TaxTMI 
TaxTMI 
1963 (7) TMI 85
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....and having its registered office at Tinsukia, in the Lakhimpur district, of the State of Assam. Shri K.E. Johnson, the Commissioner of Income-tax, Assam, Tripura and Manipur, is impleaded as the first respondent, apparently in his personal capacity. The second respondent is the Commissioner of Income-tax, Assam, Tripura and Manipur, having his office at Shillong, the headquarters of the State of Assam. The third respondent is the Inspecting Assistant Commissioner of Income-tax," Assam, holding his office at Shillong. The fourth respondent is the Additional Income-tax Officer, Dibrugarh, in the State of Assam. The fifth and the sixth respondents were the employees of the petitioner-company, whose services had been dispensed with by the petitioner. The seventh respondent is the Income-tax Officer, Dibrugarh, in the State of Assam. The eighth and the ninth respondents are the Income-tax Officers of Digboi and Tinsukia, respectively, in the State of Assam. The tenth respondent is the Additional Superintendent of Police at Dibrugarh, and the eleventh respondent is the Union of India, through the Secretary, Ministry of Finance (Revenue Division) , Government of India. The petitioner c....
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....itioner with effect from January 8, 1962. As the books so seized contained valuable evidence in support of the criminal charge against the sixth respondent, the sixth respondent sought the aid of the fifth respondent to remove the said books. To this end and to humiliate the petitioner and its directors, the fifth respondent who was closely connected with the third respondent, the Inspecting Assistant Commissioner of Income-tax, as a friend and as a relative, influenced the said respondent to cause harsh and coercive measures to be taken against the petitioner by way of search and seizure, acting under section 37(2) of the Act, and, as a result of this, harsh and coercive measures were taken against the petitioner by the sudden search of the petitioner's premises and the residences of its directors on the 11th March, 1962, by the respondents Nos. 4, 7 to 9, the Income-tax Officers, and respondent No. 10, the Additional Superintendent of Police, Dibrugarh, accompanied by about one hundred policemen armed with rifles and guns, under four warrants of authorisation purported to have been issued by the Commissioner of Income-tax under section 37(2) of the Act, and they started raidi....
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.... relating to the petitioner in Civil Rule No. 195 of 1962, or its business, the petitioner claims that the search of its premises and seizure of the books, documents, etc, was high-handed, illegal, unconstitutional, ultra vires and mala fide. The plea of the petitioner in Civil Rule No. 198 of 1962 is similar to the pleas raised in Civil Rule No. 197 of 1962. The petitioner claims that he was a tenant in respect of one room and kitchen and bath-room of the ground-floor of the premises belonging to the Himalayan Plywood Industries Private Ltd., at Tinsukia; that the petitioner had been regularly assessed to income-tax and had been paying the same, and that the assessment proceedings were completed up to the assessment year 1960-61, and the income of the petitioner was shown to be below the taxable limit; that he had nothing to do with the business activities of the petitioner in Civil Rule No. 195 of 1962, and that any search of his premises or seizure of his books and accounts, etc., was highly illegal, high-handed, ultra vires and unconstitutional. As already indicated, all the petitioners claim that the action taken by the various Income-tax Officers purporting to act under....
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..... And, as none of these conditions are fulfilled in these cases, the power under section 37(2) could not have been validly exercised. (4) In any event, the power under the section has not been-exercised properly and in accordance with section 37(2) in the instant case for the following reasons : (i) The Income-tax Officer conducting the search and seizure had neither reason to believe nor did he form any belief or opinion as required under section 37(2) . (ii) No books, documents, etc., to be seized have been specified in the warrants. (iii) No proceedings have been mentioned in the warrants as pending. (5) Rule 2 of the Rules framed under the Act and the prescribed form of authorisation under section 37(2) are ultra vires. (6) In any event, the power under section 37(2) had been exercised in a whimsical and capricious manner and mala fide. (7) The authorisation issued by the Commissioner of Income-tax did not empower (i) the seizure of the petitioner's books from the premises of Lohia Properties, (ii) sealing of rooms, and (iii) posting of police. The various points relied on by the learned counsel for the petit....
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....on and the action of any of the officers of the Government or local authorities are controlled by the article. Further, having regard to the use of the expression "any person" in the article, it is clear that the article applies to any one who can be called a person in the eye of law, thus including juridical persons as well as persons who may not even be citizens of India. Between persons, what the article guarantees is that they should enjoy ( i) equality before the law and (ii) equal protection of the laws within the territory of India. Before examining the attack made against section 37(2) of the Act in this regard, it would be necessary to note that the present section 37(2) of the Act originally was not part of the Indian Income-tax Act, 1922. This provision was introduced by way of an amendment, by the Finance Act, 1956 (Act XVIII of 1956) , which was enacted to give effect to the financial proposals of the Central Government for the financial year 1956-57, as seen from its preamble. Section 20 of that Act is as follows : "20. Substitution of new section for section 37.--For section 37 of the Income-tax Act, the following, section shall be substituted, namely:....
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.... of 1860) ." Before the amendment made by the Finance Act of 1956, section 37 stood as follows : "37. The Income-tax Officer, Appellate Assistant Commissioner, Commissioner and Appellate Tribunal shall, for the purposes of this Chapter, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (V of 1908) , when trying a suit in respect of the following matters, namely : (a) enforcing the attendance of any person and examining him on oath or affirmation; (b) compelling the production of documents ; and (c) issuing commissions for the examination of witnesses, and any proceeding before an Income-tax Officer, Appellate Assistant Commissioner, Commissioner or Appellate Tribunal, under this Chapter shall be deemed to be a 'judicial proceeding' within the meaning of sections 193 and 228 and for the purposes of section 196 of the Indian Penal Code (XLV of 1860) ." It may be seen, therefore, that prior to the amendment, the powers which the Income-tax Officer, or Appellate Assistant Commissioner, or Commissioner or Appellate Tribunal could exercise are the powers as set out in the present section 37(1) ....
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....ned counsel for the petitioners, contended that these two being two distinct powers, nevertheless covered the same field and were intended to achieve the same purpose, namely, securing books of accounts and other documents relevant to or useful for any proceedings under the Act. Being distinct powers and being powers which covered the same field of operation and calculated to achieve the same end and purpose, the more onerous and drastic of the two powers should be struck down as they created a discrimination prohibited by article 14 of the Constitution. He pointed out that there can be no doubt that the powers under section 37(2) , which are merely executive or administrative, are much more severe and drastic than the powers under section 37(1) which are judicial, in that, in the former case, there is no opportunity given to the party affected, before action is taken, to show cause; that there is no provision for any representation being made by the person affected against the action ; and that there is no provision for any notice being given, or for the return of the books seized; and that the power is so general, that any books, from any place, belonging to any person, could be ....
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....re ; in other words, the same rule must exist for all in similar circumstances. It is also well settled that this principle does not mean that every law must have universal application for all persons who are not by nature, attainment or circumstance, in the same position. The State can by classification determine who should be regarded as a class for purposes of legislation and in relation to a law enacted on a particular subject, but the classification permissible must be based on some real and substantial distinction bearing a just and reasonable relation to the objects sought to be attained and cannot be made arbitrarily and without any substantial basis. Classification means segregation in classes which have a systematic relation, usually found in common properties and characteristics. There is nothing uncommon either in properties or in characteristics between persons who are discovered as evaders of income-tax during an investigation conducted under section 5(1) and those who are discovered by the Income-tax Officer to have evaded payment of income-tax. Both these kinds of persons have common properties and have common characteristics and, therefore, require equal treatment.....
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....d more prejudicial to the assessee. In that context the Supreme Court observed : "Article 14 of this Part (Part III of the Constitution) guarantees to all persons the right of equality before the law and equal protection of the laws within the territory of India. This article not only guarantees equal protection as regards substantive laws but procedural laws also come within its ambit. The implication of the article is that all litigants similarly situated are entitled to avail themselves of the same procedural rights for relief, and for defence with like protection and without discrimination. The procedural provisions of Act 30 of 1947 had therefore to stand the challenge of article 14 and could only be upheld provided they withstood that challenge." Lower down it is observed : "The class of persons alleged to have been dealt with by section 5(1) of the impugned Act was comprised of those unsocial elements in society who during recent years prior to the passing of the Act had made substantial profits and had evaded payment of tax on those profits and whose cases were referred to the Investigation Commission before 1st September, 1948. Assuming that evasion of....
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....e fundamental rights enshrined in Part III of the Constitution including the right to equality of laws and equal protection of laws enacted in article 14 thereof, and whatever may have been the position before the 26th January, 1950, it was open to the persons alleged to belong to the class of substantial evaders, thereafter to ask as to why some of them were subjected to the summary and drastic procedure prescribed in Act XXX of 1947 and others were subjected to the normal procedure prescribed in section 34 and the cognate sections of the Income-tax Act, the procedure prescribed in Act XXX of 1947 being obviously discriminatory and, therefore, violative of the fundamental right guaranteed under article 14 of the Constitution." The principle laid down by these decisions is that where there are two legislative provisions both of which could be applied to the same category persons, one of which is much more drastic and discriminatory than the other, the application of the more drastic procedure to the same category persons, instead of the less drastic procedure, would amount to discrimination which is prohibited under article 14 of the Constitution. In other words, assuming that b....
