to solve the
difficulty. The result of accepting it would be that even
where discrimination is quite evident one cannot challenge
the Act simply because it Is couched in general terms; and
one cannot also challenge the act of the executive authority
whose duty it is to administer the Act, because that
authority will say:-I am not to blame as I am acting under
the Act. It is clear that if the argument were to be
,accepted, article 14 could be easily defeated. I think the
fallacy of the argument lies in overlooking the fact that
the I insidious discrimination complained of is incorporated
in the Act itself’, it being so drafted
249
that whenever any discrimination is made such discrimination
would be ultimately traceable to it.
The pivot of the whole argument of the petitioners is the
provisions contained in s. 64(1) and (2) of the Act which
prescribe the place of assessment. They are:-
“ 64. (1) Where an assessee carries on a business,
profession or vocation at any place, he shall be assessed by
the Income-tax Officer- of the area in which that place is
situate or, where the business, profession or vocation is
carried on in more places than one, by the Income-tax
Officer of the area in which the principal place of his
business, profession or vocation is situate.
(2)In all other cases, an assessee shall be assessed by the
Income-tax Officer of the area in which he resides.”
These provisions were construed by the Bombay High Court in
Dayaldas Kushiram v. Commissioner Income-tax, (Central),
(supra), and Beaumont, C.J., observed at p. 657:
“ In my opinion section 64 was intended to ensure that as
far as practicable an assessee should be assessed locally,
and the area to which an Income-tax Officer is appointed
must, so far as the ‘exigencies of tax collection allow,
bear some reasonable relation to the place where the
assessee carries on business or resides.”
Kania, J., as he then was, went a step further and stated at
p. 660:
“A plain reading of the section shows that the same is
imperative in terms. It also gives to the assessee a
valuable right. He is entitled to tell the taxing
authorities that he shall not be called upon to attend at
different places and thus upset his business.”
The learned Judges there appear to have treated the
provisions of s. 64(1) and (2) more as a question of right
than as a matter of convenience only. If there were thus a
right conferred upon the assessee by the provisions of s.
64(1) and (2) of the Act and that right continues to be
enjoyed. by all the assessees except the
32
250
assessee whose case is transferred under s. 5(7A) of the Act
to another Income-tax Officer outside the area where he
resides or carries on business, the assessee can urge that,
as compared with those other assessees, he is discriminated
against and is subjected to inconvenience and harassment.
It is, therefore, necessary to consider whether any such
right is conferred upon the assessee by s. 64(1) and (2) of
the Act.
Prima facie it would appear that an assessee is entitled
under those provisions to be assessed by the Income-tax
Officer of the particular area where he ,resides or carries
on business. Even where a question arises as to the place
of assessment such question is under s. 64(3) to be
determined by the Commissioner or the Commissioners
concerned if the question is between places in more States
than one or by the Central Board of Revenue if the latter
are, not in agreement and the assessee is given an
opportunity of representing his views before any such
question is determined. This provision also goes to show
that the convenience of the assessee is the main
consideration in determining the place of assessment. Even
so the exigencies of tax collection have got to be
considered and the primary object of the Act, viz., the
assessment of income-tax, has got to be achieved. The
hierarchy of income-tax authorities which is set up under
Chapter 11 of the Act has been so set up with a view to
assess the proper income-tax payable by the assessee and
whether the one or the other of the authorities will proceed
to assess a particular assessee has got to be determined not
only having regard to the convenience of the assessee but
also the exigencies of tax collection. In order to assess
the-tax payable by an assessee more conveniently and
efficiently it may be necessary to have him assessed by an
Income-tax Officer of an area other than the one in which,
he resides or carries on business. It may be that the
nature and volume of his business operations are such as
require investigation into his affairs in a place other than
the one where he resides or carries on business or that he
is so, connected with various other individuals or organiza-
tions in the way of his earning his income as to render
251
such extra-tertitorial investigation necessary: before he
may be properly assessed. These are but instances of the
various situations which may arise wherein it may be thought
necessary by the Income-tax authorities to transfer his case
from the Income-tax, Officer of the area in which he resides
or carries on business to, another Income-tax Officer
whether functioning in the same State or beyond it. This
aspect of the question wag emphasized by Beaumont, C.J., in
Dayaldas Kushiram v. Commissioner of Income-tax, (Central),
(supra), at page 146, when he used the expression ” as far
as practicable ” in connection with the assessee’s right to
be assessed locally and the expression “ so far as
exigencies of tax collection allow ” in connection with the
appointment of the Income-tax Officer to assess the tax
payable by the particular assessee. In the later case of
Dayaldas Kushiram v. Commissioner of Income-tax,
(Central)(1), Beaumont, C.J., expressed himself as follows:
“ The Income-tax Act does not determine the place of
assessment. What it does is to determine the Officer who is
to have power to assess and in some cases it does so by
reference to locality but I apprehend that an appeal would
be not against an order of the Commissioner as to the place
of assessment, but against the order of assessment of the
Income-tax, Officer,”
thus stating in effect that this section does not give a
right to the assessee to have his assessment, at a parti-
cular place but determines the Income-tax Officer who is to
have power to assess him.
This aspect was further emphasized by the Federal Court in
Wallace Brothers & Co. v. Commissioner of, Income-tax,
Bombay, Sind & Baluchistan (2), where Spens, C.J., observed:
Clause (3) of s. 64 provides that any question as to the
place of assessment shall be determined’ by the Commissioner
or by the Central Board of Revenue Proviso 3 to the clause
enacts that if the place -of assessment is called in
question by the assessee, the Income-tax Officer -shall, if
not satisfied, with the
(1) [1943] 11 I.T.R. 67, 101.
