TMI Blog1998 (10) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... while they were on the admission board. Both the sides have referred to and argued on the basis of the record of Special Civil Application No. 3021 of 1998 which is the lead matter since all other matters of the group are identical. The petitioners' case in these matters is that they were members of Dhawal Co-operative Housing Society which was registered under the provisions of the Gujarat Co-operative Housing Societies Act on April 3, 1978. The promoters of that society had entered into an agreement for purchase of a plot of land with one Lalitkumar T. Desai on October 29, 1975, for the purpose of putting up a building for providing residential accommodation to its members. Since the land was agricultural land, N. A. permission was required to be obtained by the seller. The necessary permission under section 20 of the Urban Land (Ceiling and Regulation) Act, 1976, came to be obtained on April 21, 1990. In the meantime, the vendor had passed away on August 22, 1989, and ultimately the sale deed came to be executed by his heirs on the said date when permission was obtained, i.e., on April 21, 1990. Under the sale deed, the said land admeasuring 3,383 square metres was sold for Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was issued to them by the Assessing Officer, respondent No. 1, who was assessing the person subjected to raid, i.e., Madhavji, was without jurisdiction since the Assessing Officer having jurisdiction over the petitioners was different and not the first respondent. It was contended that the notice under section 158BD could be issued only by the Assessing Officer having jurisdiction over the petitioners after the record is handed over to him. After the filing of these petitions fresh notices dated May 15, 1998, were issued by respondent No. 1 under section 158BD in identical terms since he was, by then, vested with the jurisdiction to assess these petitioners. In view of this development, the petitioners amended the petitions by adding paragraph 18A in which it is now stated that the contention raised by the petitioners in para. 16 of the petition, which was against the validity of the earlier notice issued on July 25, 1997, as per annexure-A to the petition, did not now survive. The assessment orders have thereafter been made in the case of all these petitioners on July 14, 1998. It is stated by the petitioners in the said amended para. 18A that the merits of the assessment are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted at Rs. 92 lakhs. This reconciles the payment made to the 17 land owners." Answer : "As per document referred above, the total price of land was Rs. 3.29 crores. Against the above land price, 17 flats were delivered and, therefore, the payment was calculated at Rs. 2.37 crores in kind. Rs. 92 lakhs was paid along with the total expenditure on account of U. L. C. permission, corporation permission, N. A. permission, land filling and other expenses the details of which has not been kept by me. It is not possible for me to give the details of land filling expenses separately." It is further stated in the affidavit-in-reply that in the satisfaction note recorded before the issuance of notice under section 158BD of the Act, it was noted that the land had been transferred to Shri Madhavji Dhanjibhai Patel for the consideration of Rs. 2.37 crores in kind and Rs. 92 lakhs in cash paid to the 17 persons who were the initial members of the co-operative society. According to the respondents, there was no question of the 17 members paying any amount for getting the said flats in addition to Rs. 1,21,000 per flat since these 17 members had transferred the land valuing Rs. 3.29 crores i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 147 and 148 of the Act. Elaborating his argument, learned counsel contended that the provisions of section 158BD of the Act were really an interloper in providing for special assessment in search cases, because the person other than the person with respect to whom the raid was made, was never searched and no warrant of authorisation was issued nor any belief or information that any undisclosed income existed in his hands was reached under section 132 of the Act. He contended that discrimination was writ large on the provisions of section 158BD of the Act because they not only discriminated against the persons who were not actually searched vis-a-vis the persons who could have been proceeded against under section 147 read with section 148 of the Act for assessment or reassessment of any income that may have escaped assessment, but, they also discriminated against such "other persons" vis-a-vis the person who was raided. It was submitted that the procedural discrimination against these "other persons" was hostile inasmuch as it entailed automatic reopening of the assessment of the block period of ten years. Moreover, the time-limit, for completion of the assessment of such "oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person and the other person to whom the undisclosed income belonged as per the satisfaction of the Assessing Officer. Learned counsel relied upon the decisions of the Supreme Court in Suraj Mall Mohta and Co. v. A. V. Visvanatha Sastri [1954] 26 ITR 1 and in S. C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR (SC) 1, in support of his contentions. Learned counsel appearing for the respondents contended that the said procedure for assessment of search cases had to be devised because of the inefficacy of the earlier provisions, which led to complications which are referred to in the memorandum of explanation of the new provisions. He referred to the Notes on Clauses and Memorandum