Article 14 and discriminatory tax procedure: special investigation process held impermissibly harsher than ordinary reassessment safeguards.

Section 5(4) of the Taxation on Income (Investigation Commission) Act, 1947 was treated as extending to all persons found to have evaded income-tax and as operating alongside section 34 of the Indian Income-tax Act, 1922; because persons selected for the special procedure were similarly situated to those dealt with under section 34, the differential treatment was held to lack any real and substantial basis and to be discriminatory under Article 14. The procedure was also regarded as materially harsher than ordinary reassessment because it denied appeal, second appeal and revision on facts, restricted access to materials, combined investigative and adjudicatory functions, and was not confined by a comparable limitation period, so it was held unconstitutional and unenforceable against persons proceeded against under section 5(4).

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Issues: (i) Whether section 5(4) of the Taxation on Income (Investigation Commission) Act, 1947, and the procedure applied under it created discriminatory classification and violated Article 14 of the Constitution of India. (ii) Whether the procedure under the impugned Act, as compared with section 34 of the Indian Income-tax Act, 1922, was materially and substantially prejudicial so as to offend Article 14.

Issue (i): Whether section 5(4) of the Taxation on Income (Investigation Commission) Act, 1947, and the procedure applied under it created discriminatory classification and violated Article 14 of the Constitution of India.

Analysis: Section 5(4) was construed as reaching all persons discovered to have evaded income-tax, whether the evasion was substantial or not, and not merely the limited class covered by section 5(1). The provision therefore operated alongside section 34 of the Indian Income-tax Act, 1922, and permitted the Commission to select cases for the special procedure. Persons proceeded against under this sub-section were held to be similarly situated to persons proceeded against under section 34, and no real and substantial distinction justified the different treatment. The provision thus amounted to discriminatory legislation.

Conclusion: Section 5(4) of the Taxation on Income (Investigation Commission) Act, 1947, was held void and unenforceable as offending Article 14 of the Constitution of India.

Issue (ii): Whether the procedure under the impugned Act, as compared with section 34 of the Indian Income-tax Act, 1922, was materially and substantially prejudicial so as to offend Article 14.

Analysis: The procedure under the impugned Act was held to be materially harsher than the ordinary reassessment procedure. It deprived the assessee of appeal, second appeal, and revision on findings of fact, restricted inspection of documents and materials, allowed the Commission to combine investigative and adjudicatory functions, and was not confined by any fixed period comparable to the limitation under section 34. These features were treated as substantial procedural disadvantages when compared with the safeguards available under the Indian Income-tax Act, 1922.

Conclusion: The procedure prescribed by the Taxation on Income (Investigation Commission) Act, 1947, in its application to persons proceeded against under section 5(4), was held discriminatory and unconstitutional under Article 14 of the Constitution of India.

Final Conclusion: The special reference and investigation procedure under the impugned Act could not be enforced against the petitioner, and protection was granted against further proceedings under that Act.

Ratio Decidendi: A taxing classification is invalid under Article 14 when the special procedure applied to one set of similarly situated assessees is substantially more onerous and deprives them of material procedural safeguards without a real and reasonable basis for distinction.

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