Income-tax recovery machinery upheld for settled escaped income-tax, with demand notice, competence, equality and limitation challenges rejected.

A statutory settlement of escaped income-tax was treated as a recoverable tax liability, and the demand notice substantially satisfying the prescribed requirements was upheld, so recovery under Chapter VI was valid once the amount remained unpaid. The challenged provisions on settlement and recovery were held to be within Parliament's legislative competence because they were ancillary to the power to tax income. Section 46(5A) was also upheld as a constitutionally valid special recovery mechanism, since it applied uniformly within the relevant class and did not create arbitrary discrimination or infringe article 19. Recovery was held to be within limitation, with time running from the date the last instalment fell due.

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Issues: (i) Whether the demand notice issued in respect of the settlement amount and the recovery action under Chapter VI were valid; (ii) Whether sections 34(1B), 34(1C) and 34(1D) of the Income-tax Act were beyond legislative competence; (iii) Whether section 46(5A) of the Income-tax Act violated articles 14 and 19 of the Constitution; (iv) Whether the recovery proceedings were barred by limitation under section 46(7).

Issue (i): Whether the demand notice issued in respect of the settlement amount and the recovery action under Chapter VI were valid.

Analysis: The liability arising under a settlement under section 34(1B) was treated as a tax liability connected with escaped income-tax, and the scheme of sections 34(1A), 34(1B) and 34(1C) showed that the amount settled was recoverable in the manner provided in Chapter VI. The notice of demand substantially answered the requirements of section 29, and the recovery machinery could be invoked once the amount remained unpaid.

Conclusion: The demand notice and the recovery proceedings were held valid and effective against the assessee.

Issue (ii): Whether sections 34(1B), 34(1C) and 34(1D) of the Income-tax Act were beyond legislative competence.

Analysis: The provisions for settlement of escaped income-tax and for recovery of the settled amount were treated as ancillary to the legislative power over taxes on income under entry 82 of List I. The power to legislate on taxation was held to include matters reasonably connected with assessment, settlement and recovery.

Conclusion: The provisions were held to be within the legislative competence of Parliament.

Issue (iii): Whether section 46(5A) of the Income-tax Act violated articles 14 and 19 of the Constitution.

Analysis: The law was treated as part of the taxing power of the State and therefore outside the ambit of article 19. The court further held that a special recovery provision for tax dues did not amount to unconstitutional discrimination merely because it permitted a more summary mode of recovery. The section applied uniformly to the class of persons from whom money was due to the assessee and did not create substantial discrimination or arbitrary classification.

Conclusion: Section 46(5A) was held not to infringe articles 14 or 19.

Issue (iv): Whether the recovery proceedings were barred by limitation under section 46(7).

Analysis: The sum was allowed to be paid by instalments, so the limitation period under section 46(7)(iv) was to run from the date on which the last instalment was due. The default clause did not alter the statutory computation of limitation for commencing recovery proceedings.

Conclusion: The proceedings were held to be within time and not barred by limitation.

Final Conclusion: The challenge to the notices and recovery steps failed on all substantive grounds, and the statutory recovery process under the Income-tax Act was upheld.

Ratio Decidendi: A statutory settlement of escaped income-tax may be recovered through the Act's recovery machinery, and a special mode of tax recovery is constitutionally valid so long as it applies uniformly within the relevant class and is commenced within the period prescribed by the statute.

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