Pannalal Binjraj vs Union of India

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 21 December 1956

Coram: B.P. Sinha, S.K. Das, Bhagwati

In the matter titled Pannalal Binjraj versus Union of India, decided on 21 December 1956, the Supreme Court of India recorded that the petitions filed under article 32 of the Constitution raised a common question of law concerning whether section 5(7A) of the Indian Income‑tax Act, hereinafter referred to as the Act, was beyond the powers of the legislature because it infringed the fundamental rights guaranteed by article 14 and article 19(1)(g). The Court noted that the factual background leading to the filing of the petitions could be briefly stated. Petitions numbered 97 and 97‑A of 1956 were filed by two petitioners: the first petitioner was the firm M/s Pannalal Binjraj, which engaged in oil‑mill operations, merchandising and commission agency work and carried on its business at Sahibganj in the district of Santhal Parganas with a branch at 94, Lower Chitpur Road, Calcutta; the second petitioner was R. B. Jamuna Das Chowdhury, a resident of the same locality and former karta of the Hindu undivided family that conducted business under the name and style of M/s Pannalal Binjraj. Prior to 28 September 1954, both petitioners had been assessed by the Income‑tax Officer of the Special Circle in Patna. On that date the Central Board of Revenue issued an order transferring their cases to the Income‑tax Officer of Central Circle XI in Calcutta. Subsequently, on 22 January 1955 the Central Board transferred the case of petitioner 2 to the Income‑tax Officer of Central Circle VI in Delhi, and on 12 July 1955 it similarly transferred the case of petitioner 1 to the same officer in Delhi. After these transfers, the officer of Central Circle VI instituted several proceedings against the petitioners. The petitioners contested the validity of the transfer orders as well as all subsequent proceedings, including the assessment orders and a penalty order for non‑payment of income‑tax that had already been assessed, on the ground that section 5(7A) of the Act was ultra vires the Constitution and that every proceeding undertaken by the Income‑tax Officer of Central Circle XI, Calcutta, and by the Income‑tax Officer of Central Circle VI, Delhi, was therefore without jurisdiction and void. The Court further described petitions numbered 44 and 85 of 1956. Petition 44/56 was filed by Shri A. L. Sud, the sole proprietor of M/s Amritlal Sud (Construction), originally from Hoshiarpur district in the State of Punjab but residing and conducting business in Calcutta since 1948. Before 29 June 1955 he had been assessed by the Income‑tax Officer of Special Survey Circle VII, Calcutta. On that date the Central Board of Revenue transferred his case to the Income‑tax Officer of Special Circle, Ambala, who continued the proceedings and instituted further proceedings, assessing him under section 23(4) of the Act for assessment years 1946‑47 and 1947‑48 and demanding payment of the tax so assessed. Bhagwati, J. recorded these facts as the foundation for the petitions that challenged the constitutionality of section 5(7A) of the Act.

In Petition No 44 of 1956, the petitioner Shri A. L. Sud, who was the sole proprietor of M/s Amritlal Sud (Construction) and a resident of Calcutta, challenged the validity of an order dated 29 June 1955 issued by the Central Board of Revenue. Prior to that date, his income‑tax liability had been assessed by the Income‑Tax Officer of Special Survey Circle VII, Calcutta. On 29 June 1955 the Central Board transferred his case to the Income‑Tax Officer of the Special Circle in Ambala, who then continued the proceedings and assessed the petitioner under section 23(4) of the Act for the assessment years 1946‑47 and 1947‑48. After demands for payment of the assessed tax were made, Shri A. L. Sud filed a petition seeking to set aside both the transfer order dated 29 June 1955 and the subsequent proceedings before the Special Circle, Ambala, on the ground that section 5(7A) of the Act was ultra vires the Constitution. Petition No 85 of 1956 was filed by M/s Bhagwan Das Sud & Sons, Merchants, Hoshiarpur, which carried on a rosin and turpentine business. Before 20 October 1953 the firm had been assessed by the Income‑Tax Officer, Hoshiarpur. On that date the Commissioner of Income‑Tax exercised authority under section 5(7A) to transfer the case to the Income‑Tax Officer, Special Circle, Ambala. The officer in Ambala continued the case, reopened the assessment for the years 1944‑45 through 1950‑51, and completed assessments for the years 1947‑48, 1950‑51 and 1951‑52. The petitioners then filed a petition challenging the validity of the transfer order dated 20 October 1953 and the subsequent proceedings before the Special Circle, Ambala, invoking the same plea that section 5(7A) was unconstitutional. It was further noted that Shri A. L. Sud was a member of the Hindu undivided family that carried on business in the name and style of M/s Bhagwan Das Sud & Sons, and that the cases of both petitioners had been transferred to the Income‑Tax Officer, Special Circle, Ambala by the respective orders referred to above.

Petitions Nos 86, 87, 88, 111, 112 and 158 of 1956 may be collectively described as the Amritsar group. The petitioner in No 86 of 1956 was Sardar Gurdial Singh, son of S. Narain Singh; the petitioner in No 87 of 1956 was Dr Sarmukh Singh, also a son of S. Narain Singh; and the petitioner in No 112 of 1956 was S. Ram Singh, another son of S. Narain Singh. These three individuals were brothers. The petitioner in No 88 of 1956 was their father, S. Narain Singh, son of S. Basdev Singh. The father and the three sons were directors of Hindustan Embroidery Mills (Private) Ltd., which was the first petitioner in Petition No 111 of 1956 and was situated at Chheharta near Amritsar. Before the Commissioner of Income‑Tax exercised the power under section 5(7A) to order their transfer, all the petitioners had been assessed by the Income‑Tax Officer of ‘A’ Ward, Amritsar. Around 29 June 1953 their cases were transferred by the Commissioner from the ‘A’ Ward officer to the Income‑Tax Officer, Special Circle, Amritsar. The Special Circle officer continued the proceedings and issued notices under section 34 of the Act for the assessment years 1947‑48 through 1951‑52. Each of the petitioners subsequently filed a separate petition contesting both the transfer order made by the Commissioner of Income‑Tax and the proceedings thereafter before the Income‑Tax Officer, Special Circle, Amritsar, on the ground that section 5(7A) of the Act was unconstitutional.

In this case the petitioner identified in Petition No. 158/56 is Shri Ram Saran Das Kapur, who serves as the head and Karta of a Hindu undivided family that conducts its business at a location outside Ghee Mandi Gate in Amritsar. Prior to the order that is the subject of the present challenge, his tax matter was being dealt with by the Income‑tax Officer of the ‘F’ Ward in Amritsar. In 1954 the Commissioner of Income‑tax issued an order, made under section 5(7A) of the Income‑tax Act, that transferred Shri Kapur’s case from the ‘F’ Ward officer to the Income‑tax Officer of the Special Circle, also in Amritsar. The petitioner did not raise any objection to this transfer at the time it was effected; his objection was only voiced after an assessment order had been passed against him. Nevertheless, he subsequently filed a petition contesting both the validity of the transfer order and the continuation of the assessment proceedings by the Special Circle officer, relying on the same constitutional argument that the other petitioners had advanced, namely that section 5(7A) was unconstitutional.

The next set of petitions, numbered 211 through 215 of 1956, may be collectively described as the Sriram Jhabarmull group. Although each petition was filed separately, all of them were brought by the same individual, Nandram Agarwalla, who is the sole proprietor of a business carried on under the trade name ‘Sriram Jhabarmull’. The business is engaged, among other activities, in the import and export of piece‑goods, acting as commission agents, and dealing in raw wool and various other materials. The main place of business is situated in Kalimpong, in the Darjeeling district, and the enterprise also maintains a branch in Calcutta. The petitions relate to income‑tax assessments for the financial years 1944‑45, 1945‑46, 1946‑47, 1947‑48 and 1948‑49. Before the transfer orders that are now being challenged, the petitioner’s case was being assessed by the Income‑tax Officer at Jalpaiguri in Darjeeling. On 5 March 1946 the Commissioner ordered that the petitioner’s file be transferred from the Jalpaiguri officer to the Income‑tax Officer of Central Circle I in Calcutta. A few months later the file was moved again, this time to the Income‑tax Officer of Central Circle IV in Calcutta. On 8 June 1946 a further transfer returned the file to Central Circle I, and finally on 27 July 1946 the Commissioner of Income‑tax, Central Calcutta, issued an order under section 5(7A) sending the petitioner’s case back to Central Circle IV. It is these orders of transfer, made under the contested provision, that the petitioner alleges to be unconstitutional and consequently void, seeking to set aside the assessment proceedings that were continued by the Central Circle IV officer on the basis of that transfer. It is noteworthy that all of these transfer orders were issued before the Constitution of India came into force; nevertheless, after the July 1946 order the assessment proceedings for each of the years in question were completed, and certificate proceedings under section 46(2) of the Act were also concluded. Subsequent transfer orders dated 15 December 1947 and another in September 1948 moved the petitioner’s file from Central Circle IV to Central Circle I and then back again, although those later movements are not material to the present challenge, which focuses exclusively on the July 27 1946 order made under section 5(7A).

