Bindra, J. -
(1.) THIS writ petition under Article 226 of the Constitution of India by Messrs. Rajputana Stores, Jorhat, a partnership firm, is directed against the order dated September 2, 1966, of the Inspecting Assistant Commissioner of Income-tax, Dibrugarh Range, Dibrugarh imposing on the petitioner a penalty of Rs. 10,000, under Section 271 of the Income-tax Act, 1961, briefly called "the Act" hereafter. For the year 1964-65 the petitioner submitted a return of its income on October 21, 1964, showing its total income at Rs. 28,270. The Income-tax Officer, however, assessed the income of the petitioner at Rs. 47,273 for that year. The appeal taken by the petitioner against the order of the Income-tax Officer to the Appellate Assistant Commissioner having proved abortive it has now gone in second appeal to the Income-tax Appellate Tribunal. That appeal is still pending decision. After the first appeal of the petitioner had been dismissed, penalty proceedings were initiated against it by the Income-tax Officer, Jorhat, in terms of Clause (c) of Section 271(1) of the Act. The penalty proceedings had, however, to be referred by that Income-tax Officer to the Inspecting Assistant Commissioner, Dibrugarh, inasmuch as he found that the penalty payable shall exceed Rs. 1,000, which was beyond his jurisdiction. The Inspecting Assistant Commissioner ultimately imposed a penalty of Rs. 10,000 on the petitioner by his order dated September 2, 1966, and it is the validity of that order which is challenged before us in the petition.
(2.) TWO points have been urged by Sri Sen on behalf of the petitioner in support of the contention that the penalty proceedings are vitiated, being invalid, and to support the prayer that the penalty of Rs. 10,000 should be quashed. They are, firstly, that the penalty having been imposed by the aid of the Explanation appended to Sub-section (1) of Section 271, which Explanation had come into force with effect from April 1, 1964, the Explanation did not apply as the return in question related to the year which had concluded on March 31, 1964, and, secondly, that the Explanation offends Article 14 of the Constitution. We shall examine the two contentions in the order they are stated.
The Explanation was added by the Finance Act, 1964, and it became operative, as stated earlier, on April 1, 1964. The Explanation reads as under :
" Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under Section 143 or Section 144 or Section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section.-
On its plain wording, the explanation applies to the income returned by an assessee after it came into force irrespective of the fact whether the income related to a period prior to April 1, 1964, or thereafter. The penalty Clause (c) can be invoked only if a false return is filed, and if the return is filed after the Explanation had become operative, surely such return, if it offends the Explanation, would attract its applicability. Therefore, we have no doubt on the point that the Explanation applies to the case in hand since the relvant return was admittedly filed after April 1, 1964. This interpretation does not tantamount to operation of the Explanation retrospectively as contended.
This takes us to the consideration of the question whether the Explanation is obnoxious to the provisions of Article 14 which lays down that the State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India. The argument raised by Sri Sen is that since the Explanation created two classes of assessees and since there is no rational differentia for creation of those classes, the Explanation cannot stand the test on the touchstone of Article 14. True, it cannot be gainsaid that the Explanation does create two classes ; one class of those assessees whose returned income happens to be less than 80% of the assessed income, which we may appropriately describe as the actual income, and the assessees whose returned income is not less than 80 per cent. of their actual income. Article 14, it has been consistently held by the Supreme Court, does not forbid classification though it prohibits class legislation. Equality before the law means that among equals the law should be identical and that the like should be treated alike. At the same time, put in other words, equality before the law does not mean that things which are different shall be treated as though they were the same. The permissible classification, according to the pronouncements of the Supreme Court, must satisfy two conditions, namely, (1) it must be founded on intelligible differentia which distinguishes persons or things that are grouped together from others who are left out of the group, and (2) the differentia must have a rational relation to the object sought to be achieved by the impugned provision. It has also been repeatedly held that the differentia and object are different elements and that the object by itself cannot be the basis of classification. Another principle equally well settled is that Article 14 condemns discrimination not by substantive law alone but even by procedural law.
(3.) HAVING stated the true interpretation and the exact connotation of Article 14, we proceed to determine what is the object of the impugned Explanation and whether the classification that it prescribes is founded on intelligible differentia and whether that differentia has a rational relation to the object sought to be achieved. The petitioner's counsel has read to us the speech which the Finance Minister made when the Finance Act, 1964, was introduced by him in Parliament, and on the basis thereof he has adopted the stand that the object behind the enactment of the Explanation was to check more effectively the evasion of income-tax. Sri S.K. Ghose, representing the respondent, has not joined issue with the petitioner's counsel on that point. Therefore, according to the parties' counsel the object behind the Explanation was to provide some more effective checks against the evasion of proper taxes by the various assessees. The Explanation, it is not denied, does not fall in the category of a substantive provision of law but answers the description of procedural law. The Explanation purports to raise a presumption against the assessee if certain facts mentioned therein are proved after assessment has been made, and then shift the burden on the assessee to prove that his case does not fall under Clause (c) of Sub-section (1) of Section 271 of the Act. That clause says that if the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under the Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, in addition to any tax payable by him, a sum which shall not be less than twenty per cent., but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income. According to the Explana-tion, if the total income returned by any person is less than eighty per cent. of the total income as assessed, that person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of Clause (c) of Sub-section (1). In other words, if the margin of difference in the case of a particular assessee between the income returned by him and his actual income is more than twenty per cent., then it would be for him to establish that he had not concealed the particulars of his income or furnished inaccurate particulars of that income by reason of fraud or gross or wilful neglect on his part, while in the case of assessees whose returned income reveals less than twenty per cent. departure from the actual income, the burden of proving the ingredients of Clause (c) shall rest, as before, on the income-tax authorities. Obviously, the main purpose of the Explanation is to place the burden of establishing want of fraud or gross or wilful neglect in the matter of income-tax return filed by an assessee on him where the difference revealed between the returned income and assessed income is more than twenty per cent. Therefore, although the ultimate object of the Explanation may be to provide effective checks against evasion of income-lax, the immediate object of the Explanation appears to be that if an assessee has been apparently guilty of gross deflation of his income as entered in his return compared to his actual income, it shall be for him to establish that he has not merited imposition of penalty under Clause (c) of Sub-section (1). Briefly put, if the gap between the returned and actual income is more than 20%, a presumption of law arises that the assessee's case is covered by Clause (c) but that presumption being in rebuttal the assessee is given an opportunity to establish that it is not so.
The question that next arises for decision is whether the classification of the assessees into two varieties as envisaged by the Explanation is founded on intelligible differentia. We think that it is. The two categories of assessees in legislative wisdom are : (1) who, in the opinion of Parliament, have been guilty of gross and flagrant violation of ethics befitting a citizen in the matter of submission of income-tax returns, and (2) the rest of the assessees falling in the category not answering such description. The Explanation, it seems to us, is an instance of the legal adage res ipsa loquitor, meaning that the thing speaks for itself. In substance, Parliament wants the income-tax authorities to assume if the gap between the returned income and the actual income is so glaring as to the extent of no less than twenty per cent. that the assessee in question has concealed the particulars of his income or has furnished inaccurate particulars of such income, but in case the difference is less than twenty per cent., then such assumption would not arise and it shall be for the department to establish that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. In allocating the burden of proof in one class of cases on the assessee and in the other on the departmental authority, we think, Parliament has adopted an intelligible differentia dictated by the experience gathered in administering the Income-tax Act.;