S. R. DAS C. J., (FOR HIMSELF & KAPUR J).: - (1.) THE following Judgments of the court were delivered by
(2.) THIS appeal by special leave filed by one Shri Besheshar Nath hereinafter referred to as `,the assessee ` calls in question the validity of a settlement made under s. 8A of the Taxation on Income (Investigation Commission) Act, 1947 (30 of 1947), hereinafter referred to as ` the Investigation Act `. THIS Act, which came into force on 1/05/1947, by a notification issued by the central government under s. (1) (3) thereof, has had a short but chequered career, as will appear from the facts hereinafter stated. In order to appreciate the several questions canvassed before us it is necessary to refer to the provisions of the impugned Act. Section 3 authorised the central government to constitute an Income Tax Investigation Commission (hereinafter called the Commission) and imposed on it the following duties:` (a) to investigate and report to the central government on all matters relating to taxation on income, with particular reference to the extent to which the existing law relating to, and procedure for, the assessment and collection of such taxation is adequate to prevent the evasion thereof; (b) to investigate in accordance with the provisions of this Act any case or points in a case -referred to it under section 5 and make a report thereon (including such interim report ' s as the Commission may think fit) to the central government in respect of all or any of the assessments made in relation to the case before the date of its report or interim report, as the case may be.` We may skip over s. 4 which dealt with the composition of the Commission. Section 5, which is of importance was as follows:` 5. (1) The central Government may at any time' before the 30th day of June, 1948, refer to the Commission for investigation and report any case or points in a case in which the central government has prima facie reasons for believing that a person has to a substantial extent evaded payment of taxation on income, together with such material as may be available in support of such belief, and may at any time before the 30th day of June, 1948, apply to the Commission for the withdrawal of any case or points in a case thus referred, and if the Commission approves of the withdrawal, no further proceedings shall thereafter be taken by or before the Commission in respect of the case or points so withdrawn. (2) The Commission may, after examining the material submitted by the central government with reference to any case or points in a case and making such investigation as it considers necessary, report to the central government that in its opinion further investigation is not likely to reveal any substantial evasion of taxation on income and on such report being made the investigation shall be deemed to be closed. (3) No reference made by the central government under subsection (1), at any time before the 30th day of June, 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 Ss. (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 reasons for such belief and, on receipt of such report, the central government shall, notwithstanding anything contained in Ss. (1), forthwith refer to the Commission for investigation the case of such other person or such additional points as may be indicated in that report.` The date ` 30th day of June, 1948 ` appearing in sub-ss. (1) and (3) was, by Act 49 of 1948, substituted by the words ` 1st day of September, 1948 `. Section 6 set out the various powers conferred on the Commission and s. 7 prescribed the procedure of the Comission. It is not necessary to set out the various powers and the details of the procedure in extenso and it will suffice to say that they have been considered by this court and pronounced to be much more drastic and harsh than the powers to be exercised and the procedure to be followed by the income tax authorities acting under the provisions of the Indian Income Tax Act, 1922. The relevant portions of s. 8 ran as follows:` 8. (1) Save as otherwise provided in this Act, the materials brought on record shall be considered by all the three members of the Commission sitting together and the report of the Commission shall be in accordance with the opinion of the majority. (2) After considering the report, tile central government shall by order in writing direct that such proceedings as it thinks fit under the Indian Income Tax Act, 1922, the Excess Profits Tax Act, 1940, or any other law, shall be taken against the person to whose case the report relates in respect of the income of any period commencing after the 31st day of December, 1938; and, upon such a direction being given, such proceedings may be taken 'and completed under the appropriate law notwithstanding the restrictions contained in section 34 of the Indian Income Tax Act, 1922, or section 15 of the Excess Profits Tax Act, 1940, or any other law and notwithstanding any lapse of time or any decision to a different effect given in the case by any Income tax authority or Income Tax Appellate tribunal. (3)......................................................... (4) In all assessment or re-assessment proceedings taken in pursuance of a direction under sub-section' (2), the findings recorded by the Commission on the case or on the points referred to it shall, subject to the provisions of Ss. (5) and (6), be final; but no proceedings taken in pursuance of such direction shall be a bar to the initiation of proceedings under section 34 of the Indian Income Tax Act, 1922. (5)......................................................... (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 