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...." And, accordingly, a writ in the nature of mandamus was issued commanding the Corporation of Calcutta to forbear from executing the distress warrant issued against the petitioner therein. In reply to this, Dr. Paul, learned counsel for respondents Nos. 1 to 4 and 7 to 9, contended that sections 37(1) and 37(2) of the Act are alike applicable to all persons that there is no classification of the persons to whom one provision should apply and not the other; that the power under section 37(2) was merely an additional power, in addition to that in section 37(1) ; and that, therefore, these provisions did not violate the fundamental right contained in article 14 of the Constitution. In reply to this Mr. Roy stated that the power under section 37(2) could not in the nature of things be an additional power; that it is an entirely different power, of quality different, inasmuch as while the powers under section 37(1) are judicial and are exercisable by a number of authorities enumerated therein, the powers under section 37(2) could only be exercised by the Income-tax Officer concerned, on a letter of authorisation issued by the Commissioner, and is of a purely administrative char....
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....erentia which distinguishes the persons or things grouped together, from those left out of the group, and that such a differentia has a reasonable relation to the object sought to be achieved by the statute by making the classification, irrespective of the fact whether the provisions of the statute are intended to apply only to particular persons or things or only to a certain class or group of persons or things, and that, as in the instant case, as there is no classification indicated in the statute itself, but the selection or choice for classification is left to the arbitrary decision of the executive authority indicated in the section, it has to be examined and ascertained if the statute has laid down any principles or policy to serve as a guidance in the exercise of the discretion by the executive authority in, the matter of the selection or classification, and that as no such principle and policy had been laid down as a guide for the exercise of discretion by the executive authority in the matter of selection or classification in applying section 37(2) , the court will strike down the statute on the ground that the statute provided for the delegation of arbitrary and uncontro....
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.... and the past history could have no bearing whatsoever, and cannot therefore be looked into, and the policy or the principles for the guidance of the exercise of the discretion by the executive, in exercising the power, have got to be laid down by the statute itself and cannot be deduced by inference from external factors or matters. He further pointed out that in order to save a section of an enactment from the challenge of article 14 of the Constitution, the legislature itself must have enunciated the policy and the principles which are to guide the executive in exercising the power given by the section, and the enactment itself has to give any other guidance useful and necessary for the exercise of that power by the executive, and, that, in the instant case, there is nothing in section 37(2) of the Act laying down any policy or principle and no other indications to afford any guidance to the executive in regard to the exercise of the power under that section. It was contended by Dr. Paul that as the policy of the Act is prevention of evasion and that as that policy is quite clear from the scheme of the Act and the preamble, etc., section 37(2) must be put into force in order ....
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....quate safeguards and hence, cannot be said to be naked and arbitrary. I shall now refer to and deal with the other decisions of the Supreme Court having a bearing on the scope and interpretation of article 14 of the Constitution. In the case of Dhirendra Kumar v. Superintendent and Remembrancer of Legal Affairs to the Government of West Bengal [1955] 1 SCR 224 ; AIR [1954] SC 424, hereinafter referred to as Dhirendra Kumar's case (Supra) , the question arose whether a notification issued by the State Government altering the previous notification granting a right of trial by jury, was wide as offending article 14 of the Constitution, on the ground that the classification involved in the notification is not based on substantial distinction. In that case, the notification revoked the right of trial by jury in respect of certain cases only, and not in respect of certain other offences, and it did not in express terms indicate the grounds on which the former set of cases had been segregated from the latter set of cases, although both fell under the same sections of the Indian Penal Code, and it was observed that the classification had no relation to the object in view, namely,....
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....aced on the observation made by the Supreme Court in Kedar Nath Bajoria's case (Supra) , to the effect that although different views had been expressed on the question of application of article 14 of the Constitution to the facts and circumstances of each case, there was no difference on any principle as to the construction or scope of article 14 of the Constitution, and that whether an enactment providing for special procedure for the trial of certain offences is or is not discriminatory and violates article 14 of the Constitution must be determined in each case as it arises, and that no general rule applicable to all cases can be laid down. In fact, from a careful scrutiny of the majority judgment in Kedar Nath Bajoria's case (Supra) it would be clear that the ground of decision in that case was based on a classification which, in the context of the abnormal post-war economic and social conditions was readily intelligible and obviously calculated to subserve the legislative purpose, and, as such, did not in any manner affect the correctness of the decision in Anwar Ali Sarkar's case (Supra) . The next case of importance that requires to be referred to and which may....
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....amely, geographical, or according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. It is also well established by the decisions of this court that article 14 condemns discrimination not only by a substantive law but also by a law of procedure." It was further held in that case that the decisions of the Supreme Court established the following principles which would have to be constantly borne in mind by the courts when called upon to adjudge the constitutionality of any particular law attacked as discriminatory and violative of the equal protection of the laws : (a) That a law may be constitutional even though it relates to a single individual if, on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself ; (b) that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles; (c) that it must....
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....he classification satisfies the tests, the court will uphold the validity of the law, as it did in Chiran-jitlal v. Union of India [1950] SCR 869 ; AIR [1951] SC 41 State of Bombay v. F.N. Balsara [1951] SCR 682 ; AIR [1951] SC 318 Kedar Nath Bajoria v. State of West Bengal [1954] SCR 30 ; AIR [1953] SC 404, V. M. Syed Mohammad & Co. v. State of Andhra [1954] SCR 1117 ; AIR [1954] SC 314 and Budhan Choudhury v. State of Bihar [1955] 1 SCR 1045 ; AIR [1955] SC 191. (2) A statute may direct its provisions against one individual person or thing or to several individual persons or things but no reasonable basis of classification may appear on the face of it or be deducible from the sur rounding circumstances, or matters of common knowledge. In such a case, the court will strike down the law as an instance of naked discrimination, as it did in Ameerunnissa Begum v. Mahboob Begum [1953] SCR 404 ; AIR [1953] SC 91 and Ramprasad Narayan Sahi v. State of Bihar [1953] SCR 1129 ; AIR [1953] SC 215. (3) A statute may not make any classification of the persons or things for the purpose of applying its provisions, but may leave it to the discretion of the Government to....
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....has been held by this court, in Kathi Raning Rawat's case (Supra) . that in such a case the executive action but not the statute should be condemned as unconstitutional. Having thus formulated the types of cases that are likely to arise for consideration with reference to the constitutionality of a statute under article 14 of the Constitution, the Supreme Court applied those principles and arrived at the conclusion in the case before them that no arbitrary or uncontrolled power had been delegated to the Government, and that, therefore, the law itself could not be regarded as bad, and the Supreme Court further held that they were not satisfied that the circumstances indicated in the notification in question and the affidavits filed on behalf of the Union of India may not have the true basis of further inquiry into the matter. The subsequent decisions of the Supreme Court in the case of J . Pandu-rangarao v. Andhra Pradesh Public Service Commission [1963] 1 SCR 707 ; AIR [1963] SC 268 or in Khandige Sham Bhat v. Agricultural Income-tax Officer, Kasaragod [1963] 48 ITR (SC) 21 do not usefully add to the able analysis of the law contained in Dalmia's case (Supra) , and, t....
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.... State. Such framing of different laws may at first blush seem to infringe the article, taking the article in its plain language. But it could hardly have been in the contemplation of the Constitution makers that the equality clause should involve the framing of identical laws as applicable to every individual, irrespective of the conditions determining the framing of those laws. The expression "equality" referred to in the article, obviously, applies to laws made applicable to persons who are similarly situate in all respects. For example, the penal law of the land. This law does not depend for its applicability on any status or position or condition of life of the individual. The penal law can be applied and should be applied equally to all persons within the territory of India. In other words, if the same offence is committed by two different individuals, the same law should apply to them and govern the disposal of the punitive action to be taken against them. So that if A and B commit the same offence, they should be dealt with under the same law, both substantive and procedural, and if they are dealt with by different laws, whether substantive or procedural, the equality guara....
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.... (2) Where two different sets of laws are sought to be applied to persons or groups of persons similarly placed, the legislature having classified these persons or groups of persons for the purpose of separate application of these laws, the course adopted by the legislature is obviously discriminatory, but may be supported provided the following conditions are fulfilled : (i) That there is a reasonable nexus between the basis of the classification made, and the object sought to be achieved by the legislature in making the classification, the classification itself being based on an intelligible differentia between the classified categories. Otherwise, the statute must be struck down as violative of article 14. (ii) Where the statute makes no such classification but merely provides for two sets of laws, and, apparently, leaves it to the executive authority to apply the same to different sets of persons similarly placed, the conditions laid down in No. (i) must be fulfilled by the executive when it makes the classification for the separate application of the different sets of laws in question, and, in addition, the statute itself must lay down the policy and the pri....
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.... executive officer, namely, the Commissioner of Income-tax, who, as the head of the income- tax department in the State, is himself very much interested in the action sought to be promulgated. (2) Section 37(1) involves the obligation on the part of the authority concerned to be guided by the provisions of the Code of Civil Procedure for the exercise of the power, for example, for the discovery and inspection of documents, etc., the authority should be guided by Order 11 of the Code of Civil Procedure which involves the giving of notice to the person proceeded against. Similar is the rule contained in Order 13 relating to the production, impounding and return of documents, and Order 26 dealing with the issue of commissions. All the safeguards as laid down by the Civil Procedure Code come into play in the exercise of the judicial power under section 37(1) whereas there are no such guiding factors or controlling provisions of law subject to which the executive power is to be exercised under section 37(2) and, although the provisions of the Code of Criminal Procedure, 1898 (Act V of 1898) , relating to searches are declared to apply under the section, none of the safeguards p....
