Bhargava, J. - (1.) THESE two connected writ petitions under Article 226 of the Constitution have been referred for decision to the Full Bench as they raise important questions relating to the validity of certain provisions of the Income-tax Act, (hereinafter referred to as 'the Act.'). For convenience, I am giving the facts of one of these writ petitions which is numbered 397 of 1955 in which the petitioner is Jai Kishan Srivastava. The petitioner, on the basis of return submitted by him to the Income-tax Officer, Kanpur, was assessed to tax for the assessment years 1940-41 to 1946-47. Thereafter. On 17-5-1948, he received notices from the Secretary, Income-tax Investigation Commission by which he was informed that his case had been referred to the Commission under Section 5(1) of the Taxation on Income Investigation Act, 1947: By these notices, the petitioner was directed to furnish to the Income-lax Investigation Commission certain information and to comply with certain other requirements mentioned therein. The petitioner, under the impression that the Commission had authority and jurisdiction to proceed with the investigation of the petitioner's case, supplied most of the information sought and complied with the various requisitions. The Income-tax Investigation Commission did not, however, proceed to the stage of framing any charges against the petitioner or giving a hearing to him and was wound up before the proceedings could be competed. Thereafter, on 29-12-1954, the petitioner received seven notices purporting to be issued under Section 34(1A) of the Act from the Income-tax Officer, District 1 (ii), Kanpur, opposite party No. 1, calling upon him to submit returns of his total income assessable to tax for the seven assessment years mentioned above. The notices contained a mention that, in case the petitioner failed to file the returns as required, ho was liable to ex parts assessment under Section 23(4) of the Act and also to penalty and prosecution. Thereupon, the petitioner sent a letter dated 29-1-1955, asking for two months' time to obtain legal advice and to prepare returns. Time was allowed to him up to 28-2-1955. The petitioner asked for further time by his letter dated 26-2-1955, when he was informed by the Income-tax Officer, Central Circle 1, Kanpur, opposite party No. 2, that his case had been transferred to his file and that no further time could be allowed, so that the petitioner must file his returns within three days. The petitioner made further representations and then he was allowed time up to 25-3-1955. The petitioner sent a letter dated 24-3-1955, requesting the opposite party No. 2 to supply him with the reasons for the issue of notices under Section 34(1A) of the Act, as recorded by him and forwarded to the Central Board of Revenue for their satisfaction and to grant further time to the petitioner; but, by his letter dated 31-3-1955, opposite party No. 2 refused these requests. Thereupon, the petitioner, under protest, filed his returns of income. The petitioner also pointed out to opposite party No. 2 that, according to him, the notices were bad in law and untenable and requested the opposite-parties viz., both the Income-tax Officers, to recall the notices and to abandon the proceedings being taken under them but the opposite-parties did not accept this request, Thereupon, the petitioner moved this petition on 25-4-1955, and this Court, when admitting the petition, passed an interim order restraining the opposite-parties from taking any steps in pursuance of the notices given to the petitioner under Section 34(1A) of the Act.
(2.) THE validity of the notices and the proceedings being taken under these notices were challenged by the petitioner on a number of grounds but only two grounds need detailed consideration in this case because, though the other grounds were not given up by Mr. Pathak who argued the case On behalf of the petitioner, he did not advance any arguments before us in respect of those grounds. THE two grounds for challenging the notices and the proceedings which were urged before the Full Bench, were: (1) that Section 34(1 A) of the Act was ultra vires Article 14 of the Constitution as it denied equality before the law because persons, who could be dealt with under Section 34(1A), could also be dealt with under Section 34(1) of the Act, and (2) that the proceedings, which were being taken by the Income-tax Officer, were of a judicial or quasi-judicial nature and the Income-tax Officer was a person who had a bias because he Or the Central Board of Revenue, under whom he was employed, was interested as a party in these proceedings. THEse are the two points that mainly need consideration by us. In considering the first point, which has been raised before us, Section 34, which has to be interpreted by us, must be read as it stood in the year 1954, when these seven impugned notices were issued to the petitioner. In Section 34(1), the relevant provision is that which relates to Clause (a) and which, after omitting the parts relevant to Clause (b) reads