(2) A.I.R. 1945 F.C. 9,13.
252
correctness of the claim, refer the matter for determination
under this sub-section before assessment is made. These
provisions clearly indicate that the matter is more one of
administrative convenience than of jurisdiction and that in
any event it is not one for adjudication by the Court.”
It may be noted, however, that in the passage at page 276 of
the majority judgment in Bidi Supply Co. v. The Union of
India (supra), this court regarded the benefit conferred on
the assessee by these provisions of a. 64(1) and (2) of the
Act as a right and it is, too late in the day for us to say
that no such right to be assessed by the Income-tax Officer
of the particular area, where he resides or carries on his
business is conferred on the assessee. This right, however,
according to the authorities above referred to, is hedged in
with the limitation that it has to yield to the exigencies
of tax collection.
The position, therefore, is that the determination of the,
question whether a particular Income-tax Officer should
assess the case of the assessee depends on (1) the
convenience of the assessee as posited in s. 64 (1) and (2)
of the Act, and (2) the exigencies of tax collection and it
would be open to -the Commissioner of Income-tax and the
Central Board of Revenue who are the highest amongst the
Income-tax. Authorities under the Act to transfer the case
of a particular assessee from the Income-tax Officer of the
area within which he resides or carries on business to any
other Income-tax Officer if the exigencies of tax collection
warrant the same.
It is further to be noted that the infringement of such a
right by the order of transfer, under s. 5 (7A) of the Act
is not a material infringement. It is only a deviation of a
minor character from the general standard and does not
necessarily involve a denial of equal rights for the simple
reason that even after such transfer the case is dealt with
under the normal procedure which is prescribed in the -Act.
The production and investigation of the books of account,
the enquiries to be made by the Income-tax Officer and the
whole of the procedure as to assessment including the
further
253
appeals after the assessment is made by the Incometax
Officer are the same in a transferred case as in others
which remain with the Income-tax Officer of the area in
which the other assesees reside or carry on business. There
is thus no differential treatment and no scope for the
argument that the particular assessee is discriminated
against with reference to others similarly situated. It was
observed by this Court in,
M. K. Gopalan v. The State of Madhya Pradesh(1):
” In support of the objection raised under article 14 of the
Constitution, reliance is placed on the decision of this
Court in Anwar Ali Sarkar’s case. That decision, however,
applies only to a case where on the allotment of an
individual case to a special Court authorised to conduct the
trial -by a procedure substantially different from the
normal procedure, discrimination arises as between persons
who have committed similar offences, by one or more out of
them being subjected to a procedure, which is materially
different from the normal procedure and prejudicing them
thereby. In the pre-’ sent case, the Special Magistrate
under s. 14 of the Criminal Procedure Code has to try- the
case entirely under the normal procedure, and ‘no
discrimination of the kind contemplated by the decision in
Anwar Ali Sarkar’d case and the other cases following it
arises here. A law vesting discretion in an authority under
such circumstances cannot be said to be discriminatory as
such, and is therefore not hit by article 14 of the
Constitution. There is, therefore, no substance in this
contention.”
To a similar effect were the observations of Mukherjea, J.,
as he then was, in The State of West Bengal v. Anwar Ali
Sarkar, (supra), at p. 325:
“I agree with the Attorney-General that if the differences
are not material, there may not be any discrimination in the
proper sense of the word and minor deviations from the
general standard might not amount to denial of equal
rights.”
It is pointed out that as s. 64 (5) stands at present, the
provisions of s. 64 (1) and (2) do not apply and are
(1) [1955] 1 S.C.R. 168, I71.
254
deemed never at any time to have applied to an assessee
where, in consequence of any transfer made under s. 5 (7A),
a particular Income-tax Officer has been charged with the
function of assessing that assessee. section 64 (5) was
incorporated by the Income-tax Law Amendment Act, 1940 (XL
of 1940) simultaneously with s. 5 (7A). It is’ therefore,
urged that an assesse whose case has been thus transferred
has no right under s. 64 (1) and (2) and those assessees
alone who do not come within the purview of s. 64 (5) can
have the benefit of s. 64 (1) and (2). This argument,
however, ignores the fact that s. 5 (7A) is the very basis
of the enactment of the relevant provision in s. 64 (5) and
if a. 5 (7A) cannot stand by virtue of its being
discriminatory in character, the relevant portion of s. 64
(5) also must fall with it.
It is then contended that a. 5 (7A) is in itself
discriminatory and violative of the fundamental right en-
shrined in Art. 14. The power which is vested in the
Commissioner of Income-tax and the Central Board of Revenue
is a naked and arbitrary power unguided and uncontrolled by
any rules. No rules have been framed and no directions
given which would regulate or guide their discretion or on
the basis of which such transfers can be made and the whole
matter is left to the unrestrained will of the Commissioner
of Income-tax or the Central Board of Revenue without there
being anything which could ensure a proper execution of the
power or operate as a check upon the injustice that might
result from the improper execution of the same. To use the
words of Mr. Justice Matthews in the case of Yick Wo v.
Hopkins(1):
“…… when we remember that this action or nonaction may
proceed from enmity or prejudice, from partisan zeal or
animosity, from favoritism and other improper influences and
motives easy of concealment and difficult to be detected and
exposed, it becomes unnecessary to suggest or comment upon
the injustice capable of being wrought under cover of such a
power, for that becomes apparent to every one who gives to
the subject a moment’s consideration.”
118 U. S. 356, 373; 30 L. Ed. 220, 227.
255
In other words, “ it is not a question of an uncon-
stitutional administration of a statute otherwise valid on
its face but here the unconstitutionality is writ large on
the face of the statute itself ” (Per Das, J., as he then
was, in The State of West Bengal v. Anwar Ali, Sarkar,
(supra) at p. 346).