The Court noted that the subsequent transfers of the case between the Income‑tax Officer, Central Circle I, Calcutta and the Income‑tax Officer, Central Circle IV, Calcutta, were not relevant to the present dispute. The only order that was the subject of the challenge was the order issued by the Commissioner of Income‑tax Central, Calcutta, on 27 July 1946, which had been made pursuant to section 5(7A) of the Act.

Petitions numbered 225 to 229 of 1956, which the Court classified as the “Raichur group,” related to assessments for the fiscal years 1950‑51, 1951‑52, 1952‑53, 1953‑53 and 1954‑55. In each of these petitions the petitioner was the same person, Kalloor Siddanna, a resident of Raichur in the State of Hyderabad who conducted business as a commission agent and distributor of agricultural products. Income‑tax liability in Hyderabad had first been imposed in 1946 by a special statute of the Hyderabad Legislature, and the petitioner had been assessed for the years 1948‑49 and 1949‑50 by the Additional Income‑tax Officer, Raichur, under the Hyderabad Income‑tax Act. When, on 1 April 1950, the Indian Income‑tax Act was extended to Hyderabad, the Additional Income‑tax Officer, Raichur, continued to assess the petitioner. The assessments for the years 1950‑51, 1951‑52 and 1952‑53 remained pending before that officer and proceedings were initiated for those years.

On 21 December 1953 the Commissioner of Income‑tax Hyderabad issued a notification under section 5(7A) directing that the petitioner’s case be transferred from the Additional Income‑tax Officer, Raichur, to the Income‑tax Officer, Special Circle, Hyderabad. The Special Circle officer thereafter continued the assessment process and served notices under section 22(4) of the Act on 1 July 1954, 2 November 1954, 30 November 1954, 19 December 1954 and 11 March 1955, all relating to the assessment years in question. Assessments for those years were finally made on 21 March 1955. Subsequently, on 24 April 1955 the petitioner filed an application under section 27 of the Act seeking to reopen the assessment for the year 1950‑51, alleging a default under section 23(4) of the Act.

Shortly before 19 May 1955 the Commissioner of Income‑tax Hyderabad issued another order, this time invoking both section 5(7A) and section 64(5)(b) of the Act, which transferred all of the petitioner’s cases to the main Income‑tax Officer, Raichur. The petitioner contested both the 21 December 1953 transfer order and the later May 1955 order, asserting that each was unconstitutional and void because section 5(7A) was beyond the powers of the legislature. This challenge was made even though, under the later order, the petitioner was ultimately being assessed by the main Income‑tax Officer, Raichur.

The Court observed that the central issue common to all the petitions was the allegation that section 5(7A) of the Act was ultra vires the Constitution. While this constitutional question was uniform, each group of petitions also raised specific factual disputes concerning the alleged discriminatory effect of the particular transfer orders. The Court indicated that those factual questions would be examined in the appropriate sections of the judgment.

The Court observed that the statutory provision known as Section 5(7A) of the Income‑Tax Act states that the Commissioner of Income‑tax may transfer any case from one Income‑tax Officer who is subordinate to him to another Income‑tax Officer, and that the Central Board of Revenue may likewise transfer any case from any one Income‑tax Officer to another. The provision further provides that such a transfer may be effected at any stage of the proceedings and that the transfer does not require the re‑issuance of any notice that has already been issued by the Income‑tax Officer from whom the case is transferred. This sub‑section was inserted by Section 3 of the Indian Income‑tax Amendment Act, 1940 (Act XL of 1940) in response to the decision of the Bombay High Court in the case of Dayaldas Kushiram v. Commissioner of Income‑tax (Central) reported in I.L.R. 1940 Bom. 650. Later, through the Indian Income‑tax Amendment Act, 1956 (Act XXVI of 1956), an explanatory clause was added to Section 5(7A). The explanation, which was introduced as a result of the Supreme Court’s decision in Bidi Supply Co. v. The Union of India [1956 S.C.R. 267], clarifies that the term “case” as used in the sub‑section, when referring to any person whose name appears in an order of transfer, includes all proceedings under the Act that are pending for any year on the date of transfer and also includes any proceedings that may be initiated after the date of transfer for any year. The Court noted that Section 5(7A) together with this explanatory addition must be examined in the petitions before it.

The petitioners contended that Sections 64(1) and 64(2) of the Act grant the assessee a valuable right to inform the taxing authorities that he should not be required to attend at multiple locations, a requirement that would disrupt his business. They argued that Section 5(7A) gives the Commissioner of Income‑tax and the Central Board of Revenue an unrestricted and arbitrary power to transfer any case from one Income‑tax Officer to another without any temporal limitation, a power that is unguided, uncontrolled, and discriminatory. According to the petitioners, this power enables the Commissioner or the Board to single out the case of one assessee while others in similar circumstances remain untouched, and to move that case from one State to another or from one end of the country to the other without stating any purpose or providing any reason. This, they asserted, subjects the selected assessee to discriminatory treatment, whereas other similarly situated assessees would continue to be assessed at the places where they reside or conduct business, as protected by Sections 64(1) and 64(2). The petitioners further pointed out that Section 64(5), which was inserted concurrently with Section 5(7A), provides retrospectively that the provisions of Sections 64(1) and 64(2) shall not apply, among other things, where an order has been made under Section 5(7A). They argued that this retrospective provision does not deprive the assessee of the valuable right conferred upon him by Sections 64(1) and 64(2).

Under sections 64(1) and 64(2) the provisions would continue to apply unless and until section 5(7A) were held to be within the constitutional powers. However, as earlier observed, section 5(7A) is discriminatory in nature and therefore exceeds the limits of the Constitution; consequently it cannot uphold section 64(5), which is only a consequential provision. The discrimination created by section 5(7A) is substantial and thus violates the guarantee of equality before the law contained in Article 14 of the Constitution. In addition, the provision infringes Article 19(1)(g) because it imposes an unreasonable restriction on the fundamental right to carry on trade or business, as noted in Himmatlal Harilal Mehta v. State of Madhya Pradesh [1954] S.C.R. 1122.

The same constitutional issue concerning the validity of section 5(7A) arose before this Court in the case of Bidi Supply Co. v. Union of India. In that matter, the assessee’s file had been transferred by the Central Board of Revenue under section 5(7A) from the Income‑tax Officer of District III, Calcutta, to the Income‑tax Officer of the Special Circle, Ranchi. The transfer order was an omnibus, wholesale directive expressed in general terms, without reference to any specific case and without any time limitation. The order was challenged on the ground that the empowering provision, section 5(7A), was unconstitutional. By a majority opinion, this Court examined the general principles underlying Article 14 but refrained from deciding the constitutional question. The Court observed at page 276:

"We do not consider it necessary, for the purpose of this case, to pause to consider whether the constitutionality of sub‑section (7A) of section 5 can be supported on the principle of any reasonable classification laid down by this Court or whether the Act lays down any principle for guiding or regulating the exercise of discretion by the Commissioner or Board of Revenue or whether the sub‑section confers an unguided and arbitrary power on those authorities to pick and choose individual assessee and place that assessee at a disadvantage in comparison with other assessees. It is enough for the purpose of this case to say that the omnibus order made in this case is not contemplated or sanctioned by sub‑section (7A) and that, therefore, the petitioner is still entitled to the benefit of the provisions of sub‑sections (1) and (2) of section 64. All assessees are entitled to the benefit of those provisions except where a particular case or cases of a particular assessee for a particular year or years is or are transferred under sub‑section (7A) of section 5, assuming that section to be valid and if a particular case or cases is or are transferred his right under section 64 still remains as regards his other case or cases."

After presenting this excerpt, the majority judgment went on to assess the impact of an unrestricted, time‑indefinite omnibus transfer order on the assessee’s rights, noting at page 277 that such an order was calculated to cause considerable inconvenience and harassment.