as follows: "34. (1) If-- (a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gain chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive loss or depreciation allowance has been computed .... ..... .... .... he may in cases falling under cl. (a) at any time within eight years ...... serve on the assessee, or, if the assesses is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22 and may proceed to assess or re-assess such income, profits or gains or recompute the loss or depreciation allowance and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section : Provided that -- (i) the Income-tax Officer shall not issue a notice under this sub-section, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice; (ii) the tax shall be chargeable at the rate at which it would have been charged had the income profits or gains not escaped assessment or full assessment, as the case may be; and (iii) where the assessment made or to be made is an assessment made or to be made on a person deemed to be the agent of a non-resident person under section 43, this sub-section shall have effect as if for the periods of eight years ..... a period of one year was substituted. Explanation: Production before the Income-tax Officer of account-books or other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section." This was the language of Section 34(1)(a), as introduced by the Income-tax and Business Profits Tax (Amendment) Act, 1948. In the year 1954, the Income-tax (Amendment) Act, 1954 was passed and it came into force on 17-7-1954. By this Amendment Act, amongst other changes introduced in the Act, a new Sub-section (1A) was introduced in Section 34 which reads as follows; "(1A) If, in the case of any assessee, the Income-tax Officer has reason to believe-- (i) that income, profits or gains chargeable to income-tax have escaped assessment for any year in respect of which the relevant previous year falls wholly or partly within the period beginning on 1-9-1939, and ending on 31-3-1946; and (ii) that the income, profits or gains which have so escaped assessment for any such year or years amount, or are likely to amount, to one lakh of rupees or more; he may, notwithstanding that the period of eight years .... has expired in respect thereof, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22, and may proceed to assess or re-assess the income, profits or gains of the assessee for all or any of the years referred to in Clause (i), and thereupon the provisions of this Act (Excepting those contained in Clauses (i) and (iii) of the proviso to Sub-section (1) and in Sub-sections (2) and (3) of this section) shall, so far as may be, apply accordingly: Provided that the Income-tax Officer shall not issue a notice under this sub-section unless he has recorded his reasons for doing so, and the Central Board of Revenue is satisfied on such reasons recorded that it is a fit case for the issue of such notice: Provided further that no such notice shall be issued after 31-3-1956." On the language of these two provisions, Mr. R. S. Pathak, who very ably argued this case before us, urged that the Legislature had introduced two very important discriminations in the matter of procedure and limitation applicable to cases of person who may be dealt with under one provision or the other. In the case of a person dealt with under Section 34(1)(a), a notice could be issued only within eight years of the end of the assessment year to which the notice related and, upon the issue of such a notice, the Income-tax Officer, in proceedings to assess or re-assess the income, profits or gains, was to be guided, in the matter of procedure, by the procedure laid down in Section 23 and the following sections of the Act. On the other hand, in the case of a person on whom notice is issued under Section 34(1A), there would be no period of limitation for issue of the notice and the procedure applicable to persons proceeded against under Section 34(1)(a) would not apply, so that such a person would not have the benefit of the procedure given in Section 23 and the subsequent sections of the Act and would also not have a right of appeal to the Appellate Assistant Commissioner or the Income-tax Appellate Tribunal, nor a right to seek a reference to the High Court. It was further urged that persons, whose cases may be covered by section 34(1A) of the Act, would also be governed by the provisions of Section 34(1)(a) of the Act, so that two different procedures can be applied at the choice of the Income-tax authorities to two persons similarly situated.