It has to be remembered that the purpose of the Act is to
levy income-tax, assess and collect the same. The preamble
of the Act does not say so in terms it being an Act to
consolidate and amend the law relating to income-tax and
super-tax but that is the purpose of the Act as disclosed in
the preamble of the First Indian Income-tax Act of 1886 (Act
II of 1886). It follows, therefore, that all the provisions
contained in the Act have been designed with the object of
achieving that purpose. There is in the first instance, the
charge of income-tax. Then we find set up the various
authorities in the hierarchy who are entrusted with the
function of assessing the income-tax, the Central Board of
Revenue being at the apex. There is also an Appellate
Tribunal which is established for hearing appeals against
the decisions of the Appellate Assistant Commissioners.
Then follow the provisions in regard to taxable income, mode
of assessment and cognate provisions. The Income-tax
Officers are invested with the duty’ of assessing the
income-tax of the assessees in the first instance. The
Assistant Commissioners of Income-tax, are the appellate
authorities over the decisions of the Income-tax Officers
and the Income-tax Appellate Tribunal is the final appellate
authority barring of course references under s. 66(1) of the
Act to the High Court on questions of law. The
Commissioners of Income-tax and the Central Board of Revenue
are mainly administrative authorities over the Income-tax
Officers and the Assistant Commissioners of Income-tax and
they are to distribute and control the work to be done by
these authorities. All officers and persons employed in the
execution of the Act are to observe and follow the orders
instructions and directions of the. Central Board of
Revenue which is the highest authority in the hierarchy and,
even though normally in accordance
256
with the provisions of s. 64 (1) and (2) the work of
assessment is to be done by the Income-tax Officers of the
area within which the assessees reside or carry on business,
power is given by s. 5(7A) to the Commissioner of Income-tax
to transfer any case from one Income-tax Officer subordinate
to him to another and to the Central Board of Revenue to
transfer any case from any one Income-tax Officer to
another. This is the administrative machinery which is set
up for assessing the incomes of the assessees which are
chargeable to income-tax. There is, therefore, considerable
force in the contention which has been urged on behalf of
the State that s. 5(7A) is a provision for administrative
convenience.
Nevertheless this power which is given to the Commissioner
of Income-tax and the Central Board of Revenue has to be
exercised in a manner which is not discriminatory. No rules
or directions having been laid down in regard to the
exercise of that power in particular cases, the appropriate
authority has to determine what are the proper cases in
which such power should be exercised having regard to the
object of the Act and the ends to be achieved. The cases of
the assessees which come for assessment before the income-
tax authorities are of various types and no one case is
similar to another. there are complications introduced by
the very nature of the business which is carried on by the
assessees and there may be, in particular cases, such
widespread activities and large ramifications or inter-
related transactions as might require for the convenient and
efficient assessment of income-tax the transfer of such
cases from one Income-tax Officer to another. In such cases
the Commissioner of Income-tax or the Central Board of
Revenue, as the case may be, has to exercise its discretion
with due regard to the exigencies of tax collection. Even
though there may be a common attribute between the assesses
whose case is thus transferred and the assessees; who
continue to be assessed by the Income-tax Officer of the
area within which they reside or carry on business, the
other attributes would not be common. One assessee may
257
have such widespread activities and ramifications as would
require his case to be transferred from the Income-tax
Officer of the particular area to an Income-tax Officer of
another area in the same State or in another State, which
may be called ” X “. Another assessee, though belonging to a
similar category may be more conveniently and efficiently
assessed in another area whether situated within the State
or without it, called ” Y “. The considerations which will
weigh with the Commissioner of Income-tax or the Central
Board of Revenue in transferring the cases of such assessee
either to the area ” X ” or the area ” Y ” will depend upon
the particular circumstances of each case and no hard and
fast rule can be laid down for determining whether the
particular case should , be transferred at ‘all or to an
Income-tax Officer of a particular area. Such discretion
would necessarily have to be vested in the authority
concerned and merely because the case of a particular
assessee is transferred from the Income-tax Officer of an
area within which he resides or carries on business to
another Income-tax Officer whether wit in or without the
State will not by itself be sufficient to characterize the
exercise of the discretion as discriminatory. Even if there
is a possibility of discriminatory treatment of persons
falling within the same group or category, such possibility
cannot necessarily invalidate the piece of legislation.
It may also be remembered that this power is vested not in
minor officials but in top-ranking authorities like the
Commissioner of Income-tax and the Central Board of Revenue
who act on the information supplied to them by the Income-
tax Officers concerned. This power is discretionary and not
necessarily discriminatory and abuse of power cannot be
easily assumed where the discretion is vested in such high
officials. (Vide Matajog Dobey v. H. S. Bhari(1)). There is
moreover a presumption that public officials will discharge
their duties honestly and in accordance with the rules of
law. (Vide People of the State of
(1) [1955] 2 S.C.R. 925, 932.
33
258
New. York v. John E. Van De Carr, etc.(1) It has also been
observed by this Court in A. Thangal Kunju Musaliar v. M.
Venkitachalam Potti(2) with reference to the possibility of
discrimination between assessees in the matter of the
reference of their cases to the Income-tax Investigation
Commission that ” It is to be presumed, unless the, contrary
were shown, that the ‘administration of a particular law
would be done I not with an evil eye and unequal hand’ 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 presumption, however, cannot be stretched too far and
cannot be carried to the extent of always holding that there
must be some undisclosed and unknown reason for subjecting
certain individuals or corporations to hostile and
discriminatory treatment (Vide Gulf, Colorado, etc. v. W. H.