The Court observed that the order required the petitioner to produce its books of account before the Income‑Tax Officer of the Special Circle at Ranchi, a location situated hundreds of miles away from the petitioner’s place of business in Calcutta. Consequently, the petitioner’s partners or principal officers would have to leave the head office for a substantial period, thereby neglecting the firm’s main business activities. The Court noted that there might be no suitable accommodation available for the partners and officers during that period, and that the petitioner would inevitably incur additional expenses such as railway fares, freight charges and hotel costs. In light of these facts, the Court held that the reality of the discrimination could not be denied. It further concluded that this considerable discrimination had been imposed upon the petitioner by an executive action that lacked any statutory basis, and that no reasonable classification for legislative purposes could be identified. The Court therefore stated that “the State,” including its Income‑Tax department, had by an illegal order denied the petitioner equality before the law and equal protection of the laws, in contrast to other bidi merchants situated in similar circumstances. Accordingly, the petitioner was entitled to complain of an infringement of the fundamental right guaranteed under Article 14 of the Constitution.

The Court then noted that the question of the constitutionality of section 5(7A) of the Act remained unresolved, and that the decision was confined to the interpretation of the impugned order. Counsel for the petitioners emphasized the minority judgment of Justice Bose, who had held that sections 5(7A) and 64(5)(b) of the Act were themselves violative of Article 14 and not merely the order of the Central Board of Revenue. The counsel referred to a passage from Justice Fazl Ali’s judgment in The State of West Bengal v. Anwar Ali Sarkar, and also to the Court’s decision in M/s Dwarka Prasad Laxmi Narain v. The State of Uttar Pradesh and Two Others. He argued that the petitioner's case involved a transfer ordered from Calcutta in West Bengal to Ambala in the Punjab without any hearing, without recorded reasons, and that the power conferred by the Act permitted transfers from one end of India to another. The counsel further contended that if the Legislature itself had enacted a provision identical to the Board’s order—selecting the petitioner’s case for transfer from one State to another without specifying any objective or providing any reason—it would, in his opinion, be invalid. He expressed the view that the power of transfer must be limited by reasonable restrictions subject to judicial review, and that the exercise of such power must comply with natural‑justice principles, including giving the affected parties an opportunity to be heard where reasonably possible and recording the reasons for the order, however briefly, so that the exercise of the quasi‑judicial powers can be seen to be just and proper.

The Court remarked that the situation was not improved merely because the Central Board of Revenue had exercised the power rather than Parliament, observing that “is bettered because the Central Board of Revenue has done this and not Parliament.” (p. 284‑5) The Court then expressed its view on the nature of the power to transfer cases, stating: “In my opinion, the power of transfer can only be conferred if it is hedged round with reasonable restrictions, the absence or existence of which can in the last instance be determined by the courts; and the exercise of the power must be in conformity with the rules of natural justice, that is to say, the parties affected must be heard when that is reasonably possible, and the reasons for the order must be reduced, however briefly, to writing so that men may know that the powers conferred on these quasi‑judicial bodies are being justly and properly exercised.” (p. 287) Following this observation, the State formulated a four‑point response to the argument presented. The first point asserted that the provision contained in section 5(7A) of the Income‑Tax Act was introduced as a measure of administrative convenience, intended to enable the Commissioner of Income‑Tax or the Central Board of Revenue to transfer a case from one Income‑Tax Officer subordinate to them to another whenever such transfer was considered necessary or desirable. The State explained that the genuine purpose of inserting section 5(7A) through the Indian Income‑Tax Amendment Act, 1940 (XL of 1940) was set out in an affidavit filed by Shri V. Gouri Shankar, Under‑Secretary of the Central Board of Revenue, dated 19 November 1956. The affidavit, which forms the template for all affidavits submitted on behalf of the State, stated: “4. … I say that the provisions of s. 5(7A) were inserted by the Income‑tax Amendment Act, XL of 1940, with the object of minimising certain procedural difficulties. Before this amendment was passed there was no specific provision in the Act for transferring a case from one Income‑tax Officer to another except by a long and circuitous course even at the request of the assessees. In order therefore to be able to transfer the case from one I.T.O. to another either because of the request of the assessee or for dealing with cases involving special features such as cases of assessees involving widespread activities and large ramifications or inter‑related transactions, power to transfer cases was conferred upon the Central Board of Revenue and the Commissioner of Income‑tax as the case may be. I say that the provisions of s. 5(7A) are thus administrative in character….” The second point of the State’s answer emphasized that an assessee whose case is transferred does not face any discriminatory procedure in the assessment process; the Income‑Tax Officer who receives the transferred case must handle it according to the same procedural provisions applicable under the Act.

In this case, the Court observed that the appellate route for any aggrieved taxpayer extended, as provided by the statute, to the Supreme Court. The Court emphasized that every taxpayer, irrespective of whether the assessment was made by the Income‑tax Officer of the area in which the taxpayer lived or carried on business, or whether the taxpayer’s file had been transferred from one Income‑tax Officer to another, was required to follow the same procedural steps. All such taxpayers were also entitled to identical rights and privileges when seeking redress of any grievance. The Court declared that no discrimination existed whatsoever between any taxpayers, whether they were originally assessed in their own locality or later transferred to a different officer.

The Court further stated that any right that might be said to arise for a taxpayer under sections 64(1) and 64(2) of the Act was not an absolute right. Such a right was limited by the necessities of tax collection and could be denied in circumstances where the Commissioner of Income‑tax or the Central Board of Revenue—in the appropriate case—considered it necessary or desirable to move a case from one Income‑tax Officer to another under section 5(7A). The Court noted that the argument of inconvenience was addressed in the affidavit filed by the respondents, which read: “I further say that as a result of any transfer that may be made under the provisions of section 5(7A) there is no discriminatory treatment with regard to the procedure and that no privileges and rights which are given to the assessees by the Income‑tax Act are taken away, nor is the assessee exposed to any increased prejudice, punitary consequences or differential treatment. I say that in cases where transfers under this section are made otherwise than on request from assessees, the convenience of the assessees is taken into consideration by placing the case in the hands of an Income‑tax Officer who is nearest to the area where it will be convenient for the assessee to attend. If on account of administrative exigencies this is not possible and the assessee requests that the examination of accounts or evidence to be taken should be in a place convenient to him, the I.T.O. complies with the request of the assessee and holds the hearing at the place requested.” The Court observed that even if a difference existed between taxpayers who lived or operated in a particular area because of such transfers, that difference was merely a slight deviation from the general standard and did not amount to a denial of equal rights.

Finally, the Court held that the power to transfer cases under section 5(7A) was a discretionary power and was not inherently discriminatory. It warned that a presumption of abuse should not be readily attached to officials who exercise such discretion, even though occasional misuse might occur. The Court explained that the validity of the statutory provision could not be challenged merely on the basis of a fear of abuse; rather, only a discriminatory application of the provision could be struck down, not the provision itself. The petitioners, in support of their argument, then relied on a passage from the judgment of Justice Fazl Ali in The State of West Bengal v. Anwar Ali.

In the present case the Court referred to the judgment in Sarkar, which had been cited by Justice Bose in his dissenting opinion in Bidi Supply Co. v. Union of India, page 281. The passage quoted from Sarkar observed that a suggestion had been made that because the statute was framed in general terms and applied uniformly to every person and every offence, it could not be said to discriminate in favour of or against any particular class of persons or cases. According to that suggestion, any allegation of discrimination could be directed only at the executive authority if the statute were misused. The Court noted that this line of reasoning failed to resolve the difficulty. If the argument were accepted, the Court explained, then even where discrimination was clearly evident it could not be challenged merely because the provision was expressed in general language, and the executive could escape responsibility by claiming that it was merely acting under the statute. The Court further observed that embracing such reasoning would effectively nullify the protection afforded by article fourteen of the Constitution. The Court identified the flaw in the argument as the failure to recognise that the “insidious discrimination” complained of was embedded in the statute itself, because the provision was drafted in a manner that any discriminatory effect could ultimately be traced back to the wording of the law.

The central point of the petitioners’ submission, the Court continued, lay in sections sixty‑four(1) and (2) of the Income‑Tax Act, which determine the place at which an assessee must be assessed. Section sixty‑four read: “(1) Where an assessee carried on a business, profession or vocation at any place, he shall be assessed by the Income‑tax Officer of the area in which that place is situate or, where the business, profession or vocation is carried on in more places than one, by the Income‑tax Officer of the area in which the principal place of his business, profession or vocation is situate. (2) In all other cases, an assessee shall be assessed by the Income‑tax Officer of the area in which he resides.”