Ss. (2). (8)......................................................... Section 9 barred the jurisdiction of courts to call in question any act or proceeding of the Commission or any authorised official appointed under s. 6. Section 10 gave power to the central government to make rules by notification in the official gazette. On 22/07/1948, the case of the assessee was referred to the Commission in the following terms: ` Ministry of Finance (Revenue Division) New Delhi, the 22/07/1948. Under section 5 (1) of the Taxation on Income (Investigation Commission) Act, 1947, the cases of the following persons are hereby referred to the Investigation Commission for investigation and report, as the central government has prima facie reasons for believing that each such person has either alone or in combination with the other persons mentioned below, evaded payment of taxation on income to a substantial extent. The material available in support of 'such belief accompanies. No. EP. 829/1 829/2 Name Beshashar Nath and Co. Lala Beshashar Nath. Sd./-Pyare Lal, Deputy secretary, Ministry of Finance (Revenue Division), The secretary. Income, tax, Investigation Commission, New Delhi," It is not necessary to set out the annexures that accompanied this Orders It appears that the total wealth statement of the assessee was filed on 10/11/1948, and was forwarded to the authorised official. It also appears that from 8/01/1949, to 14/10/1949, the authorised official was engaged in the collection of assessment records of the assessee from the territorial income tax offices and of materials from the Civil Supplies Directorate regarding the assessee. In the meantime by a. 33 of Act 67 of 1949 the following section was inserted in the Act as s. 8A:` 8A. Settlement of cases under investigation:(1) Where any Person concerned in any case referred to or pending before the Commission for investigation applies to the Commission at any time during such investigation to have the case or any part thereof settled in so far as it relates to him, the Commission shall, if it is of opinion that the terms of the settlement contained in the application may be approved, refer the matter to the central government, and if the central Government accepts the terms of such settlement, the Commission shall have the terms thereof recorded and thereupon the investigation, in so far as it relates to matters covered by such settlement, shall be deemed to be closed. (2) For the purpose of enforcing the terms of any, settlement arrived at in pursuance of Ss. (1), the central government may direct that such proceedings as may be appropriate under the Indian Income-tax Act, 1922 (XI of 1922), the Excess Profits Tax Act, 1940 (XV of 1940), or any other law may be taken against the person to whom the settlement relates, and in particular the provisions of the second proviso to clause (a) of-sub-section (5) of section 23, section 24B, the proviso to Ss. 2 of section 25A, the proviso to subjection 2 of section 26 and S. 44 and 46 of the Indian Income-tax Act, 1922, shall be applicable to the recovery of any sum specified in such settlement by the, Income Tax Officer having jurisdiction to assess the person by whom such sum is payable as if it were income-tax or an arrear of income-tax within the meaning of those provisions. (3) Subject to the provisions of Ss. (6) of section 8, any settlement arrived at under this section shall be conclusive as to the matters stated therein, and no person whose case has been so settled be entitled to re-open in any proceeding for the recovery of any sum under this section or in any subsequent assessment or reassessment proceeding relating to taxation on income or in any other proceeding before any court or other authority any matter which forms part of such settlement. (4) Where a settlement has been accepted by government under Ss. (1), no proceedings under section 34 of the Indian Income Tax Act, 1922 (XI of 1922), or under section 15 of the Excess Profits Tax Act, 1940 (XV of 1940), shall be initiated in respect of the items of income covered by the settlement, unless the initiation of such proceedings is expressly allowed by the terms of the settlement.` On July 5, 1949, the total wealth statement was received back from the authorised official. Our Constitution came into force on 26/01/1950. The order-sheet shows that the authorised official on 26/05/1950, issued a notice to the assessee fixing the hearing for 10/06/1950, which indicates that the authorised official was proceeding with the investigation set in motion by the reference of the assessee's case to the Commission. The assessee appears to have attended on 6/06/1950, with an application for extension of time which apparently was given. On 30/09/1950, the assessee supplied certain statements of his firm. The entry in the order-sheet ,,,against the date 31/10/1950, shows that the assessee asked for further extension of time. There appears to be a hiatus of about 3 years and evidently nothing was done until 9/06/1953, when the authorised official fixed the hearing of the case on 15/06/1953. The authorised official submitted his interim report to the Commission on 9/06/1953. The assessee was examined on October 9, 10 and 13, 1953, and the authorised official submitted his final report on 19/10/1953. On 30/01/1954, notice was issued to the assessee to appear before the Commission on 15/02/1954. Presumably to get ready for the hearing the assessee, on 5/02/1954, asked for inspection of certain assessment orders concerning his case-, for the return of his lease deed filed by him and a copy of the statement of one L. Kalidas and for production of