Ellis (3)). There may be cases where improper execution of
power will result in injustice to the parties. As has been
observed, however, the possibility of such discriminatory
treatment cannot necessarily invalidate the legislation’ and
where there is an abuse of such power, the parties aggrieved
are not without ample remedies under the law (Vide Dinabandu
Sahu v. Jadumony Mangaraj (4)). What will be struck down in
such cases will not be the provision which invests the
authorities with such power but the abuse of the power
itself.
It is pointed that it will be next to impossible for the
assessee to challenge a particular order made by the
Commissioner of Income-tax or the Central Board of Revenue,
as the case may be, as discriminatory because the reasons.
which actuated the authority in making the order will be
known to itself not being recorded in the body of the order
itself or communicated to the assesse. The burden moreover
will be on the assessee to demonstrate that the order of
transfer is an abuse of power vested in the authority
concerned. This apprehension is, however, ill-founded.
Though the
(1) (1905) 310-199 U.S. 552; 50 L. Ed. 305.
(2) (1955)2 S. C. R. 1196.
(3) (1897) 165 U.S. 150 ; 41 L.Ed. 666.
(4) [1955] I S.C.R. 140. 146.
259
burden of proving that there is an abuse of power,lies on
the assessee who challenges the order as discriminatory,
such burden is not by way of proof to the hilt. There are
instances where in the case of an accused person rebutting a
presumption or proving an. exception which will exonerate
him from the liability for the offence with which he has
been charged, the burden is held to be discharged by
evidence satisfying the jury of the probability of that
which the accused is called upon to establish (Vide Rex v.
Carr-Briant (1)), or in the case of a detenue under the
Preventive Detention Act seeking to make out a case of want
of bona fides in the detaining authority, the burden of
proof is held not to be one which requires proof to the hilt
but such as will render the absence of bona fides reasonably
probable (Vide Ratanlal Gupta v. The District Magistrat of
Ganjam also Brundaban Chandra Dhir Narendra v. The State of
Orissa (Revenue Department) (3)). If, in a particular
,case, the assessee seeks to impeach the order of transfer
is an abuse of power pointing out circumstances which prima
facie and without anything more would make out the exercise
of the power discriminatory qua him, it will be incumbent on
the authority to explain the circumstances under which the
order has been made. The court will, in that event,
scrutinize these Circumstances having particular regard to
the object sought to be achieved by the enactment of s.
5(7A) of the Act as set out in para 4 of the affidavit of
Shri V. Gouri Shankar, Under Secretary, Central Board of
Revenue, quoted above, and come to its own conclusion as to
the bona fides of the order and if it is not satisfied that
the order was made by the authorities in bona fide exercise
of the power vested in them under s. 5(7A) of the Act, it
will certainly quash the lame. The standard of satisfaction
which would have to be attained will necessarily depend on
the Circumstances of each case and the court will arrive at
the conclusion one way or the other having regard to all the
circumstances of the case disclosed in the
(1) [1943] 1 K.B. 607.
(2) I.L.R. 1951 cuttack 441, 459.
(3) I.L.R. 1952 Cuttack 529, 573.
260
record. The court will certainly not be powerless to strike
down the abuse of power in appropriate cases and the
assessee will not be without redress. The observations of
Fazl Ali, J., in The State of West Bengal v. Anwar Ali
Sarkar, (supra), at pages 309-310 that the authority will
say ” I am not to blame as I am acting under the Act “ will
not necessarily save the order from being challenged because
even though the authority purported to act under the Act its
action will be subject to scrutiny in the manner indicated
above and will be liable to be set aside if it was found to
be mala fide or discriminatory qua the assessee.
Particular stress is laid on behalf of the petitioners on
the observations at page 277 of the majority judgment in
Bidi Supply Co. v. The Union of India, (supra), which in the
context of the omnibus wholesale order in question
emphasized the substantial discrimination to which the
assessee there had been subjected as compared with other
bidi merchants who were similarly situated. The
inconvenience and harassiment to which the assessee was thus
put were considered to be violative of Art. 14 of the
Constitution and it is urged that s. 5 (7A) is
unconstitutional in Boar as it is open to the Commissioner
of Income-tax or the Central Board of Revenue, as the case
may be, to make an order of transfer subjecting the assessee
to such inconvenience and harassment at their sweet will and
pleasure. This argument of inconvenience, however, is not
conclusive. There is no fundamental right in an assessee to
be assessed in a particular area or locality. Even
considered in the context of s. 64 (1) and (2) of the Act
this right which is conferred upon the assessee to be
assessed in a particular area or locality is not an absolute
right but is subject to the exigencies of tax collection.
The difference, if any, created in the position of the
assessee qua others who- continue to be assessed by the
Income-tax Officer of the area in which they reside or carry
on business is not a material difference but a minor
deviation from the general standard and would, therefore,
not amount to the denial of equal rights (Per Mukherjea, J.,
as he then was, in The State of West Bengal v. Anwar Ali
Sarkar., (supra), at
261
p. 325)). There is also the further fact to be borne mind
that this inconvenience to the assessee is sough to be
minimised by the authority concerned transferring the case
of such assessee to the Income-tax Officer who is nearest to
the area where it would be convenient for the assessee to
attend and if, on account of administrative exigencies, this
is not possible an the assessee requests that the
examination of account or evidence to be taken should be in
a place convenient to him, by the Income-tax Officer
complying with the request of the assessee and holding the
hearing at the place requested. We are bound to take the
statement contained in para 5 of the affidavit of Shri. V.
Gouri Shankar at its face value and if this is done as it
should be, the assessee will not be put to any inconvenience
or harassment and the proper balance between the rights of
the subject and public interest will be preserved.