The Court then referred to the interpretation of these provisions by the Bombay High Court in Dayaldas Kushiram v. Commissioner of Income‑Tax (Central). Chief Justice Beaumont, at page 657, had observed that, in his opinion, section sixty‑four was intended to ensure that, as far as practicable, an assessee should be assessed locally, and that the jurisdiction of an Income‑tax Officer must, subject to the practical requirements of tax collection, bear a reasonable relation to the place where the assessee conducts his business or resides. Justice Kania, who then sat on the bench, went a step further in his commentary at page 660, stating that a plain reading of the section made its requirement mandatory in terms. He added that the provision conferred a valuable right on the assessee, enabling him to inform the taxing authorities that he should not be required to appear at multiple or distant locations for assessment.

In the earlier judgments the learned judges appeared to treat the provisions of sections 64(1) and 64(2) of the Income‑Tax Act as granting a substantive right to the assessee rather than merely as a matter of administrative convenience. Accordingly, if a right indeed existed under those provisions and that right continued to be enjoyed by all assessees except the one whose case was transferred pursuant to section 5(7A) to an Income‑Tax Officer outside the area where the assessee resides or carries on business, the affected assessee could claim that he was being discriminated against and subjected to inconvenience and harassment. The Court therefore found it necessary to examine whether sections 64(1) and 64(2) actually conferred such a right upon the assessee. Prima facie, the provisions seemed to entitle an assessee to be assessed by the Income‑Tax Officer of the particular area in which he resides or carries on business. When a dispute arises concerning the place of assessment, section 64(3) provides that the question is to be decided by the Commissioner or the Commissioners concerned if the dispute involves places in more than one State, or by the Central Board of Revenue if the Commissioners cannot agree. The assessee is given an opportunity to present his views before any such determination is made. This legislative scheme demonstrates that the convenience of the assessee is the primary consideration in fixing the place of assessment. Nevertheless, the exigencies of tax collection must also be taken into account, and the overarching purpose of the Act – namely, the assessment of income‑tax – must be achieved. The hierarchy of income‑tax authorities created under Chapter II of the Act is intended to ascertain the correct tax liability of each assessee. Consequently, the decision as to which authority will assess a particular assessee must be guided not only by the assessee’s convenience but also by the practical requirements of tax administration. In certain situations it may be more convenient and efficient for the tax authorities to have an assessee examined by an Income‑Tax Officer belonging to an area different from the one in which the assessee resides or conducts business. For example, the nature and volume of the assessee’s commercial activities might demand an investigation in a location other than his residence or place of business, or the assessee might be so closely connected with various other persons or entities in the generation of his income that an extra‑territorial investigation becomes necessary before a proper assessment can be made. These illustrations represent the kinds of circumstances in which the tax authorities may deem it appropriate to transfer the case from the Income‑Tax Officer of the assessee’s own area to another officer, whether that officer operates within the same State or beyond it.

In this case the Court explained that an assessee may be transferred from the Income‑tax Officer who ordinarily handles assessments in the locality where he lives or carries on business to another Income‑tax Officer, even if that officer works in a different State. The Court pointed out that this principle had been emphasized by Chief Justice Beaumont in the earlier decision of Dayaldas Kushiram v. Commissioner of Income‑tax (Central) at page 146, where the Chief Justice used the phrase “as far as practicable” to describe the assessee’s entitlement to be assessed in his own locality, and the phrase “so far as exigencies of tax collection allow” to describe the circumstances under which the tax authority may appoint a different officer to make the assessment. In a later judgment of the same case, Chief Justice Beaumont further observed that the Income‑tax Act does not prescribe a fixed place of assessment; rather, it identifies the officer who has the authority to assess, sometimes referring to locality, but any appeal would be directed against the assessment order of that officer, not against the Commissioner’s decision on where the assessment should be made. This observation effectively conveys that the statutory provision does not grant the assessee a right to be assessed at a specific location, but merely determines which officer may exercise the assessing power.

The Court also noted that the Federal Court reinforced this view in Wallace Brothers & Co. v. Commissioner of Income‑tax, Bombay, Sind & Baluchistan, where Chief Justice Spens remarked that clause (3) of section 64 assigns the question of the place of assessment to the Commissioner or the Central Board of Revenue. He further explained that if an assessee disputes the designated place, the Income‑tax Officer must refer the matter for determination under the relevant sub‑section before proceeding with the assessment. According to the Federal Court, these rules reflect an issue of administrative convenience rather than a matter of jurisdiction, and they are not suitable for adjudication by the courts.

Nevertheless, the Court observed that the majority judgment in Bidi Supply Co. v. The Union of India, at page 276, treated the benefit given to the assessee by sections 64(1) and 64(2) as a recognized right. The Court stated that it would be untimely to deny that the assessee enjoys a right to be assessed by the Income‑tax Officer of the area where he resides or conducts business. However, the Court emphasized that this right is qualified by the requirement that it yield to the exigencies of tax collection. Consequently, the determination of whether a particular Income‑tax Officer should assess an assessee’s case depends on two considerations: (1) the convenience of the assessee as provided in the statutory provisions, and (2) the practical needs of tax collection.

Section 64(1) and (2) of the Act provide a right to an assessee to be assessed by the Income‑tax Officer of the area in which the assessee resides or carries on business. However, the same section also recognises the need to consider the exigencies of tax collection. Accordingly, the Court explained that it is within the authority of the Commissioner of Income‑tax and the Central Board of Revenue, who occupy the highest positions among the Income‑tax Authorities under the Act, to transfer the case of a particular assessee from the Income‑tax Officer of the assessee’s own area to any other Income‑tax Officer whenever the exigencies of tax collection justify such a transfer. This power may be exercised if, for reasons of efficient tax collection, it is deemed appropriate to shift the responsibility for assessment to a different officer.

The Court further observed that the exercise of this transfer power under section 5(7A) does not constitute a material infringement of the right conferred by sections 64(1) and (2). The transfer is characterised as a minor deviation from the general standard and does not automatically entail a denial of equal rights, because the procedural framework applicable to the assessment remains unchanged after the transfer. The same statutory requirements continue to apply: the production and investigation of the books of account, the inquiries to be made by the Income‑tax Officer, and the entire assessment process, including any subsequent appeals, are carried out in exactly the same manner as when the case is handled by the officer originally designated for that area. Consequently, there is no differential treatment and no basis for alleging that the transferred assessee is discriminated against in comparison with other similarly situated taxpayers. The Court cited its earlier decision in M. K. Gopalan v. The State of Madhya Pradesh, stating: “In support of the objection raised under article 14 of the Constitution, reliance is placed on the decision of this Court in Anwar Ali Sarkar’s case. That decision, however, applies only to a case where on the allotment of an individual case to a special Court authorised to conduct the trial by a procedure substantially different from the normal procedure, discrimination arises as between persons who have committed similar offences, by one or more out of them being subjected to a procedure, which is materially different from the normal procedure and prejudicing them thereby. In the present case, the Special Magistrate under s. 14 of the Criminal Procedure Code has to try the case entirely under the normal procedure, and no discrimination of the kind contemplated by the decision in Anwar Ali Sarkar’s case and the other cases following it arises here. A law vesting discretion in an authority under such circumstances cannot be said to be discriminatory as such, and is therefore not hit by article 14 of the Constitution. There is, therefore, no substance in this contention.” The Court also referred to the observations of Mukherjea, J., in The State of West Bengal v. Anwar Ali Sarkar, noting that “if the differences are not material, there may not be any discrimination in the proper sense of …”.

The Court observed that a mere word and trivial departures from an ordinary standard might not constitute a denial of equal rights. It then turned to the operation of section 64(5) of the Income‑Tax Act, noting that as it stands, the provisions of sections 64(1) and 64(2) are never applicable to a taxpayer when, because of a transfer made under section 5(7A), a specific Income‑Tax Officer is assigned the responsibility of assessing that taxpayer. Section 64(5) had been introduced by the Income‑Tax Law Amendment Act, 1940 (XL of 1940) at the same time as section 5(7A). The argument advanced by counsel was that a taxpayer whose case had been transferred in this manner was consequently deprived of the rights guaranteed under sections 64(1) and 64(2), and that only those taxpayers who did not fall within the ambit of section 64(5) could enjoy the benefits of sections 64(1) and 64(2). The Court held that this line of reasoning overlooked the fact that section 5(7A) is the very foundation upon which section 64(5) was enacted; therefore, if section 5(7A) were to be struck down on the ground that it is discriminatory, the corresponding portion of section 64(5) must also be invalidated.

