Decided on November 05,1973

Rahimbhai Karimbhai Nagriwala Appellant
B B Patel Respondents


DIVAN, J. - (1.)IN each of these five special civil applications the petitioner concerned has challenged the constitutional validity of section 271(1)(c) and section 274(2) of the Income -tax Act, 1961, on the ground that these provisions of the Income -tax Act contravene the provisions of articles 14, 19(1)(f), 19(1)(g), 31(1), 245 and 265 of the Constitution of India. Since the challenges are common and since Mr. Pathak has only urged the constitutional validity in the course of the hearing before us and since he has made it clear that though he does not give up the question regarding the merits of each particular case he was not pressing the merits before us since in the event of his losing the challenge to the constitutional validity he would be arguing those questions on merits before the income -tax authorities concerned, we will dispose of these five special civil applications by this common judgment.
(2.)IN order to appreciate the manner in which the challenge to the constitutional validity arises, we need only set out the facts in Special Civil Application No. 235 of 1971. The petitioner is carrying on business in Ahmedabad. On April 21, 1962, the petitioner had purchased a plot of land admeasuring about 2,335 square yards at Rakhial, a village near Ahmedabad City. On January 1, 1968, the petitioner sold the land and he realised a profit of Rs. 28,912. On March 5, 1969, he filed his return for the assessment year 1968 -69 and in that return he showed his income from business as Rs. 4,000 and that too on an estimate basis. In the original return he had not shown the income from sale of the land as part of his income for the assessment year 1968 -69. After the return was filed, the petitioner was required to produce the sale deed in respect of the land which he had sold on January 1, 1968, and a copy of the sale deed was filed by the petitioner with the Income -tax Officer concerned on March 12, 1969. Thereafter, on March 19, 1969, the petitioner filed a revised return showing therein capital gain of Rs. 11,114 and income from business on an estimate basis amounting to Rs. 3,000. On March 20, 1969, the Income -tax Officer passed the assessment order determining the profits from land at Rs. 28,912 as income from business and he also issued a notice under section 274 read with section 271 of the Income -tax Act, 1961, for failure to furnish the return of income within the stipulated time and also for concealment and for furnishing inaccurate particulars of income. The petitioner appealed against the order of assessment and by his order dated September 10, 1970, the Appellate Assistant Commissioner partially allowed the appeal by treating the profit accrued to the petitioner on the sale of land as capital gain and not as income from business. The Income -tax Officer, who is respondent No. 1 in this special civil application, then issued a fresh notice under section 274 read with section 271 of the Act and thereafter penalty under section 271(1)(c) was levied at Rs. 13,854 being equal to 100 per cent. of the alleged concealed income. Under the circumstances the petitioner has challenged the constitutional validity of section 271(1)(c) on various grounds. But, at the hearing of the special section civil application before us, the challenge was confined only to two grounds.
The first ground of challenge was that the impugned section 271(1)(c)(iii) which is the principal clause which is impugned in this petition is violative of article 14 of the Constitution inasmuch as there is no classification at all even though there is a difference between various types of tax evasions. In support of this challenge, various submissions were made which we will set out herein in the course of this judgment. The alternative ground of challenge to the constitutional validity is that the impugned provisions are a colourable exercise of legislative power inasmuch as in the guise of levying penalty the legislature had enacted for expropriation of the whole of the property of the citizen. It was also contended that the impugned provisions are arbitrary and excessive and no care and deliberation appear in such a scheme of penalty and as a result no proper balance is struck between social control which is permissible in law and the freedom guaranteed by the Constitution.

(3.)IN order to appreciate the contentions urged on behalf of both the sides it is necessary to set out in brief the history regarding the penalty provisions under the Income -tax Act. The Indian Income -tax Act, 1922, continued to remain in force till March 31, 1962. Under the Act of 1922, under section 28, no minimum penalty was laid down nut the maximum penalty that could be imposed was 150 per cent. of the tax evaded by the assessee. With effect from April 1, 1962, the Income -tax Act, 1961, came into force and for the first time a minimum penalty was laid down in section 271. With effect from April 1, 1962, the minimum penalty prescribed was twenty per cent. of the tax evaded and the maximum still continued as before at 150 per cent. of the tax evaded. With effect from April 1, 1964, an Explanation to section 271(1) was added and the statutory presumption as laid down therein was required to be raised against the assessee. Between March 1, 1965, and May 31, 1965, the first voluntary disclosure scheme was brought into force and under this scheme it was provided that if the assessee concerned paid 60 per cent. of the concealed income as tax, then no other penalty would be levied against him. As the Finance Minister pointed out at the time when he made the announcement regarding this scheme in Parliament, those persons who had undisclosed income to declare could make a declaration with relevant particulars and at the same time deposit in cash at the Reserve Bank of India sixty per cent. of the income declared. The remaining 40 per cent. of the income so declared could be taken to the assessee's books under intimation to the income -tax authorities and no further question of assessment in regard to the income so disclosed by this process would arise and the identity of the person was not to be revealed. This offer of voluntary disclosure was to remain only for three months from March 1, 1965, that is till the end of May, 1965. In order to induce people to come out quickly, with their disclosures, a rebate of 5 per cent. of the tax on all incomes declared and tax paid thereon in the month of March was to be given. In other words, those who declared their undisclosed income under this scheme in the month of March were to pay 57 per cent. instead of 60 per cent. of the tax. An option was given to the assessee if they felt that their tax liability in respect of amounts to be disclosed would be less than 57 or 60 per cent. to resort to normal disclosure and have the income so disclosed taxed at the appropriate rates by the income -tax authorities after proper assessment.

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