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....n in the instant case. As I have found that section 37(2) of the Act is to be struck down as violative of article 14 of the Constitution, it may, strictly speaking, be not necessary for us to examine whether the impugned provisions offended against the fundamental right in article 19(1) (g) of the Constitution also, inasmuch as even if it be held that the provision did not offend article 19(1) (g) , it would make no difference to the disposal of the case. However, as the matter had been argued at great length and in detail, we would like to briefly advert to those arguments and examine and consider the same for the sake of completeness. It was contended by Mr. Roy, as already pointed out, that section 37(2) of the Act was violative of the fundamental right guaranteed under article 19(1) (f) and more particularly under article 19(1) (g) of the Constitution, namely, the right of freedom to hold and enjoy property and to practise any profession, or to carry on any trade, occupation or business. His main contention is that the provisions for the search and seizure contained in section 37(2) of the Act are extremely onerous and are clear restrictions on the fundamental rights guar....
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....tuality to each individual statute for the purpose of ascertaining objectively the reasonableness thereof, there being no abstract standards of such reasonableness. In this connection he placed reliance on the cases of Chintaman Rao v. State of Madhya Pradesh [1950] SCR 759, 798, State of Madras v. V. G. Row [1952] SCR 597 ; AIR [1952] SC 196, 200, Md. Hanif Quareshi v. State of Bihar [1959] SCR 629 ; AIR [1958] SC 731, 744, Virendra v. State of Punjab [1958] SCR 308 ; AIR [1957] SC 896, 901, 903, Diwan Sugar & General Mills (P.) Ltd. v. Union of India [1959] Supp. 2 SCR 123 ; AIR [1959] SC 626, 632, Lord Krishna Sugar Mills Ltd v. Union of India [1960] 1 SCR 39 ; AIR [1959] SC 1124, 1132 and Hamdard Dawakhana case (Supra) . He further placed reliance on the cases of Raghubir Singh v. Court of Wards, Ajmer [1953] SCR 1049 ; AIR [1953] SC 373, Dwarka Prasad Laxmi Narain v. State of Uttar Pradesh [1954] SCR 803, State of Rajasthan v. Nath Mal [1954] SCR 982, Ganpati Singhji v. State of Ajmer [1955] 1 SCR 1065, Mohd. Hanif Quareshi's case (Supra) , Abdul Hakim Quraishi v. State of Bihar [1961] 2 SCR 610, State of Madhya Pradesh v. Baldeo Prasad [1961] 1 SCR 970 ; AIR [1961] SC 293....
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....ession and enjoyment of the property seized. This, however, is only temporary and for the limited purpose of investigation. A search and seizure is, therefore, only a temporary interference with the right to hold the premises searched and the articles seized. Statutory regulation in this behalf is a necessary and reasonable restriction and cannot 'per se' be considered to be unconstitutional. The damage, if any, caused by such temporary interference if found to be in excess of legal authority is a matter for redress in other proceedings. We are unable to see how any question of violation of article 19(1) (f) is involved in this case in respect of the warrants in question, which purport to be under the first alternative of section 96(1) of the Criminal Procedure Code." It is clear from the above passage that the learned judges of the Supreme Court were of the view that the search and seizure do amount to a temporary interference with the right to hold and enjoy the premises searched, and the possession and enjoyment of the articles seized. But they, nevertheless, held in the particular circumstances of that case, that the statutory regulation in that behalf was a necessar....
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.... error is no ground to assume circumvention of the constitutional guarantee." Mr. Roy further pointed out that, in the instant case, the seizure was not of a temporary duration nor was it effected under a search warrant issued in exercise of the judicial power of a Magistrate, as the search and seizure were effected under an authorisation given by the Commissioner, who has no judicial power at all, and it could be effected even when no proceedings as such were pending. In this context Mr. Roy placed reliance in the case of Bengal Immunity Co. Ltd. v. State of Bihar [1955] 2 SCR 603 ; [1955] 6 STC 446 ; AIR [1955] SC 661, 668 for the proposition that it was held in that case that the various penalties provided under section 26 of the Bihar Sales Tax Act, 1947, including obstruction to search and seizure of documents under section 17, are no doubt restrictions upon the fundamental right under article 19(1) (g) of the Constitution. He further placed reliance in the case of Wazir Chand v. State of Himachal Pradesh [1955] 1 SCR 408 ; AIR [1654] SC 415 and in the case of Hamdard Dawakhana v. Union of India [1960] 2 SCR 67 ; AIR [1960] SC 554 in support of the proposition that the Supr....
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....of the section was unconstitutional. A careful consideration of these decisions leads us to the following conclusions : (1) Search of the premises of a person and seizure of documents, books, etc., or any property belonging to that person, constitute invasions of his fundamental rights not only under article 19(1) (g) but also under article 19(1) (f) , although temporary seizure of property as the result of a search in execution of a warrant issued by a Magistrate in exercise of his judicial power vested in him under law, may be regarded in the particular circum stances of the case as amounting to a reasonable restriction on the fundamental right under article 19(1) (f) . (2) Such search of the premises and seizure of various account books, documents, etc., necessary and useful for carrying on the trade or business of a person, undoubtedly constitute invasions of the fundamental right to practise any profession, or to carry on any occupation, trade or business, guaranteed under article 19(1) (g) of the Constitution, particularly when any such invasion is not the result of or effected during the enforcement of a judicial process or warrant issued by a Magistrate....
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....cise of the power ; that none of the sections relied on by the opposite party gave any right of representation or appeal which would only have been created by the statute ; the Income-tax Act itself had created no such right; that section 33A(2) related to an asses-see and also applied in the case of an order which is passed by an authority subordinate to the Commissioner, whereas under section 37(2) , it is only the Commissioner who issues the authorisation, and that, therefore, there can be no question of representation before the Commissioner, and that farther, the scope of section 33A is limited to orders in respect of assessment. It would be useful and necessary to refer to the rules framed by the Central Board of Revenue in this behalf published in the Notification S.R.O. 1953 dated 6th June, 1957, styled : "Income-tax (Search of Premises and Seizure of Documents) Rules, 1957". These Rules are as follows : "S.R.O. 19 53.--In exercise of the powers conferred by sub-section (1) of section 59 of the Indian Income-tax Act, 1922 (XI of 1922) , the Central Board of Revenue hereby makes the following rules for the purposes of subsection (2) of section 37 of the said Act,....
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....ace, to break open any outer or inner door or window of any building or place, whether that of the person to be searched or of any other person, if after notification of his authority and purpose and demand of admittance duly made, he cannot otherwise obtain admittance : Provided that, if any such building or place is an apartment in actual occupancy of a woman, who according to custom does not appear in public, the Income-tax Officer shall, before entering such apartment, give notice to such woman that she is at liberty to withdraw and shall afford her every reasonable facility for withdrawing and may then break open the apartment and enter it. 5. Where any person in or about such building or place is reasonably suspected of concealing about his person any article for which search is being made, such person may also be searched by the Income-tax Officer, with such assistance as he may consider necessary. If such person is a woman, the search shall be made by another woman with strict regard to decency. 6. Before making a search, the Income-tax Officer about to make it shall call upon two or more respectable inhabitants of the locality in which the buildi....
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....r documents, and take possession thereof; (e) to convey such books or documents to the office of the Income-tax Officer or any other authority not below the rank of an Income-tax Officer employed in the execution of the Act; and (f) to exercise all other powers and duties under the said section and the rules relating thereto. Seal Commissioner of Income-tax." "Explanatory Note (This note is not a part of the above rules but is intended to be merely clarificatory) . Section 37(2) of the Indian Income-tax Act, 1922, provides that any Income-tax Officer specially authorized by the Commissioner of Income-tax may enter and search any building or place where he has reason to believe that any books of account or other documents may be found which, in his opinion, will be useful for purposes of any proceeding under the said Act. He may also seize any such books or documents and make a note or inventory of any other article or thing found in the course of the search which, in his opinion, will be useful for or relevant to any proceedings under the Act. As provided in the section, these rules have been framed for the purposes men....
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....se. In Kishan Chand Arora's case (Supra) , it was the constitutionality of a licencing statute that came to be considered, and it was therein held that as the Commissioner had been given the discretion to grant a licence, certain conditions being fulfilled, and the fact that he granted the licence on being satisfied that the conditions in question were fulfilled or that he refused to grant the licence on not being satisfied that the conditions were fulfilled, could not in itself justify any interference. In that context, the majority judges in that case observed as follows : "Reading them (that is the two parts of section 39 of the Calcutta Police Act No. IV of 1866) together, it is in our opinion fair and reasonable to come to the conclusion that the discretion of the Commissioner in this matter is guided by the two objects mentioned in the section and by the necessary implication contained in it that the person applying must be in actual and effective control and possession of the place where he is going to keep the eating house. The argument therefore that section 39 confers an arbitrary and uncanalised power without any criteria for guiding the discretion of the li....
