(1.) THESE three with petitions involve the interpretation of S. 4(ii) of the Expenditure-tax Act, 1957 (29 of 1957), as amended by the Finance Act of 1959, hereinafter called the Act, and its validity, namely, whether it offends Arts. 14, 19 and 31 of the Constitution. Apart from this, the jurisdiction of the Expenditure-tax Officer to reopen the assessments already made has been questioned.
(2.) IN order to understand the points urged before me, it is necessary to state briefly a few facts : The petitioner, His Highness Prince Azam Jah, the eldest son of Nizam, filed expenditure-tax returns under the Act for the asst. yrs. 1959-60, 1960-61 and 1961-62 and on the basis of the returns, the respondent--Expenditure-tax Officer, Circle No. II --completed the tax assessments on March 27, 1961, December 22, 1961 and January 25, 1962, assessing him to a taxable expenditure of Rs. 2,34,864, Rs. 1,66,687, and Rs. 2,30,384 respectively for these three years. The tax demands were also paid in full. Thereafter, the respondent issued notice dated, May 5, 1962, under S. 16 of the Act, calling upon the petitioner to file supplemental returns of expenditure for the three years in question on the alleged ground that the respondent had reason to believe that the petitioner's expenditure had escaped assessment or had been under assessed. But, since the petitioner was not aware of the reasons which actuated the respondent to reopen the assessments, he filed supplemental returns of expenditure on July 16, 1962, declaring the same expenditure as shown in the original returns and subsequently a date of hearing was fixed on July 20, 1962, at which hearing the petitioner's representative was informed by the respondent that the three assessments had been reopened for the purpose of including in the petitioner's assessment, the expenditure incurred by his wife, Princess Durre Shehvar, as required by S. 4(ii) of the Act, as amended by S. 24 of the Finance Act, 1959. A letter was also written by the respondent to the petitioner on July 20, 1962, calling upon him to state his objections by July 25, 1962, for the inclusion in his assessments of his wife's expenditure in the previous year relevant for the three years mentioned above and stating that exemptions and deductions if permissible under ss. 5 and 6 of the Act, will however be allowed. It is these proceedings that the petitioner challenges and, inter alia, contends :
(1) That the reopening of the assessment S. 16(1) (a) of the Act is wholly arbitray and illegal inasmuch as the fact that Princess Durre Shehvar is the wife of the petitioner and that she has to be considered as his dependent within the meaning of S. 2(g) of the Act as amended by S. 22 of the Finance Act, 1959, were well within the knowledge of the respondent and were duly mentioned to him; as such there was no omission or failure on the part of the petitioner to make a return of his expenditure or to disclose fully and truly all material facts; nor had the respondent come into possession of any information warranting a reasonable belief that any expenditure had escaped taxation. Since all the material facts have been disclosed and all the necessary information was available, the Expenditure-tax Officer has no jurisdiction to reopen the assessment merely because he has changed his opinion. (2) On a reasonable interpretation of S. 4(ii) of the Act, only that expenditure of the dependent is included in the taxable expenditure of the individual, which expenditure is incurred from or out of the income or property transferred directly or indirectly to the dependant by the assessee and consequently since the petitioner's wife has her own source of income and property and incurred her expenditure from out of the monies exclusively belonging to her, the expenditure incurred by her during the relevant three assessment years is not includible in the petitioner's expenditure.
(3) That the expenditure-tax authorities are simultaneously proceeding against the petitioner and his wife, which is a case of a double taxation and they are not entitled to do so.
(4) Sec. 4(ii) of the Act, as amended by S. 24 of the Finance Act, is ultra vires the Constitution, as it violates Art. 14 and is discriminatory in character, inasmuch as S. 4(ii) of the Act, as it stood in 1957, before the amendment, did not make any distinction as regards the inclusion of dependant's expenditure in so far as the individuals and HUFs are concerned, but the amendment brought about an unreasonable discrimination as between the two units of assessees mentioned above. This discrimination, it is stated, is that whereas in the case of an "individual", the expenditure incurred by any dependant of such individual has to be included in the assessment of the individual, without having regard to any other consideration, in the case of an HUF the expenditure by any dependant from or out of any income or property transferred directly or indirectly to the dependant by such family alone has to be included. Thus, the individual assessee are discriminated against the HUFs, which treatment offends Art. 14 of the Constitution.