certain documents before the Commission. The hearing, which had been fixed for 15/02/1954, was adjourned till 4/03/1954. Witness Kalidas was examined on 4/03/1954. On Ma 29/03/1954, the assessee asked for a, copy of the deposition given by the witness Durgadas before the Commission. After the evidence was closed notice was issued to the assessee on 1/05/1954, asking him to appear before the Commission on 19/05/1954. On that date the assessee attended, arguments were heard and orders were reserved. Learned counsel for the assessee states that at the close of the arguments on 19/05/1954, the Commission announced its view that the income, profits and gains that had escaped assessment in the hands of the assessee for the period beginning with 1/04/1939, and ending 31/03/1947, were the sum of Rs. 4,47,915.00, that the Commission also threw a hint that should the assessee accept the said finding he would be granted the benefit of a settlement on the lower concessional basis of. payment of 75% and a small penalty of Rs. 14,064.00 other alternative than to makethe best of the bad job by proposing a settlement under s. 8A offering to pay Rs. 3,50,000.00 by way of tax and penalty. This sequence of events is amply borne out by paragraphs 3 and 4 of the settlement application filed by the assessee on 20/05/1954, a copy of which has been produced before us by the respondents. The Commission on 24/05/1954, made a report under s. 8A (1) to the central government that it was of opinion that the terms of settlement contained in the application might be approved. The central government having accepted the proposed settlement, the Commission had the terms thereof recorded. The central government by its Order C No. 74 (9- IT) 54 made on 5/07/1954, under s. 8A (2) of the Investigation Act directed that demand notice in accordance with the said terms be served immediately by the Income Tax Officer and that all such other proceedings under the Indian Income Tax Act or other law as may be necessary be taken with a view to enforce the payment of the demand and that the entire sum of Rs. 3,50,000.00 be demanded in one sum. It appears, however, that the assessee was allowed to make payments by instalments of Rs. 5,000.00, per month. In the meantime on 28/05/1954, this court delivered judgment in Suraj Mall Mohta and Co. v. A. V. Visvanatha Sastri (1). In that case in the course of investigation of the case of Messrs. Jute and Gunny Brokers Ltd. which had been referred to the Commission under s. 5 (1) of the Investigation Act, it was alleged to have been discovered by the Commission that Suraj Mall Mohta and Co. had made large profits which they had not disclosed and had thus evaded taxation. A report to that effect having been made on 28/08/1953, by the Commission to the central government under s. 5 (4) of the Investigation Act the central government on 9/09/1953, referred the case against Suraj Mall Mohta and Co. to the Commission under the provisions of s. 5 (4). On 15/09/1953, the Commission notified Suraj Mall Mohta and Co. that their cases had been referred for investigation and called upon them to furnish certain materials, details of which were set out in Annx. to the petition. On 12/04/1954, Suraj Mall Mohta and Co. filed a petition under Art. 32 of the Constitution asking for an appropriate writ restraining the, Commission from taking any action on the ground that the provisions of the Investigation Act had become void being discriminatory in character. By that judgment this court held that both s. 34 of the Indian Income Tax Act, 1922, as it then stood, and sub-s. (4) of s. 5 of the Investigation Act dealt with persons who had similar characteristics of being persons who had not truly disclosed their income and had evaded payment of tax on their income but that as the procedure prescribed by the Investigation Act was substantially more prejudicial than the procedure under the Indian Income Tax Act, 1922, sub-s. (4) of s. 5 and the procedure prescribed by the Investigation Act,-in so far as it affected persons proceeded against under that Ss. was a piece of discriminatory legislation which offended the provisions of Art. 14 of the Constitution and was, therefore, void and unenforceable. Ss. (4) of s. 5 of the Investigation Act having been declared void, Parliament passed the Indian Income Tax Amendment Act (33 of 1954) amending s. 34 of the Indian Income Tax Act, 1922. Paradoxical as it may seem, the result of this amendment was that persons who originally, fell only within the ambit of s. 5 (1) of the Investigation Act and formed a distinct class of substantial tax evaders also came within the amended s. 34 of the Indian Income Tax Act, 1922. The position after the amendment, therefore, was that the Income Tax Officers could pick out some of these persons and refer their cases under s. 5 (1) of the Investigation Act and thereby subject them to the drastic and harsh procedure of that Act, while they could deal with other persons similarly situate under s. 34 as amended and apply to them the comparatively more beneficial procedure laid down in the Indian Income Tax Act, 1922. Promptly several applications were made under Art. 32 of the Constitution complaining that after the amendment of s. 34 of the Indian Income Tax Act, s. 5 (1) of the Investigation Act became discriminatory in that the persons falling within it could be dealt with under the drastic, prejudicial and harsh procedure prescribed by the Investigation Act, while other persons similarly situate and belonging to the same category could at the whim or pleasure of the Income Tax authorities be proceeded against under the more beneficial