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....within that expression, because it completely negatives the fundamental right by making its enjoyment depend on the mere pleasure and discretion of the executive, the citizen affected having no right to have recourse for establishing the contrary in a civil court." In the second case, Jagannath Ramanuj Das case (Supra) , B.K. Mukherjea J., as he then was, dealing with the provisions of the Orissa Hindu Religious Endowments Act (4 of 1939) , observed as follows: "The learned Attorney-General, appearing for the State of Orissa, has also conceded that these sections require redrafting. We think that the settling of a scheme in regard to a religious institution by an executive officer without the intervention of any judicial tribunal amounts to an unreasonable restriction upon the right of property of the superior of the religious institution which is blended with his office. Sections 38 and 39 of the Act must, therefore, be held to be invalid." In the third case, Dwarka Prasad Laxmi Narain v. Slate of Uttar Pradesh [1954] SCR 803 ; AIR [1954] SC 224, 227, dealing with the U. P. Coal Control Order, 1953, the same learned judge observed as follows : "......but th....
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....be saved provided it involved a reasonable restriction coming within clause (6) of article 19 of the Constitution. 3. In determining whether a restriction is reasonable or not, the principles applicable may be formulated as under : (i) Restrictions to be valid and supportable must be reasonable, and this would depend as much upon the procedural part of the law as on the substantive part: Gurbhachan Singh v. State of Bombay [1952] SCR 737 ; AIR [1952] SC 221. (ii) The court must determine objectively the reasonableness of the statute applying its own intellectual yardstick which it considers applicable to the statute in question: Gopalan v. State of Madras [1950] SCR 88, State of Madras v. V.G. Row [1952] SCR 597 ; AIR [1952] SC 196, Md. Hanif Quareshi v. State of Bihar [1959] SCR 629 ; AIR [1958] SC 731. (iii) The restriction must strike a balance between the guaranteed freedom under the article and the seizure or control sought to be exercised by the restriction. In other words, there should be a nexus between the restriction and the object and purpose of the control sought to be imposed by the restriction. That is, the restriction must have a r....
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....long as may be necessary for their examination and for any inquiry or proceedings under this Act : Provided that such accounts, registers and documents shall not be retained for more than thirty days at a time except with the permission of the next higher authority." Mr. Roy pointed out that the power given by this section is reasonable and properly canalised, firstly by indicating the particular situation in which it should be exercised, namely, the officer having reason to suspect that any dealer was attempting to evade payment of tax or fee, and that where such seizure takes place, the section also provided for the retention of the documents for not more than the period fixed, namely thirty days, subject to the further condition that the documents should be retained only so long as may be necessary for their examination or for any inquiry or proceedings under the Act. Mr. Roy pointed out that all these safeguards are totally absent from section 37(2) of the Act. Next, reference was made to section 44(3) of the Assam Sales Tax Act, provisions of which are similar to those of the Andhra Pradesh Sales Tax Act. Section 37(3) of the Bihar Sales Tax Act was also referre....
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....ccount, register or document, affix his signature and his official seal at one or more places thereon, and in such case the dealer or the aforesaid person will be required to mention in the receipt given by him the number of places where the signature and seal of such officer have been affixed on each account, register or document." It may be seen from the above provisions of the sales tax laws of various States that (1) only seizure of books is provided for and not any search of the premises for the purpose of seizure; (2) the power could only be exercised when the officer concerned had reason to suspect that any dealer is attempting to evade payment of any tax or dues under the Act in question ; (3) such officer should record his reasons in writing; (4) he should grant a receipt forthwith for the documents seized ; and (5) he shall retain the same documents, etc., only for so long as may be necessary for the purpose of this Act, and in many cases the maximum period for which the documents can be retained is also specified. Mr. Roy drew our attention to certain provisions of the Central Acts, such as section 9 of the Central Sales Tax Act, 1956, section 96 of the Code of Cri....
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....pection, it may issue a search warrant; and the person to whom such warrant is directed, may search or inspect in accordance therewith and the provisions hereinafter contained. (2) Nothing herein contained shall authorise any Magistrate other than a District Magistrate or Chief Presidency Magistrate to grant a warrant to search for a document, parcel or other thing in the custody of the Postal or Telegraph authorities." It may be seen from this section that various conditions are imposed by it in controlling the exercise of the power of search and seizure, and section 97 provides for specifying in the warrant issued by the Magistrate, the particular place or part thereof which is to be searched or inspected. Observing that the power exercisable under sections 96 and 97, Criminal Procedure Code, is exercisable under a warrant issued by a court, the power is obviously a judicial power and in spite of the fact that what is exercisable is a judicial power, Parliament found it necessary to prescribe conditions controlling and restricting even the exercise of the judicial power. It is contended, and in our opinion quite rightly, that a similar power exercisable by....
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....person (whose name shall be specified in the order) to furnish, or to obtain and furnish, to the Central Government or the Reserve Bank or any person specified in the order with such information, book or other document. (3) If on a representation in writing, made by a person authorised in this behalf by the Central Government or the Reserve Bank, a District Magistrate, Sub-Divisional Magistrate, Presidency Magistrate or Magistrate of the First Class, has reason to believe that a contravention of any of the provisions of this Act has been, or is being or is about to be committed in any place, or that a person to whom an order under sub-section (2) of this section has been or might be addressed, will not or would not produce the information, book or other document, or where such information, book or other document is not known to the Magistrate to be in the possession of any person, or where the Magistrate considers that the purposes of any investigation or proceeding under this Act will be served by a general search or inspection, he may issue a search warrant and the person to whom such warrant is directed may search or inspect in accord....
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....r deliberately furnished inaccurate particulars. Section 33 provides for appeals from orders made under section 28, and section 33B provides for a revision of the orders of the Income-tax Officer by the Commissioner. Section 34 of the Act deals with cases where income escaped assessment and reasonable safeguards are contained in the section by way of notice and opportunity to be heard before action is taken. In section 34(1A) , a similar provision for notice and opportunity to be heard is included. It may thus be seen that wherever evasion of income-tax is made the basis of action, it is specifically indicated in the particular section, and adequate safeguards incorporated by way of notice, opportunity to be heard, right of appeal and right of revision, whereas such safeguards are absent in section 37(2) . Coming closer, we find from section 37(1) itself that action could be taken under that section only after notice, as contemplated by the Code of Civil Procedure. Again, the power under section 37(1) is properly restrained by adequate safeguards. In this connection section 37(3) may be noticed, which runs as follows : "Subject to any rules made in this behalf, any authori....
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....e principles set out in detail earlier in this judgment, I shall examine the constitutional validity of section 37(2) of the Act vis-a-vis article 19(1) (g) of the Constitution. (1) At the outset it has to be noticed that section 37(2) , which had been introduced by way of an amendment by the Finance Act of 1956, as already pointed out, contains no specific indication of the legislative policy underlying the imposition of the restriction on the fundamental right in the section itself ; nor do I find any indication of the same elsewhere either in the Finance Act or the Income-tax Act. The preamble of the Income- tax Act is of no help, as the preamble has remained the same from the beginning of the Act, namely, 1922, and obviously, it could not throw any light on the scope of a new provision introduced into the Act, like sec tion 37(2) ; nor can the scheme of the Act be of any assistance as the scheme itself had not changed in any way by reason of introducing section 37(2) , and, therefore, cannot throw any light on the policy of the legislature in the matter of the exercise of the power and authority given to the executive under section 37(2) . Hence, I find no indication o....
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....sification as regards the categories of persons to whom the particular provision is made applicable, and a doubt arises as to the basis of such a classification, or the justification thereof, it may be open to clear the doubt by considering the background and the past history of the legislation in so far as they may throw light on the matter in question. But neither the background, and much less the budget speech of a Finance Minister, introducing the Finance Bill, could by any stretch of language be regarded as relevant where the statute itself is silent both as regards the classification as well as in regard to the legislative policy or the principles which are intended to guide the executive in either making the classification or in exercising the absolute power given under the statutory provision. On a careful consideration of the respective contentions of the parties in the light of the materials placed before us, I have no difficulty in coming to the following conclusions : (1) There is nothing in the section (section 37(2) ) to indicate any special legislative policy or any principles which could serve as a guide in the application of the said sub-section ; nor a....
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....ation, I feel no hesitation in coming to the conclusion that (1) there has been a concentration of naked, arbitrary and unrestricted power in the executive authorities without any form of check, control, guidance or limitation ; (2) that such concentration of power in the executive not only amounts to gross violation of the fundamental right guaranteed under article 19(1) (g) , but it cannot, in the circumstances, be justified on the ground of any reasonableness, validating this encroachment on the fundamental right in question. In conclusion, I am, therefore, clearly of opinion that section 37(2) of the Act is unconstitutional and invalid by reason of its being violative of article 19(1) (g) of the Constitution as well, and that it cannot be saved on the ground that it could be regarded as amounting to a reasonable restriction falling under article 19(6) of the Constitution. I do not wish to conclude the consideration of this case without making reference, however briefly, to the decision of a Special Bench of the Calcutta High Court in Surajmull Nagarmull v. Commissioner of Income-tax AIR [1961] Cal. 578. We have been taken closely and carefully through that judgment, and with....
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....nner in which the said income-tax officers, their men and the said policemen should function. The said respondent No. 4 was constantly taking instructions from the respondent No. 3 by telephone. The entire police force was being directed by respondent No. 10...... (iii) The said search of the premises and/or office of your petitioner as also of the said companies was commenced simultaneously at about 10 a.m. on the said 11th March, 1962, and continued till 11 p.m. on the said date. In the course of the said purported search, the premises and/or offices of the said companies including the residence of the directors as well as the premises and/or offices of one Himalayan Plywood Industries Private Ltd. and one Tinsukia Timber Trading Co. and the residence of the said Maheswari, and the office of one Jagadamba Stores, all in Tinsukia, were ran sacked and diverse documents, papers and books, original contracts, hundis and title deeds were seized therefrom. A copy of the seizure list as pre pared by the income-tax department is annexed hereto and marked "F"...... Your petitioner states that the income-tax officials seized and removed original contracts, hundis, railway receipts....
