Saving clause preserves old income-tax notice; new penalty machinery upheld against constitutional challenge.

Section 297(2)(g) of the Income-tax Act, 1961 was upheld against article 20(1) and article 14 challenges because it did not authorise a greater penalty than was previously permissible and its classification between pre- and post-commencement assessments had a rational basis. The Court further held that a notice issued under section 22(2) of the Income-tax Act, 1922 survived through the saving clause in section 297(2)(k) and could validly support penalty proceedings under the 1961 Act, so long as it was not inconsistent with the new provisions. The writ challenge was therefore rejected.

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Issues: (i) Whether section 297(2)(g) of the Income-tax Act, 1961, was invalid for infringing article 20(1) of the Constitution on the ground that it exposed the assessees to a greater penalty for a default committed before the new Act came into force. (ii) Whether section 297(2)(g) of the Income-tax Act, 1961, was violative of article 14 of the Constitution on the ground of hostile discrimination between assessees whose assessments were completed before and after the commencement of the new Act. (iii) Whether the notice issued under section 22(2) of the Income-tax Act, 1922, could be treated as a valid notice for the purposes of penalty proceedings under sections 271 and 274 of the Income-tax Act, 1961.

Issue (i): Whether section 297(2)(g) of the Income-tax Act, 1961, was invalid for infringing article 20(1) of the Constitution on the ground that it exposed the assessees to a greater penalty for a default committed before the new Act came into force.

Analysis: The penalty scheme under the new Act was compared with section 28 of the old Act, and it was found that the maximum penalty under the new Act was not higher than the earlier maximum. The new provision merely supplied a monthly yardstick for the exercise of discretion and did not itself mandate a greater punishment. Article 20(1) was held to prohibit only the imposition of a penalty greater than that which could have been inflicted when the act was committed, and not the procedure by which penalty proceedings were initiated or conducted under the new Act.

Conclusion: Section 297(2)(g) of the Income-tax Act, 1961, was not invalid under article 20(1); the objection was rejected.

Issue (ii): Whether section 297(2)(g) of the Income-tax Act, 1961, was violative of article 14 of the Constitution on the ground of hostile discrimination between assessees whose assessments were completed before and after the commencement of the new Act.

Analysis: The classification between assessments completed before and after the commencement of the new Act was held to be rational and connected with the object of the legislation. The penalties under the income-tax law were treated as compensatory and integrally connected with assessment proceedings. In the absence of material showing abuse or an irrational basis, the initial presumption of constitutionality was not displaced.

Conclusion: Section 297(2)(g) of the Income-tax Act, 1961, did not offend article 14; the objection was rejected.

Issue (iii): Whether the notice issued under section 22(2) of the Income-tax Act, 1922, could be treated as a valid notice for the purposes of penalty proceedings under sections 271 and 274 of the Income-tax Act, 1961.

Analysis: The saving provision in section 297(2)(k) was construed broadly to preserve notices and other acts done under the repealed Act so far as they were not inconsistent with the corresponding provisions of the new Act. The notice issued under the old Act was held to survive and to be capable of supporting proceedings under the new Act. The Court also noted the availability of appellate remedies and declined to interfere at the inception of the proceedings.

Conclusion: The notice under section 22(2) of the Income-tax Act, 1922, was validly preserved and could be relied upon for proceedings under the Income-tax Act, 1961.

Final Conclusion: The constitutional challenge to the penalty proceedings failed, the saving provision was applied to preserve the earlier notice, and no ground was made out for interference in writ jurisdiction.

Ratio Decidendi: A pre-existing notice and related proceedings can survive the repeal of the earlier income-tax law through the saving clause, and the new penalty machinery is not unconstitutional merely because it applies to defaults committed before commencement so long as it does not impose a greater penalty than was previously permissible and rests on a rational classification.

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