explaining the Provisions in the Finance Bill, 1995, to point out the reasons which prompted the framing of the present scheme. He submitted that the persons to whom the undisclosed income detected in the search and seizure proceedings belonged form a separate class. This had to be done because earlier, while proceeding to make assessments and reassessments in respect of the undisclosed income which was estimated under section 132B, it became very difficult to relate the undisclosed income to any particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be all embracing in making such provisions. He relied upon the decisions of the Supreme Court in R. K. Garg v. Union of India [1982] 133 ITR 239, Sakhawant Ali v. State of Orissa, AIR 1955 SC 166, Twyford Tea Co. Ltd. v. State of Kerala, AIR 1970 SC 1133, and State of Bihar v. Sachchidanand Kishore Prasad Sinha, AIR 1995 SC 885 in support of his contentions. He also referred to the decisions of the Constitution Bench of the Supreme Court in A. Thangal Kunju Musaliar v. M. Venkatachalam Potti [1956] 29 ITR 349 and ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 in which the earlier decisions in S. C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR (SC) 1 and Suraj Mall Mohta and Co. v. A. V. Visvanatha Sastri [1954] 26 ITR 1 (SC) were considered, and the decision of the Supreme Court in Hungerford Investment Trust Ltd. v. ITO [1998] 231 ITR 175 in which ITO v. Murlidhar Bhagwandas [1964] 52 ITR 335 (SC) was explained and applied and the decision in S. C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR (SC) 1 was also considered. Under the proviso to section 4(1) of the said Act, it is laid down that where, by virtue of any provision of the Act, income-tax is to be charged in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the reasons recorded that it is a fit case for issuance of such notice. Section 153 provides for time-limit for completion of assessments and reassessments and in sub-section (2) it is provided that no order shall be made under section 147 of assessment, reassessment or recomputation after the expiry of two years from the end of the financial year in which notice under section 148 of the Act was served. Thus, the outer limit for assessment, reassessment or recomputation under section 147 of the Act was up to ten years from the end of the relevant assessment year for the notice and within two years after the end of the financial year in which such notice under section 148 was given. We have set out the provisions relating to the time-limit when proceedings are taken under section 147 of the Act because in his attack against the provisions of section 158BD, learned counsel for the petitioners laid much emphasis on the fact that the other persons who fall within the provisions of section 158BD were unduly discriminated against in the matter of time-limit for completion of block assessment as separately provided in respect of such other persons under section 158BE(2) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisclosed income of the block period is to be done as provided in section 158BB of the Act on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. The burden of proving to the satisfaction of the Assessing Officer that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case may be, is on the assessee as laid down by sub-section (3) of section 158BB of the Act. The procedure for block assessment is laid down in section 158BC of the Act and the provision clearly indicates that it will operate where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A in the case of any person. Section 158BG provides that the order of assessment for the block period shall be passed by an Assessing Officer not below the rank of an Assistant Commissioner or Deputy Commissioner or an Assistant Director or Deputy Director, as the case may be. The first step that such Assessing Officer is requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereunder : "158BD. Undisclosed income of any other person.---Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and the provisions of this Chapter shall apply accordingly." This provision indicates that where the Assessing Officer, who is seized of the matter and has jurisdiction over the person other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, he shall proceed against such other person as per the provisions of Chapter XIV-B which would mean that on such satisfaction being reached that any undisclosed income belongs to such other person, he must proceed to serve a notice to such other person as per the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight be issued will not, or would not, produce any books of account or documents which will be useful or relevant to any proceeding under the Act or where any person is in possession of any money, bullion, jewellery or other valuable article or thing which represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Act, then such authority may authorise any of the named officers to conduct search and seizure in the manner referred to in clauses (i) to (v) of section 132(1) of the Act. In the process of the exercise of this power of search and seizure, the authorised officer may serve an order on the owner or the person who is in immediate possession or control that he shall not remove, part with or otherwise deal with the asset except with the previous permission of the authorised officer as provided by the second proviso to sub-section (1) of section 132 of the Act. He may also, for the reasons other than those mentioned in the second proviso to sub-section (1) of section 132, serve an order on the owner or the person who is in immediate possession or control of the asset, that