September 1948 could stand comparison with the pro v. Act XXX of 1947, ferred by ' the Central Government for investigation

in support of this contention were not felicitously expressed. The petitioners ap the contentions which could to have mixed up be urged as a result of our in Sw:aj Mall Mohta v. A. V. Visvanatha Sastri and Anvther(1) and Shree Meenakshi Mills Ltd. v. A. V. Visvanatha Sastri and Another( 2 ). They contended in the first instance the amendment of section 34 of the Indian that after Income-tax Act by Act XXXIII of 1954, which judgments (l) [1955] I S.C.R. 448. (2) (1955] l S.'C.R. 7e7. 1955 M. Ct. MuJhi.h and 2 others V• The Commissioner of Income-tax, MadrD> and another Bhagwati]. 1252 SUPREME COURT REPORTS [1955] they ~pplied to alia, added sub-seetions (1-A) to (1-D) to section 34, section 5 ( 1) of the Act became dis the provisions of criminatory, as on a reading of both the enactments, Act XXX of 1947 and the Income-tax Act as amend in 1954 showed the same of persons and there was nothing in section category 5(1) of the said Act the Act or any other provision of disclosing any valid or reasonable classification. The provisions of Act XXX of 1947 could not, therefore, be sustained 011 to avoid the ground of classification the mischief of article 14 of the Constirution. The in Shree petitioners obviously relied upon our decision in support of this con Meenakshi Mill's· case, tention. supra, enabled thereafter proceeded in express to eliminate The petitioners they were authorised terms. They contended the Central Government taxation on income, in rekrring· some evaders to to set out their alternative contention based upon our decision in Suraj Mall Mohta's case, supra, though it was not so that Act stated XXX of 1947 discri.minate between one person and another much as to pick and choose cases the group of those who had of persons who fell within that the act substantially evaded the Government Commission was wholly arbitrary and there was noth the possibility of a favouritism or a discrimination against an sending or not sending cases to the Commission as between two persons both of whom might be within the group of the payment of tax to a sub those who have evaded contended stantial extent. further procedure prescribed under the impugned Act was substantially more prejudicial and more drastic to the assessee Indian Income-tax Act. There was no reasonableness the· the Indian advantage of similarly Income-tax Act while situated should be deprived of it. should the procedure prescribed by the procedure prescribed under individual by justification that one another person person They They, therefore, contended that section 5(1) of the Act was discriminatory and violative of article 14 of issue of a writ of the Constitution and asked 1955 M. Ct; Muthiah and 2 others V• The-Commissioner of Ineome-tax, Madras and another .Bhagwati ]. 2!5.0.Jt SUPREME COURT REPORTS 1253 the 29th August 1952 en- · the Income-tax Officer the report of the Income-tax rertiorari or any other appropriate writ, direction. or Investi order quashing gation Commission dated closed as Annexure A to the ·petition and the assess ment orders of the years to 1948-49 as being 1940-41, 1941-42, and 1943-44 unconstitutional, null and void and also of a writ of prohibition calling upon the Commissioner of Income Income-tax Officer, tax, Madras; respondent 1 and City Circle I, Madras, their subordi nate officers to forbear ings of the Investigation Commission with regard to the year l942-43. respondent 2 or from implementing the This petition was heard a:long with Civil Appeals Nos. 21 and 22 of 1954, A. Thangal Kunju Musaliar v. M. Venkitachaalam Patti & Another and M. Venkita the cognate Musaliar (1), which also raised inter alia section 5 ( 1) question about pari materia with section 5 ( 1) of Act XXX of 1947. the Travancore Act XIV of 1124 which was the constitutionality of In regard to the question whether is a ra tional basis of cla~sification to be found in the enact ment of section 5(1) of the Act, the preamble and the relevant provisions of Act XXX of 1947 are the same as were considered by us in considering this question in r~lation to the Travancore Act XIV of 1124. The words "substantial extent" also have been used in the cases in . the Eva sion Cases Nos. 1 and 2 of 1125 (M.E.), Gauri Shanker, Secretary, Commission the 21st September 1955 wherein he set out the events and circumstances under In para which Act XXX of 1947 came graph 4 of that affidavit he stated: the Acts and in the present case as the Travancore petitioners concerned Income-tax affidavit dated Investigation to be passed. during the period of "It was found the last large fortunes . had been made by businessmen. Controls· imposed by Government on prices and distri bution, were · often evaded and secret profits ~re made and. kept outside the books and often kept in in the vested real property acquired ia shares (I) [1955] 2 S. C.R. 1196. 1955 M. Ct. Muthiah and 2 others V• The Commissioner of Income-tax, Madras and another BhagwatiJ. 1254 SUPREME COURT REPORTS [1955] sterilising that had to be made .of evasion of the Income-tax to cope with to investigate cases in cash purchases of gold, this period, it became necessary the war years and a few years after and jewellery. The machinery of unable names of benarnidars or Income-tax · silver the large administration was to be dealt with, number of complex cases its termi during nation. As there had been a large scale evasion tax during public interests come-tax and bring under assessment huge profit that had escaped assessment. As a preliminary step this direction, a demonetisation Ordinance was passed in January 1946 the High Denomination in which secret profits earned during the war Notes years had been partly kept and calling for a statement the source of such profits. This was follow regarding ed by Investigation Commission Bill. In view of the prolonged and complicated enquiries that had these secret war a special profits and bring the pro Commission was constituted fits made since 1939 but which had escaped assess.ment. I say to in.,estigate is evasion of payment of taxation which could reasonably be the classification called leaves the is real by the selective application of executive authorities the stand indicated This affidavit surrounding Act XXX of 1947 was enacted and if this back ground is it would be obvious that into account the substantial income-tax evaders of pavment whose cases were referred by the Central Government themselves and there was enactment classification. The statute merely a rational basis of classification of section 5 ( 1) of to unearth them under assessment furnished circumstances in accordance with "Substantial" and formed a class by the background to enquire into the Commission the Act itself" that what to be made is intended obtaining therefore the Act. the terms The argument the Central Government of section 'i(l) to pi<:k and choose enabled individuals falling within thot the cases of p"articular category the cases of other persons falling within the same category to be dealt with in accord- leaving !955 M. Ct. Muthiah and 2 othen V• The Commissicner of IncoT111J·tax, MadraJ and arwther Bhagwati]. 2S.CR. SUPREM'E C()U:RT REPORTS 1255 the Indian dealt with in existence on the provisions of section 34(1) of Indian Income~tax Act as. it stood prior to the amend ment of 1948 has been already in our judgment in A. Thangal Kunju Musaliar v· M. Venki tachalam Patti & Another, supra; while dealing with the corresponding provisions of section 5 ( 1) of Travancore Act XIV of 1124 and section 47 of the Travancore Act XXIII of 1121 and we have pointed out that so far as the 18th April 1947 which was the date on which Act XXX of 1947 received the the Governor-General) stood unamended by assent of Act XL VIII of 1948, within income the Act tax within could not have been dealt with under the provisions of section 34(1) of Income-tax Act and, there was no discrimination and no viola therefore, tion of the fundamental right guaranteed under arti cle 14 of the· category of substantial evaders of the meaning of section 5(1) of the cases of persons who Income-tax Act as the Constitution. the Indian The other argument that the selection of the per to be referred by the Central sons whose cases were the Commission was Government for investigation discretion of the administrative officials also has the executive or been dealt with in that j_udgment and we need not repeat our reasons for rejecting the unguided and uncontrolled the same. the only provisions (which corresponded with If th~ provisions of section 34(1) of the Indian In it stood unamended by Act XL VIII come-tax Act as the provisions of of 1948 the Travancore Act XXIII of 1121) had section 47 of to be considered we would have reached conclusion as we did A. Thangal Kunju Musaliar v. M. Venkitachalam Patti & Another, supra. The position, however, present case· is materiaHv affected by reason of the two amendments which were made in section 3.4 of in 1948 by the enact the Indian Income-tax Act, one in 1954 ment of Act XL VIII of 1948 and by the enactr.11'..ltl of: Act XXXHL of 1954~ the other the same See1!ion 34 as amended by Act Y..L VJII of 1948 read as uruler; 1955 M. Ct. Muthiah and 2 others v. The Commissionu of Income-tax, Madras and another BhagwatiJ. 