(5) That the provisions of the Act constitute an unreasonable restriction on a person's right to hold and enjoy property and consequently violate Arts. 19 and 31 of the Constitution.
The respondent in his counter has averred that the petitioner, in pursuance of S. 13 of the Act, was required to file a return in the prescribed form and verified in the prescribed manner, setting forth his expenditure for the previous year. The form and the verification which are prescribed clearly indicate the inclusion of the dependant's expenditure and have also carefully set out for the information of the assessee, who the dependant is, as per the terms of the definition in the Act. That by virtue of the amendment to S. 2(g) by the Finance Act, 1959, the petitioner's wife is admittedly a dependant of the petitioner, whose expenditure has to be included in the original returns of the assessee and these should have been included in the assessment; and that as they have not been so included, the respondent had reason to believe that the assessee has not disclosed truly and fully all the material facts for the aforesaid assessment years and was consequently entitled to reopen the assessments under S. 16 of the Act. He has contested the validity by the contention of the petitioner impugning the vires of the Act on the ground that it is discriminatory and offends Art. 14 of the Constitution and also the interpretation sough to be put by him on S. 4(ii) of the Act. It is submitted that there is no discrimination between one individual assessee and another individual assessee but the distinction has been made by the legislature for proper and valid grounds between the individual assessee and the assessee who is an HUF; that equality before law means among equals law should be equal and should be equally administered and there should be no discrimination within the same class. It was also pointed out that the legislature was empowered to fix a minimum taxable limit of an individual assessee under the IT Act at Rs. 3,000, whereas in the case of an HUF, it is Rs. 6,000. For this reason, the aforesaid provisions cannot be considered as discriminatory in character, as a separate treatment is contemplated by the legislature to be given to HUF in view of its peculiar constitution as compared to that of an individual. The class of persons being different, the distinction cannot be claimed to be discrimination which is hit by Art. 14 of the Constitution of India. In any event, Parliament is entitled to have a reasonable classification and the distinction made in this regard is valid, intra vires and is in accordance with law. The contention of the petitioner based on Arts. 19 and 31 of the Constitution was also said to be without merit. Further, the contentions of the petitioner that the assessee's wife had already filed the returns and that she may be assessed separately and that it would cause hardship to him if the expenditure of his wife is assessed in his hands as he is entitled for such of the reliefs she would have been entitled if she is assessed separately, are devoid of any merit. No separate assessments on her have so far been made, nor any demands for tax have been raised against her and that after the completion of the reassessment proceedings of the assessee including her expenditure the assessment proceedings against her will be dropped. The allegations of the petitioner that the assessee's wife has her own monies and she has spent the monies belonging to her and as such her expenditure should not be included in his assessments, have been described as equally untrue and untenable. Lastly, it was contended that in any event the petitioner cannot take advantage of the provisions of Arts. 14 and 19 of the Constitution, in view of the fact that the Government of India passed an Ordinance suspending the operation of these provisions in view of the emergency.
Take the last point raised by the respondent, namely, that Arts. 14 and 19 of the Constitution cannot be invoked, having regard to the declaration of emergency and the passing of the Ordinance suspending the operation of these provisions during the emergency, it is rightly conceded by the learned advocate for the respondent that this contention cannot be sustained. A notification of the Government of India, G. S. R. 1464, was issued in exercise of the powers conferred by cl. (1) of Art. 359 of the Constitution under which the President declared that the right of any person to move any Court for the enforcement to Art. 14, Art. 21, or Art. 22 of the Constitution, shall remain suspended for the period during which the Proclamation of Emergency issued under Art. 352 thereof on the 26th October, 1962, is in force, if such persons has been deprived of any such rights under the Defence of India Ordinance, 1962 (4 of 1962) or any rule or order made thereunder. The suspension, therefore, is only in relation to the protection of life and personal liberty and protection against arrest and detention and has nothing to do with Art. 19 and Art. 31 of the Constitution, nor with 14 in so far as it does not relate to personal freedom.