procedure prescribed under the Indian Income TaxAct. All those applications were disposed of by a common judgment reported as Shree Meenakshi Mills Ltd. v. Sri A. V. Visvanatha Sastri (1) This court held that s. 34 of the Income Tax Act, as amended by the Indian Income Tax Amendment Act, 1954 (33 of 1954), operated on the same field as s. 5 (1) of the Investigation Act, and, therefore, s. 5 (1) had become void and unenforceable as the procedure applied to persons dealt with thereunder became discriminatory in character. It should be noted that in none of those petitions disposed of by that judgment had any assessment been made under the Investigation Act and this court only prohibited further proceedings before the Commission under the Investigation Act. The assessee appellant now before us who had entered into a settlement under s. 8 of the Investigation Act and had been assessed in accordance with the terms of the settlement continued to pay the tax by monthly instalments of Rs. 5,000.00 as before. Finally on 20/12/1955, came the decision of this court in M. CT. Muthiah v. The Commissioner of Income Tax, Madras (2). In that case the central government had under s. 5 (1) of the Investigation Act referred the case to the Commission. The Commission after holding an enquiry recorded its findings and held that an aggregate sum of Rs. 10,07,322-4-3 represented the undisclosed income during the period under investigation. The Commission having submitted its report to the central government, the latter acting under s. 8 (2) of the Investigation Act directed that appropriate action under the Indian Income Tax Act, 1922, be taken against that assessee with a view to assess or re-assess the income which had escaped assessment for the period 1940-41 to 1948-49. The Income Tax Officer accordingly issued notices and made the re-assessment for the years 1940-41, 1941-42 and 1943-44 to 1948-49 based upon the finding of the Commission, which was treated as final and conclusive. These assessment orders were served on that assessee. There was, however, no re. assessment order for the year 1942-43. In regard to the assessment orders which had been served the assessee concerned applied to the Commissioner of Income Tax under S. 8 (5) of the Investigation Act for reference to the High court on questions of law arising out of those re-assessment orders. During the pendency of those proceedings the assessee, in that case on 6/12/1954, filed a petition contending that the provisions of the Investigation Act were illegal, ultra vires and unconstitutional. The majority of this court held that different persons, though falling under the same class or category of substantial evaders of income. tax, were being subjected to different procedures, one a summary and drastic procedure and the other the normal procedure which gave to the assessees various rights which were denied to those who were specially treated under the -procedure prescribed by the Investigation Act and, therefore, the assessments made under s. 8 (2) were void and unenforceable. That was a case of assessment under s. 8 (2) in invitum after an investigation under the Investigation Act. The assessee appellant before us, who had at the end of the investigation entered into a settlement and been assessed in accordance with the terms of such settlement, however, went on making payments in discharge of the balance due under the terms of settlement right up to 8/09/1957, when he made the last payment of Us. 8,000.00 bringing the aggregate payment up to Rs. 1,28,000.00.
(3.) IN the meantime the INcome Tax Officer had sent a certificate requesting the Collector of Delhi for the recovery of the balance due by the assessee under the settlement. IN execution of that certificate some of the properties belonging to the assessee situate in Dharamsalla and Hissar were attached. On 27/12/1957, the assessee made an application to the INcome Tax Commissioner. After pointing out that between 5/07/1954, and 27/12/1957, the petitioner had paid in all Rs. 1,28,000.00 towards the-' discharge of his liability under the settlement and referring to the decisions of this court in suraj Mall Mohta's case (1) and Muthiah's case (2) the assessee submitted that the settlement under a. 8A of the INvestigation Act had no force and did not bind the petitioner and that the settlement had been made under the pressure of the situation and in view of the coercive machinery of the INvestigation Act and that from either point of view the settlement was not binding. His contention was that when s. 5(1) of the INvestigation Act had been held unconstitutional the settlement under s. 8A could not be enforced, for the foundation of the proceedings under s. 8A was the reference under s. 5(1) and the foundation having crumbled down the superstructure must fall with it. Under the circumstances the assessee submitted that the attached properties be released and the amount already recovered under the settlement be refunded. On 29/01/1958, the INcome Tax Commissioner sent the following communication to the assessee:- No. L-228(l)/54-55/17590 Office of the Commissioner of INcome Tax, Delhi and Rajasthan, New Delhi. Dated, New Delhi the 29/01/1958. Shri Besheshar Nath, 9, Barakhanaba Road, New Delhi. Dear Sir, Sub :-Taxation on INcome (INvestigation Commission) Act, 1917 Order u/s 8A(2) Your petition dated 27/12/1957. With reference to your petition dated 27/12/1957, regarding the settlement arrived at under section 8A(2) of the Taxation on INcome (INvestigation Commission) Act, 1947, I am to inform you that the settlement is valid and binding on you. 2. You are, therefore, requested to