1256 SUPREME COURT REPORTS [1955] "Section 34(1) : If- ( a) the reason the assessee, or assessed at facts necessary income, profits been under-assessed Income-tax Officer has fully and for his assessment Income-tax Officer has in his possession to believe the om1ss10n or failure on the part to make a return of his income under that year, or low a the subject of excessive the Act, or exces.siv~ loss or depreciation that there has been no omis in clause (a) on the p1rt in conse reason or gains chargeable for any year, or low a the subject of excessive relief this Act, or that excessive loss or depreciation that by reason of of an assessee section 22 for any year or to disclose all material that year, income, profits or gains chargeable come-tax have escaped assessment rate, or have been made relief under allowance has been computed, or (b) notwithstanding sion or failure as mentioned quence of information believe income-tax have escaped assessment have been under-assessed, or assessed rate, or have been made allowance has been computed, in cases he may falling under clause within eight years and at any time within four years of the end of that (b) is a the assessee serve on year, thereof, a notice company, on the requirements which may containing all or any of in a notice under sub-section (2) of sec be included to assess or tion 22 and may proceed loss or recompute income, profits or gains or depreciation allowance; and Act shall, so far as may be, apply accordingly as if that sub-section : the notice were a notice " the assessee, or, the principal officer re-assess provisions of falling under clause (a) at any issued under in cases Act XXXIII of 1954 sub-sections (1-A) material for our purposes provided: tu (1-D). introduced into section 34 Section 34(I-A) which is "Section. 34 (1-A) : the Income-tax Officer has If, in the case of any assessee, to be!ieve'- reason (i) that income, profits or gains chargeable income-tax have escaped assessment for any year in 1955 M. Ct. Muthiah and 2 others V• The Commissioner of Income-tax, Madras and another Bhagwati]. 2S.C.R. SUPREME COURT REPORTS 1257 of which respect wholly or partly within 1st day of September, 1939, and ending day of March, 1946; and, relevant previous year the period beginning on the on the 31st likely to one (ii) that in respect to amount, the asses, see, or, principal officer income, profits or gains which have so escaped asses, sment for any such year or years lakh of amount, or rupees or more; he may, notwithstanding the period years or, as the case may be, four years specified in sub-section ( 1) has expired thereof, is a company, on a notice containing all included the requirements which may be or any of in a notice under sub-section (2) of section 22, and to assess or re-assess the income, profits may proceed the asse~see for all or any of the years or gains of the provisions referred of this Act (excepting those contained in clauses ( i) to sub-section (1) and in sub and (iii) of the proviso sections so far as may be, apply accordingly: (2) and (3) of this section) shall, in clause (i), and thereupon if the assessee thereof, Provided issue a notice under recorded his reasons Board of Revenue Income-tax Officer shall not this sub-section unless he has so, and the Central for doing reasons recorded is.' satisfied on such it is a fit case for the issue of such notice: Provided further that no such notice shall be issued after the 31st day of March, 1956". has come Amended section 34 ( 1) of the Indian Income-tax the old section Act was substantially different 34(1) which was in operation up to the 8th September 1948. The words "if in consequence of definite in formation which income, profits or Income-tax Officer discovers assess- gams chargeable in any year .......... " which appear in the old section were substituted by the words "If the Income tax Officer has reason reason of on the part of the assessee the omission or failure ....... , .. income, profits to in:- or gains chargeable assessment ....... ; " . The escaped come-ta'x to income-tax have escaped into his possession to believe that by 1955 M. Ct. Muthiah and 2 others V· The Commissiontr of lncome-.ttzx, Madras and another Bhagwati]. 1258 SDPREME C'OORT REPORTS [19551 to enable section 34(1) to be substituted for year. Whereas before (iii) he "discovers" that that by reason of the assessee Indian Income-tax Act as it then stood, as amended after (ii) which had information requmtes of (i) "definire" the Income -tax Officer and "come into" possession of in consequence of which come, profits or gains chargeable income-tax had escaped assessment, were no longer necessary and the only thing which was the Incom~­ required to take proceedings under section 34 (1) tax Officer as amended was to be that he should have reason the omission or failure on the income, profits or gains chage part of to income-tax had escaped assessment for a parti this amended section 34( 1) came the old section 34 ( 1) there was no comparison between the provisions of section 5(1) of Act XXX of 1947 and section 34(1) of the pro vi~ons of the 8th September 1948 could stand comparison with the pro visions of section 5 ( 1) of Act XXX of 1947 and the cases which were covered by section 5( 1) of Act XXX of 1947 could be dealt with under the procedure laid in section 34(1) of the Indian Income-tax Act. After the 8th September 1948, therefore, even in the case of substantial evaders of income-tax who were a distinct class to be treated by the drastic and laid down by that were already re Act XXX of 1947, ferred by ' the Central Government for investigation the Commission could be dealt with under that Act and other cases, though the same class or category, could be dealt with under the pro the amended section 34(1) of the cedure prescribed The persons who were thus Indian Income-tax Act. the Indian Income dealt with under section 34(1) of the whole pmcedure tax Act had available laid down inspect the right documents and the right to question the findings of fact arrived at by the Income-tax Officer by the pro cedure of appeal ultimate scrutiny Income~tax Appellate Tribunal which was· those persons whose cases had been. refeued denied by the Central Government for themselves intended summary procedure some cases that Act including · and revision and investigation by falling within tt> 1955 M. Ct. Muthiah and 2 others V• The Commissioner of Income-tax, Madras and another Bhagwati]. 2 S.C.R. SUPREME COURT REPORTS 1259 Income enacted, the Act to bring to which laid down is also very The juxta-position of dates Income-tax Act also received in Act XXX of 1947 as the period Commission under section 5(1) of Act XXX of 1947. instructive. It may be noted that it was originally to the Central Government could make the references in section for investigation was Commission to be 30th June 1948. This period 5(1) of to the 1st September 1948 by the Taxa was extended (Investigation Commission) Second tion on Amendment Act, 1948 (XLIX of 1948). Act XLIX the Central Legislature and of 1948 was passed by the Governor-General on the the assent of received 8th September 1948, s,ame day on which Act XL VIII of 1948 which amended section 34(1) of the Indian the assent of the Governor-General. Both these Acts, viz., Act XLVIII of 1948 and Act XLIX of 1948 were passed simultane ously and obviously with a view the provi sions of section 5(1) of Act XXX of 1947 and section Income-tax Act in tune with each 34(1) of other. that the to have been substantial evaders of income-tax in respect of whom the Central Government had prim a f acie reasons they had to a substantial extent evaded believing payment of taxation on income could not have referred by the Commission the 30th June 1948, that having been the time in section 5(1) of the Act. limit originally prescribed the period It also appears be extended possibly 1st beyond September that apart result 1948 with the cases of sustantial evaders of income-tax which were referred by the Central Government for investi gation the 1st September there would be a large number of such cases 1948 which though investi- · they could not be referr.ed for the Commission would have to be dealt with gation under the ordinary provisions income had escaped assessment available in section 34 Income-tax the cognate sections of Act. As section 34(1) then stood, requisites of the Indian It appears to the Commission up to have been for taxation of Indian investigation realized . not 25-85 S. C. India/59. - I9D5 M. Ct. Muthish and 2 oth1rJ v. Tiu Commissioner of Income-tax, Madras and atroth~ Bhsgwali]. 126C SUPREME COURT REPORTS [1955] had escaped the amended the Government to enable thereunder income-tax had escaped assessment income, profits or gains chargeable the substantial evaders of income-tax have availed substantial evaders of therefore, to have been definite information coming into the possession of the Income-tax Officer in consequene of which he dis covered assessment would certainly income-tax tracking down income-tax and it ap pears, thought necessary that section 34( I) of the Indian Income-tax Act should be the Income-tax Officer to take amended so as reason if he had proceedings to beli:ve that by reason of omission the part of or failure on the assessee ........ income, profits or gains chargeable vant period. An amendment of section 34(1) in this manner would enable Government to pass on the re in regard information which they had obtained quisite In come-tax Officers concerned and ask Income-tax those evaders of Officers to take proceedings against income-tax under Indian Income-tax Act. That appears to have been the amendment of section 34(1) of the real object of the Indiau Income-tax Act with effect from the 8th September 1948. The Commission would proceed references which were made to them up to the 1st September 1948 and the Income-tax Offi.;ers concerned would take the requisite proceedings under the Indian Income-tax Act as amend section 34(1) of ed after the 8th September 1948 against all persons income, profits or gains had escaped assessm·ent income-tax whose including by the casrs would certainly Central ·Government for the Coµ1mis them to do so before if it had been possible for the first September 1948.. After September the 8th 1948, operation, the one under Act XXX of 1947 and the other under the Indian Income-tax Act with referenc.c the same class or category to persons who fell within the substantial evaders of income-tax. viz~ that of the 8th September 1948, therefore, some persons After the class of substantial evaders of who fell within substantial evaders of have been two procedures simultaneously section 34(1) of referred investigation there· were 1955 M•·OI. Mrilllidh and2 othm V• Thr Go1nmwio111r of1mo~, MadrM arid anothlr Bhagwati J• 2S.C.R. SUPREME COURT REPORTS 1261 the procedure prescribed the amended section 34(1) of income-tax were dealt with under the drastic and summary procedure prescribed under Act XXX of 1947, while other persons who fell within the same income-tax could be class of substantial evaders of dealt with under service of notice upon Indian Income-tax Act after them under the Act. Different persons, though falling under the same class evaders of income-tax, to different procedures, would, the oth~r a one a summary and drastic procedure and the assessees various normal procedure which gave to those who were specially rights which were denied in Act XXX treated under of 1947. supstantial therefore, be subject the procedure prescribed category of there, including January 1950, The l_egislative competence being rights enshrined the right the advent of the Constitution came these pro though discriminatory, could not have been visions, the Constitution. challenged before into force on When, however, the 26th the citizens obtained in Part III of the Con fundamental to equality of laws. and stitution equal protection of laws enacted in article 14 thereof, and whatever may have been 26th January 1950, to the persons alleged to belong there; to why some of them were subjected and drastic procedure prescribed Act XXX of 1947 and others were subjected ip section 34 and the normal procedure prescribed Income-tax Act, cognate sections of procedure prescribed in Act XXX of 1947 bemg therefore, violative of obviously the fundamental right guaranteed under article 14 of the Constitution. to the class of substantial evaders to ask as the summary discriminatory and, the position before it was open Indian It would be no answer to suggest stantial evaders whose. cases were Central Government mission before by themselves those sub the Com for inves; tigation by 1st September 1948 formed a class though belonging to the of substantial evaders of leaving others category referred by 1955 M; Ct. Muthiah and 2 others v. TM Commissioner Qf Income-tax, Madras and another Bhagwati J. 1262 SUPREME COURT REPORTS [1955] appearing the Commission the Indian fundamental to be dealt with by the ordinary procedure income-tax Income-tax Act without prescribed right guaranteed under infringing article 14 of the Constitution. A similar argument had been advanced before us by the learned Attorney in Shree General Meenakshi Mills' case, supra. The ground which he had urged was "that the class of persons dealt with under section 5(1) of Act XXX.of 1947 was not only the class of substantial it was a class tax dodgers but the Central Government, by of persons whose cases 1st September, 1948, had referred the Commission that class had thus become determined finally on that clas$ of persons could be that date, dealt with by Investigation Commission under the drastic pz:ocedure of Act XXX of 1947 while sec Income-tax Act as amended tion 34 of empowered the I11come-tax Officer to deal with cases those whose cases had been referred the Investigation Commission ...... " Mahajan, C. J. who delivered judgment of the Court dealt with this argument at page 795 (') as under: section 5(1) the Indian to us it seems "As regards comprised of those unsocial elements the Act and made substantial profits and the first contention canvassed by the learned Attorney-General that it can not stand scrutiny. The class of persons alleged have been dealt with by section 5 ( 1) of the impugned Act was society who during recent years prior to the passing evaded payment of tax on those profits and whose Investigation Commission cases were before that evasion of tax to a substantial amount could form a basis of imposing a drastic procedure classification at all for on that class,, che inclusion of only such of them whose had been referred before 1st September, 1948, into a class. the drastic pro to be dealt with cedure, law will be a clear discrimination of the case within a particular time to the 1st September, 1948. Assuming for being dealt with by leaving other the reference the ordinary tax evaders referred (!) [1955] l $.C.R. ·787, 795. 1955 M. Ct. Muthiah and 2 others "· T ht Gommissiontr of Income-tdx, Madras and another Bhagwat. J. 2S.C.R. SUPREME COURT REPORTS 1263 has no special or rational nexus with · the necess.ity for drastic procedure ...... " These observations were made argument of did not lay down fined to such a limited class. to repel the particular learned Attorney-General but they in fact section 5(1) was con It is, We are the· time Income-tax Act effected further supported in this view by the fact the later amend111ent of section 34 of the that by by Act XXXIII of Indian limit for the issue of notice under sec 1954, the Indian focome~tax Act has been tion 34(1-A) of fixed as the 31st day of March 1956. therefore, the period miginally fixed for the reference the cases of substantial evaders of income-tax for investigation by the Commission, viz., 30th June, 1948 or the extended period, viz., 1st September, 1948 pro in section 5(1) of Act XXX of 1947 or the period fixed by the new section 34(1-A) of the Indian Income-tax Act., viz., 31st day of March 1956 was not a class of substantial evaders of income-tax but was merely an accident and a measure of administrative convenience and was not an element the formation of the particular class of substantial evaders of income-tax. necessary attribute of It follows, therefore, that after the inauguration of the C,onstitution on the 26th the per referred for investigation by sons whose cases were Central Government the Commission up to the 1st September, 1948 could, to use the words of Mahajan, in Shree Meenakshi Mills' case, supra, at page 794 C. J. ask: January, 1950, the Income-tax Officer under " ...... why are we now being dealt with by the discriminatory and drastic procedure of Act XXX of situated as ourselves can 1947 when those similarly be dealt with by the Act? Even amended provisions if we once bore a distinctive label that distinction no longer subsists and the label now borne by us is the is borne by persons who can be dealt with same as under section 34 of the Act as amended; in other words, there is nothing uncommon either in properties or in characteristics between us and those evaders · of of section 34 of 1955 -M. Cl. Mulhiah ad2 oU-1 . ~. TM Commi1,;o,,,, of I11eonu-lax, Madra10nd QMJ/ur Bhagwali]. 1264 SUPREME COURT REPORTS [1955] 1950 in our fanuary induded the strip of also add, adopting the Commission and · therefore, is to be discovered by the Income the provision~ of amended section income-tax who are tax Officer under 34" . the same phraseology, We may judgment, no satisfactory answer can be the field on which the to this query because returned from and after amended section 34(1) operated territory 26th which was also occupied by section 5 ( 1) of Act XXX laws of pr<> of 1947 and two Siubstantially different cedure, one being more prejudicial the assessee the other, could not be allowed to operate on in view of the guarantee of article 14 the same of the Constitution. The result, that barring the cases of reports persons which were already concluded by made by the directions given by the Central Government under section 8(2) of Act XXX of 1947 culminating assessment of .cases which the escaped the 26th January 1950 for investiga were pending on the assessment or tion before re-assessment proceedings which were pending on, the Income-tax Officers before 26th concerned in pursuance of the directions given by the Central Government under section 8(2) of the Act would be hit by article 14 of the Constitution and would be invalidated. The R. C. Cases 516, 517 and · 518 to M. Ct. M. Chidambaram Chettiar, M. Ct. Muthiah Chettiar and Devanai Achi were pending before the Commission on therein not having been made by the Com report the 26th August 1952 and the Commission mission jurisdiction to the 26th January 1950, no had, after their report, the complete fundamental whole procedure . being violative of right guaranteed I4 of the Cons ti tu tio n. the petitioners under article the investigation and make the Commission as also the 26th January 1950, the assessment or income, January relating 1950 This position was not the learned in th!' first our decision in Shree Meenakshi Mjl/s' case, counsel for the petitioners. in; tance in terms argued before us by It Was. urged the case was governed by supra, 011 1955 M. Ct. Muthiala llff(f 2 othet• v. The CorrrmiJsi11111r of ~w-lllx, Mllllruad antJlhtr Bha11111oli J. 2S.C.R. SUPREME COURT REPORTS