he shall not remove, part with or other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed income was only required to be estimated and the tax and other liabilities determined for the purpose of retaining the custody of the assets mentioned therein which are seized and it is only when the assessment or reassessment was done as per the other provisions of the Act that these assets which were retained were liable to be adjusted towards the amount of the liability determined on such assessments or reassessments in respect of the relevant previous years to which the estimated undisclosed income related. It will be noted that as per sub-section (7) of section 132, if the Income-tax Officer was satisfied that the seized assets or part thereof were held by the person from whose possession they were seized for or on behalf of any other person, he was required to proceed under sub-section (5) of section 132 against such other person and all the provisions of section 132 were made applicable accordingly. Sub-section (9A) of section 132 provided that where the authorised officer had no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c) of sub-section (1) of section 132, the books of account or other documents or assets seized under that su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights guaranteed by Part III of the Constitution of India would be void. A taxing statute can be scrutinised on the anvil of article 14 of the Constitution like any other law. As held by the Supreme Court in Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 552, a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in article 14, though the courts are not concerned with the policy underlying a taxing statute or whether a particular tax could have been imposed in a different way or in a way that the court might think more just and equitable. It was held that if the Legislature has classified persons or properties into different categories which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. Similarly, different kinds of property may be subjected to different rates of taxation, but so long as there is a rational basis for the classification, article 14 will not come in the way of such classification resulting in unequal burdens on differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is competent to levy a tax must inevitably be given full freedom to determine which articles should be taxed, in what manner and at what rate. The Supreme Court reiterated the principle that in examining the constitutionality of a statute, it must be assumed that the Legislature understands and appreciates the needs of the people and the laws it enacts are directed to problems which are made manifest by experience and that the elected representatives assembled in a Legislature enact laws which they consider to be reasonable for the purposes for which they are enacted. The presumption is therefore in favour of the constitutionality of an enactment which is generally applicable in cases under article 14 of the Constitution. It was observed that under article 14 of the Constitution, the initial presumption of constitutionality may have a larger sway inasmuch as it may place the burden on the petitioner to show that the impugned law denied equality before the law, or equal protection of the laws. In Union of India v. Parameswaran Match Works, AIR 1974 SC 2349, where the notification issued under rule 8(1) of the Central Excise Rules provided for concessional rate of duty on match ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord with pre-conceived stereotypes so as to be amenable to pre-determined solutions. To meet the manifold ways that the tax evasion may take place, the taxing statutes may have to devise different means to meet different situations. While uniformity may be a virtue, it may fail to answer a given situation. When the situation warrants a special procedure to be adopted, the Legislature is entirely within its domain to devise it to achieve the object of the law. Bringing to tax the income chargeable to tax is the paramount object of any taxing statute and for achieving such object it may prescribe a special procedure to more effectively deal with a given complex situation. In the present case, the past experience in respect of search cases showed that valuable time was lost in trying to relate the undisclosed incomes to different previous years under section 132B of the Act and that by the time search related assets were computed, the effect of search was considerably diluted. In this context it will be pertinent to refer to the Memorandum explaining the provisions of Chapter XIV-B which would show what weighed behind the making of these provisions for the purpose of block assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the block assessment of undisclosed income, the Assessing Officer can go into the matter and detect the undisclosed income in respect of the block period in such search cases. This special procedure cannot be termed as an arbitrary discrimination against the persons whose undisclosed income is detected in the search proceedings. Treating the persons whose undisclosed income is detected in search proceedings differently for the purpose of assessing their undisclosed income than others, is therefore a classification based on an intelligible differentia having a reasonable nexus with the object of the law to effectively bring to tax the undisclosed income of the block period of such persons who did not and would not have disclosed it. Making of the special procedure for assessment of search cases by providing that there should be block assessment made in respect of the undisclosed income against the persons to whom it belongs