It is, therefore, clear that the power which is veste in the
Commissioner of Income-tax or the Central Board of Revenue,
as the case may be, under s. 5 (7A) of the Act is not a
naked and arbitrary power, unfettered, unguided or
uncontrolled so as to enable the authority to pick and
choose one assessee out of those similarly circumstanced
thus subjecting him to discriminatory treatment as compared
with others who fall within the same category. The power is
guided and controlled by the purpose which is to be achieved
by the Act itself, viz., the charge of income-tax, the
assessment and collection thereof, and is to be exercised
for the more convenient and efficient collection of the tax
A wide discretion is given to the authorities concerned for
the achievement of that purpose, in the matter of the
transfer of the cases of the assessees from one Income-tax
Officer to another and it cannot be urged that such power
which is vested in the authorities is discriminatory in its
nature.
There is a broad distinction between discretion which has to
be exercised with regard to a fundamental right guaranteed
by the Constitution and some other right which is given by
the statute. If the statute deals with a right which is not
fundamental in character
262
the statute can take it away but a fundamental right the
statute cannot take away. Where, for example, a discretion
is given in the matter of issuing licences for carrying on
trade, profession or business or where restrictions are
imposed on freedom of speech, etc., by a imposition of
censorship, the discretion must be controlled by clear rules
so as to come within the category of reasonable
restrictions. Discretion of that nature must be
differentiated from discretion in respect of matters not
involving fundamental rights such as transfers of cases. An
inconvenience resulting from a change of place or venue
occurs when any case is transferred from one place to
another but it is not open to a party to say that a
fundamental right has been infringed by such transfer. Ili
other words, the discretion vested has to be looked at from
two points of view, ViZ., (1) does it admit of the
possibility of any real and substantial discrimination, and
(2) does it impinge on a fundamental right guaranteed by the
Constitution? Article 14 can be invoked only when both
these conditions are satisfied. Applying this test, it is
clear that the discretion which is vested in the Com-
missioner of Income-tax or the Central Board of Reevenue, as
the case may be, under s. 5 (7A) is not at all
discriminatory.
It follows, therefore, that s. 5 (7A) of the Act is not
violative of Art. 14 of the Constitution and also does not
impose any unreasonable restriction on the fundamental right
to carry on trade or business enshrined in Art. 19 (1) (g)
of the Constitution. If there is any abuse of power it can
be remedied by appropriate action -either under Art. 226 or
under Art. 32 of the constitution and what can be struck
down is not the provision contained in s. 5 (7A) of the Act
but the order passed thereunder which may be mala fide or
violative,of these fundamental rights. This challenge of
the vires of s. 5 (7A) of the Act, therefore, fails.
We may, however, before we leave this topic observe that it
would be prudent if the principles of natural justice are,
followed, where circumstances permit, before any order of
transfer under s. 5 (7A) of the Act is made by the
Commissioner of Income-tax or the
263
Central Board of Revenue, as the case may be, and notice is
given to the party affected and he is afforded a reasonable
opportunity of representing his views on the question and
the reasons of the order are reduced however briefly to
writing. It is significant that when any question arises
under s. 64 as to the place of assessment and is determined
by the Commissioner or Commissioners or by the Central Board
of Revenue, as the case may be, the assessee is given an
opportunity under s. 64(3) of representing his views before
any such question is determined. If an opportunity is given
to the assessee in such case, it is all the more ,surprising
to find that, when an order of transfer under s. 5(7A) is
made transferring the case of the assessee from one Income-
tax ‘Officer to another irrespective of the area or locality
where he resides or carries on business, he should not be
given such an opportunity. There is no presumption against
the bona fides or the honesty of an assessee and normally
the Income-tax authorities would not be justified in
refusing to an assessee a reasonable opportunity of
representing his views when any order to the prejudice of
the normal procedure laid down in s. 64 (1) and (2) of the
Act is sought to be made against him, be it a transfer from
one Income-tax Officer to another within the State or from
an Income-tax Officer within the State to an Income-tax
Officer without it, except of course where the very object
of the transfer would be frustrated if notice was given to
the party affected. If the reasons for making the order are
reduced however briefly to writing it will also help the
assessee in appreciating the circumstances which make it
necessary or desirable for the Commissioner of Income-tax or
the Central Board of Revenue, as the case may be, to
transfer his case under s. 5(7A) of the Act and it will also
help the court in determining the bona fides of the order as
passed if and when the same is challenged in court as mala
fide or discriminatory. It is to be hoped that the Income-
tax authorities will observe the above procedure wherever
feasible.
The next point of attack is that the orders which Were made
by the Commissioner of Income-tax or the
264
Central Board of Revenue, as the case may be, in these
petitions are omnibus wholesale orders of transfer coming
within the mischief of Bidi Supply Co. v. The Union of
India, (supra), and are, therefore, hit by the majority
judgment in that case. The answer of the State is that the
orders are valid by virtue of the explanation to s. 5(7A)
which was added by the Indian Income-tax Amendment Act, 1956
(26 of 1956).
It will be remembered that the explanation was added to s.
5(7A) in order to get over the situation which was created
by the majority judgment in that case and all the
proceedings against a particular assessee whether they were
in respect of the same year or the previous years which were
pending before the Income–tax Officer were sought to be
comprised in the order of transfer as also all proceedings
under the Act which may be commenced after the date of
transfer in respect of any year whether it be the year of
transfer or any year previous or subsequent thereto. The
main structure of s. 5(7A) was, however, maintained and the
explanation was added thereto in order to expand the
connotation of the word ” case ” which was used in s. 5(7A).