11.65 (2), placed the findings assessme.nt or that by reason the applications Income-tax Officer'.s under section 8(5) of . the case or on to the provisions of sub-sections (5) and in pursuance of a direction recorded by the points referred the basis Income-tax, Madras, made by the Commissioner of pet1t10ners the Act for reference to the High Court on questions of law arising out of re-asses3ment orders above the proceedings under Act XXX of 1947 referred to, had not become final and the petitioners were, there fore, entitled to relief on the ratio of our judgment in that case. Reliance was in support of this the provisions. of section 8(4) of the Act: position on re-assessment proceedings "In all under sub-sec the Commission to it shall, sub (6), be in pl, lTsuance of such the initiation of proceed the Indian Income-tax Act, final; but no proceedings taken direction shall be a bar to ings under section 34 of 1922 (XI of 1922)". to the applicacion made Sub-section (5) has reference Income-tax the Commissioner of to the High Court any question of law arising to refer the assessment or re-'assessment orders and sub-section (6) has reference the power of the their own motion or on the ap Commission either of the person concerned or of the Central plication of to cmrect clerical or arithmetical mis Government any accidental slip or omission ........... These provi- (5) and (6), however, sions contained recorded by the Com would not make the findings mission findings were that if the High vested with Court, on reference under sub-section (5), gave any opinion which would require a revision of those ings or if any clerical or arithmetical mistakes were found or errors were detected arising from accidental slip or omission within the meaning of $Uh-section (6) findings, which also required finality and The' assess·· revised accordingly. would have Income- ment or re-assessment orders made by findings would be divested of their in their report or errors some a iterations therein arising finality subject in sub-sections These the assessee in the to be final. 1955 M. Cl. MuJhiah and 2 othlrs · v. The Commissio1t1r of Income·t~, Madras and another · Bhagwati J. 1266 SUBREME COURT REPORTS [1955} tax Officers based upon binding on the assessees subject only to the if any, made the reference, questiofl.I those. findings would also be result of the High Court on ()f law arising out of such orders; July 1954, If this was introducing the R.C. Cases the High Court the. pendency of the Income-tax Act with effect the true position it could not be urged that by rn:J$bn of the applications for reference the proceedings under Act XXX of. 1947 had not been concluded against the petitioners and it could not· also be urged that when Act XXXIII of 1954 was enacted tion 34(1-A) the 19th ·516 to 518 were pending and the whole proceedings under Act XXX of 1947 against invalidated. As the petitioners were the report had been made by a matter of fact Commission against the petitioners as early as 26th August 1952, the Central Government had given the directions under sectior 8(2) for re-assessment of the 16th September 1952 and the the petitioners on re-assessment orders the years except the year for all been made by the Income-tax Officer 1942-43 them by the 12th May 1954 which was long against before the Act XXXIII of 1954 came into operation. re-assessments had thus become binding on All these the petitioners and were not affected by the mere pendency of for reference to the High the applic; ations Court made by them to the Commissioner of lncome tax, Madras, under section 8(5) of the Act . their cases by . There is also a further point to be considered this c.onnection and it is that whatever discriminatory the petitioners were subjected to by reason procedure of the reference of the Central Govern the Commission under section 5(1) of the Act the Act XXXI!l of had been completed 1954 came into operation and the only further proce dure which they would be subjected under the provi sions of Act XXX of 1947 would be that of a ref the High Court on questions of law arising erence out of these applica tions were granted either by the Commissioner of Income-tax, Madras, or by the High Court on further reference being application. the orders of the event of re-assessment long before In ,_. 1955 M~ Cl. Muthiah an1f2 o•Mr• V' T lie· Commissioner of Income-tax, Madras and another BMgwati'J. 2S.C.R. SUPREME COURT REPORTS 1267 procedure to which under which the petitioners had their references heard by the additional advantage made, of ·having the High Court in a Bench constituted of not less than three Judges as contrasted with the normal procedure obtaining under seGtions 66 and 66-A of lncome-taX the Indian the references could be heard by a Act Division Bench of the High Court. Whatever was, therefore, the petitioners would be subjected under Act XXX of 1947, after the coming into operation of Act XXXIII of 1954 was, in~tead of being prejudicial them, really ad vantageous following our decisions in the cases of Syed Qasim Rawi v. The State of Hydera bad and Others(1) and Habeeb Mohamed v. The State of Hyderabad{2), we are of the opinion that further proceedings, if any, which could be taken under the provisions of Act XXX of 1947 would not be at all the fundamental right discriminatory and violative of guaranteed under article 14 of the Constitution. them, and Income- · to the to the petitioners on The only relief which the petitioners would have in that event would have been one been entitled to re-assessment proceedings in regard year 1942-43 which were pending before the the notice under section 34 tax Officer by . virtue of the 19th March issued by him 1954. Reliance was placed up9n a decision of Allahabad High Court .Gangadhar Baij nath and others v. Income-tax Investigation Commission, .etc.(3) in support of this position. The learned Soli citor-General did not contest . this position but under took on behalf of they will not proceed against for the re-assessment in pursuance of the notice under section 34 served upon them in that behalf. Income-tax authorities the year 1942-43 the petitioners reported This would have been the only relief petitioners would have become entitled on contention urged petitioners are, however, entitled to :alternative contentions which were to which the the main their petition. The succeed raised by them as (!) [1953] S.C.R. 589. (2) [1953] S.C.R. 661. !3) A.LR. 1955 All. 515. 1955 M. Ct. MuJbiaJi and 2. others v. The CommilsioM of lncomt.J4X, Madras01J4 """'"" Bhagwati ]. 1268 SUPREME COURT REPORTS [1955] in regard the conclusion whicl'. we have the result of Commission having become discriminatory after January 1950 by reason of, section 5 ( 1) of 26th A.ct having become unconstitutional after the guration of the Constitution on that date. reached the proceedings pending before the In the result, Investigation Commission dated the petitioners will be entitled to the issue of a writ of certiorari quashing the report of the the 29th Income-tax August 1952 and the ~ssessment orders of the Income tax Officer the years 1940-41, 1941-42 and 1943-44 to 1948-49 as being unconstitutional, null and void, the issue of a writ of prohibition against and also findings of the respondents to above with the Investigation Commission to the year 1942-43 and we do order that such regard respondents accordingly. writs do The respondents will pay the petitioners' costs of this petition. implementing issue against referred raises ]AGANNADHADAS into force (here:nafter J .-This petition referred the 26th January, 1950. to as unconstitutional the ques- the Taxation on Income tion whether section 5(1) of (Investigation Commission) Act, 1947 (Act XXX of Investigation 1947) as offending Commission Act) the Constitution and has therefore be article 14 of come void on the coming of the Constitu tion ·on This question was the two previous decisions of specifically in Suraj Mall Mohta & Co. v. A. V. this Court, Visvanatha Sastri(') and S/zree Meenakshi Mills Ltd. v. A. V. Visvanatha Sastri('). Almost the identical ques tion arose in the Travancore Appeals(") .in which judg just now been delivered. The provision ment has with which we were concerned in those appeals is section 5(1) of Travancore Act XIV of 1924 which is section 5(1) of the In almost terms as in identical ·we have held that this vestigation Commission Act. the Travancorc Act did not, on the coming section of left open in -.·'.z. (!) [1955] I S.C.R. 448. (3) A. Thangal Kunju Musaliar v. Aul~orised Official, J:T., [1955] 2 (2) [19.oSJ ! S.C.R. 787. S.C.R. 1196.