(3.) THE interpretation by learned counsel for the petitioner that the procedure applicable to proceedings for assessment or re-assessment or re-computation under Section 34 (1)(a) of the Act would be that laid down in Section 23 of the Act is undoubtedly correct. Under Section 34(1)(a) of the Act, the Income-tax Officer is firstly authorised to serve a notice, in the circumstances mentioned therein, on the assessee or the principal officer of the company, it the assessee is a company which notice may contain all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22 and, upon the service of such a notice, the Income-tax Officer is authorised to take proceedings for assessment, or re-assessment or recomputation. THEn comes the direction that the provisions of the Act shall, so far as may be, apply accordingly as if the notice were a notice issued under Subsection (2) of section 22 of the Act. This section thus contains a fiction of law which has been introduced for the purpose of making the procedure laid down in Section 23 of the Act applicable to the proceedings for assessment, re-assessment or re-computation taken by the Income-tax Officer in pursuance of a notice issued under Section 34(1)(a). THE fiction of law is introduced by using the words "as if the notice were a notice issued under that sub- section." Clearly, the effect of this fiction of law is that, even though a notice under Section 34(1)(a) is different from a notice under Sub-section (2) of Section 22 of the Act, the Income-tax Officer, in taking proceedings for assessment, re-assessment or recomputation, has to comply with the provisions of the Act which apply when he takes proceedings for assessment in pursuance of a notice under Sub-section (2) of Section 22 of the Act. THE further submission of learned counsel was that in Section 34(IA) no such fiction of law has been introduced by the Legislature. In this provision of law, the circumstances under which a notice can be issued, are slightly different and limited; but, when a notice has been served in accordance with that provision of law, the power granted to the Income-tax Officer is to proceed to assess or re-assess the income, profits or gains of the assessee for the years in question. THEn it is laid down that, "thereupon the provisions of the Act (excepting those contained in Clauses (i) and (iii) of the proviso to Sub-section (1) and in Sub-sections (2) and (3) of this section) shall, so far as may be, apply accordingly." In using this language, the Legislature made a departure inasmuch as it did not plainly lay down that a notice issued under Section 34(1A) is, by fiction of law, equated with a notice under Sub-section (2) of section 22 of the Act and it was urged that an inference should be drawn from this omission that the provisions of Section 23 of the Act would not apply to proceedings for assessment or re-assessment under Section 34(1A) of the Act. THE further inference, which learned counsel drew, was that, since the procedure laid down in Section 23 could not be applied, the Income-tax Officer, in proceeding to make the assessment or re-assessment, would have to discharge his functions as a quasi-judicial tribunal in accordance with the principles of natural justice. When called upon to explain what those principles of natural justice would be, learned counsel urged that the principles of natural justice would be the same as have been given statutory form in Section 23 of the Act with regard to the making of inquiries and to giving a bearing to an assessee. It was, however, urged that, since the provisions or Section 23 of the Act would not in terms apply, no right of appeal under Section 31 would accrue to an assessee against whom proceedings for assessment or re assessment are taken under Section 34(1A), so that, even though, at the initial stage, the In come-tax Officer would give a proper hearing to the assessee, the right to go up in appeal to the Appellate Assistant Commissioner, by a further appeal to the Income-tax Appellate Tribunal or by a reference to the High Court would be denied to him. A further result would be that the assessee would not have the same rights of inspection and discovery which would be available to an assessee against whom proceedings are taken under section 34(1A) of the Act. This interpretation of Section 34(1A) was sought to be supported by reference to the circumstances in which this provision was introduced by the Legislature in 1954. Just before this provision was introduced, the Supreme Court gave its decision in the case of Suraj Mall Mohta and Co. v. A. V. Viswaiiatha Sastri, 1954-26 ITR 1: (AIR 1954 SC 545). In that decision, the Supreme Court declared the provisions of Section 54 o the Taxation on Income (Investigation Commission) Act (30 of 1947) ultra vires Article 14 of the Constitution. One of the main considerations for the Supreme Court in declaring that provision of law ultra vires was that the procedure applicable to a person proceeded against under that provision of law was materially and substantially different from the procedure applicable to a person similarly situated who could be proceeded against under Section 34 of the Income-tax Act. It was urged that Section 34(1A) was introduced in the Act for the purpose of taking proceedings against those very persons who could be proceeded against under Section 5(1) or 5(4) of the Taxation on Income (Investigation Commission) Act, 1947, because Section 5(4) of that Act was declared ultra vires by the Supreme Court and it was apprehended that Section 5(1) of