Subsequently, the Court examined the contention that section 5(7A) itself is discriminatory and violates the fundamental right guaranteed by Article 14. It observed that the authority conferred on the Commissioner of Income‑Tax and the Central Board of Revenue is a naked and arbitrary power that is not guided or constrained by any rules or directions. No regulations have been framed to direct their discretion, nor are there procedural safeguards to ensure that transfers are made on a defined basis. Consequently, the exercise of this power is left entirely to the unfettered will of the Commissioner or the Board, without any mechanism to prevent possible injustice. Citing the words of Justice Matthews in Yick Wo v. Hopkins, the Court emphasized that when an action or inaction may stem from animosity, prejudice, partisan zeal, favoritism or other improper motives that are difficult to detect, the potential for injustice becomes evident to anyone who gives the matter even a moment’s reflection. In the words of Justice Das, this situation does not involve an unconstitutional administration of a statute that is otherwise valid, but rather an unconstitutionality that is manifest on the face of the statute itself. Finally, the Court reminded that the purpose of the Income‑Tax Act is to levy, assess and collect income tax, and that the preamble of the Act does not expressly state this purpose, although it is reflected in the historical objectives of the original Income‑Tax legislation of 1886.

The Court observed that the Act was intended to consolidate and amend the law relating to income‑tax and super‑tax, a purpose expressly set out in the preamble of the First Indian Income‑tax Act of 1886 (Act II of 1886). Accordingly, every provision contained in the Act was designed to achieve that purpose. In the first place, the Act imposes the charge of income‑tax. It then establishes a hierarchy of authorities entrusted with assessing that tax, placing the Central Board of Revenue at the apex of the structure. An Appellate Tribunal was also created to hear appeals against the decisions of the Appellate Assistant Commissioners. Subsequent provisions deal with taxable income, the mode of assessment and related matters. The Income‑tax Officers were invested with the duty of assessing the income‑tax of the assessees at the first instance. The Assistant Commissioners of Income‑tax functioned as appellate authorities over the decisions of the Income‑tax Officers, and the Income‑tax Appellate Tribunal acted as the final appellate authority, subject only to references under section 66(1) of the Act to the High Court on questions of law. The Commissioners of Income‑tax and the Central Board of Revenue served principally as administrative authorities over the Income‑tax Officers and the Assistant Commissioners, and they were tasked with distributing and controlling the work of those officers. All officers and persons employed in the execution of the Act were required to observe and follow the orders, instructions and directions of the Central Board of Revenue, which was the highest authority in the hierarchy. Although, as a general rule under sections 64(1) and (2), the work of assessment was to be performed by the Income‑tax Officer of the area in which the assessee resided or carried on business, section 5(7A) conferred upon the Commissioner of Income‑tax the power to transfer any case from one subordinate Income‑tax Officer to another, and likewise authorised the Central Board of Revenue to transfer any case from one Income‑tax Officer to another. This arrangement formed the administrative machinery set up for assessing the incomes of assessees that were chargeable to income‑tax. Consequently, there was considerable force in the State’s contention that section 5(7A) was a provision intended for administrative convenience. Nevertheless, the Court stressed that the power granted to the Commissioner of Income‑tax and the Central Board of Revenue must be exercised in a non‑discriminatory manner. Since no specific rules or directions had been laid down regarding the exercise of that power in particular cases, the appropriate authority was required to determine the proper circumstances in which such power should be exercised, bearing in mind the object of the Act and the ends to be achieved. The Court further noted that the cases of assessees that came before the income‑tax authorities were of various

In this matter the Court observed that the various cases presented before the income‑tax authorities are of different types and no two cases are identical. The nature of the business carried on by each assessee often introduces complications; in some instances the assessee may be engaged in very extensive activities, have large ramifications, or be involved in inter‑related transactions. Such circumstances can make it necessary, for the purpose of convenient and efficient assessment of income‑tax, to transfer the case from one Income‑tax Officer to another. When a transfer is contemplated, the Commissioner of Income‑tax or the Central Board of Revenue, as appropriate, must exercise its discretion while keeping in mind the requirements of tax collection.

The Court noted that even if the assessee whose case is transferred shares a certain common attribute with other assessees who remain under the jurisdiction of the Income‑tax Officer of the area where they live or conduct business, many other attributes will differ. For example, one assessee might have such widespread activities and ramifications that the case should be moved from the Income‑tax Officer of the original area to an Officer in another area within the same State or even to an Officer in a different State, which the Court referred to as “X”. Another assessee, although belonging to a similar category, might be more conveniently and efficiently assessed in a different area, labelled “Y”. The considerations that will influence the Commissioner of Income‑tax or the Central Board of Revenue in deciding whether to transfer a case to “X” or “Y” depend on the specific facts of each case, and no rigid rule can be prescribed to determine either the necessity of a transfer or the particular officer to whom the case should be assigned.

The Court emphasized that this discretion must reside with the appropriate authority, and the mere fact that a case is moved from the officer of the area in which the assessee resides or carries on business to another officer, whether within the same State or outside it, does not, by itself, render the exercise of discretion discriminatory. Even where there exists a possibility that persons belonging to the same group or category may be treated differently, such a possibility does not automatically invalidate the legislative provision. The Court further reminded that the power to transfer cases is not vested in minor officials but in senior authorities such as the Commissioner of Income‑tax and the Central Board of Revenue, who act on information supplied by the concerned Income‑tax Officers. This power is discretionary and not inherently discriminatory, and an assumption of abuse of power is unwarranted when discretion rests with high‑ranking officials (Vide Matajog Dobey v. H. S. Bhari). Moreover, there is a presumption that public officials will perform their duties honestly and in accordance with the law (Vide People of the State of New York v. John E. Van De Carr, etc. [(1905) 310‑199 U.S. 552; 50 L.Ed. 305]).

The Court noted in A. Thangal Kunju Musaliar v. M. Venkitachalam Potti that, when considering the possibility of discrimination among assessee taxpayers in the selection of cases for referral to the Income‑tax Investigation Commission, a presumption arises that, unless the opposite is proved, the administration of the relevant law is carried out “not with an evil eye and unequal hand” and that the Government’s choice of cases for investigation is not discriminatory. The Court cautioned, however, that this presumption cannot be extended without limit and should not be invoked to conclude that every instance of adverse treatment of a person or a corporation must rest on some hidden or unknown motive. The Court referred to Gulf, Colorado, etc. v. W. H. Ellis [(1897) 165 U. S. 150; 41 L.Ed. 666.] to illustrate that the existence of a presumption does not automatically invalidate a governmental act on the ground of alleged hostility or bias. The Court acknowledged that there may be circumstances in which the improper exercise of discretionary power results in injustice to the parties concerned. Nevertheless, the Court emphasized that the mere possibility of discriminatory treatment does not, by itself, render the legislation invalid. In cases where an abuse of power is demonstrated, the aggrieved parties are not without adequate remedies under existing law, as stated in Dinabandu Sahu v. Jadumony Mangaraj. What the Court would strike down in such situations is not the statutory provision that empowers the authorities, but the misuse of that power. The Court further observed that it would be virtually impossible for an assessee to contest a particular order issued by the Commissioner of Income‑tax or the Central Board of Revenue on the ground of discrimination, because the reasons motivating the authority are usually known only to the authority itself and are not recorded in the order or communicated to the assessee. Consequently, the burden of proof rests on the assessee to show that the transfer order constitutes an abuse of the vested power. The Court, however, rejected the view that this burden is an impossible one to meet. Although the assessee must establish abuse, the Court explained that the burden is not required to be proved “to the hilt.” The Court cited instances where an accused person can rebut a presumption or establish an exception by presenting evidence that satisfies a jury of the probability of the fact the accused must prove, as in Rex v. Carr‑Briant [[1943] 1 K.B. 607.]. Similarly, for a detainee under the Preventive Detention Act who seeks to demonstrate a lack of bona fides in the detaining authority, the burden is not one of proof to the hilt but one that requires showing that the absence of bona fides is reasonably probable, as held in Ratanlal Gupta v. The District Magistrate of Ganjam [I.L.R. 1951 Cuttack 441, 459.].