195.i M. Cl.MuJ/iia4 ... a>rd 2 •'""' Tu CommisJ;.,,,,,. ofl=-taz, .&!a<l=a>rd OJWl/1n jag""1U1dNiJas ]. •

25.C.R. SUPREME COURT· REPORTS 1269 into · opcraticti ' of . the, Constitution, 'Tio late : article · , 14 therrof , and that. :it; accdrdinglr continued to ' . be valid. This rault· was· based on; the: .following. conclusions. · · (a) The: apre.ssion•.t'a.personwho. has ,fo a snl:i stantial cxte1it;:•cva0ed payment of<,taii:ation ·.on in come" has' to .be. interpreted · .. having regard · ·to batkground ·; . •Or· , . the; i. circumstances ., that,.': preceded at thel section.> came< to· be. enacted ' and .which the time were~discloscd .in .the :i.Jlidavit."filed·"in this Cotirt by the Secretary of. ·the! Investigation"· Conhnission ·and ·so interpreted• ,. the 1word,1. ''.s'ubstantial'"; .:indicates. with the class of persons intended . to reasonable certainty be subjected to·•the·dra!tic:· procedtm! .-of the: Act.' . · >. "'"•· ·" "'. · . ·.' · (b) ·The 'selective :application 'of1the·law•to.'•persons .. canribt be .. considered . invalid since the this: class selection is • guided by .. the 'very objective·' set• out · iri "" ....... section.5(1)itself.:. ·• "'"' (c),The fact" that some persons may Csc:ape·the.:ip- law ·,fa not necessarily .. destructive of plication .. of .. the the dlicicy of •the provision;" . i." It was also: held, on :i. •comparison with·.section-47:.of the Travancore ·Act XXIII of. 1121; corresponding' to section.· 34 '.of·the>.Indian1·Income'.tax .:Act;• 1922,.(XI. of ·1922) as it stood 1prior to 'its',:iniendment· in•'.1948, that .. the persons ; wbo fall under the .. class of sub-. stantiab evaders of. income-tax within the , meaning •·of section 5 ( l) · of the 1 • Investigation ·Commission cAct: were not .interided .. ,,to '' be·1and. could not have i: been ·'.:dealt with· under the'.prcivisions ... of, isection 47 of.the T;avan.i core 'Act -.XXIIL.of,,.1~21. and ·that I therefore: would be no.-discriminatory· · :ipplieatiorr of: ·two parallel t:-statu:~ryg~o;~=;,'.'c~~Lr h~~~e~:: •t~~· ~aj~rl~ ~f th~ Court has;;;taken.1 the•.vlew~: that section:, 5(1) of.the Investigation '·'"Commission .. , Act· . his,,] :become'. uncon stitutianal ' by' the" date of the;" Constitution' in compa-. rison ,.:·with•: 'section·;.,34, ·of· ·the .Incotrie, taxL.-Act. as amended. in:~1 ·l948;;" Itw'as .. poirlted 1 out.• that· section· 47. of :i•the i Travancore• i Act' XXIII ·.of' 112hwhich' rwas.the same ... 'as sectionl3-Lof1•the""1ncome-tax 'Actc:•as it:stood from, 1939,, tD• 1943 ,,;did1 not'' undergo •'any·:!' amendmmt by ·tho· date 1 coftlie ... Constitutioll'" ·bubmritiriuedr.,·as brio -< • 1955 M. Ct. MuJhiall and 2 others V' The Commissioner of /tuom8"-tax, Mlldras and another Jagannadhadas J, 1270 SUPREME COURT REPORTS [1955] utmost respect, this makes a difference. this question. Undoubtedly is said howevei, with ' fore and it I feel constrained, that there is no room hold, on a careful ,consideration is relevant for for making any such distinction which it is the purposes of that section 34 of the Income-tax Act as it stood prior to 1948 its operation than the same section as amended in 1948. But I am unable to see how is still not different Investigation Commission Act falls within amended section 34 of that which the Income-tax Act. the class falling under sec!ion 5(1) of restrictive is more i.n satisfy section the requirement is large-scale for believing income". This to a ,substantial extent evaded payment of 5(1) of "substantial Under section 5( I) of the Investigation Commission . the Central Government Act that a person has "pr.ima fade reasons is quite different from the tion on 34 the amended criteri0n applicable In the first place, section 34 the Jn,,otne-tax Act. to cases of evasion how the Income-tax Act relates Investigation small, while section evaders Commission Act relates only evasion". terl}1 comprised within to the exist Secondly, the belief of the Government as rigorous enc~ of evasion it need not be based on any material standard because It is the suspected evasion. directly connected with is a "prima facie reason to believe" which enough the Act would cover to the scheme of having regard cases m which investigation. This may well probing be no more io suspect". to "reason This the Income-tax Officer under to believe" section 34 of the Income-tax Act. "Prima facie reason to believe" to believe" are as different from each other as "prim a facie proof" and "proof". something definitely therefore "reason to believe" is diffi to suspect". Indeed, than "reason higher the two the standards required under sections. Though no doubt the power exercisable by the Central Government under section 5 ( 1) is quite different from required of tell-tale appearances may call than "well-grounded reason the standard to compare effective "reason 2S.C.R. SUPREME COURT REPORTS 1271 in common to believe", the Income-tax Officer under section 34 of to "reason the basis of belief that exercisable Investigation Commission Act and the In that both have come-tax Act have reference belief and in such different terminology that it is not possible to compare the same. Nor the two and equate indeed can it be posited the class comprised the Investigation Commis sion Act must necessarily fall within section 34 of the Income-tax Act. that every case of in section 5(1) of the two as being the standard is expressed 1955 M. Ct. Muthiah and 2 others v. The CommiJSioner of Income-tax, Madras and another Jagannadhadas J. (as required, once the belief has been done Apart, however, from any question as to the com parison between the two sections and as to the stand ards and basis it is the Travancore accepted Appeals(1) that substan'tial evasion standards determinative of a distinct class, it is clear identical the class comprised under section 34 of the In is a select, group come-tax Act. If the smaller grouping is on a rational would form a distinct class by itself for purposes of article 14. class. relevant In the alternative, class comprised is a definite the policy of thereunder the Act, a wider is not .. to bear It is necessary at entire scope of the to determine what templated and covered by it. may be noticed of Commission .Act . this stage Investigation Commission Act in is con features Investigation Five main the scheme of is which the class in mind to those in respect of whom (1) It relates only the Government have "prima to believe reason that there has been substantial evasion of tax". (2) The belief does not result straightaway proceedings .for reassessment of the Income-tax Act) but investigation first step in plates (unlike under section 34 reassess the question of the assessment) depends on that belief. The is section 5(2) which contem in substantial ([) A. Thangal Kunju Musaliar v. Authorised Official, I.T., [1955] 2 (i.e., reopening of the scheme the investigation may result the correctness of S.C.R. 1196. 1955 M. Ct. Muthiah and 2 other1 v. The Commissioner of Income-tax, Madras and another agannadhadas J. 1272 SUPREME COURT REPORTS [1955] evasion not being revealed. the further pro ceedings would be dropped on a report by the Com mission to that effect. reassessment starts in such a case. Hence no If so (3) An effective procedure bring out all the necessary and relevant the evasion and to substantiate investigation provided facts and material quantum thereof. reassessment are ( 4) Proceedings for taken on! y the emergence of such material and on a report to to the exact nature of the proceedings to be covered the limits of 31st December, 1938 and (See sections 8(2) and 5(3) of that effect and that too on a further direction by Government as to be taken and as to the exact period falling within 1st September, 1948. the Investigation Commission Act). in mind for reassessment it becomes apparent the Income-tax Act as it that which could be got at either under facts which are essential part of (5) A reference could be made by the Gover'1ment to the Commission only up to a specified date line statutorily determined. If Investigation Commission Act are scheme under the class lnvestigz.tion contemplated under section 5(1) of the totally different Commission Act stood between tion 34 of it stands since 1948. One has 1939 and 1~48 or as the Income-tax to compace the normal in Act relating information or obtain come-tax to a reopening "of the assess material which might to ap the Income-tax Act ment under section 34 of under section preciate the Investigation Commission Act cannot be 5(1) of the same. The only provisions the income-tax law for the purpose are sections 37, 38 and 39 of the Income scheme of the Income-tax Act tax Act. The primary the assessment are ibe to be fur returns and nished by the 1Ssessce himself (sections 22 and 23 of the Income-ta.