The manner in which this result was brought about is subject
to criticism that the word ,case” was thus really equated
with the word ” file ” and when a case of a particular
assessee was transferred under s. 5(7A) it was meant that
his whole file would be transferred from one Income-tax
Officer to another. This inartistic mode appears, however
to be adopted by the supposed necessity of maintaining s.
5(7A) in the form in which it stood but what we have got to
see is whether the desired result has been achieved by
adding the explanation in the manner in which it was done.
Reading s. 5(7A) and the explanation thereto, it is clear
that when any case of a particular asssssee which is pending
before an Income-tax Officer is transferred from that
officer to another Income-tax Officer whether within the
State or without it, all proceedings which are pending
against him under -the Act in respect of the same year as
also previous years are meant to be transferred
simultaneously and all proceedings under the
265
Act which may be commenced after the date of such transfer
in respect of any year whatever are also included therei in
so that the Income-tax Officer to whom such case is
transferred would be in a position to continue the pending
proceedings and also institute further proceedings against
the assessee in respect of any year. The proceedings
pending -at the date of transfer can be thus continued but
in the case of such proceedings the provision in regard to
the issue of notices contained in the main body of s. 5(7A)
would apply and it would not be necessary to reissue any
notice already issued by the Income-tax Officer from whom
the case is transferred. This provision applies to pending
proceedings which have been transferred leaving unaffected
the further proceedings which may be commenced against the
assessee after the date of the transfer where fresh notices
would have to be issued.
It is, however, contended that the cases of the assessee
which have been already closed in the previous years cannot
be reopened by the Income-tax Officer to whom the case of
the assessee is thus transferred and the words ” after the
date of transfer in respect of any year ” occurring at the
end of the explanation are sought to be construed to mean ”
after the date of the transfer in respect of the year of
transfer ” thus rendering it incompetent to the Income-tax
Officer to whom the case is transferred to institute further
proceedings in respect of cases of the assessee which have
been already closed before the date of transfer. This
contention is, in our opinion, unsound. The words used are
“ in respect of any year” and not ” in respect of the year
“. Moreover they are to be read with the preceding words
“may be commenced ” and not with the words “after the date
of transfer”. A proper reading of the explanation will be
that the inclusive part thereof refers to all proceedings
under the Act which may be commenced in respect of any year
after the date of the transfer. The date of the transfer
has relation only to the particular year in which the case
of the assessee is thus transferred and to attach the words
” in respect of any year ” to the words ” after
34
266
the date of transfer” do not make any sense. The words ” in
respect of any year ” appropriately go with the words ”
which may commenced” and read in this juxtaposition render
the inclusive part of the explanation susceptible of a
proper meaning. The language of the explanation read in the
manner suggested above is thus sufficient to dispel this
contention of the petitioners.
it follows, therefore, that the omnibus wholesale orders of
transfer made against the petitioners by the Commissioner of
Income-tax or the Central Board of Revenue, as the case may
be, are saved by the explanation to s. 5(7A) and are not
unconstitutional and void:
It remains now to consider whether the individual orders
against the petitioners are discriminatory in fact or are
mala fide and in abuse of the power vested in the
Commissioner of Income-tax or the Central Board of Revenue,
as the case may be, under s. 5(7A) of the Act.
Petitions Nos. 211 to 215 of 1956, i.e., the Shiram
Jhabarmull group, may be dealt with in the first instance as
they have a peculiar characteristic of their own. The
orders complained against in these petitions were all made
by the Commissioner of Income-tax Central, Calcutta, on July
27, 1946, and further proceedings were entertained against
the petitioners by the Income-tax Officer, Central Circle
IV, Calcutta, immeasurable thereafter. All these
proceedings culminated in assessment orders and certificate
proceedings
under s. 46(2) of the Act were also taken by the authorities
against the petitioners for recovery of the tax so assessed
before the advent of the Constitution. The question,
therefore, arises whether these orders of transfer can be
challenged by the petitioners as unconstitutional and void.
It is settled that Art. 13 of the Constitution has no
retrospective effect and if, therefore, any action was taken
before the commencement of the Constitution in pursuance of
the provisions of any law which was a valid law at the time
when such action was taken, such action cannot be challenged
and the law under
267
which such action was taken cannot be questioned as
unconstitutional and void on the score of its infringing the
fundamental rights enshrined in Part III of the Constitution
(See Keshavan Madhava Menon v. The State of Bombay(1)). The
following observations of Das, J., as he then was, at p. 235
of that case, may be appropriately referred to in this
context:
“As already explained, article 13(1) only has the effect of
nullifying or rendering all inconsistent existing laws
ineffectual or nugatory and devoid of any legal force or
binding effect only with respect to the exercise of
fundamental rights on and after the date of the commencement
of the Constitution. It has no retrospective effect and if,
therefore, an act was done before the commencement of the
Constitution in contravention of any law which, after the
Constitution, becomes void with respect to the exercise of
any of the fundamental rights, the inconsistent law is not
wiped out so far as the past act is concerned, for, to say
that it is, will be to give the law retrospective
effect……… So far as the past acts are concerned the
law exists, notwithstanding that it does not exist with
respect to the future exercise of fundamental rights.” (See
also Syed Qasim Razvi v. The State of Hyderabad(2) and
Laxmanappa Hanumanthappa Jamkhandi v. Union of India(1)).
It is clear, therefore, that the petitioners are not
entitled to complain against the said orders of transfer
dated July 27, 1946.
Petitions Nos. 225 to 229 of 1956, i.e., the Raichur group,
and Petitions Nos. 86, 87, 88, 111, 112 and 158 of 1956,
i.e., the Amritsar group, all belong to the same category.