The Court noted the authorities cited in Cuttack 441, 459 and also in Brundaban Chandra Dhir Narendra v. The State of Orissa (Revenue Department) [I.L.R. 1952 Cuttack 529, 573]. It held that if, in any particular case, the assessee attempts to set aside a transfer order on the ground that it represents an abuse of power by pointing to facts which, on their face and without further proof, would render the exercise of that power discriminatory towards him, the burden then falls on the revenue authority to explain the circumstances that led to the making of the order. The Court said it would scrutinise those circumstances, giving special regard to the object sought to be achieved by the enactment of section 5(7A) of the Act, as outlined in paragraph 4 of the affidavit of Shri V. Gouri Shankar, Under‑Secretary, Central Board of Revenue, which had been quoted earlier. After such examination, the Court would form its own opinion on the bona‑fides of the order. If the Court were not satisfied that the order had been issued by the authority in a bona‑fide exercise of the power conferred by section 5(7A), it would unequivocally set aside the order. The Court explained that the degree of satisfaction required would necessarily depend on the facts of each case, and that it would reach its conclusion after considering all the circumstances disclosed in the record. It emphasized that the Court is not powerless to strike down an abuse of power where appropriate, and that the assessee is not left without a remedy. The observations of Fazl Ali, J. in The State of West Bengal v. Anwar Ali Sarkar (pages 309‑310), wherein the authority might say “I am not to blame as I am acting under the Act,” would not automatically shield the order from challenge, because even when an authority claims to act under the statute, its action remains subject to the scrutiny described and may be set aside if found to be mala‑fide or discriminatory against the assessee.

The Court observed that the petitioners placed particular emphasis on the remarks at page 277 of the majority judgment in Bidi Supply Co. v. The Union of India, which, in the context of the omnibus wholesale order under dispute, highlighted the substantial discrimination suffered by the assessee compared with other bidi merchants who were similarly situated. The inconvenience and harassment inflicted on the assessee were described as violative of Article 14 of the Constitution, and it was argued that section 5(7A) is unconstitutional insofar as it permits the Commissioner of Income‑Tax or the Central Board of Revenue, as the case may be, to issue a transfer order that subjects the assessee to such inconvenience and harassment at their discretion. The Court, however, held that this argument of inconvenience is not conclusive. It pointed out that there is no fundamental right for an assessee to be assessed in a particular area or locality. Even when viewed in the context of sections 64(1) and (2) of the Act, the right of an assessee to be assessed in a specific locality is not absolute but is subject to the exigencies of tax collection. Any difference that may arise in the position of the assessee vis‑à‑vis others who continue to be assessed by the Income‑Tax Officer of the area where they reside or conduct business is, according to the Court, a minor deviation from the general standard and does not amount to a denial of equal rights. The Court further noted that the authority seeks to minimise any inconvenience by transferring the case to the Income‑Tax Officer nearest to the area where it would be convenient for the assessee to attend.

The Court observed that an assessee does not possess an absolute right to be assessed in any specific area or locality. Even when examined under sections sixty‑four(1) and sixty‑four(2) of the Income‑Tax Act, this right remains subject to the practical needs of tax collection. Any disparity that may arise between an assessee and others assessed by the Income‑tax Officer of the area where they reside or conduct business is, in the Court’s view, a minor deviation from the standard. This view aligns with the observation of Mukherjea, J., then sitting in The State of West Bengal v. Anwar Ali Sarkar, at page three hundred twenty‑six. He held that such a difference does not amount to a denial of equal rights. The Court further noted that any inconvenience to the assessee is mitigated by the authority’s practice of transferring the case to the Income‑tax Officer nearest to the area convenient for the assessee to attend. If administrative necessities prevent such a transfer, the Court said the assessee may request that the examination of accounts or evidence be conducted at a place convenient to him. The Income‑tax Officer should then comply and hold the hearing at the requested location. The affidavit of Shri V. Gouri Shankar, paragraph five, was taken at its face value. The Court concluded that when the procedure described is followed, the assessee would not suffer any inconvenience or harassment. Thus, the proper balance between the individual's rights and the public interest would be preserved.

It is, therefore, clear that the power vested in the Commissioner of Income‑tax or the Central Board of Revenue under section five(7A) of the Act is not a naked, arbitrary authority. The power is not unfettered, unguided, or uncontrolled so as to enable the authority to select one assessee among similarly situated persons and subject him to discriminatory treatment. The Court noted that the authority’s power is guided and limited by the purpose of the Act, which is to impose, assess and collect income‑tax. The Court reiterated that the purpose of the Act, which is to impose, assess and collect income‑tax, provides the guiding principle for exercising this discretion. Accordingly, the statute grants a wide discretion to the concerned authorities for achieving more convenient and efficient tax collection. This discretion includes the power to transfer a case from one Income‑tax Officer to another when such a transfer is deemed necessary. The Court held that this discretion cannot be characterised as discriminatory in nature and must be applied uniformly to all assessable persons. There is a broad distinction between discretion which has to be exercised with regard to a fundamental right guaranteed by the Constitution and some other right which is given by the statute. Thus, the discretion is exercised not arbitrarily but in clear alignment with the statutory objectives of the Act.

In this case, the Court explained that a right which is not a fundamental right may be taken away by a statute, but a fundamental right cannot be removed by legislation. The Court illustrated this principle by noting that when a statute grants discretion in matters such as issuing licences for trade, profession or business, or when it imposes restrictions on freedom of speech through censorship, that discretion must be governed by clear rules so that it falls within the category of reasonable restrictions. The Court then distinguished that type of discretion from discretion exercised in matters that do not involve fundamental rights, for example the transfer of tax assessment cases from one officer to another. The Court observed that inconvenience may result when a case is moved to a different place or venue, but a party cannot successfully claim that a fundamental right has been violated by such a transfer. Accordingly, the Court said that the exercised discretion must be examined from two perspectives: first, whether it allows any real and substantial discrimination, and second, whether it encroaches upon a fundamental right guaranteed by the Constitution. The Court held that Article 14 can be invoked only when both of these conditions are satisfied. Applying this test, the Court found that the discretion vested in the Commissioner of Income‑tax or the Central Board of Revenue under section 5(7A) of the Act was not discriminatory. Consequently, the Court concluded that section 5(7A) does not violate Article 14 and does not impose an unreasonable restriction on the fundamental right to carry on trade or business protected by Article 19(1)(g). The Court added that any abuse of power could be remedied by appropriate action under Article 226 or Article 32, and that what could be struck down was not the provision itself but any order made under it that was mala‑fide or violated fundamental rights. Therefore, the challenge to the validity of section 5(7A) failed. The Court, however, advised that, where circumstances permit, the principles of natural justice should be observed before an order of transfer is issued under section 5(7A). Specifically, the affected party should receive notice and a reasonable opportunity to present his views, and the reasons for the order should be recorded in writing, even if briefly. The Court noted that when a question arises under section 64 regarding the place of assessment, the Commissioner or the Board gives the assessee an opportunity under section 64(3) to present his views before a decision is made, and that a similar opportunity should be extended in transfer cases.

In this case the Court observed that it was striking that, when an order issued under section 5(7A) transferred the affairs of an assessee from one Income‑tax Officer to another irrespective of the area or locality where the assessee lived or conducted business, the assessee was not afforded a chance to present his views. The Court emphasized that there was no presumption against the honesty or good‑faith of an assessee, and ordinarily the Income‑tax authorities should not deny a reasonable opportunity to be heard when an order that departs from the normal procedure laid down in sections 64(1) and 64(2) is contemplated, whether the transfer is from one Officer within the same State to another Officer in the same State or from an Officer in one State to an Officer in another State, except in the limited circumstance where giving notice would defeat the very purpose of the transfer. The Court further noted that if the reasons for making the transfer order were reduced, even briefly, to writing, the assessee would be able to understand the circumstances that made the transfer necessary or desirable for the Commissioner of Income‑tax or the Central Board of Revenue. Such written reasons would also assist the Court in assessing the bona fides of the order should it later be challenged on grounds of mala fide or discrimination. The Court expressed hope that, wherever feasible, the Income‑tax authorities would observe this procedure of providing notice and an opportunity to be heard.

The Court then turned to the next point of attack, namely that the orders made by the Commissioner of Income‑tax or the Central Board of Revenue in the present petitions were omnibus, wholesale transfers that fell within the mischief addressed in Bidi Supply Co. v. Union of India and were therefore affected by the majority judgment in that case. The State responded that the orders were valid because of the explanation added to section 5(7A) by the Indian Income‑tax Amendment Act, 1956 (Act 26 of 1956). The Court recalled that the explanation had been inserted to overcome the situation created by the majority judgment, and it was intended that all proceedings against a particular assessee, whether relating to the same year or to previous years and pending before the Income‑tax Officer, would be included in the transfer order, as would any proceedings under the Act that might be commenced after the date of transfer for any year, whether the year of transfer or any year before or after it. While the main structure of section 5(7A) remained unchanged, the explanation expanded the meaning of the word “case” used in that provision, thereby broadening its scope to cover the entire file of the assessee.