•: Act) or the accounts may be availa'.ile the checking material the returns and the means by which the accounts or other evidence the basic materials for the class contemplated authorities can get the provisions 1955 M. Ct. Mitthiah arid 2 others v. The Commissioner of Income-tax, Madras and another Jagannadhadas J. 2S.C.R. SUPREME COURT REPORTS 1273 income the power as well as transactions. inspired by transactions with persons appearing the Legislature realising other public authorities, etc., the normal machinery available the whole scheme of is obviously the reassessment of is not adequate. All that drastic of other assessees who have assessee. It may also consist of information received examination of to have intercon nected The Income-tax Officer to probe into suspecious features or obtain and seize material in verification or support thereof. All that normally he can do, where there is room for grave suspicion is to reject the accounts and make his assessment on the basis of "best judgment" (see section 23(4) of the Income-tax Act) which can if it is a wild guess based on mere not be sustained the Investiga susp1C1on. Now, tion Commission Act realisation the Income-tax Officer for scale suppressed investiga same, the affairs of assessees on seemingly well tion into grounded suspicions might . result in serious encroach ment of personal liberties, has not chosen to vest Income-tax Officer with any such powers of investiga tion and has confined to eva the period commencing 1st sion of income during January, 1939 ( vide sec the Investigation Commission tions 8(2) and 5(3) of Act) and limited to cases of substantial evasion. therefore, what is the ambit the class contemplated by section 5 ( 1) of the In vestigation Commission Act, member these features of low that class of substantial evaders whose evasion appeared for a high-powered machi to the Government for effective Income-tax Officer functioning under ordinary section 34 of is quite dear, to a class Investigation Commission Act totally different from what can be brought in under section 34 of the Income-tax Act as it, either stood this .class was before; or stands after,. 1948. That So understood that section 5(1) of It would to call investigation, to the 1st September, 1948 the scheme. this drastic procedure the Income-tax Act. the class comprised in. section 5(1) In considering, to my mind, is necessary the same available relates 1955 M. CJ. MuJhiak and 2 others v. The Commis; ioner of Income-tax, Madras and another Jaganr.adhadas J. 1274 SUPREME COURT REPORTS [1955] really contemplated the following provision Investigation Commission Act. to be distinct is also indicated of section 8(4) of the indicate pursuance of shall be a bar "No proceedings for re the initiation of pm Income-tax the Indian (direction made under section 8(2) direction assessment) ceedings under section 34 of Act". the possibility of concurrent This seems assessment proceedings as against any particular as sessee under section 34 of Income-tax Act as also Investigation Commission under section 8(2) of idea appears Act. The to be that section 34 proceed ings may go on in respect of such income of the as sessee the escaping of which comes to the knowledge of the officer by the normal procedure, and that the the Investigation Commission Act reassessment is expected to be in respect of income is to be discovered only as a result of regular and effective such evaded only sufficient powers the course of arguments that no objection could be taken to Government taking investigation appropriate cases, without any question arising as to this cannot discrimination or classification but justify actual reassessment. That raises matter which will be presently dealt with. discriminatory procedure as a different aspect of regards investigation. It has been suggested Assuming however under section 5(1) of that substantial evaders con Investigation templated the larger class of Commission Act fall also within fall within the class contemplated by evaders who section 34 of the Income-tax Act as it stands, what follows? The selective group under section-5(1) of the Investigation Commission Act is determined with that they are substantial reference the criteria ( 1) evaders of income-tax, and that they are assessees (2) within the period 1939 to 1948 which is well-known to be the period of war profits and black-marketing the Government get informa in respect of whom justifying investiga tion before 1st September, 1948, tion. This is by itself a well-defined class and • 1955 M. Ct. Muthiah and 2 othm v. The Commissioner of Income-ta.'<, Madras and another Jagannadhadas J. 2 S.C.'R. SUPREME COURT REPORTS 1275 relation reasonable for assessment. be achieved, viz., to the Investigation . Commission of all the object classification has a the catching up of the escaped It is to be black-market war profits, the Government would have made their assumed references they have the requisite cases of persons about whom If belief or information before 1st September, 1948. there are any war profiteers of that period against there was no information by then and against later, it will be whom information becomes available probably so received is the ordinary Income-tax Officer not such as It may turn out that he has evaded once for all. But even if, the Income the ordinary process get the es tax Officer could for rea&sessment, that by itself that a classifica tion of substantial war profiteers who have evaded iI).come-tax and against whom information up to a specified date is not in itself a valid classifica tion. that a classification other invalid by reason of the classi wise reasonable fication not being comprehensive. income of such assessees found -that to enable It is well-recognised in some cases, is no ground rope him in. for thinking information there was is not Jn Joseph Patsone v. Commont11ealth of Pennsyl the United States of vania (1) the Supreme Court of America laid down that- reference to from whom to be feared, the evil mainly "a state may classify with the evil the class discriminated is or .reasonably might be considered to define out. A lack of abstract is a practi- dependent upon experience ........ It is not that others may do the invalidate if, as a matter of fact, to be prevented, and against be picked properly may symmetry does not matter. The question enough to it is found class named". Again same Court stated- in West Coast Hotel Co. v. Ernest Parrish(') the thing and go unpunished, is characteristic of the •danger the law "This Court has frequently held that the legisla (1) 232 U.S. 138 144; 58 L. Ed. 539, 543. (2) 300 U.S. 379, 400; 81 L. Ed. 703, 713. 26-85 S.C. India/59 1955 M. Ct. Muthiah and 2 others v. The Commissiotrlf of Income-tax, Madras and · another Jagannadhadas .7· 1276 SUPREME COURT REPORTS [1955] 'is The reach. If 'the instances to which to extend legislature its regulation to be clearest'. its proper field, there are other to all cases which it may confine is not those classes of cases where the need is law presumably 11its it is most felt, it is not to be overthrown it might require in all tive authority, acting within might possibly recognize degrees of harm and restrictions deemed the evil where because have been applied'. There is no 'doctrinaire the legislation should be couched ment' embracing terms". It is substantially of permissible classification that has been recognised by this Court in Sakhawat .1li v. The State of Orissa( ') where this Court laid down as follows: of a particular object or purpose need not be all embrac It ing. to determine what the scope of legis categories lation and merely because categories which the same footing as those which are would stand on left out would not covered by render in any manner discriminatory and violative of fun<la- , mental right guaranteed by article 14 of the Consti it would embrace within certain above view the purposes of article 14 legislation which has been enacted the legislation are the achievement "Legislation legislature enacted tution". Even if therefore section 34 of the IncomNax Act as amended in 1948 its ambit to is wide enough catch up any and every case which could be dealt with under section 5(1) of the Investigation Commis it is still a distinctive and selective group. out sion Act, of a larger group and is a class by itself determined with reference indicated. It is no to the constitutionality of that classification objection them who may have been left out that some out of may be taken up later for being proceeded against under the amended section 34 of the Income-tax Act. The Class falling within the scope of the Investigation Commission Act reference is a class closed with the date-line, 1st September, 1948, and it appears to me difficult to envisage the possibility of any member the criteria above (I) (1955] i S. C.R. 1004, 1010. 