TMI Blog1954 (5) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... 28-5-1954 - Judge(s) : MEHR CHAND MAHAJAN., S. R. DAS., VIVIAN BOSE., N. H. BHAGWATI., T. L. VENKATARAMA AYYAR MEHR CHAND MAHAJAN, C.J.: The principal question canvassed in this case is whether certain sections of the Taxation on Income (Investigation Commission) Act, 1947, i.e., Act XXX of 1947, have become void from the date of the commencement of the Constitution of India by reason of Art. 14 of the Constitution. 2. The petitioner Suraj Mall Mohta Co. Ltd. is a company registered under the Indian Companies Act. Suraj Mall Mohta is also the managing director of another company Jute Gunny Brokers Ltd. A reference had been made by the Central Government under the provisions of s. 5(1) of the Act before 1st Sept., 1948, of the case of Jute Gunny Brokers Ltd. to the Investigation Commission appointed under Act XXX of 1947. During the investigation of that case which was numbered 831/30 in the records of the Commission, and during the investigation of some other cases similarly referred to the Commission, it was said to have been discovered that the petitioner company had made secret profits which it had not disclosed and thus evaded taxation. On the 28th Aug., 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Commission for investigation and report any case or points in a case in which the Central Government has prima facie reasons for believing that a person has to a substantial extent evaded payment of taxation on income, together with such material as may be available in support of such belief, and may at any time before the first day of September, 1948, apply to the Commission for the withdrawal of any case or points in a case thus referred........... (3) No reference made by the Central Government under sub-s. (1), at any time before the first day of September, 1948, shall be called in question, nor shall the sufficiency of the material on which such a reference has been made be investigated in any manner by any Court. (4) If in the course of investigation into any case or points in a case referred to it under sub-s. (1), the Commission has reason to believe- (a) that some person other than the person whose case is being investigated has evaded payment of taxation on income, or (b) that some points other than those referred to it by the Central Government in respect of any case also require investigation, it may make a report to the Central Government stating its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon to do so, the Commission may, if satisfied that the refusal or failure was wilful, close the investigation of the case and proceed to draw up its report on the case or on points to the best of its judgment and may in its discretion also direct that such sum as it may specify in the direction shall be recovered from the person by way of penally for in the refusal or failure, without prejudice to any penalty under the Indian IT Act, 1922........ (6) . . . . . . . (7) Where in the opinion of the Commission any person or banking or any other company is likely to be in possession of any information or document which may, directly or indirectly, be useful for, or relevant to, any case referred to it or any case likely to be reported by the Commission to the Central Government under the provisions of sub-s. (4) of s. 5, the Commission and, subject to the direction of the Commission any authorised official, may make enquiries in such manner as it or he may deem fit and obtain from such person or banking or other company statements on oath or otherwise on such points or matters as may be specified; and for the purpose of any such enquiry, the Commission and the authorized official ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials furnished to, obtained by or produced before, the Commission or any authorised official in any proceedings under this Act; but the Commission, and after the Commission has ceased to exist such authority as the Central Government may in this behalf appoint, may, in its discretion, allow such inspection and furnish such copies to any person : Provided that, for the purpose of enabling the person whose case or points in whose case is or are being investigated to rebut any evidence brought on the record against him, he shall, on application made in this behalf and on payment of such fees as may be prescribed by rules made under this Act, be furnished with certified copies of documents, statements, papers, and materials brought on the record by the Commission." Sub-s. (5) of s. 7 is in these terms : "(5) Save in cases in which the Commission may exercise its powers under s. 195 and Chapter XXXV of the Cr.P.C. 1898- (a) no suit, prosecution or other legal proceeding shall be instituted against any person in any civil or criminal Court for any evidence given or produced by him in any proceedings before the Commission, and (b) no evidence so given or produced shall be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of not less than three Judges of the High Court. (6) * * * (7) Notwithstanding anything to the contrary contained in this Act or in any other law, for the time being in force, any evidence in the case admitted before the Commission or an authorised official shall be admissible in evidence in any proceedings directed to be taken under sub-s. (2)." 