Dewan Bahadur Seth Gopal Das Mohta vs The Union Of India And Another
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Petition No. 315 of 1954
Decision Date: 21 October, 1954
Coram: Mehar Chand Mahajan, Ghulam Hasan, Natwarlal H. Bhagwati
Dewan Bahadur Seth Gopal Das Mohta filed a petition against the Union of India and another respondent, which was heard by the Supreme Court of India on 21 October 1954. The judgment was authored by Chief Justice Mehar Chand Mahajan, with Judges Ghulam Hasan and Natwarlal H. Bhagwati forming the bench. The case is reported in the official law reports as 1955 AIR 1 and 1955 SCR (1) 773, and it also appears in the citation references R 1955 SC 257, R 1959 SC 149 (paragraphs 16, 30, 51, 52) and HO 1961 SC 1457 (paragraph 6). The statutory framework involved the Constitution of India, specifically article 32, and the Taxation on Income (Investigation Commission) Act, 1947 (referred to as Act XXX of 1947). Relevant provisions of that Act include section 5(1), which empowers the government to refer a taxpayer’s affairs to an Investigation Commission for inquiry and reporting, as well as sections 5, 6, 7 and 8-A, which deal with the investigation, reporting, settlement and recovery of tax liabilities.
The petitioner, a businessman, was alleged to have earned substantial profits during the wartime period and to have evaded payment of income tax on those profits. Acting under section 5(1) of the 1947 Act, the Central Government referred the petitioner’s case to the Investigation Commission for a detailed inquiry into the profits earned from 1 January 1939 to 31 December 1947. While the Commission’s investigation was ongoing, the petitioner applied for a settlement under section 8-A of the same Act. The Central Government accepted this application, and the tax assessed against the petitioner was then payable in instalments, thereby effecting a mutual settlement of the claim for evaded tax. Nevertheless, instalments amounting to a little over four lakh rupees remained unpaid.
Consequently, the petitioner instituted the present proceeding under article 32 of the Constitution, contending that the entire process undertaken under Act XXX of 1947 was illegal, ultra ves, void and unconstitutional. He argued that the income-tax authorities lacked competence to recover the remaining amount and asserted that sections 5, 6, 7 and 8-A of the Act were ultra ves because they infringed the fundamental rights guaranteed by articles 14, 19(1)(f) and 31 of the Constitution. The Court held that the petition under article 32 was not maintainable, because the amounts already paid or still recoverable from the petitioner were being recovered pursuant to the settlement reached between him and the Government. The Court further explained that article 32 is not intended to provide relief against voluntary actions of a person, including the settlement of tax liabilities, and therefore the petition could not succeed.
The petitioner was a resident of Akola in the State of Madhya Pradesh and conducted business in oil mills, banking, money-lending and other enterprises. It was alleged that during the war years he earned large profits but deliberately avoided paying tax on those earnings. In 1948 the Central Government, invoking section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947, referred his case to the Investigation Commission for inquiry covering the period from 1 January 1939 to 31 December 1947. After completing its investigation, the Commission submitted a report on 28 February 1951 stating that the petitioner had concealed income of Rs 27,25,363 and that tax due on that amount totaled Rs 18,44,949. While the investigation was pending, the petitioner applied for a settlement under section 8-A of Act XXX of 1947, and his application was transmitted together with the Commission’s report to the Central Government. The petitioner proposed to discharge the liability of Rs 18,44,949 by paying Rs 3,44,949 on or before 25 June 1951, Rs 5,00,000 on or before 25 March 1952, Rs 5,00,000 on or before 25 March 1953, and Rs 5,00,000 on or before 25 March 1954. He also requested that the amount already paid, Rs 32,034.6, be allowed as a credit against the outstanding debt. The Central Government accepted the settlement offer, thereby concluding the tax evasion claim by mutual agreement. After the settlement, the petitioner repeatedly sought extensions for the instalment payments, and the Government granted such extensions from time to time. Between 16 July 1951 and 10 April 1954 the petitioner voluntarily paid approximately Rs 14,00,000 towards the agreed tax liability.
A balance of Rs 4,50,000 remained unpaid, and the settlement stipulated that this balance be cleared in instalments not later than 25 March 1955. One of the settlement conditions required the petitioner not to transfer, mortgage, charge, alienate or otherwise encumber any of his movable or immovable property, except stock-in-trade. He could do so only with prior permission of the Commissioner of Income-Tax and solely for the purpose of paying the tax due under the settlement. In June 1954, after the Supreme Court rendered its decision in Suraj Mal Mohta v. A. V. Visvanatha Sastri, the petitioner filed a petition under article 32 of the Constitution. He claimed that the whole proceedings under the Act, which created a tax liability of Rs 18,44,949 and caused him to pay Rs 13,99,175, were wholly illegal, ultra-vires, void and unconstitutional. He further contended that the Income-Tax authorities had no legal right to recover the remaining amount of Rs 4,50,000 from him. The petition’s grounds specifically referenced sections 5 and 6 of the Act, asserting that those provisions were unconstitutional and therefore void.
The petition contended that sections seven and eight of Act XXX of 1947 were invalid and ultra vires because they violated the guarantees of articles fourteen, nineteen-one-f and thirty-one of the Constitution. It was argued that the Act lacked any reasonable or equitable basis for classification and that it conferred upon the executive an unrestricted and absolute power to select and differentiate among members of the same class of taxpayers. Further, the petition asserted that the procedure prescribed by the Act for uncovering concealed profits differed substantially from, and was more prejudicial to, the assessee than the procedure laid down in section thirty-four of the Indian Income-Tax Act. In the concluding paragraph of the petition, the petitioner prayed that a writ or appropriate direction be issued to set aside the entire proceedings and all orders issued under the Act by the Central Government and the respondent Commission, and to restrain them from instituting any further action against him under the Act. The petitioner also sought a direction for the restoration of a sum of Rs 13,99,715-10-6 with interest at six per cent, and requested that the respondents be restrained from taking any action to recover the sum of Rs 4,50,000 with interest.
The Court observed that the petition was wholly misconceived. It held that any tax already paid by the petitioner, or any amount still recoverable, was being collected on the basis of a settlement that the petitioner himself had proposed and which had been accepted by the Central Government. Because the petitioner had requested a settlement, no assessment had been made against him following the complete procedure prescribed by the Income-Tax Act. Consequently, the Court stated that the petitioner could not claim that his fundamental rights had been infringed unless he could establish that his consent to the settlement had been improperly obtained and that he was therefore not bound by it. The Court further explained that article thirty-two of the Constitution is not intended to provide relief against the voluntary actions of an individual, and that any remedy the petitioner might have lay in other appropriate proceedings. The learned counsel for the petitioner had argued that the settlement application had been made under pressure from the coercive machinery of Act XXX of 1947, rendering the settlement non-binding and unenforceable. The Court, however, found that regardless of the merits of that contention, it could not be raised in a petition under article thirty-two, and that the proper forum for investigating such allegations lay elsewhere. Accordingly, the petition was dismissed with costs.