The court upheld the constitutional validity of Section 64(2)(ii) of the Voluntary Disclosure of Income Scheme, 1997, and rejected the petitioners' contentions of discrimination and unconstitutionality.

R.V. Raveendran J.— The appellants were the petitioners in W. P. Nos. 32450 to 32454 of 1997 (see Micro Labs Ltd. and others Vs. Deputy Commissioner of Income Tax (Assessment) and others, ILR (1998) KAR 3784, respectively. For convenience, the appellants in the five appeals will be referred to as appellants Nos. 1, 2, 3, 4 and 5 ; that is Micro Labs Ltd. as appellant No. 1, Micro Ethicals as appellant No. 2, Micro Nova Pharmaceutical Ltd., as appellant No. 3, Brown and Burk Pharmaceuticals as appellant No. 4 and G. C. Surana as appellant No. 5.

2. The appellants claim that appellants Nos. 1 to 4 have a common office. Appellant No. 5 is a director of appellants Nos. 1 to 3 and authorised signatory of appellant No. 4. It is stated that there was a search in respect of appellants Nos. 1 to 3 by issue of notice under Section 132 of the Income Tax Act, 1961 ("the IT Act" for short), on September 10, 1997, and in the course of the search, some records of appellants Nos. 1 to 4 had been seized ; that prohibitory orders were issued in regard to certain bank accounts and certain records ; and that the fifth appellant's wife and two sons have been mentioned in the notice issued under Section 132.

3. The Voluntary Disclosure of Income Scheme, 1997, introduced by Chapter IV (sections 62 to 78 of the Finance Act, 1997 ("the Act" for short)), was in force between July 1, 1997, and December 31, 1997. The relevant provisions of the scheme are as follows :

Section 64 relates to charge of tax on voluntarily disclosed income. Subsection (1) provides that subject to the provisions of the Scheme, where any person makes, on or after the date of commencement of the Scheme (July 1, 1997) but on or before December 31, 1997, a declaration in accordance with the provisions of Section 65 in respect of any income chargeable to tax under the Income Tax Act for any assessment year : (a) for which he has failed to furnish a return under Section 139 of the Income Tax Act ; (b) which he has failed to disclose in a return of income furnished by him under the Act before the date of commencement of the Scheme ; (c) which has escaped assessment by reason of the omission or failure on the part of such person to make a return under the Income Tax Act or to disclose fully and truly all material facts necessary for his assessment or otherwise, then notwithstanding anything contained in the Income Tax Act or in any Finance Act, Income Tax shall be charged in respect of the income so declared at the rates specified thereunder.

4. Sub-section (2) of Section 64 which contains the exceptions to Section 64(1) reads as follows :

"Nothing" contained in Sub-section (1) shall apply in relation to :

(i) the income assessable for any assessment year for which a notice under Section 142 or Section 148 of the Income Tax Act has been served upon such person and the return has not been furnished before the commencement of this Scheme ;

(ii) the income in respect of the previous year in which a search under Section 132 of the Income Tax Act was initiated or requisitioned under Section 132A of the Income Tax Act was made, or survey under section 133A of the Income Tax Act was carried out or in respect of any earlier previous year."

5. The Memorandum explaining the provisions of the Voluntary Disclosure of Income Scheme, 1997, contains the following Explanation regarding Section 64(2)(ii) (see (1997) 224 ITR 114, 142) :

"A person in whose case a search under Section 132 of the Income Tax Act has been initiated or where books of account, other documents or other assets have been requisitioned under Section 132A will not be entitled to make a declaration in respect of the previous year in which the search was made or any earlier previous year. Disclosure by such persons would, however, be allowed in respect of any previous year following the previous year in which the search was carried out. Further, in cases where a survey under Section 133A has been carried out, no declaration of income