that Act would also be similarly declared ultra vires. In order to achieve that purpose, the Legislature, when introducing Section 34(1A) in the Act, did not desire that persons, against whom proceedings are taken under the Act, should be able to avail of all the ordinary remedies provided in the Act and wanted that the Income-tax Officer should be able to take proceedings for assessment or re-assessment of such persons with as much success as the Income-tax Investigation Commission could do under Act XXX of 1947. It was thus contended that the fiction of law, which had been introduced in Section 34(1)(a) was deliberately omitted by the Legislature with the aforesaid object and, consequently, the provisions of section 34(1A) of the Act should be interpreted as not including in it the applicability of the procedure for assessment laid down in Section 23 of the Act and the consequent application of the provisions contained in Sections 31, 33 and 66 of the Act. It appears to me that there are several reasons why such an interpretation should not be accepted. The first and the most important reason is that, in my opinion, the language used in Sections 23, 34(1)(a) and 34(1A) of the Act by itself leads to the interpretation that, even in respect of proceedings for assessment or re-assessment under Section 34(1A) the procedure laid down in Section 23 has been made applicable and so also the provisions of Sections 31, 33 and 66, of the Act have been made applicable to those proceedings. In Section 23 of the Act, the Legislature has laid down the procedure which the Income-tax Officer has to follow in proceedings for assessment of the income, profits and gains of an assessee and for determination of the tax payable by him. Under Section 34(1)(a), the proceedings, which the Income-tax Officer is authorised to take after service of notice, are of three different kinds. Firstly, he can proceed to assess the income, profits and gains in case the income, profits or gains have escaped assessment. Secondly, he can re-assessee the income, profits or gains in case they have been under-assessed. Thirdly, he can re-compute the loss or depreciation allowance if excessive loss or depreciation allowance had been computed at the time of original assessment under Section 23 of the Act. If, under this provision, the only power, which the Legislature granted to the Income-tax Officer, had been the power to assess the income, profits and gains of an assessee which had escaped assessment, it seems to me that there would have been no necessity for mentioning the fiction of law that the provisions of the Act would apply as if the notice issued under this provision of law were a notice issued under Sub-section (2) of Section 22 of the Act. The Legislature having once laid down the procedure for assessment of income, profits or gains need only have laid down in Section 34(1)(a) that the provisions of the Act shall, so far as may be, apply accordingly. The mere use of this language would have been enough to attract the applicability of the provisions of Section 23 to the proceedings for assessment taken under Section 34(1)(a) of the Act. Section 34(1)(a), however, envisages proceedings of two other types, viz., proceedings for re-assessment of income, profits or gains, and proceedings for re-computation of loss or depreciation allowance. A proceeding for re-computation of loss or depreciation allowance could also be held to be governed by the provisions of Section 23 of the Act because computation or re-computation would only be an intermediate step in making the assessment. Reassessment under Section 34(1)(a) is, however, different from a proceeding for assessment. No doubt in a number of sections of the Act, the words 'assess' or 'assessment' have been used so as to include in them 're-assess' or 're-assessment' but at least in Section 34(1) (a) of the Act, the word 'assess' cannot be held to include 're-assess' as both the words are used with a disjunctive 'or' between them. Consequently, so far as Section 34(1)(a) of the Act is concerned, it makes a distinction, between a proceeding for assessment and a proceeding for reassessment and, for the purpose of this section, 'therefore, it became necessary to lay down that the provisions of the Act, which apply to a proceeding for assessment, would also apply to a proceeding for reassessment. This purpose was achieved by the Legislature by introducing the fiction of law that, to a proceeding in pursuance of a notice served under Section 34(1)(a) of the Act, the provisions of the Act would apply as if the notice were a notice issued under Sub-section (2) of Section 22 of the Act. The introduction of this fiction of law was, therefore, necessary in order that a proceeding or re-assessment under Section 34(1)(a) of the Act may be governed by the procedure laid down in Section 23 of the Act with the further result that an assessee, whose case is being dealt with Section 34(1) (a) of the Act, should have the benefit of the rights granted under Sections 31, 33, 66 and 37 of the Act. ;