The Court noted that the criticism levelled against the amendment was that the term “case” had effectively been treated as synonymous with “file”, so that when a particular assessee’s case was transferred under section 5(7A) the entire file of that assessee was moved from one Income‑tax Officer to another. This approach appeared to have been adopted merely to preserve section 5(7A) in its original form, and the Court examined whether the desired result had been obtained by the addition of the explanation in the manner it was drafted. By reading section 5(7A) together with the explanatory provision, the Court found that when any case of a particular assessee pending before an Income‑tax Officer is transferred to another Officer, whether within the State or outside it, all proceedings pending against the assessee under the Act in respect of the same year as well as those relating to previous years are to be transferred simultaneously. In addition, the explanation provides that any proceedings which may be commenced after the date of such transfer, irrespective of the year to which they relate, are also included, thereby enabling the receiving Officer to continue the pending proceedings and to institute further proceedings against the assessee for any year. For the proceedings that are pending at the date of transfer, the notice provisions contained in the main body of section 5(7A) continue to apply, and there is no requirement to re‑issue notices that have already been served by the Officer from whom the case was transferred. However, for any new proceedings that may be initiated after the transfer, fresh notices must be issued. The petitioners contended that cases already closed in previous years could not be reopened by the Officer to whom the case was transferred, and they argued that the words “after the date of transfer in respect of any year” at the end of the explanation should be read as “after the date of transfer in respect of the year of transfer”, thereby rendering the Officer incompetent to institute further proceedings concerning matters that were closed before the transfer. The Court rejected this contention as unsound, observing that the language used is “in respect of any year” and not “in respect of the year”, and that these words must be read together with the preceding phrase “may be commenced” rather than with “after the date of transfer”. A proper construction shows that the inclusive portion of the explanation refers to all proceedings under the Act which may be commenced in respect of any year after the date of transfer, and that the date of transfer relates only to the specific year in which the case is transferred. Attaching “in respect of any year” to “after the date of transfer” would be illogical, and the juxtaposition of “which may be commenced” with “in respect of any year” yields a coherent meaning. Consequently, the explanation adequately dispels the petitioners’ argument, and the Court concluded that the omnibus orders of transfer issued against the petitioners by the Commissioner of Income‑tax or the Central Board of Revenue are saved by the explanation to section 5(7A) and are not unconstitutional or void.

The Court explained that the provision of the Act allows proceedings to be started for any year that occurs after the date on which a case is transferred. The reference to the “date of the transfer” concerns only the specific year in which the taxpayer’s file is moved, and therefore it is illogical to link the phrase “in respect of any year” directly to the words “after the date of transfer.” In fact, the expression “in respect of any year” properly attaches to the words “which may be commenced,” and when read together this combination gives a clear and sensible meaning to the inclusive part of the explanation. This reading of the language is adequate to defeat the petitioners’ argument on this point. Consequently, the Court held that the broad, omnibus orders of transfer issued against the petitioners by either the Commissioner of Income‑Tax or the Central Board of Revenue are covered by the explanatory clause to section 5(7A) of the Act and thus are not unconstitutional or void. The next question before the Court was whether the individual transfer orders directed at the petitioners were in fact discriminatory, were made in bad faith, or amounted to an abuse of the power vested in the Commissioner of Income‑Tax or the Central Board of Revenue under the same section. The Court then turned to the petitions numbered 211 to 215 of 1956, collectively known as the Sriram Jhabarmull group, because these petitions possessed a distinctive feature. All the transfer orders challenged in these petitions were issued by the Commissioner of Income‑Tax (Central) in Calcutta on 27 July 1946, and subsequent proceedings were promptly taken by the Income‑Tax Officer of Central Circle IV, Calcutta. These proceedings resulted in assessment orders, and additionally, certificate proceedings under section 46(2) of the Act were filed by the authorities to recover the tax that had been assessed before the Constitution came into force. The Court therefore considered whether such pre‑constitutional transfer orders could be attacked as being unconstitutional and void. It recalled the settled principle that Article 13 of the Constitution does not have retrospective effect; consequently, any action taken before the Constitution’s commencement under a law that was valid at that time cannot be challenged on the ground of violating fundamental rights later enshrined in Part III. The Court cited Keshavan Madhava Menon v. State of Bombay, noting Justice Das’s observation at page 235 that Article 13(1) merely nullifies inconsistent laws for the exercise of fundamental rights after the Constitution’s commencement and does not affect past acts. In line with this reasoning, the Court concluded that the petitioners could not complain about the transfer orders dated 27 July 1946. Finally, the Court noted that petitions numbered 225 to 229 of 1956 (the Raichur group) and petitions numbered 86, 87, 88, 111, 112 and 158 of 1956 (the Amritsar group) also fall within the same category of cases.

In explaining the effect of Article 13, the Court observed that the provision operates only from the date of the Constitution’s commencement and has no retrospective force. Consequently, any act performed before that date cannot be set aside merely because a later law, which is inconsistent with the Constitution, is deemed void with respect to the exercise of fundamental rights. The Court explained that to declare a past act invalid would be to give the later constitutional rule retroactive effect, which Article 13 expressly prohibits. Thus, the law in force at the time of the act continues to govern that act, even though the same law may be ineffective for future exercises of fundamental rights. Applying this principle, the petitioners were held not to be entitled to challenge the transfer orders dated 27 July 1946.

The Court then turned to the petitions numbered 225 to 229 of 1956 (the Raichur group) and 86, 87, 88, 111, 112 and 158 of 1956 (the Amritsar group), noting that both sets fell within the same category of grievance. In the Raichur group, the Commissioner of Income‑Tax, Hyderabad, issued an order on 21 December 1953 that moved the petitioners’ tax matters from the Additional Income‑Tax Officer at Raichur to the Income‑Tax Officer of the Special Circle at Hyderabad. A later order, issued shortly before 19 May 1955, reversed that transfer by assigning the cases back to the main Income‑Tax Officer at Raichur. The Court observed that the petitioners, having already been returned to Raichur, could hardly claim inconvenience or harassment, and that their conduct appeared aimed at postponing payment of tax lawfully due, exploiting a mere technicality. In the Amritsar group, the Commissioner transferred the petitioners’ cases from the Income‑Tax Officer of ‘A’ Ward or ‘F’ Ward, Amritsar, to the Income‑Tax Officer of the Special Circle, Amritsar. Since both offices were located in the same building under the same roof, the Court found it implausible that the petitioners could legitimately argue inconvenience or harassment.

Furthermore, the Court highlighted a common feature of both groups: none of the petitioners had protested the transfers at the time they occurred, and they had submitted to the jurisdiction of the officers to whom their cases were assigned. It was only after the decision in Bidi Supply Co. v. Union of India, pronounced on 20 March 1956, that the petitioners awakened to assert alleged rights— the Amritsar group on 20 April 1956 and the Raichur group on 5 November 1956. The Court held that having acquiesced to the officers’ jurisdiction, the petitioners could not now invoke Article 32 of the Constitution for relief. Their conduct, the Court noted, would disqualify them from any remedy, citing earlier authorities that deny relief to litigants who voluntarily accept a statutory authority and later seek to overturn it.

The Court observed that petitioners who had accepted the jurisdiction of the Income‑tax Officers to whom their cases were transferred could not invoke the jurisdiction of this Court under Article 32. It was emphasized that this principle was well settled, and that such conduct by the petitioners would deprive them of any relief from this Court. The Court supported this statement by referring to authoritative sources, namely Halsbury’s Laws of England, Volume II, third edition, page 140, paragraph 265, as well as the decisions in Rex v. Tabrum, Ex Parte Dash [1907] 97 L.T. 551, and O. A. O. K. Lakshmanan Chettiar v. Commissioner, Corporation of Madras and Chief Judge, Court of Small Causes, Madras [1927] I.L.R. 50 Mad. 130.

The Court further held that the orders of transfer issued by the Commissioner of Income‑tax or by the Central Board of Revenue, as the situation required, could not be challenged by the petitioners as being unconstitutional or void. This conclusion applied to the three groups of petitioners whose transfers had been effected, namely the Sriram Jhabarmull group, the Raichur group and the Amritsar group. Consequently, the Court concluded that any attempt by these groups to set aside the transfer orders on constitutional grounds would fail.