In the first group, there was an order of transfer on
December 21, 1953, passed by the Commissioner of Income-tax,
Hyderabad, transferring the cases of the petitioner from the
Additional Income-tax Officer, Raichur, to the Income-tax,
Officer, Special Circle, Hyderabad. There was, however, an
order passed by the Commissioner shortly before May 19,
1955, transferring the cases of the petitioner from the
Income-tax
(1) [1951] S.C.R. 228, 235.
(2) [1953] S.C.R. 589.
(3) [1955] 1 S.C.R. 769.
268
Officer, Special Circle, Hyderabad, to the main Income-tax
Officer, Raichur. The petitioner thus reverted to the
Income-tax Officer, Raichur, and it passes one’s imagination
what possible argument he can urge on the score of
inconvenience and harassment. The whole attitude of the
petitioner is motivated by an intention to delay the payment
of income-tax legitimately due by him to the Revenue trying
to take advantage of a mere technicality. In the second
group, there were orders passed by the Commissioner of
Income-tax transferring the cases of the petitioners from
the Income-tax Officer, “AWard, Amritsar, or the Income-tax
Officer,’F'Ward, Amritsar, to the Income-tax Officer,
Special Circle, Amritsar. Both these officers were situated
in the same building and under the same roof. The argument
of inconvenience and harassment can, under these
circumstances, be hardly advanced by them.
There is moreover another feature which is common to both
these groups and it is that none of the petitioners raised
any objection to their cases being transferred in the manner
stated above and in fact submitted to the jurisdiction of
the Income-tax Officers to whom their cases had been
transferred. It was only after our decision in Bidi Supply
Co. v. The Union of India, (supra), was pronounced on March
20, 1956, that these petitioners woke up and asserted their
alleged rights, the Amritsar group on April 20, 1956, and
the Raichur group on November 5, 1956. If they acquiesced
in the jurisdiction of the Income-tax Officers to whom their
cases were transferred, they were certainly not entitled to
invoke the jurisdiction of this Court under Art. 32. It is
well settled that such conduct of the petitioners would
disentitle them to any relief at the hands of this Court
(Vide Halsbury’s Laws of England’, Vol. II, 3rd Ed., p.
140, para 265; Rex v. Tabrum, Ex Parte Dash(1); 0. A. 0. K.
Lakshmanan Chettiar v. Commissioner, Corporation of Madras
and Chief Judge,Court of Small Causes, Madras(2) ).
The orders of transfer made by the Commissioner of Income-
tax or the Central Board of Revenue, as the
(1) [1907] 97 L. T. 551.
(2) [1927] 1. L. R. 50 Mad. 130.
269
case may be, against the three groups of petitioners, viz.,
Sriram Jhabarmull group, the Raichur group and the Amritsar
group, cannot, therefore, be challenged by them as
unconstitutional and void
This leaves two sets of petitioners, the petitioners in
Petitions Nos. 97 & 97-A of 1956 and the petitioners in
Petitions Nos. 44/56 and 85/56.
Petitions Nos. 97 & 97-A of 1956 :-The petitioners are
oilmill owners, merchants and commission agents, carrying on
business at Sahibganj in the district of Santhal Parganas
and have a branch at 97, Lower Chitpur Road, Calcutta.
Their cases were referred to the Income-tax Investigation
Commission as they were believed to have evaded payment of
tax on a substantial amount. They were alleged -to have
concealed income exceeding Rs. 8 lakhs and indulged in
business activities spread over a wide area resulting in
large profits not disclosed in the books of account or in
the various returns filed by them. After the judgment of
this Court in Surajmull Mohta & Co. v. A. V. Viswanatha
Sastri(2), about 320 cases referred to the Income-tax
Investigation Commission under s. 5 (4) of Taxation on
Income Investigation Commission Act (XXX of 1947) were
affected and had to be reopened under s. 34 (IA) of the
Income-tax Act. To dispose of these cases, ”since they
involved many back years’ cases” quickly and promptly,
special circles without reference to area were created at
Bombay and Calcutta, because the existing circles, whose
hands were full, could not take up this extra work. These
320 cases were distributed between these circles on the
basis of the geographical area to which these assessees
belonged. The petitioners belonged to Bihar and had a-
branch at Calcutta and their cases were, therefore, allotted
to one of the Central Circles at Calcutta.
Later on in October 1954, this Court struck down S. 5 (1) of
the Taxation on Income Investigation Commission Act (XXX of
1947) in Meenakshi Mills Ltd. v. Viswanatha Sastri. (2 ) and
as a result thereof cases referred under that section and
pending with the
(I) [1055] 1 S.C. R. 448.
(2) [1955] I S.C. R. 787.
270
Income-tax Investigation Commission on July 17,1954, could
not be preceded with under the provisions of that Act. -
These cases numbering about 470 had to be reopened under s.
34 (1A) of the Income-tax Act. The Government thought that
as in the earlier lot of cases, it would help speedier
disposal of the cases, if they were allotted to Income-tax
Officers appointed without reference to area to deal with
the same. In addition to the circles already created in
Bombay and Calcutta, five more circles at Calcutta and 4
more circles at Bombay and 9 more circles at important
centers such as Kanpur, Ahmedabad, Madras and Delhi were set
up to deal with all these cases. As a result of the influx
of these cases, it was found that the 9 circles at Calcutta
had about 280 cases of assessees belonging to Calcutta
itself to dispose of and therefore cases not belonging to
that area had to be taken out and assigned to one of the
newly created circles, Where the work load was low. It was
found then that Central Circle VI had a lower work load
compared to other circles and, therefore, the cases of the
petitioners were transferred to the Income-tax Officer,
Central Circle VI, Delhi.