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....uly paid all taxes from time to time and produced all books, documents, papers, etc., whatsoever required, and assisted the income-tax authorities in every possible way ; that even on January 8, 1962, respondent No. 4, had completed the hearing of the income-tax case of the petitioner for the assessment year 1960-61; that the petitioner had produced all the books, documents, papers, etc., for the inspection and scrutiny of respondent No. 4, who had duly inspected and scrutinised them and returned the same to the petitioner ; that at no time had any occasion arisen for service of a notice under section 34 of the Act; and that there had never been one single instance or occasion in respect of any assessment year, including the assessment year 1960-61, when the petitioner failed or neglected or refused to produce any books, documents or papers before the income-tax authorities for their fullest inspection and scrutiny. He further pointed out that the search and seizure in this case are illegal, as there is nothing to show that the Income-tax Officers concerned formed any opinion or had reasons to believe that any books or documents to be seized would be relevant or useful for any asse....
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....ssive of the powers given under section 37(2) of the Act and it is ultra vires of these powers, and, therefore, clearly illegal requiring interference by this court. It was contended by Mr. Roy that the authorisation in these cases, purporting to have been issued by the Commissioner, is itself vague and illegal, not being in conformity with section 37(2) . These letters of authorisation issued to the four Income-tax Officers in these cases have been set out in exhibit H. It is sufficient, for the purpose of consideration, to examine the first of these. This letter of authorisation is as follows : "Court Fee--Re. 1 Warrant of Authorization under section 37(2) of the Indian Income-tax Act, 1922 (XI of 1922) and Rule 2 of the Income-tax (Search of Premises and Seizure of Documents) Rules, 1957." "To The Additional Income-tax Officer, Dibrugarh. Whereas information has been laid before me and on the consideration thereof I have been led to believe that certain books of accounts and/or documents which are or may be relevant to or useful for proceedings under the above Act in the case (name of the assessee with G.I.R. Senairam Doon....
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.... the respondents Nos. 1 to 4 and 7 to 9 was not in conformity with and far in excess of the power conferred by section 37(2) of the Act, and, therefore, ultra vires and illegal, and must be struck down as amounting to a gross invasion of the fundamental rights of the petitioners guaranteed under articles 19(1) (f) and 19(1) (g) of the Constitution. To sum up : (1) Section 37(2) of the Act is unconstitutional as it is violative of article 14 of the Constitution ; (2) Section 37(2) of the Act is illegal, unconstitutional and ultra vires of the powers of the legislature, in that it violates the fundamental rights guaranteed by article 19(1) (f) and article 19(1) (g) of the Constitution; (3) this invasion of the fundamental rights in question is not by any means reasonable and does not fall within clause (5) or clause (6) of article 19 of the Constitution; and (4) the executive action taken by the income-tax authorities, namely, the Commissioner and the Income-tax Officers concerned, in pursuance of the power given under section 37(2) of the Act is ultra vires and illegal, and unconstitutional, inasmuch as the executive action contravened articles....
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.... instance in which the petitioner neglected or refused to produce any book, paper or document before the income-tax authorities for their fullest inspection and/or scrutiny. Nor has the petitioner at any time failed to pay the tax dues. But all of a sudden on the 11th March, 1962, in the morning the Additional Income-tax Officer, Dibrugarh (respondent No. 4) , the Income-tax Officer, Dibrugarh (respondent No. 7) , the Income-tax Officer, Digboi (respondent No. 8) , the Income-tax Officer, Tinsukia (respondent No. 9) and the Additional Superintendent of Police, Dibrugarh (respondent No. 10) , under the leadership of the Inspecting Assistant Commissioner of Income-tax, Assam (respondent No. 3) , arrived at the town of Tinsukia with a posse of armed police from Dibrugarh in various cars, lorries, jeeps and trucks and first proceeded to the Tinsukia police station. Therefrom, another police force was requisitioned and the party with about 100 armed policemen proceeded to the premises of the petitioner-company and started raiding them simultaneously. The various premises belonging either to the petitioner-company or to one or other of the directors, or to the other companies, which took....
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....ilal and his two brothers and also against another ex-employee named Malpani alleging criminal breach of trust. Beharilal and his two brothers were arrested by the police and Malpani also surrendered in court and a criminal case was started against them and they were released on bail. Upon a complaint being made at the instance of the petitioner-company, a large number of books, papers and documents belonging to the petitioner were seized by the police from the sales depot and the same were ordered to be kept with the accountant of the petitioner who was appointed as zamindar. According to the petitioner, these books and documents are essentially required for the prosecution of Beharilal and others in the criminal case. After the filing of the criminal case, Beharilal became very inimical towards the petitioner and sought the assistance of Motichand (respondent No. 5) to bring the petitioner and his directors to disrepute. Motichand is closely connected with the Inspecting Assistant Commissioner of Income-tax, Assam (respondent No. 3) and as far as the petitioner has been able to ascertain, they are relatives. The petitioner alleges that the Inspecting Assistant Commissioner (respo....
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.... Assistant Commissioner and the various Income-tax Officers have filed affidavits denying the allegations. The first point raised is whether section 37(2) of the Income-tax Act offends article 14 of the Constitution. Section 37 of the Income-tax Act runs as follows : "37. Power of income-tax authorities.--(1) The Income-tax Officer, Appellate Assistant Commissioner, Commissioner and Appellate Tribunal shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (V of 1908) , when trying a suit in respect of the following matters, namely : (a) discovery and inspection ; (b) enforcing the attendance of any person, including any officer of a banking company, and examining him on oath ; (c) compelling the production of books of accounts and other documents; and (d) issuing commissions. (2) Subject to any rules made in this behalf, any Income-tax Officer specially authorised by the Commissioner in this behalf may,-- (i) enter and search any building or place where he has reason to believe that any books of account or other documents which in his opinion will be....
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.... search the same and to place identification marks on such books of account or other documents found therein as, in his opinion, will be relevant to or useful for any proceedings under the Act and to make a list of such books or documents with particulars of the identification marks there on ; (c) to examine such books or documents and to make copies of or ex tracts from such books or documents; (d) to take possession of or seize any such books or documents ; (e) to make a note or an inventory of any other article or thing found in the course of such search which, in his opinion, will be useful for or relevant to any proceedings under the Act; (f) to convey such books or documents to the office of the Income-tax Officer or any other authority not below the rank of Income-tax Officer employed in the execution of the Act." Rule 3 lays down that the Income-tax Officer must be given free access and all reasonable facilities for search. Rule 4 provides for requisitioning of police help and for making forcible entry and search. Rule 6 requires that search should be carried out in the presence of two or more respectable inhabitants of the locality. R....
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.... . Therefore, when the income-tax authorities want in connection with any proceeding some book or document in the possession of somebody, they may have recourse to sub-section (1) of section 37 and adopt the procedure of a civil court to get the same but in the case of somebody else they may adopt the procedure of search and seizure under sub-section (2) . The latter person may legitimately ask why he is dealt with by the drastic procedure when another person similarly situated has been dealt with under the more lenient provision of law. Article 14 of the Constitution of India guarantees to all persons the right of equality before the law and equal protection of the laws in respect of both substantive and procedural laws. Two substantially different laws of procedure, one being more onerous, cannot be allowed to operate on the same field and the onerous one must be struck down. Reliance is placed in this connection on the decisions of the Supreme Court in Suraj Mall Mohta & Co. v. A.V. Visvanatha Sastri [1954] 26 ITR 1 ; [1955] 1 SCR 448, Shree Meenakshi Mills Ltd. v. Sri A.V. Visvanatha Sastri [1954] 26 ITR 713 ; [1955] 1 SCR 787 and in M, Ct. Muthiah v. Commissioner of Income-tax....
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.... The first submission of Dr. Pal, the learned counsel for the income-tax department, is that sub-section (1) and sub-section (2) of section 37 of the Income-tax Act do not lay down two alternative procedures but sub-section (2) only gives some additional powers to the income-tax authorities. In this connection he relies on the decisions in the following cases, viz., Pur-shottam Govindji Halai v. B.M. Desai, Additional Collector of Bombay [1955] 28 ITR 891 ; [1955] 2 SCR 887, Kashiram Agarwalla v. Collector of 24-Parganas [1958] 33 ITR 800 and Murlidhar Jalan v. Income-tax Officer, Dibrugarh [1961] 41 ITR 80 . In Halai's case (Supra) section 46(2) of the Income-tax Act was challenged. The first part of this sub-section provides that on receipt of a certificate from the Income-tax Officer the Collector shall proceed to recover from the defaulting assessee the amount specified therein as if it were an arrear of land revenue. The proviso to the sub-section invests the Collector with all the powers a civil court has under the Code of Civil Procedure for the purpose of the recovery of an amount due under a decree. It was argued that section 46(2) provided for two different and ....