4. It was not and could not be denied that the powers vested in the Commission and the procedure prescribed by the impugned Act are more comprehensive and drastic than those contained in the Indian IT Act. At the time when the impugned statue was passed there could possibly be taken no exception to its contents on the ground of constitutionality of its provisions, and the powers conferred on the Commission and the procedure it was authorized to follow were well within the ambit of the legislative power of the Central Legislature. The impugned statute admittedly was good law till coming into force of the Constitution. When India became a sovereign democratic Republic on 26th Jan., 1950, the validity of all laws had to be tested on the touchstone of the new Constitution and all laws made before the coming into force of the Const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rketing activities and huge profits. In other words, it was said that the Act only dealt with that group of persons who came within the class of war-profiteers. This was a class by itself and needed special treatment and therefore the law did not offend against the equal protection of the laws clause of the Constitution. It was suggested that persons coming under sub-s. (4) of s. 5 also belonged to the same class and therefore on the same grounds that section also could not be declared void. It was further stated that there was no substantial difference in the procedure prescribed under s. 34 of the Indian IT Act and the impugned Act and that in any case the procedure prescribed by the Act was a good substitute for that prescribed by the Indian IT Act. 7. In our judgment, it is not necessary in this case to deal with all the contentions raised by Mr. P. R. Das and combated by the learned Solicitor-General. It will be sufficient for the decision of this case to examine the respective contentions raised about the validity of sub-s. (4) of s. 5 of the Act because the case of the petitioner was referred to the Commission under the provisions of this section and was not referred to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome, irrespective of whether the evaded profits are substantial or insubstantial. In other respects also the phraseology of the section is different from that employed in sub-s. (1) of s. 5. Sub-s. (1) of s.5 provided that where the Central Government "has prima facie reasons for believing that a person has to a substantial extent evaded payment of taxation on income," while cl. (a) of s.5 (4) says that if the Commission "has reason to believe that some person other than the person whose case is being investigated has evaded payment of taxation on income." The prima facie belief of the Central Government is substituted by the expression "The Commission has reason to believe". The scope of the section is thus different from the scope of s. 5(1) of the Act, both in its extent and range. It is not necessarily limited to profits made within any particular period and brings within its range all persons, whether traders, businessmen, professional people, whoever they may be, who may have at any time evaded payment of taxation on income for whatever cause. 9. That being the true scope or construction of sub-s. (4), it obviously deals with the same class of persons who fall with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian IT Act and sub-s. (4) of s. 5 of the impugned Act deal with all persons who have similar characteristics and similar properties, the common characteristics being that they are persons who have not truly disclosed and have evaded payment of taxation on income. 10. The next question that requires determination is whether the procedure prescribed by Act XXX of 1947 for discovering the concealed profits of those who have evaded payment of taxation on their income is substantially different and prejudicial to the assessees than the procedure prescribed in the Indian IT Act by s. 34. The learned Solicitor-General contended that the procedure prescribed by the impugned Act was a fair and good substitute for the procedure prescribed by the Indian IT Act and that there was really no substantial difference between the two procedures. He urged that justice could be fully done to those persons by following the new procedure and, as a matter of fact, it would be more truly done by following the procedure under the impugned Act than following the procedure under the Indian IT Act. This argument, in our opinion, begs the question to be decided in all such cases. It is clear that if persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, second appeal and revision conferred by ss. 31, 32 and 33 of the Indian IT Act on assessees whose cases are dealt with under the procedure of s. 34 of the Indian IT Act. A person who has evaded payment of income-tax and is proceeded with under s. 34 and is held to have escaped income-tax has a right of appeal to the AAC and can challenge all the findings of fact given by the ITO. If he does not get relief from the Tribunal under s. 33 and can challenge all the findings of fact given by the ITO. On the other hand, a person dealt with under s. 5(4) of the impugned Act has no such right. The learned Solicitor-General contended that the constitution of the Commission was such that it was a good substitute for the rights of appeal, second appeal and revision conferred by the IT Act inasmuch as the Commission is comprised of a High Court Judge and two other responsible persons and there setting together were as good a tribunal as the totality of persons comprising the ITO, AAC and the Tribunal. In our opinion, the constitution of the Commission by itself cannot be held to be a sufficient safeguard and a good substitute for the rights of appeal and second appeal and revision give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material which is brought in the record and which is going to be used against him and it is clear that portions of the material which are in his favour and which have not been brought on the record may not be available to him at all. He is not even entitled to see all the books of account which may have been impounded under the Act and taken possession of by the Commission. It may well happen that there are entries in those books which contain the rebuttal evidence, but the assessee is not entitled to have their copies. The assessee is not even entitled to see his own books which are in the possession of the Commission and take copies of those entries which are favourable to him and which would completely demolish the case made against the assessee by the Commission. The procedure thus prescribed in this matter by the impugned Act is substantially prejudicial to the assessee than the procedure prescribed under the Indian IT Act. It was not disputed by the learned Solicitor-General that the procedure prescribed by the impugned Act in ss. 6 and 7 was more drastic than the procedure prescribed in ss. 37 and 38 of the Indian IT Act. Again, so far as the procedure for reference u ..... 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