2S.C.R. SUPREME COURT REPORTS 1277 that date-line except by the Investigation Commission Act. of that class being available Income-tax Officer under the Income-tax Act which came the Government 5(1)- of 30th June, 1948 an essential part of tion that application of of the class contemplated by the Act. to be dealt with by the the amended section 34 of into operation from imputing mala ft.des to in the selective application of section It is true legislature from to 1st September, 1948. But it was the legisla the whole scheme of there was to be no reference beyond a date to limit the the legislature, so as it is also an attribute the date-line was changed by the Act. Hence to be fixed by 1955 M. Ct. Muthiah and 2 others v. The Commissioner -of Income-tax, MatlraJ and another Jagannatlhatlas J. reference I am aware section 5(4) of Income-tax Act. to have accepted section 34(1) of in Suraj Mall Mohta's case( 1 idea of to a date-line. But Investigation Commission Act and parallelism between there are observations in Surai Mall Mohta's case<1) and Shree Meenakshi Mills' case( 2 ) which appear not class being with ) was based actual decision on the distinction between section 5 ( 4) and section 5(1) of falling the class consequential the Investigation Commission Act and In Meenakshi Mills' case(2) the decision was rested on the parallelism between section 5(1) of Inve3tigation Commission Act and section 34(1) of the Income-tax Act as amended in neither of in 1954. The decision these cases was based on any final determination of the scope of the class contemplated by section 5(1) of the Investigation Commission Act. The actual deci those cases are of course binning but not therein. Besides, with necessarily all the date-line in section great respect, the then contemplated 5(1) as having been related the lapse, date for the controls under the Essential 1946 Supplies (Act XXIV of 1946) was not noticed. The principle of Sakhawat Ali's case( 8 ) was not also by then laid down by this Court having been decided in 1948, of (Temporary Powers) Act, in November, 1954). the relevancy of (that case reasoning ( ) [1955) I S. C.R. 448; (2) [1955] I S~ C.R. 787. (3) [J9551:1 S. C.R. !004, 1010. 1955 M. Ct. Muthiah aM 2 others v. The Commissioner of Jncome·la:t, Madras and another JagannodhaJas J. 1278 SUPREME COURT REPORTS [1955] invalidate the date-line the scheme of Further, even if the classification on in Sakhawat Ali's case( ). is not an essential part of the classification under section 5 ( 1) of the Investigation Commission Act, the other four essential the class contemplated in features of section 5(1) as set out by me above are by themselves enough to constitute a complete and rational differen the class comprised under section 5(1) of tiation of the Investigation Commission Act from that under section 34(1) of the Income-tax Act as amended in If on such a classification some cases of sub 1948. the machi stantial evasion happen to have escaped that would nery of the Investigation Commission Act, the principle accepted in any case to visualise unable the reasonable possibility of any person falling within the category contemplated under section 5 ( 1) of the Investigation Commission · Act, be taken up for reassessment under section 34 of Income-tax Act as amended in 1948 and consequently such persons remaining pending by the 26th January, so as to bring about discriminatory operation 1950, between In vestigation Commission Act ultra vires in respect of such pending matters. therefore, that section 5(1) of the Investigation Commission Act the other sections following thereupon cannot be declared unconstitutional on the ground of absence of reasonable classification. to render section 5(1) of the reassessment proceedings two parallel them and It appears relating to me, I am One other matter has been relied upon as beirig relevant. It was pointed out the amendment of section 34 of the Income-tax Act in 1948 was simul the amendment of section 5(3) of the taneous with Investigation Commission Act, extending for a reference under section 5 ( 1) by the Central Gov It has been ernment up to the 1st September, 1948. intention suggested the 1st to the effect September, 1948, all cases which might have fallen under section 5 ( 1) of Investigation Commission Act are left to be dealt with under section 34 of the legislature clearly shows that after (l) [1955] I S. C.R. 1004, JOJO. 1955 M. Ct. Muthiah and 2 others .v. The Commissioner of Income-tax, Madras and ·anothn- Jagannadluzdas J. 2S.C.R. SUPREME COURT REPORTS 1279 limited realising It appears to perpetuate the seriousness of thereof. This 1946 the above date-line, the Investigation Commission Act respect that to me with Act as amended. for this inference. On the other -hand there is no basis to me (if what I have said above as being it appears the scheme of the legislature deliberate! y correct) the Investigation Commission Act by application of its continued a date-line, It did not want the drastic operation. thereof to any new cases in view of the fact provisions the official war period ended and controls had totally if not been lessened by abolished. that by proclamation, It may be mentioned the war situation was formally terminated as the 1st April, 1946, and that the Control Orders under the Defence of India Act ceased to be operative from the Essential Supplies the 1st October, 1946, and that (Temporary Powers) Act, 1946, was passed in sub stitution Act was intended origi to be in operation only until March, 1948. (See /oyal Agarwala v. The State(1 ). The date-line of 1st September, 1948, related to this situation. to me that with the full consciousness that any new cases of the same category, to be caught up under if any, are normal legislature merely purported the amended section 34 of the Income by virtue of the normal lacuna remove certain tax Act machinery, which had been noticed and reported upon by the income-tax administration and by Investi to section 34 as it gation Commission, with reference (See paragraph 22 of the stood between 1939 Investigation Income-tax General Report recommenda Commission improvement of the machinery at page 8 of that report and Appendix A thereto which would show that amendment of section 34 was not connected the extension of the date for making references Investigation Commission under · section 5 ( 1) of therefore, I am unable, Act). simultaneous enactment of section 34 of Income Investigation Com- tax Act and in section 5(1) seems It appears not likely the amendment of in 1948 making to 1948. procedure, to assume issued to be (\) [\952) S. C.R. 127, 130. 1955 M. Ct. Mulhian and 2 othtrs v. TM Commis!ioner ef Income-tax, Madras and """'"" JagOllllad/iadas J. 1280 SUPREME COURT REPORTS [1955] mission Act at issue. in 1948 have a bearing on the question Undoubtedly the magnitude of is, as already stated, The policy underlying the nal:Ure and extent of the courts have nothing law by means of a reference re-assessment proceedings under to deprive the Investigation Commission Act appear assessee of certain procedural advantages. He eif an appeal on facts to the Appellate is deprived the Income-tax Appel Assistant Commissioner and late Tribunal. He is given right of appeal only on points of High Court. But such reference to be heard by a Bench of not less than three Judges. Now, once there is a valid classification actual discrimination which results under the scheme relating thereto is largely a question of of legislation policy, which to do with, except possibly where discrimination has no the policy and purpose of the reasonable relation Investiga classification. tion Commission Act to catch large scale evasions of income-tax up for reassessment of the war period. that having regard It is obvious the interests that would be in volved legitimate should be matters concerned entrusted to a highly-qualified authority, high-powered the ordinary machinery. No grievance and not tought fit not to entrust can be made if the legislature for fact-finding to the normal machi the responsibility lesser qualifications and experience. involving It investigation might have been the hands of one authority and placed finding on the material in the hands of another authority or that at least there might have been provided one appeal on facts also to a high placed authority It may also the same body is appear somewhat disquieting investigation and invested both with the power of fact-finding and is no appeal provided as against findings on facts. But these all matters of policy and cannot be, said to be the purpose and either unreasonable or unrelated policy of is a com- the power of Investigation therewith, the High Court. the classification. gathered therein, it was -l 1955 M. Cl. Muthialr tllft/ 2 others v. Thi CommisswMr of Income.tax, Madras and another Jagannadhadas ]. 2S.C.R. SUPREME COURT REPORTS 1281 to be itself under represented and the principles of the Commission the proviso roughly, accountant of an authorised is not entitled term and it will be seen that the Act two parts of support of latter investi prehensive gation procedure stages, one before the authorised official a:t which the assessee Investigation Commission at which other before the assessee is entitled to . be represented by a pleader, a registered employee thereto). These (vide section 7(3) and though not neces two stages may be taken the investigation, (1) to indicate sarily, the evasion and collecting the process of probing the material it, and (2) arriving at con the material so collected clusions with reference and presented. The the judicial part is directed under section 7(2) to follow the Indian Evidence Act and to give the assessee a reasonable opportunity of rebutting evidence and generally to act in accordance with the principles of natural justice. The procedure relating to this stage is assimilated to a judicial en quiry in a larger measure than is the procedure before the Appellate Assistant Commissioner, is no provision far as the principles of the Indian Evidence Act. practicable is well the Income-tax Act). It (See section. 