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....ion to follow these alternative modes amounted to discrimination was accepted, the various provisions of law which provided alternative remedies leaving the court to give any one of those remedies to a litigant at its discretion would be void. In view of the Supreme Court judgment in Halai's case (Supra) the view that section 46(2) of the Income-tax Act lays down two procedures does not appear to be correct. With due respect, I may say that the analogy with laws providing alternative remedies also does not appear to be correct. A law which leaves to a court of law the discretion to apply one remedy or another cannot be arbitrary. It is only when a legislation leaves anything to the discretion of an executive authority, the question can arise if the discretion is unguided and hence arbitrary. In Murlidhar Jalan's case (Supra) , the question arose if section 46(5A) was discriminatory. Under section 46(2) the dues from an assessee could be recovered as an arrear of land revenue. Under section 46(5A) the Income-tax Officer could call upon a debtor of the assessee to pay the amount of debt to the income-tax department instead of to the assessee. It was argued that there we....
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....hings may appear on the face of the statute or may be gathered from the surrounding circumstances known to or brought to the notice of the court. A statute may not make any such classification but may leave it to the discretion of the Government to select or classify persons or things to whom its provisions are to apply. The court will not then strike down the statute simply because such a discretion has been given, but will go on to examine and ascertain if the statute has laid down any policy or principle for the guidance of the exercise of the discretion by the Government. If such a policy or principle is laid down by the statute itself for the guidance of the Government in the matter of selection or classification, the court will not strike down the statute. If the Government in making the selection or classification does not follow the policy or principle laid down, in such a case it is the executive action and not the statute which will be condemned as unconstitutional. But if the court finds on scrutiny that no policy or principle is laid down in the statute for guidance of the Government in the exercise of the discretion in the matter of selection or classification, the cou....
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.... the said section was not expected to produce the desired result. This judgment has been severely criticised by Mr. Roy who submits that there is not an iota of material in the statute to enable the income-tax authorities to make any such classification. It may be noted that section 37(2) was inserted in the Income-tax Act by the Finance Act of 1956. It is not disputed that the legislature has not made in either of these Acts any classification or selection of persons to whom sub-section (2) of section 37 should apply. The only question is, therefore, whether in either of these statutes any policy or principle is laid down for the guidance of the exercise of discretion by the income-tax authorities in making a classification or selection. Dr. Pal draws our attention to the preambles of the Indian Income-tax Act and of the Finance Act of 1956 which introduced section 37(2) of the former Act. The preamble to the Indian Income-tax Act says as follows : "Whereas it is expedient to consolidate and amend the law relating to income-tax and super-tax ; it is hereby enacted as follows." The preamble to the Finance Act of 1956 is as follows :. "An Act to give effec....
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.... The Supreme Court, however, considered that this preamble gave no assistance to the solution of the problem and went to observe that section 5(1) itself gave some indication as to the real object of it. The condition on which the action of the Government under this section was made dependent was that the Government must have, prima facie, reasons for believing that a person had to a substantial extent evaded payment of tax on his income. The Supreme Court therefore observed Thangal Kunju Musaliar v. M. Venkaitchalam Potti [1956] 29 ITR 349, 385 : "The selection is guided by the very objective which is set out in the terms of section 5(1) itself and the attainment of that object controls the discretion which is vested in the Government and guides the Government in making the necessary selection.........." It will suffice for me to point out that the preamble to the Travancore Act was in much more definite terms than the preamble to the Indian Income-tax Act or to the Indian Finance Act of 1956. Yet the Supreme Court found the preamble to the Travancore Act as of no assistance to the administrative authority for guiding it to make the necessary selection for applicati....
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....k and choose any case for trial by a special judge. It was held by the Supreme Court that the necessity of speedy trial mentioned in the preamble is too vague and uncertain a criterion to form the basis of a valid and reasonable classification. Hence section 5(1) was declared ultra vires article 14 of the Constitution. Section 11 of the Saurashtra Ordinance was similarly challenged in Kathi Raning Rawat v. State of Saurashtra [1952] SCR 435 ; AIR [1952] SC 123. But the Supreme Court held that the preamble to the Saurashtra Ordinance gave a definite guidance to the State Government to choose for reference to a special judge only such offences or cases as affected public safety, maintenance of public order and preservation of peace and tranquillity. Thus, there was a guiding principle within the four corners of the Act and hence, section 11 did not offend article 14 of the Constitution. In Kedar Nath Bajoria v. State of West Bengal [1954] SCR 30 ; AIR [1953] SC 404, the contention that section 4 of the West Bengal Criminal Law Amendment (Special Court) Act, 1949, violated article 14 of the Constitution was rejected by the Supreme Court. The preamble to this Act said : ....
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....ple and must afford guidance for carrying out the said policy before delegating such powers. It was observed as follows : "In dealing with the challenge to the vires of any statute on the ground of excessive delegation it is, therefore, necessary to enquire whether the impugned delegation involves the delegation of an essential legislative function or power and whether the legislature has enunciated its policy and principle and given guidance to the delegate or not. As the decision in Bagla's case (Supra ) shows, in applying this test this court has taken into account the statements in the preamble to the Act, and if the said statements afford a satisfactory basis for holding that the legislative policy and principle has been enunciated with sufficient accuracy and clarity the preamble itself has been held to satisfy the requirements of the relevant tests. In every case it would be necessary to consider the relevant provisions of the Act in relation to the delegation made and the question as to whether the delegation is intra vires or not will have to be decided by the application of the relevant tests." In Biswambhar Singh v. State of Orissa [1954] SCR 842 ; AIR [1....
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....e Act is not a naked and arbitrary power, unfettered, unguided or uncontrolled so as to enable the authority to pick and choose one assessee out of those similarly circumstanced thus subjecting him to discriminatory treatment as compared with others who fall within the same category. The power is guided and controlled by the purpose which is to be achieved by the Act itself, viz., the charge of income-tax, the assessment and collection thereof, and is to be exercised for the more convenient and efficient collection of the tax. A wide discretion is given to the authorities concerned, for the achievement of that purpose, in the matter of the transfer of the cases of the assessees from one Income-tax Officer to another and it cannot be urged that such power which is vested in the authorities is discriminatory in its nature." It may however be noted that the Supreme Court held the aforesaid section 5(7A) to be valid not because this section was not discriminatory but because there could be no real and substantial discrimination in its application. It observed as follows [1957] 31 ITR 565 , 589 : "In other words, the discretion vested has to be looked at from two points of v....
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....w light on the matter to which the document relates, and on the condition and position and course of dealing of the persons who made it or are mentioned in it, is always admitted as indispensable for the purpose not only of identifying such persons and things, but also of explaining the language, whenever it is latently ambiguous or susceptible of various meanings or shades of meaning, and of applying it sensibly to the circumstances to which it relates." Another conclusion is that a provision offends article 14 of the Constitution only if it is discriminatory in a real and substantial way and a fundamental right is impinged upon by it. Considering sub-section (2) of section 37 of the Indian Income-tax Act in the light of the above principles, I find that the income-tax authorities have been given naked and unguided power to pick and choose persons to be dealt with under it. The preamble to the Indian Income-tax Act only states the general object of the legislature in passing the Act, viz., to consolidate and amend the income-tax law. The preamble to the Finance Act of 1956 speaks only of giving effect to the financial proposals for 1956-57. The ''financial proposals"....
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.... impinges upon the fundamental rights guaranteed by article 19(1) (f) and (g) of the Constitution respectively to hold property and to carry on trade or business. In the result, therefore, I hold that sub-section (2) of section 37 of the Income-tax Act offends article 14 of the Constitution. The next question is whether it offends also article 19(1) (f) and (g) of the Constitution. Article 19(1) (f) guarantees to every citizen the right to acquire, hold and dispose of property and article 19(1) (g) guarantees the right to practise any profession or to carry on any occupation, trade or business. If the account books of a business are seized a person is deprived of his property and it is also a restriction on his right to carry on trade or business. The disadvantage created by seizure of books of accounts is the direct consequence of such a seizure and the result of the disadvantage may be such that the business and trade of the person from whom the books or documents are seized may come to a standstill. Although search and seizure is a restriction on the enjoyment of property and also on the right to carry on trade or business, under clauses (5) and (6) of article 19 respectively....
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.... these obvious remarks because it appears to have been suggested in some quarters that the courts in the new set up are out to seek clashes with the legislatures in the country." Bearing the above principles in mind we may proceed to examine first if section 37(2) of the Income-tax Act is violative of article 19(1) (f) of the Constitution which guarantees the right to hold property. I have already referred to the view of the Supreme Court that seizure of property for a temporary period for the purpose of investigation cannot be unreasonable. Mr. Roy points out that there is no time-limit mentioned in subsection (2) of section 37 for return of the seized books and documents. Whereas sub-section (3) of the said section provides that a taxing authority will retain the books and documents produced before it for "such period as it thinks fit" and that an Income-tax Officer shall not retain such books and documents for more than fifteen days, without approval of the Commissioner, nothing is mentioned in the Income-tax Act, as to when seized books and documents are to be returned. In this connection our attention is drawn to the provisions for search and seizure in the Sales Tax Act....
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....ority to regulate trade and business in a normally available commodity is void as imposing an unreasonable restriction (vide Dwaraka Prasad v. State of Uttar Pradesh [1954] SCR 803 ; AIR [1954] SC 224) . The next question is whether there are adequate safeguards in the application of the aforesaid sub-section. Under clause (1) of this sub-section the Income-tax Officer may enter and search that building or place where he has reason to believe that any books of account or other documents which in his opinion will be useful for, or relevant to, any proceeding under the said Act may be found. Under rule 2 of the Rules the Income-tax Officer must be specially authorised to do so by the Commissioner of Income-tax who also must have reason for a similar belief. In issuing the written order of authorisation, the Commissioner has to record reasons for such an authorisation. These provisions can hardly be called adequate safeguards. The decision to search and seize depends entirely on the belief and opinion of the Income-tax Officer and the Commissioner and the reasons on which their belief and opinion are based cannot be tested in a judicial inquiry. This imposes a subjective test and the ....