Having resolved the issue of the three groups, the Court turned to the remaining petitioners, specifically those identified in Petitions Nos. 97 and 97‑A of 1956, and those in Petitions Nos. 44/56 and 85/56. The petitioners in Petitions 97 and 97‑A were oil‑mill owners, merchants and commission agents who carried on business at Sahibganj in the district of Santhal Parganas and maintained a branch at 97, Lower Chitpur Road, Calcutta. Their affairs had been referred to the Income‑tax Investigation Commission on the ground that they were suspected of evading tax on a substantial sum. The allegations against them included concealment of income exceeding eight lakh rupees and the conduct of business over a wide geographical area that generated large profits which were not reflected in their books of account or in any of the tax returns they had filed.

The Court noted that following its judgment in Surajmull Mohta & Co. v. A. V. Viswanatha Sastri, approximately three hundred and twenty cases that had been referred to the Income‑tax Investigation Commission under section 5(4) of the Taxation on Income Investigation Commission Act, 1947, were affected and consequently had to be reopened under section 34(1A) of the Income‑tax Act. To dispose of these cases expeditiously, special circles were created at Bombay and Calcutta without reference to any specific area, because the existing circles were already heavily loaded and could not accommodate the additional work. The three hundred and twenty cases were distributed among these newly created circles on the basis of the geographical area to which the assessors belonged. Because the petitioners in question were situated in Bihar and also maintained a branch in Calcutta, their matters were allotted to one of the Central Circles located at Calcutta.

The Court then explained that in October 1954 the Supreme Court struck down section 5(1) of the Taxation on Income Investigation Commission Act, 1947, in the case of Meenakshi Mills Ltd. v. Viswanatha Sastri. As a result of that decision, all cases that had been referred under the now‑invalid provision and that were pending before the Income‑tax Investigation Commission as of 17 July 1954 could no longer be proceeded with under that Act. Approximately four hundred and seventy such cases had to be reopened under section 34(1A) of the Income‑tax Act. The Government, considering the experience with the earlier batch of cases, thought that a similar approach—assigning the matters to Income‑tax Officers appointed without reference to any particular area—would facilitate a faster disposal of these pending cases.

In order to manage the large influx of cases, the government decided to assign them to Income‑tax Officers who were appointed without reference to any particular geographic area. Besides the circles that had already been established in Bombay and Calcutta, five additional circles were created in Calcutta, four more in Bombay, and nine further circles were set up in major centres such as Kanpur, Ahmedabad, Madras and Delhi to handle all of these matters. Because of the sudden increase in workload, the nine circles at Calcutta found that about 280 cases involved assessee who actually belonged to Calcutta itself; consequently, cases that were not linked to that area had to be removed and allocated to one of the newly formed circles where the workload was lighter. It was then observed that Central Circle VI had a comparatively lower workload than the other circles, and therefore the cases of the petitioners were transferred to the Income‑tax Officer of Central Circle VI in Delhi. The affidavits of Shri V. Gouri Shankar, Under‑Secretary of the Central Board of Revenue, dated 19 November 1956 and 3 December 1956, made clear that the movement of the petitioners’ cases—first from the Income‑tax Officer of the Special Circle in Patna to the Income‑tax Officer of Central Circle XI in Calcutta, and subsequently from the latter officer to the Income‑tax Officer of Central Circle VI in Delhi—was done solely for the purpose of administrative convenience. Those affidavits also revealed that the examination of accounts and the taking of evidence were conducted at locations chosen by the assessee to suit his convenience, and the Income‑tax Officers were directed accordingly. For example, the Income‑tax Officer of Central Circle VI in Delhi travelled to Sahibganj to examine the accounts in the matter of petitioner No. 1, and when that assessee later requested that the examination be carried out in Delhi because he was present there for other business, the officer promptly transferred the case and examined the accounts there. Given that the transfers from Patna to Calcutta and then to Delhi were carried out under such circumstances, and that the petitioners were granted all possible conveniences for the examination of their accounts and evidence, there was no basis for any allegation that the transfer orders were discriminatory in any manner. Petition No. 44 of 1956 involved Shri A. L. Sud, originally from Hoshiarpur district in Punjab, who had been residing and maintaining an office in Calcutta since 1948. He was the son of Shri Bhagwan Das Sud and a member of the Hindu undivided family styled M/s Bhagwan Das Sud & Sons, with Shri Bhagwan Das Sud serving as the karta. This family conducted business at Hoshiarpur and at various other locations including Bareilly, Calcutta and Bombay. The petition in Petition No. 85 of 1956 related to the same Hindu undivided family, M/s Bhagwan Das Sud & Sons, whose case had already been transferred by the Commissioner of Income‑tax from the Income‑tax Officer in Hoshiarpur to another officer, as detailed in the subsequent portions of the judgment.

The Court recorded that the petitioner, who had been engaged in business both as a member of the Hindu undivided family Bhagwan Das Sud & Sons and in his own individual capacity since 1946, was alleged to have participated in large‑scale evasion of income‑tax. As a coparcener of the joint family, the petitioner was implicated in inter‑related transactions that were said to have concealed taxable income. Consequently, the assessing authority concluded that a proper assessment of the petitioner’s income required that his case be dealt with by the same Income‑tax Officer who was assessing the joint family. The petitioner was informed that, for the purposes of the hearing, every effort would be made to cause him the least inconvenience. Under these circumstances, the case was transferred from the Income‑tax Officer, Survey Circle, Calcutta, to the Income‑tax Officer, Special Circle, Ambala, by an order of the Central Board of Revenue dated 29 June 1955.

The Court further noted that the matter of M/S Bhagwan Das Sud & Sons, the petitioners in Petition No. 85/56, had already been transferred by the Commissioner of Income‑tax from the Income‑tax Officer, Hoshiarpur, to the Income‑tax Officer, Special Circle, Ambala, by an order made under section 5(7A) of the Act on 20 October 1953. Although the petitioners maintained their principal office at Hoshiarpur in Punjab, their business activities were dispersed across various regions of India, including Assam, Bombay, Bareilly, Calcutta and Kanpur, where they undertook contracts with the Government and other parties. They were alleged to have concealed assessable income exceeding Rs 30 lakhs, prompting the need for a thorough investigation of their widespread operations. Accordingly, their case was transferred to the Income‑tax Officer, Special Circle, Ambala. The officer subsequently agreed to examine the accounts and evidence at Hoshiarpur itself to accommodate the petitioners’ convenience; however, the petitioners objected on the ground that their counsel was to travel from Delhi and therefore Ambala would be a more suitable venue. As a result, the cases of both petitioners were ultimately transferred from the respective assessing officers at Calcutta and Hoshiarpur to the Income‑tax Officer, Special Circle, Ambala, and all appropriate conveniences were afforded to them in relation to the examination of their accounts and evidence. The Court held that the claim of discrimination, inconvenience, and harassment therefore lost any merit, and the orders of transfer could not be characterized as discriminatory. It also observed that in the four petitions mentioned—Petitions Nos. 97 & 97‑A of 1956 and Petitions Nos. 44/56 and 85/56—the Central Board of Revenue or the Commissioner of Income‑tax had directed the concerned Income‑tax Officers to minimise any inconvenience to the assessee, even allowing the officers to proceed to the assessee’s residence or place of business for the purpose of examining accounts and evidence.

Even though the petitioners had filed affidavits in their rejoinder, the Court presumed that the assistance previously supplied to them would continue in the future and that the inconvenience and harassment that might otherwise have been inflicted on them would therefore be avoided. The Court observed that a humane and considerate administration of the provisions of the Income‑tax Act would significantly reduce the apprehensions of the assessees. If the administration were carried out in the true spirit of fairness, the Court held, no assessee would be in a position to accuse the Revenue of applying the provisions of the Act with “an evil eye and unequal hand”. After examining the material, the Court concluded that the petitions presented no substantive ground for relief and therefore should be dismissed. The Court further ordered that costs be awarded. Specifically, the Court directed that a single set of costs be assessed between the respondents in each individual petition, and that one set of costs be assessed for each of the following groups of petitions: (i) Petitions Nos. 97 and 97‑A of 1956; (ii) Petitions Nos. 44/56 and 85/56; (iii) Petitions Nos. 86/56, 87/56, 88/56, 111/56, 112/56 and 158/56; (iv) Petitions Nos. 211 to 215 of 1956; and (v) Petitions Nos. 225 to 229 of 1956. Accordingly, the Court dismissed all the petitions and entered the order of dismissal with costs.