23 of assessment settled Income-tax Officer under section 23 of the Income tax Act-and hence also under section 34 thereof of evi are not regulated be based on though therefore, appear that caprice or suspicion. Investigation Com accor.ding mission Act, it approximates the assessment much more proceedings by income-tax authorities and there is a combination of the func though in theory tions of an investigator and the judge in the Investi gation Commis~ion, in normal practice .distinct by the appointment of an authorised be kept is also to be official to conduct that the combination of the investigator remembered by the technical standards they cannot in respect of whose proceedings the scheme of Income-tax Offi, cer or to judicial standards the first porticn. judicial part of proceedings thev must it is likely follow as It would, of course It 1955 M. Ct. Muthiah and 2 others v. The Commisii<mer of lncome·tmt. Madras and """'"" ]agannad/uJdas ]. 1282 SUPREME COURT REPORTS [1955] and judge is inherent even machinery where Assistant of Judges interested in their own cause. Income-tax Commissioner are the normal Income-tax Officer and income-tax in the nature It has been suggested is something to ordinary canons of judicial procedure or in the matter of making relevant docu the proceedings It appears on a misappre the Investi the · Investigation Commission. this is based that section 7 ( 4) of opposed natural justice ments available before me, with respect, hension. gation Commission Act says: the assessee It is true to inspect, call in any proceedings under ''No person shall be entitled for, or obtain copies of, any documents, statement or or materials furnished to, obtained by or pro papers the Commission or any authorised offi duced before this Act; but the Com mission, and after the Commission has ceased to exist ·may in such au\hority this behalf appoint, may, its discretion, allow such inspection and furnish such copies and section 6(8) of says: the Investigation Commission Act the Central Government to any person." · to section 7 ( 4) and Commission or accompanying of section 5 may be the Commission "All material gathered by the authorised official and materials ( 1) reference under sub-section brought on record ;it such stage may think fit". to the subject But these provisions have to be the opening part of proviso section 7(2) of the Investigation Commission Act. The proviso to section 7 ( 4) is as follows: that, the purpose of enabling person whose case or points is or are in whose case to rebut any evidence brought on being investigated the record against him, he shall, on application made in this behalf and on payment of such fees as may be this Act, be furnish prescribed by Rules made under statements, ed with certified copies of documents, papers and materials Commission''. Further, the opening part of section 7(2) says: brought on the record "Provided .by 1955 M. Ct. Muthiah and 2 others v. The Commissio•er of Income-tax, Madras and anothlr Jagannadhadas J. 2 S.C.R. SUPREME COURT REPORTS 1483 implies shall act the Commission Such a provision the Commission's inspection of the assessee may call for. All investigated a reasonable opportunity of is not entitled the assessee the material gathered by the course of "In making an investigation under clause (b) of in accordance section 3, with the principles of natural justice, shall follow as far as practicable Indian Evi the principles of dence Act, 1872, and shall give the person whose case re- is being butting any evidence adduced against him ........ ". the possibility of The above provisions preclude the final record on which Commission. pushing in into the report to which is to be based any ex parte material the assessee has had no access. These also preclude the possibility of depriving him of the use of any possession relevant material that section 7 ( 4) to a roving Investigation Commission investiga to the affairs of various other tion, which may relate persons. to natural in the mai.ter of criminal justice for even judicial trials the accused inspec to a roving is not entitled tion of the material gathered by during police (I may investigation. notice, with very great respect, tha.t the observation in Suraj Mall Mohta's case(1 ) page 464 that "the proceedings before the Income-tax therefore) Officer are judicial proceedings and all the incidents of such the assessee should be observed, relevant be entitled documents'' seems that section the judicial character of the specifically 37 ( 1) the purposes covered by sections 193, proceedings to 196 and 228 of the Indian Penal Code and also the said in the Income-tax authorities, If, the powers of a court only for specified purposes). therefore, the combined res Legislatlire to a ponsibility fact-finding investigation single high-powered and highly-qualified body · con sisting of three members of whom one is or has been a Judge of the High Court and made their findings of to have failed to note limits i.e., in other words, thought fit judicial proceedings have these circumstances record and all is not opposed view of all section vests to entrust inspect (that (I) [19551 1 s. c. R. 448. I 1955 M. Ci, Mlllhioh and 2 olJierj v. The Commissioner of [lt; omd-ltvt, Mi>irasand """'"" Jaganmrd/iadat J• 1284 SUPREME COURT REPORTS [1955] I reference the Commission and am, therefore, unable to feel the procedure fact final, without pmviding for access to the regular to the Assistant Commissioner heirarchy of appeals and a Bench of two members of the Income-tax Ap there appears to I:..: nothing unrea pellate Tribunal, therein. On the other hand cii.ere are counter sonable the composition balancing featw-es with the statutory standards by the judicial part of its proceedings have to be that the governed. discriminati9n brought about ing ~o assessment calls for any such adverse reaction to be. a reasonable basis for founding thereon an inequality. However, unconstitutional inference as I have already said above, to be ulti mately a question of policy. Once the classification is found related to the Investigation Commis clearly under!y.ing policy of the sion Act, I am unable that section 5{1) of the to feel Investigation Commission Act can be struck down as its supposed concurrent ultra vires operation with sectior. 34 of the Income-tax Act as in 1948, ameuded that section 5(1} the Investigation Commission Act was not hit by article 14 of the Constitution notwithstanding amend ment of section 34 of the Income-tale Act in 1948 and that it continued to be valid. to be justified and reasonably this appears therefore, relation I hold, I agree with On all other points urged on behalf of the peti the judg tioners, ment delivered by my learned brother Justice Bhag It is, the majority of the Court. wati on behalf of therefore, unnecessary for me to deal with them. the view expressed in In the result, in my opinion, this petition must be the incomplete dismissed with costs except as regards learned reassessment for which has given an undertaking not Solicitor-General proceed. with it under the provisions of the Investiga tion Commission Act, as stated my le:i.rned brnther. judgment of 1942-43 ORDER Bv THE CoURT : In accordance with the majority the Judgment is allowed and. it is that a writ of certiorari do issue quashing the the petition ordered 1955 M- Ct. Mulhiah and 2 others ·v. The' Commission., of ltu:of/14-tax, Madras and another Jaganlladhadas J. 1955 Decmiher 22. 2S.C.R. SUPREME COURT REPO~TS 1285 Income-tax Income-Tax Officer Investigation Commission the 26th August 1952 and the assessment orders the y.ears . 1940-41, that a writ of restrain the findings. of the In the year r~g;µ-~ peritioners' report of 1941"42 and 1943-44 prohibition do i$sue against implementing vestigation Commission with 1942-43. The costs of their petition. respondents do pay to 1948-49, and the resP,ondents them from AHER RAJA K.HIMA v. THE STATE OF SAURASHTRA- [VIVIAN BosE, VENKATARAMA AYYAR and CHA:NDRASEKHARA Arr AR JJ l Appeal against Acqu#tal....-Scqpe of-PoU}ers of Court-Guiding principles-Code .of Criminal Procedure (Act V of 1898), s. 417 Pel"' BosE and OitANDRAsEKHARA A1YAll JJ, (VENKATARAMA AYYAR J. dissenting). It is well settled that the High' Court should not set aside an order of acquittal under s, 417 of the Code of Criminal Procedure simply because it differs from the trial Court as to the appreciation of the evidence ; there must be substantial and com pelling reasons for doing so. · Whete the trial Court takes a reason able view of the facts of the case, interference is not justifiable un less there are really· strong reasons for holding otherwise. Amar Singh v; State of Punjab ([1953] S.C.R. 418) and Surajpal Singh v. State ( f19521 S.C.R. 193), referred t,o. The accused in a criminal case must be given the benefit of every reasonable doubt and, therefore when he offers a reasonable expla nation of his conduct, althougl;i he cannot prove it, that explanation should ordinarily be accepted unless the circumstances indicate that it is false. Conseq11ently,. in a case where an accused person, charged under ss. 302 and 447 of the lndian Penal Code, repudiated his confession at the earliest opportunity as having been made under Police threats administered to l>im at night while in, jail custody and there was evidence to show that the Police had access to hiru there, and there was nothing to displace his statement that he was threatened by them, the finding of the Sessions Judge that the t:onfession was not voluntary in character was the absence of auy compellihg reason the High Court shotild not have set aside the order of acquittal. fair and reasonaok and in