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....rt. In upholding this section the Supreme Court took into account the fact that the orders of the Cane Commissioner were subject to an appeal to the State Government. I shall not, however, go so far as to say that absence of an opportunity to move a court of law against the decision to carry out a search makes it unreasonable in all cases. Every determination affecting liberty or right to property or right to carry on trade or business need not always be made by a judicial authority. This much is, however, well established that the right of judicial review makes reasonable a restriction which will be otherwise unreasonable. But when a search is made under section 37(2) of the Income-tax Act, not to speak of any judicial review, the person whose house is searched does not get any opportunity whatsoever to make any representation against the decision to search which is taken on the subjective belief of an executive officer. Of course, it may be argued that the very object of a search may be frustrated if the person whose house or place is searched gets prior information about the decision to search, and hence, the question of giving him an opportunity to make a representation agai....
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.... Commissioner (respondent No. 3) put the whole income-tax machinery into action against the petitioner with an ulterior motive. Moreover, sub-section (2) of section 37 of the Income-tax Act read with rule 2 of the Rules shows that first the Income-tax Officer before whom a proceeding is pending has to form an opinion that certain books and documents are relevant for the purpose of any proceeding pending before him and he must have reasons to believe that these books and documents will be found in a particular house or place. He has then to send a report to the Commissioner who can authorise the Income-tax Officer to search that house or place and seize the books and documents provided the Commissioner is also of the opinion that the said books and documents are relevant for any proceeding and he has also reasons to believe that they will be found in that house or place. If the Commissioner gets a report from a third party, he has obviously to call for a report from the Income-tax Officer before whom the proceeding is pending and then to decide about authorising the search and seizure. But in spite of the allegations of the petitioner, the Commissioner (respondent No. 1) does not....
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....ed. But in the warrant of authorisation issued under section 37(2) of the Income-tax Act, the Commissioner does not even have to specify the things to be searched. The Commissioner apparently acted on the report of the Assistant Commissioner without referring the matter to the Income-tax Officer who as a result could not possibly know for what particular book or document he had to carry out the search. In such circumstances, the allegation that the Income-tax Officer indiscriminately seized all kinds of books and documents seems to be well-founded. I have carefully gone through all the counter-affidavits filed by the various income-tax authorities. In none of them there is even an inkling of a suggestion that at any time the petitioner was even suspected of any tax evasion or of concealing any book or document. The Commissioner and the Income-tax Officer (respondent No. 4) , within whose jurisdiction the assessment of the petitioner falls, do not clearly tell us in their affidavits for which proceeding the seized books and documents were considered necessary. The Income-tax Officer simply asserts that the petitioner's assessment for 1960-61 and 1961-62 were pending and leave....
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....r, agree that the warrants of authorisation are not in accordance with the provisions of section 37(2) and the action of the income-tax authorities is mala fide. Nayudu J. has held that section 37(2) of the Indian Income-tax Act, 1922 (hereinafter called the Act) , is ultra-vires, both of articles 14 and 19(1) (f) and 19(1) (g) of the Constitution. Dutta J. has held that the section infringes the fundamental rights guaranteed under articles 14 and 19(1) (g) , but does not infringe article 19(1) (f) . These four petitions were heard together and a common question had been raised. Civil Rule No. 195 of 1962 arises out of a petition filed by Senairam Doongarmall Agency (Private) Ltd., a company incorporated under the Companies Act and having its registered office at Tinsukia. The petitioner carries on banking business and also business in foodgrains, mustard oil and other commodities. The petitioner took over the business in foodgrains, oil and other commodities from the parent firm of Senairam Doongarmal since about the year 1954. The petitioner firm was assessed by the Income-tax Officer, Dibrugarh. In this petition, K.E. Johnson has been impleaded as opposite party No. 1, as ....
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....Income-tax Officer and were returned to the petitioner's representative, G. D. Maheswari. The petitioner had submitted all necessary papers required for assessment up to 31st December, 1961, but no orders of assessment for the assessment year 1960-61 were passed till the petition was filed in this court. From about the assessment year 1900-61, some of the directors of the petitioner-company got some complaints about the inefficiency and mismanagement of opposite party No. 6 and further about his dishonesty, fraudulent misappropriation and embezzlement of certain funds belonging to the petitioner. The directors considered the matter on the 25th November, 1961, and passed an order of immediate suspension of opposite party No. 6 and for further enquiry into his conduct. On enquiry it was found that opposite party No. 6 had committed misappropriation of a large sum of money. The opposite party No. 6 was thus suspended and asked to hand over charge to K. G. Dhandharia. From the 28th of December, 1961, he commenced handing over charge of the petitioner's business at its said sales depot to the said K. G. Dhandharia. On the 2nd January, 1962, the handing over of charge was comp....
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....search commenced at about 10 a.m. and continued till 11 p.m. on the said date. In the course of these searches, various places were searched, various documents were seized and a copy of the seizure list was prepared. During the course of this search, the employees and officers of the income-tax department and the police acted in an extremely highhanded manner, tore up various documents, voucher receipts including requisition slips of certain cheque books, went and searched apartments occupied by the ladies of the household with the sole object of bringing the petitioner and its directors down in the estimation of the people of the locality and generally subjecting the petitioner and its directors to hatred, contempt and ridicule and also to ruin the petitioner's business. Opposite parties Nos. 4, 7, 8 and 9 purported to act under four warrants of authorization purported to have been issued under section 37(2) of the Indian Income-tax Act, hereinafter called the Act, and rule 2 of the Rules framed under the Act. The seizure continued till the 16th March, 1962. It is this action of the authorities that is challenged by means of the present petition. Civil Rule No. 196 of 1962 ....
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....n oath ; (c) compelling the production of books of account and other documents; and (d) issuing commissions. (2) Subject to any rules made in this behalf, any Income-tax Officer specially authorised by the Commissioner in this behalf may-- (i) enter and search any building or place where he has reason to believe that any books of account or other documents which in his opinion will be useful for, or relevant to, any proceeding under this Act may be found and examine them, if found ; (ii) seize any such books of account or other documents or place marks of identification thereon or make extracts or copies therefrom ; (iii) make a note or an inventory of any other article or thing found in the course of any search under this section which in his opinion will be useful for, or relevant to, any proceeding under this Act ; and the provisions of the Code of Criminal Procedure, 1898 (V of 1898) , relating to searches shall apply so far as may be to searches under this section. (3) Subject to any rules made in this behalf, any authority referred to in sub-section (1) may impound and retain in its custody for such perio....
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.... Board of Revenue to make rules for carrying out the purposes of the Act and to provide for any matter which by this Act is to be prescribed. Under section 37(2) , the provisions of the said sub-section are subject to any rules made in this behalf. In the exercise of the powers conferred by section 59, the Central Board of Revenue has made rules known as the Income-tax (Search of Premises and Seizure of Documents) Rules, 1957. These rules were issued under a notification dated the 6th June, 1957. Rule 2 of these Rules reads as follows : "2.The Commissioner of Income-tax may, for reasons recorded, issue a written order under his own signature and bearing his seal, specially authorizing any Income-tax Officer, subordinate to him to enter any building, or place to be specified therein where he has reason to believe that books of account or other documents which, in his opinion, will be relevant to or useful for any proceedings under the Income-tax Act, 1922, may be found. Such order may authorize the Income-tax Officer to do all or any of the following acts, namely : (a) to enter the said building, or place with such assistance of police officers as may be required ;....
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....ty not below the rank of an Income-tax Officer employed in the execution of the Act; and (f) to exercise all other powers and duties under the said section and the rules relating thereto. Seal.Commissioner of Income-tax." The search and seizure of the account books in all these cases were done under the warrants of authorization issued by the Commissioner of Income-tax and these have been made annexures to the petitions. Section 37(2) of the Act requires that before action is taken by an Income-tax Officer, he has to obtain a special authorization from the Commissioner of Income-tax and further that the provisions of the sub-section are subject to any rules made in this behalf. Another condition necessary before the Income-tax Officer acts is that he should have reason to believe that any books of account or other documents which, in his opinion, will be useful for, or relevant to, any proceeding under this Act may be found. The rules prescribe the manner in which the Commissioner of Income-tax has to issue his warrant of authorization, and the form of authorization. Even after obtaining the necessary warrant of authorization from the Commissioner of Income-tax....
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....n books of account and/or documents which are or may be relevant to or useful for proceedings under the above Act in the case (name of the assessee with G.I.R., Senairam Doongarmal Agency (P.) Ltd., G.I.R. No. 2-S) have been kept and are to be found at the sales depot and office of Senairam Doongarmal Agency (P.) Ltd., situated in Siding Market, Tinsukia Town, Dist. of Lakhimpur. This is to authorise and require you, Shri R N. Bagchi. (Name of the Income-tax Officer) (a) to enter and search with such assistance of police officers as may be required, the said premises ; (b) to place identification marks on such books and documents as may be found in the course of the search and as you may consider relevant to or useful for the proceedings aforesaid and to make a list thereof together with particulars of the identification marks ; (c) to examine such books and/or documents and make copies or extracts from such books and documents ; (d) to seize such books of account and/or documents, take possession thereof; (e) to convey such books or documents to the office of the Income-tax Officer or any other authority not below the ....