make good arrears of instalments which you have not paid recently by 5/02/1958, and also to continue making the payments in accordance with the instalments scheme agreed to, failing which the recovery proceedings will be vigorously pursued through the usual recovery channels. Your's faithfully, Sd./S. K. Gupta, Commissioner of INcome-tax, Delhi & Rajasthan, New Delhi. Being aggrieved by the above decision the assessee thereupon moved this court and obtained special leave to appeal against that order. The appeal has now come up for final disposal before us. It may be mentioned here that as the respondents are anxious to have the matters of controversy raised in this appeal decided and set at rest by a decision of this court, the respondents, for the purposes of this appeal, have not insisted on their objection that an appeal does not lie under Art. 136 of the Constitution against an order of the Commissioner of Income Tax. Learned counsel for the assessee also has not pressed his claim for refund of the amounts already paid and has pressed the appeal regarding the balance that remains to be paid under the settlement which is characterised as invalid. Model Knitting Industries Ltd. which has a case pending in the High court of Calcutta where the same questions as are in issue in the appeal before us, are also in issue has been. permitted to intervene and we have heard counsel appearing for that intervener. In view of the three decisions referred to above learned Attorney General does not seriously contend that the powers conferred on the Commission by s. 6 and the procedure laid down by s. 7 of the Investigation Act are not discriminatory, but what he urges is that none of the said decisions has held that s. 5(1) is wholly void and inoperative. He says that s. 5(1) only authorises the central government to refer certain cases to the Commission. Upon such a reference two lines of procedure are clearly indicated by the Investigation Act, namely, (1) that an investigation may be held in invitum following the procedure prescribed and exercising the powers conferred by the lnvestigation Act and (2) that a settlement may be made under s. 8A. If the first procedure is followed and an assessment is made under s. 8(2) such assessment will undoubtedly be invalid as has been held in Muthiah's case (1), but if on a case being referred the settlement procedure is followed then the consequential order of assessment under s. 8A cannot be questioned. We are unable to accept this line of argument as permissible in view of the provisions of the Investigation Act. It will be recalled that when the case of the assessee was referred to the Commission under s. 5(1) on 22/07/1948, there was no provision for settlement in the Act at all. Therefore, that reference, when it was made, consigned the assessee to the only procedure of investigation that was then prescribed by the Act. In the next place it should be remembered that after s. 8A was added in the Investigation Act by s. 33 of Act 67 of 1949 an authorised official was appointed under s. 6(3) to investigate the affairs of the assessee and to examine the books and to interrogate any person or obtain any statement from any person and under sub-s. (4) the authorised official was empowered to exercise the same powers as had been vested in the Commission under sub-ss. (1) and (2) of s. 6. Further, by its own terms s. 8A made it clear that the person concerned in any case referred to the Commission for investigation might apply to the Commission at any time during such investigation to have the case settled. Therefore this provision for settlement was an integral part of the entire investigation procedure. It was not a separate or independent procedure apart from the investigation procedure. It is true that there was nothing to prevent the assessee from straightaway making a proposal for settlement before any actual step towards investigation -was taken by the Income Tax authorities, but before the Commission could refer the proposal for settlement to the central government it had to be satisfied that the terms of settlement contained in the application were such as might be approved. For the purpose of satisfying itself the Commission had obviously to go into the facts either by itself or through an authorised official and to consider the materials collected by the authorised official and in the process of doing so had to hold an investigation of some sort and that investigation had necessarily to be made in accordance with the procedure prescribed by the Investigation Act itself. It is, therefore, not correct to say that there could be a proceeding for settlement without any investigation at all. In our opinion s. 8A did not provide for a separate procedure at all. When a case was referred under s. 5(1) it was really for investigation and a settlement was something which could crop up in the process of that investigation just as in the course of a suit parties may arrive at some compromise. In recording the compromise and passing a judgment in accordance with the compromise thereof, the court exercises the same jurisdiction as it exercises in entertaining and disposing of the suit itself. Likewise in entertaining a proposal for settlement the Commission exercised its jurisdiction of investigation under s. 5, followed the procedure prescribed by s. 7 and exercised all its powers under s. 6. As already stated the language of s.8A itself shows that a settlement can be proposed only during such investigation. In our judgment, therefore, the contention of the learned Attorney General that the Investigation Act prescribed two procedures is not wellfounded. ;