(3.) THE first contention urged by the learned counsel for the petitioner concerns the jurisdiction of the Expenditure-tax Officer to reopen the assessments under S. 16 of the Act, which is more or less in similar terms with S. 34 of the now repealed IT Act, 1922, and is in the following terms :
"Expenditure escaping assessment.--If the Expenditure-tax Officer-- (a) has reason to believe that by reason of the omission or failure on the part of the assessee to make a return of his expenditure under S. 13 for any assessment year, or to disclose fully and truly all material facts necessary for his assessment for that year, the expenditure chargeable to tax has escaped assessment for that year, whether by reason of under-assessment or assessment at too low a rate or otherwise; or (b) has in consequence of any information in his possession reason to believe, notwithstanding that there has been no such omission or failure as is referred to in cl. (a), that the expenditure chargeable to tax has escaped assessment for any assessment year, whether by reason of underassessment or assessment at too low a rate or otherwise; he may, in cases falling under cl. (a) at any time within eight years and in cases falling under cl. (b) at any time within years of the end of that assessment year serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of s. 13, and may proceed to assess or reassess such expenditure, and the provisions of this Act shall, so far as may be, apply as if the notice has issued under that sub-section."
The apparent reason why the legislature has classified the escapement of tax into two categories is that in case of (a) default is that of the assessee and in the case of (b) default may or may not be of the assessee, but due even to inadvertence or mistake on the part of the officer, tax had in fact escaped assessment. In the first case, jurisdiction to reopen the assessments has been fixed "at any time within eight years" and in cases falling under cl. (b) at any time within four years of the end of that assessment year. In other words, it is for the purpose of limitation that the classification has been made in the above manner. The learned advocate for the petitioner contends that the facts of the case do not warrant the assumption of jurisdiction under S. 16(a) of the Act, though, even if it was under S. 16(b), the notice is well within the time prescribed thereunder for the reopening of the assessment under that provision. There is some misapprehension in the mind of the learned advocate that notice has been issued under S. 16(a). It is not so. The notice merely states that it is under S. 16 of the Act. In a subsequent letter, however, the Expenditure-tax Officer did refer in the subject portion of his letter to "returns of expenditure filed in response to the notices issued under S. 16(a) of the Expenditure-tax Act, 1957" and also mentioned in the letter itself that in annexure V of the returns of expenditure furnished by the assessee under S. 16(a) of the Act for the asst. yrs. 1959-60 to 1961-62, he stated that his wife "Princess Durre Shehvar has her own sources of income and lived in London for the most part. She met her expenditure out of money exclusively belonging to her. She is by no means a dependant on me." Evidently it is not the notice issued by the Expenditure-tax Officer which was under S. 16(a) of the Act, but the returns filed by the assessee specified that they were filed under the provisions of cl. (a). Be that as it may, in Maharaj Kumar Kamal Singh vs. CIT (1959) 35 ITR 1 (SC) their Lordships of the Supreme Court were dealing with a case where, following the decision of the Patna High Court in Kamakshya Narain Singh's case (1946) 14 ITR 673 (Pat) the ITO omitted to bring to assessment for the year 1945-46, the sum of Rs. 93,604 representing interest on arrears of rent due to the assessee in respect of agricultural land on the ground that the amount was agricultural income. Subsequently the Privy Council had on appeal from that decision held that interest on arrears of rent payable in respect of agricultural land was not agricultural income, and, as a result of this decision, the ITO initiated reassessment proceedings and brought the amount of Rs. 93,604 again to tax under S. 34(1) (b) of the IT Act. On these facts, the Supreme Court held, firstly, that the word "information" in S. 34(1) (b) included information as to the true and correct state of the law, and so would cover information as to relevant judicial decisions; secondly, that "escape" in S. 34(1) (b) was not confined to cases where no return had been submitted by the assessee or where income had not been assessed owing to inadvertence or oversight or other lacuna attributable to the assessing authorities, but even in a case where a return had been submitted, if the ITO had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment; and, thirdly, that the decision of the Privy Council was "information" within the meaning of S. 34(1) (b) and that their decision justified the belief of the ITO that part of the appellant's income had escaped assessment, for the relevant year. The two conditions which must be satisfied before the ITO could act under S. 34(1) (b) as observed by their Lordship, were : (i) that he must have information which comes into his possession subsequent to the making of the original assessment order, and (ii) that information must lead to his belief that income chargeable to tax has escaped assessment, has been under-assessed or assessed at too low a rate, or has been made the subject of excessive relief.;