Article 14 discrimination in tax investigation procedure invalidated the special commission regime for pending reassessment matters.

Section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947 was treated as discriminatory after the 1948 amendment to section 34 of the Indian Income-tax Act, 1922, because both provisions dealt with substantially the same class of substantial tax evaders but imposed materially different procedures. The majority held that, once the Constitution came into force, the more drastic Investigation Commission procedure could not continue for pending matters when comparable cases were governed by the ordinary reassessment machinery, and article 14 was infringed. Pending Commission proceedings and reassessment orders based on them were therefore quashed, and the finality clause did not save the unconstitutional action. One judge dissented and considered the special procedure valid.

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Issues: (i) Whether section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947 became discriminatory and void under article 14 after the 1948 amendment of section 34 of the Indian Income-tax Act, 1922; (ii) whether pending proceedings before the Investigation Commission and consequential reassessment orders could be quashed for violation of article 14.

Issue (i): Whether section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947 became discriminatory and void under article 14 after the 1948 amendment of section 34 of the Indian Income-tax Act, 1922.

Analysis: The majority held that, after the 1948 amendment, section 34 of the Indian Income-tax Act, 1922 and section 5(1) of the Investigation Commission Act operated on substantially the same class of assessees, namely substantial evaders of income-tax. Once the Constitution came into force, the coexistence of two materially different procedural regimes for the same class created unconstitutional discrimination. The more drastic procedure under section 5(1) could no longer stand when comparable cases could be dealt with under the ordinary reassessment machinery of the Income-tax Act.

Conclusion: Section 5(1) was held to be hit by article 14 and unconstitutional in its post-Constitution operation, in favour of the petitioner.

Issue (ii): Whether pending proceedings before the Investigation Commission and consequential reassessment orders could be quashed for violation of article 14.

Analysis: The Court held that the Commission's proceedings which were still pending on 26 January 1950 could not validly continue after the Constitution began to operate, and the assessment and reassessment orders founded on those proceedings were equally vulnerable. The finality clause in section 8(4) did not save proceedings that had become constitutionally infirm. The limited reassessment for 1942-43 was also covered by the relief granted, subject to the undertaking recorded by the Solicitor-General.

Conclusion: The report of the Commission and the impugned reassessment orders were quashed, and prohibition was granted against implementation of the remaining findings, in favour of the petitioner.

Final Conclusion: The petition succeeded because the special investigation and reassessment machinery, as applied to pending matters after the commencement of the Constitution, was held to offend article 14.

Ratio Decidendi: When two statutory procedures operate on the same class of persons after the Constitution, and one confers a substantially more burdensome and discriminatory process without a sufficient constitutional justification, the more drastic procedure is void under article 14.

Concurring Opinion: Jagannadhadas J. dissented on the constitutional issue. He held that section 5(1) created a distinct class of substantial evaders and that the selective, high-powered investigation procedure did not offend article 14. He would have dismissed the petition, save for the limited undertaking regarding the year 1942-43.

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