Having regard to these circumstances which are disclosed in
the affidavits of Shri V. Gouri Shankar, Under Secretary,
Central Board of Revenue, dated November 19, 1956, and
December 3, 1956, it is clear that the transfer of the cases
of the petitioners, firstly, from the Income-tax Officer,
Special Circle, Patna, to the Income-tax Officer, Central
Circle XI, Calcutta, and next, from the latter officer to
the Income-tax Officer, Central Circle VI, Delhi, were made
as a matter of administrative convenience only.
It further appear; from the said affidavits that the
examination of accounts and the evidence was done at the
places desired by the assessees in order to suit their
convenience and the Income-tax Officers were instructed
accordingly. As a matter of fact the Income-tax Officer,
Central Circle VI, Delhi, went to Sahibganj and examined the
accounts there in the case of the petitioner No. 1 and when
the assessee voluntarily requested the Income-tax Officer to
have
271
the examination done at Delhi (the assessee had then come to
Delhi for some other work of his) the Income-tax Officer
promptly posted the case and examined the accounts.
If these were the circumstances under which the cases of the
petitioners were transferred from Patna to Calcutta and from
Calcutta to Delhi and the petitioners were afforded all
conveniences in the matter of the examination of their
accounts and evidence, there is no basis for the charge that
the orders of transfer made against these petitioners were
in any manner whatever discriminatory.
Petitions Nos. 44 and 85 of 1956
The petitioner in Petition No. 44/56 is Shri A. L. Sud who
originally belonged to Hoshiarpur district in Punjab and
since 1948 resides and has his office in Calcutta. He is
the son of one Shri Bhagwan Das Sud and is a member of the
Hindu undivided family styled M/S. Bhagwan Das Sud & Sons
with Shri. Bhagwan Das Sud as the karta thereof. This
Hindu undivided family has been carrying on business at
Hoshiarpur and at various other places like Bareilly,
Calcutta and Bombay. The petitioner has been carrying on
business both as the member of the Hindu undivided family
and also in his individual capacity since 1946. The said
joint family of Bhagwan Das Sud & Sons was alleged to have
evaded income-tax to a large extent and had inter-related
transactions in respect of their dealings, the petitioner
being a copartner of the said joint family. It was,
therefore, considered necessary in order to have a proper
assessment of the petitioner’s income that his case also
should be dealt with by the Income-tax Officer assessing the
joint family and the petitioner was informed that, in the
matter of hearing, he would be put to least inconvenience.
These were the circumstances under which his case was
transferred from the Income-tax Officer, Survey Circle,
Calcutta, to the Income-tax Officer, Special Circle, Ambala,
by an order of the Central Board of Revenue dated June 29,
1955.
The case of M/S. Bhagwan Das Sud & Sons, petitioners in
Petition No. 85/56; had already been
272
transferred by the Commissioner of Income-tax from the
Income-tax Officer, Hoshiarpur, to the Income-tax Officer,
Special Circle, Ambala, by an order under s. 5(7A) of the
Act dated October 20, 1953. The petitioners had their
office at Hoshiarpur in Punjab but their activities were
scattered in various parts of India some of them being in
Assam, Bombay, Bareilly, Calcutta and Kanpur in respect of
the contracts they undertook with the Government and other
parties. They were alleged to have concealed income
assessable to income-tax exceeding Rs. 30 lakhs and it was
thought necessary to make proper investigation of their
widespread activities resulting’ in extensive evasion of
income-tax. These were the circumstances under which their
case was transferred to the Incometax Officer, Special
Circle, Ambala, as above. That officer, however, agreed to
examine the accounts and evidence at Hoshiarpur itself to
suit the convenience of the petitioners but the petitioners
did not agree on the ground that their Advocate was to come
from Delhi and therefore Ambala would suit them as well.
The cases of both the petitioners thus came to be
transferred from the respective Income-tax Officers who used
to assess them at Calcutta and Hoshiarpur respectively to
the Income-tax Officer, Special Circle, Ambala, and all
conveniences were afforded to them in the matter of the
examination of their accounts and evidence. The argument of
discrimination and inconvenience and harassment thus loses
all its force and the orders of transfer made against them
cannot be challenged as in any way discriminatory.
It may be noted that in the last mentioned four petitions,
viz., Petitions Nos. 97 & 97-A of 1956 and Petitions Nos.
44/56 and 85/56, the Central Board of Revenue or the
Commissioner of Income-tax, as the case may be, instructed
the Income-tax Officers concerned to minimise the
inconvenience caused to the assessees and even proceed to
their respective residences or places of business in order
to examine the accounts and evidence. Inspite of the
denials of the assessees in the affidavits which they filed
in
273
rejoinder, we presume that such facilities will continue to
be afforded to them in the future and the inconvenience and
harassment which would otherwise be caused to them will be
avoided. A humane and considerate administration of the
relevant provisions of the Income-tax Act would go a long
way in allaying the apprehensions of the assessees and if
that is done in the true spirit, no assessee will be in a
position to charge the Revenue with administering the
provisions of the Act with ” an evil eye and unequal hand “.
We have, therefore, come to the conclusion that there is no
substance in these petitions and they should be dismissed
with costs. There will, be, however, one set of costs
between respondents in each of the petitions and one set of
costs in each group of these petitions, viz., (1) Petitions
Nos. 97 & 97-A of 1956, (2) Petitions Nos. 44/56 and 85/56,
(3) Petitions Nos. 86/56, 87/56, 88/56, 111/56, 112/56 and
158/56, (4) Petitions Nos. 211 to 215 of 1956, and (5)
Petitions Nos. 225 to 229 of 1956.
Petitions dismissed.