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1960 Supreme(Cal) 110
HIGH COURT OF CALCUTTA
S. C. LAHIRI, C. J. ,R. S. BACHAWAT
RUNGTA ENGINEERING AND CONSTRUCTION CO. LTD. - Appellant
Versus
INCOME-TAX OFFICER, CENTRAL CIRCLE XIII - Respondent
A. F. O. O. 109 Of 1958
Decided On : MAY 19, 1960
B.Pal, E.R.Meyer, SUKUMAR MITRA
The Parliament has exclusive power to pass laws relating to tax on non-agricultural income and the notices issued under Section 34 (1a) of the Indian Income Tax Act 1922 did not violate natural justice.
Headnote:
INCOME TAX - Reopening of assessment - Legislative competence of Parliament to enact Income Tax (Amendment) Act XXXIII of 1954 - Validity of notices issued under Section 34 (1a) of the Indian Income Tax Act 1922 - Violation of natural justice.
Fact of the Case:
The appellant challenged the validity of three notices issued to it under Section 34 (1a) of the Indian Income Tax Act 1922 and the subsequent proceedings thereunder. The notices related to the assessment years 1945-46, 1946-47, and 1947-48. The appellant argued that the Parliament lacked the legislative competence to pass the Income Tax (Amendment) Act XXXIII of 1954, which introduced Sub-section (1a) to (1d) in Section 34 of the Indian Income Tax Act. The appellant also contended that the notices violated natural justice as the Income-tax Officer did not disclose the materials upon which his belief that part of the appellant's income had escaped assessment was based.
Finding of the Court:
The court held that the Parliament had the legislative competence to enact the Income Tax (Amendment) Act XXXIII of 1954. The court reasoned that the tax in respect of the escaped income never became due and payable to His Majesty for the purposes of the Governor General in Council. The court further held that the notices issued under Section 34 (1a) did not violate natural justice as the Income-tax Officer was not bound to disclose the source of his confidential information or the name of the informant at the initial stage of the proceedings.
Issues: 1. Whether the Parliament had the legislative competence to enact the Income Tax (Amendment) Act XXXIII of 1954? 2. Whether the notices issued under Section 34 (1a) of the Indian Income Tax Act 1922 violated natural justice?
Ratio Decidendi: 1. The Parliament had the legislative competence to enact the Income Tax (Amendment) Act XXXIII of 1954 because: - The tax in respect of the escaped income never became due and payable to His Majesty for the purposes of the Governor General in Council. - The un-exercised power to reopen assessments was not property within the meaning of Section 7 of the Indian Independence Rights, Properties and Liabilities, Order 1947 and was not vested in His Majesty for the joint purposes of the two Dominions. - The Parliament has exclusive power to pass laws relating to tax on non-agricultural income under Article 246 of the Constitution read with item No. 82 of List I. 2. The notices issued under Section 34 (1a) did not violate natural justice because: - The Income-tax Officer is entitled to initiate proceedings under Section 34 (1a) if he in good faith has reason to believe the matters specified in Section 34 (1a) (i) and (ii). - The Income-tax Officer is not bound to disclose to the assessee the source of the information upon which he came to entertain that belief. - The assessee is entitled to appear and produce evidence in the quasi-judicial enquiry that commences after the assessee files its return and produces its account books. - Natural justice demands full disclosure of all the materials which the Income-tax Officer seeks to use against the assessee in the course of that enquiry.
Final Decision: The appeal was dismissed with costs.
( 1 ) THIS is an appeal from an order dismissing a writ application challenging the validity of three notices issued to the- appellant under Section 34 (1a) of the Indian Income Tax Act 1922 and the subsequent proceedings thereunder. The notices relate to the assessment years 1945-46, 1946-47 and 1947-48. The three notices were originally issued by the Income Tax Officer, Companies District III, on 18-12-1954. Subsequently, on 8-7-1955, three revised notices under Section 34 (1a) were issued by the Income-tax Officer, Central Circle XIII. Consequential notices under Section 22 (4) of the Indian Income-tax Act, requiring the appellant to produce certain documents and books of account were issued on 25-7-1955 by the Income-tax Officer, Central Circle XIII, and served upon the appellant. The appellant refuses to file its return of income or to produce its books and documents.
( 2 ) THE three notices under Section 34 (1a) state that the Income-tax Officer has reason to believe that income, profits or gains assessable to income-tax for the assessment years ending 31-3-1946, 31-3-1947 and 31-3-1948 have partly escaped assessment and that the income, profits or gains of the previous years falling wholly or partly within the period beginning on September, 1939 and ending on 31-3-1948 which have so escaped assessment, amount to or are likely to amount to one lakh of rupees or more. The Income-tax Officer seeks to reopen the assessments of the appellant previously made in respect of the assessment years 1945-46, 1946-47 and 1947-48.
( 3 ) THE validity of the notices under Section 34 (1a) and of the subsequent proceedings thereunder was challenged in the petition on numerous grounds. Before us Mr. Mitra has confined his attack to two grounds and two grounds only.
( 4 ) THE first ground of attack challenges the legislative competence of the Indian Legislature to pass Income-tax (Amendment) Act XXXIII of 1954 which introduced Sub-section (1a) to (1d) in Section 34 of the Indian Income-tax Act. Mr. Mitra argued that the tax payable by the appellant in respect of these three assessment years, including the tax in respect of the income if any which escaped assessment, became due from the appellant as and when the Finance Act for each of those years were passed. The tax became then vested in His Britannic Majesty for the purposes of the Governor General in Council. Subsequently the Indian Independence Act 1947 was passed, the Dominions of India and Pakistan were brought into existence and the Indian Independence (Rights, Properties and Liabilities) Order, 1947 provided for the distribution of the property vested in His Majesty. Mr. Mitra contended that the tax due from the appellant in respect of those assessment years was property which was neither laud nor a contractual right nor goods, coins, bank notes and currency notes and consequently by Section 7 of the Indian Independence (Rights, Properties and Liabilities) Order 1947 the tax so due became vested on the appointed day in His Majesty for the joint purposes of both the Dominions of India and Pakistan. The tax so due never became vested in the Dominion of India exclusively and the Dominion of India had no power to make laws with respect to such tax. Mr. Mitra argued that when the Constitution came into force the tax continued to be vested in His Britannic Majesty for the joint purposes of the two Dominions and the Constitution did not confer upon the Parliament the power to make any law with respect to such tax. Mr. Mitra argued that the Income Tax Amendment Act XXXIII of 1954 which introduced Sub-section (1a) to (1d) in Section 34 of the Indian Income-tax Act being a law with respect to tax vested in His Majesty for the joint purposes of the two Dominions is not a law "for the whole or any part of the territory of India" and such law is invalid, for by Article 245 of the Constitution the Parliament has power only to make laws for the whole or any part of the territory o