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....e Commissioner of Income-tax considered the information placed before him and on that information he was satisfied that certain books of account relating to the assessment proceedings pending against the petitioner could be found in different premises and being so satisfied, he issued the warrant of authorization. Section 37(2) of the Act requires that where any Income-tax Officer, who is specially authorized in this behalf, has reason to believe that any books of account or other documents which, in his opinion, will be useful for, or relevant to, any proceeding may be found, he may proceed to enter, search any building and seize the books of account. On a plain reading of section 37(2) , it is the opinion of the Income-tax Officer, which is relevant and further, the Income-tax Officer should have reason to believe that the books of account relevant to the proceedings will be found at the place and not that of the Commissioner of Income-tax, and in none of the affidavits filed by the Income-tax Officers, it is stated that at any stage they formed an opinion that the books of account and documents were relevant for the proceedings pending against the petitioner, or that they had re....
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....her there were reasons to believe whether those books could be found in the premises. In fact, the contention was that section 37(2) required the satisfaction of the Commissioner of Income-tax and not of the Income-tax Officer and as the Commissioner of Income-tax had relied on the satisfaction of the Income-tax Officer, his action was invalid. This argument was repelled and I am in agreement with the construction of section 37(2) of the Act. In my opinion also section 37(2) requires that the Income-tax Officer should have reason to believe that any books of account are to be found in particular premises, which books of account will be useful to the enquiry, and not the Commissioner of Income-tax. Rule 2 of the Income-tax (Search of Premises and Seizure of Documents) Rules, 1957, requires that the Commissioner of Income-tax may, for reasons recorded, issue a written order under his own signature and bearing his seal, specially authorizing any Income-tax Officer to enter any building where he has reason to believe that books of account or other documents which, in his opinion, will be relevant to or useful for any proceedings under the Income-tax Act, 1922, may be found. The words, ....
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....rom the Income-tax Officer, but from other sources also, and simply because the Commissioner of Income-tax has issued a warrant of authorization, it does not make it obligatory on the Income-tax Officer to act in accordance with that warrant of authorization without applying his own independent mind to the requirements of section 37(2) of the Act. From the affidavits filed, as I have already indicated, it appears that the Income-tax Officers thought that under section 37(2) , once the warrant of authorization has been issued, they are bound to carry into effect the said warrants and need not apply their own independent mind. In cases where the Income-tax Officers have already applied their mind to the requirements of section 37(2) and thereafter submitted the report to the Commissioner of Income-tax, acting on which the Commissioner of Income-tax has issued the warrants of authorization, it may be argued that the Income-tax Officers have applied their independent mind and the requirements of section 37(2) have been fulfilled. But in the present case, the Commissioner of Income-tax has not disclosed the source of information and has not stated that he acted on any report received fr....
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....ner in his affidavit is that opposite parties Nos. 5 and 6, who were the petitioner's dismissed employees, conspired with opposite party No. 3 and managed to take the assistance of the income-tax department so as to humiliate the petitioners and thus in a high-handed manner searched the premises and seized the account books. It is alleged that opposite party No. 3 is related to opposite party No. 5. It is further alleged that with a view to help opposite parties Nos. 5 and 6, the opposite party No. 3 influenced the income-tax department to act in a high-handed manner and to the prejudice of the petitioner. The facts setting out the manner how the police party reached the place and carried out the search have not been denied, except the fact that the opposite party No. 3 was present at the time of the search and the fact that the search was conducted under his guidance. If an act is done arbitrarily and capriciously without due care and caution, and if any act has been done not with a view to give effect to the purposes of the Act, but due to considerations which are extraneous to the purposes of the Act, or if an act is done in a manner which no reasonable body of persons under....
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....enged on the ground that the provisions infringe the fundamental rights guaranteed under articles 14,19(1) (f) and 19(1) (g) and the section is not saved by articles 19(5) and 19(6) . Article 14 has been canvassed mainly on two grounds : firstly, that the power given both under section 37(1) and (2) operates on the same field and as the power under section 37(2) is more onerous, it should be struck down as being discriminatory. Even if it is held that section 37(2) leaves it to the discretion of the authorities to classify the persons to whom section 37(2) will be attracted, there is no guidance left in the statute for the executive authorities to classify the persons and the circumstances under which this sub-section will be attracted. It is secondly urged that the discretion vested on the income-tax authorities under section 37(2) is unguided, arbitrary and uncanalised and thus it contains the germs of discrimination. To some extent, the argument of unreasonableness is overlapping. It is argued that as the discretion conferred under section 37(2) affects the right to possess property and to carry on business and is uncanalised, it is ultra vires of article 19(1) (f) and (g) of th....
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....y amending the Income-tax Act and adding a new sub-section (1A) to section 34 by Act 33 of 1954, the class of persons which was dealt with by section 5(1) of the Act 30 of 1947 was also brought within the purview of the amended section 34(1A) . The amendment was intended to deal with the class of persons who were classified for special treatment by section 5(1) of Act 30 of 1947. The Supreme Court held that as, after the amendment, the persons who were classified for special treatment under section 5(1) of the Act 30 of 1947 could also be dealt with under the amended section 34(1A) , thus the more onerous procedure under the Act 30 of 1947 was discriminatory and should be struck down. The matter again came up before the Supreme Court in M. Ct. Muthiah v. Commissioner of Income-tax [1955] 2 SCR 1247 ; [1956] 29 ITR 390 . Briefly the facts of this case were that the Central Government under section 5(1) of the Act 30 of 1947 referred to the Income-tax Investigation Commission the cases of M. Ct. M. Chidambaram Chettiar, M. Ct. M. Muthiah Chettiar and Devanai Achi. The Commission after holding an enquiry into all these three cases recorded their findings and held that a certain sum re....
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....etween two persons both of whom might be within the group of those who might have evaded the payment of tax to a substantial extent. The argument that section 5(1) gave arbitrary power to pick and choose the cases of particular individuals falling under the category leaving the cases of others, falling within the same category, to be dealt with by section 34(1) of the Act prior to 1948, was repelled on the reasons given in the decision of the Supreme Court in Thangal Kunju Musaliar v. Venkatachalam Potti [1955] 2 SCR 1196 ; [1956] 29 ITR 349. Relying upon the reasons given in Shree Meenakshi Mills' case (Supra) it was held that barring the cases of persons which were already concluded by reports made by the Commission and the directions given by the Central Government under section 8(2) of the Act 30 of 1947, culminating in the assessment or reassessment of the escaped income, those cases which were pending on the 26th January, 1950, for investigation before the Commission as also the assessment or reassessment proceedings, which were pending on January 26, 1950, before the Income-tax Officers concerned in pursuance of the directions given by the Central Government under sectio....
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.... the purpose of the Act as disclosed in the preamble of the first Indian Income-tax Act of 1886 (Act II of 1886) . It follows, therefore, that all the provisions contained in the Act have been designed with the object of achieving that purpose ..." Dealing with the power conferred under the said section, it was observed at page 408 as follows [1957] 31 ITR 565 ; AIR [1957] SC 397 : "This power is discretionary and not necessarily discriminatory and abuse of power cannot be easily assumed where the discretion is vested in such high officials . . . There is moreover a presumption that public officials will discharge their duties honestly and in accordance with the rules of law ... It has also been observed by this court in Thangal Kunju Musaliar v. Venkatachalam Potti [1955] 2 SCR 1196 ; [1956] 29 ITR 349 with reference to the possibility of discrimination between assessees in the matter of the reference of their cases to the Income-tax Investigation Commission that : 'It is to be presumed, unless the contrary were shown, that the administration of a particular law would be done "not with an evil eye and unequal hand" and the selection made by the Government ....
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.... being associated with the transport service and there were no rules to guide its discretion in the matter of selection, the section offended against article 14 of the Constitution. In reply, it was contended by the Advocate-General that the State could only choose the routes or portions of routes on which the private citizens would be allowed to operate and the number of persons to whom permits should be given. After that had been done, the granting of permits would necessarily be regulated by the provisions of the Motor Vehicles Act. In this view of the matter, it was held by the Supreme Court that the discretion to be exercised by the State would be a regulated discretion guided by statutory rules. In the case of Jyoti Pershad v. Union Territory of Delhi [1962] 2 SCR 125 ; AIR [1961] SC 1602 the validity of certain provisions of the Slum Areas (Improvement and Clearance) Act, 1956, were challenged. Though the provisions were upheld to be constitutional, the scope and import of article 14 of the Constitution was considered. It was observed in this case that the decisions of the Supreme Court laying down the proper construction of article 14 rendered up to 1959, had been summar....
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....case of State of Madras v. V. G. Row [1952] SCR 597 ; AIR [1952] SC 196 in the following terms : "It is important in this context to bear in mind that the test of reasonableness, wherever prescribed, should be applied to each individual statute impugned, and no abstract standard, or general pattern, of reasonableness can be laid down as applicable to all cases. The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, should all enter into the judicial verdict ..." Reliance was placed on the following observations of the Supreme Court in the case of Raghubir Singh v. Court of Wards, Ajmer [1953] SCR 1049 ; AIR [1953] SC 373, at page 375 : "When a law deprives a person of possession of his property for an indefinite period of time merely on the subjective determination of an executive officer, such a law can on no construction of the word 'reasonable' be described as coming within that expression, because it completely negatives the fundamental right by making its e....