therefore clearly passes the twin criteria of there being a valid classification on the basis of intelligible differentia between those for whom the special provisions are made and others who fall outside that class and a reasonable nexus of such classifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tected to be in the possession of any person that the question would arise to ascertain as to whether it belongs to the raided person or to any other person and that stage truly comes only after the issuance of the authorisation. It is on the strength of the presumption against the raided person who is found to be in possession or control of the material that he can be proceeded against for the purpose of assessment under Chapter XIV-B. However, if it is found that any of the undisclosed income belongs to someone else, which may happen at any point of time after the material is seized pursuant to the authorisation either when the statement is recorded under sub-section (4) of section 132 or even thereafter when the raided person is required to file the return in Form No. 2B in cases which fall in Chapter XIV-B and the Assessing Officer may be satisfied that some part of the undisclosed income really does not belong to the raided person who is being proceeded against and that it belongs to some other person that the occasion arises for the first time to proceed against such other person. Thus, the satisfaction which the Assessing Officer is required to reach for proceeding against s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory on this ground and therefore violative of article 14 of the Constitution, therefore, fails. For the purposes of Chapter XIV-B the Assessing Officer having jurisdiction over the person in whose case search is conducted under section 132 or books of account, etc., requisitioned under section 132A, first comes into the picture (if he himself was not the authorised officer) when the authorised officer who has no jurisdiction over the person referred to in clauses (a), (b) and (c) of sub-section (1) of section 132, that is, the person for whom authorisation for raid was issued, hands over to him the assets or documents seized within 15 days of the seizure as provided in section 132(9A) of the Act to the Income-tax Officer having jurisdiction over such persons. This means that, where the Assessing Officer who has jurisdiction over the raided person is different, the material will be transmitted to him for making block assessment of undisclosed income under Chapter XIV-B in cases where search is made after June 30, 1995. The said Assessing Officer then proceeds under section 158BC to issue notice to the person in whose case search was conducted requiring him to furnish a return in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under the provisions of section 158BE(1) of the Act. In cases where the presumption stands rebutted in respect of any undisclosed income because the material available before the Assessing Officer satisfies him that any undisclosed income belongs to any person other than the person with respect to whom the search was made or whose books of account, documents or assets were requisitioned, on such satisfaction being reached, the Assessing Officer will have to issue notice under section 158BC(1) on such other person and if he has no jurisdiction over such other person then to hand over the material to the Assessing Officer having jurisdiction over him, who will proceed against such other person as provided by section 158BD of the Act under the provisions of Chapter XIV-B. The period of limitation for completion of the block assessment in the case of such other person was required to be computed from the end of the month in which a notice to such other person was given because the Assessing Officer who first received the material and could straightaway proceed on the strength of presumption under section 132(4A) against the person found in possession or control of the material and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... despatch with which he should act is writ large on the connected provisions of section 132(9A) of the Act under which the authorised officer who has no jurisdiction over the person referred to in clause (a), (b) or (c) of sub-section (1) of section 132 has to hand over the books of account, documents and assets seized to the Income-tax Officer having jurisdiction over such person within 15 days of such seizure and the Assessing Officer is required to serve a notice to such person under section 158BC requiring him to furnish a return in the prescribed Form No. 2B and to complete the block assessment in one year from the end of the month in which the last authorisation for search or requisition was executed. Thus, the apprehension that a notice can be issued under section 158BD read with section 158BC by the Assessing Officer in the case of such "other person" at any time is ill-founded. There is no lifting of the limitation period for making the assessment order which is one year and the starting point of limitation in cases falling under section 158BD by the very nature of things can be fixed only after the Assessing Officer is satisfied that any undisclosed income belongs to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re search and seizure has yielded useful material showing the existence of undisclosed income is different from a situation where no undisclosed income is in fact detected but the Assessing Officer only has reason to believe that some income has escaped assessment in a particular assessment year. When undisclosed income is detected a difficult question of relating it to the relevant previous year would arise with scant assistance from the assessee to whom the undisclosed income belongs and who would be in a position to know as to which relevant previous year it related. Under section 132B, such undisclosed income was required to be related to the relevant previous year in the assessment or reassessment proceedings by the Assessing Officer which required liability to be determined on completion of the assessments or reassessments for all the assessment years relevant to the previous years to which the undisclosed income related. This entailed a cumbersome exercise of reopening assessments of all the respective years to which the undisclosed income related. There were prolonged litigations and difficulties were experienced in relating the undisclosed income to the relevant years. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the petitioners, it was held that both section 34 of the Indian Income-tax Act, 1922, and sub-section (4) of section 5 of the Taxation of Income (Investigation Commission) Act, 1947, deal with all persons who had similar characteristics and similar properties, that the procedure prescribed in the latter Act was substantially more prejudicial and more drastic to the assessee than the procedure under the former Act and, therefore, sub-section (4) of section 5 of the former Act in so far as it affected the persons proceeded against thereunder was void as offending the provisions of article 14 of the Constitution. On the analogy of this case, learned counsel for the petitioners contended that the provision of section 158BD enabling a notice to be issued to other persons referred to in that provision in respect of the undisclosed income for making the block assessment without providing the limit of time for issuance of such notice makes a hostile discrimination against such other persons because the period of limitation with regard to the raided persons to whom any undisclosed income belonged and who were similarly situated operated from the end of the month in which the last autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the impugned piece of legislation was quite definite and that was to catch substantial evaders of income-tax out of those who had made huge profits during the war period. It was also held that they form a class by themselves and had to be specially treated under the procedure laid down in the Act. Being a class by themselves, the procedure to which they were subjected during the course of investigation of their cases by the Commission was not at all discriminatory because such drastic procedure had reasonable nexus with the object sought to be achieved by the Act and therefore such a classification was within the constitutional limits. In S. C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR (SC) 1, the Supreme Court was concerned with the second proviso to section 34(3) of the Act and it was held by majority that the provisions of the second proviso to section 34(3) of the Indian Income-tax Act, 1922, in so far as they authorised the assessment or reassessment of any person other than the assessee beyond the period of limitation specified in section 34 in consequence of or to give effect to a finding or direction given in an appeal, revision or reference arising out of proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on" under the second proviso to section 34(3). Whether the person is so connected will depend on the facts of each case. It was held that the only reason why the words "any person" are read down to exclude total strangers is to prevent infringement of article 14 of the Constitution of India. Thus, total strangers and others against whom no directions were given and who could have been proceeded against in the normal way were in the same class. In the present petitions, in the case of the petitioners, pursuant to search and seizure proceedings, undisclosed income belonging to them was detected and as held above, they constituted a separate class from others in whose case no such undisclosed income was detected. Therefore, the decision of the Supreme Court in S. C. Prashar's case [1963] 49 ITR 1, can hardly assist the petitioners. We have, for the reasons given hereinabove, held that the special procedure for block assessment of undisclosed income has been prescribed for valid reasons and that the classification of the persons to whom the undisclosed income belonged in such cases for the purpose of block assessment was based on an intelligible differentia between this class of pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid reason, devised the special procedure for assessing the undisclosed income for a block period in search cases. The challenge on the ground that the impugned provision violates article 21 of the Constitution which guarantees that no person shall be deprived of his life or personal liberty except according to the procedure established by law, is equally misconceived. There is no question of the impugned provision depriving a person of his life or personal liberty. It is only a taxing provision which takes care of bringing to tax the undisclosed income for a block period in search cases which provisions were envisaged even in the proviso to section 4(1) of the said Act under which, where, by virtue of any provision of the Act, income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. Even extending the meaning of the word "life" to the extreme to which the petitioners would like it to be extended for the purpose, it is clear that an appropriate procedure has been provided for the purpose of computing undisclosed income and after giving an adequate opportunity to the assessees make an assessment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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