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: Natwarlal H. Bhagwati, B. Jagannadhadas, Bhuvneshwar P. Sinha, S.K. Das

In the matter titled Pannalal Binjraj versus Union of India, the Supreme Court of India delivered its judgment on 21 December 1956. The opinion was authored by Justice Natwarlal H. Bhagwati, who sat on the bench together with Justice B. Jagannadhadas, Justice Bhuvneshwar P. Sinha and Justice S. K. Das. The petitioner was Pannalal Binjraj and the respondent was the Union of India. The case is reported in the 1957 volume of the All India Reporter at page 397 and also appears in the 1957 Supreme Court Reporter at page 233. The dispute concerned provisions of the Indian Income-Tax Act, originally enacted in 1922 and amended by the Finance Act XXVI of 1956, specifically sections 5(7A) and sections 64(1) and 64(2). The petitioners, on behalf of a group of assessee taxpayers, questioned the constitutionality of section 5(7A) on the ground that it gave the Income-Tax Commissioner or the Central Board of Revenue a power to transfer tax cases that was arbitrary, uncontrolled and therefore violative of Article 14 of the Constitution, which guarantees equality before the law, and also infringed the freedom to carry on trade or business protected by Article 19(1)(g). The petitioners relied upon observations made by Justice Bose in his minority judgment in the earlier case of Bidi Supply Co. v. Union of India, reported in the 1956 Supreme Court Reporter at page 267. They argued that the wording of section 5(7A), together with the explanatory note added after that decision, effectively permitted omn-broad “wholesale” orders of transfer that were issued without reference to any specific case and without any time limitation. Such orders, they contended, were inconvenient, discriminatory and contrary to the reasoning of the majority judgment in Bidi Supply Co. The Central Board of Revenue, on the other hand, submitted affidavits stating that the purpose of the provision was to reduce administrative inconvenience. It maintained that after any transfer the same statutory provisions applied equally to all likewise situated taxpayers, and that any inconvenience to an assessee was minimized by locating the transferred case as near as possible to the assessee’s residence or place of business, or, if that was not feasible, by permitting the assessee to have his accounts examined at a location convenient to him. The Board further argued that the omnibus orders of transfer were covered by the explanatory clause attached to section 5(7A). After considering the submissions, the Court held that section 5(7A) was a legitimate measure of administrative convenience and that it was constitutionally valid. The Court observed that the provision did not infringe the rights guaranteed under Articles 14 and 19(1)(g) because the power to transfer a case was exercised within the scope of the statute and was saved by the explanatory clause. Consequently, the orders of transfer made under the provision were upheld as valid. The Court further noted that the right conferred on an assessee by sections 64(1) and 64(2) of the Act was not an absolute right; it must be read subject to the primary objective of the Act, which is the assessment and collection of income tax.

In matters of assessment and collection of income-tax, the Commissioner of Income-tax or the Central Board of Revenue possessed, under section 5(7A) of the Act, the authority to transfer an assessee’s case to another officer situated outside the area where the assessee lived or carried on business whenever the exigencies of tax collection required such a move. The Court explained that any variation in the position of the transferred assessee as compared with other persons similarly situated would amount only to a minor deviation from the general standard and would not constitute a denial of equality before the law. This discretionary power, granted to the tax authorities by the provision, had to be distinguished from the discretion exercised in respect of a fundamental right guaranteed by the Constitution. Accordingly, the Court laid down two tests for determining whether a statutory discretion is discriminatory: first, whether there exists a real and substantial possibility of discrimination; and second, whether the exercise of that discretion impinges upon a fundamental right. Applying these tests, the Court held that the discretion conferred by section 5(7A) was neither discriminatory nor an unreasonable restriction on the fundamental right to carry on trade or business. The judgment referred to several authorities, including Bidi Supply Co. v. Union of India (1956) SCR 267, M.K. Gopalan v. State of Madhya Pradesh (1955) SCR 168, State of West Bengal v. Anwar Ali Sarkay (1952) SCR 284, Dayaldas Kushiram v. Commissioner of Income-tax (Central) (1940) ILR Bombay 650, Dayaldas Kushiram v. Commissioner of Income-tax (Central) (1943) ITR 11 67, and Wallace Brothers & Co. Ltd. v. Commissioner of Income-tax (Bombay, Sind & Baluchistan) (1945) AIR FC 9. The explanation inserted into the section by the Amending Act XXVI of 1956 was intended to broaden the meaning of the word “case” so that it encompassed both pending proceedings and any other proceedings that might be initiated under the Act for any year following the date of transfer; consequently, the orders made under the provision were not unconstitutional or void. Nevertheless, the Court emphasized that Income-Tax authorities must be bound by the statements made in their affidavits, and where an assessee is able to show a prima facie case of mala fide or discriminatory exercise of the discretion, the Court would examine the surrounding circumstances in the light of those statements and, if necessary, would set aside the abuse of power under Articles 226 and 32 of the Constitution. Cases such as Ratanlal Gupta v. District Magistrate of Ganjam (1951) ILR Cuttack 441 and Brundaban Chandra Dhir Narendra v. State of Orissa (Revenue Department) (1952) ILR Cuttack 529 were cited in support of this principle. Finally, the Court directed that Income-Tax authorities should adhere to the rules of natural justice, and, where feasible, should give notice of any intended transfer to the affected assessee, allow him the opportunity to present his view, and record, even if briefly, the reasons for the transfer so that a court may evaluate whether the transfer was mala fide or discriminatory.

The proceedings were instituted under Article 32 of the Constitution of India for the enforcement of fundamental rights. The petitions numbered 97, 97A, 44, 86-88, 111, 112, 85, 158, 211-251 and 225-229 of 1956 were all consolidated before the Court. The petitioners were represented by counsel, while the respondents – the Union of India, the Central Board of Revenue and the various Income-Tax Officers named in each petition – were also represented by counsel. In the petitions concerning the State of West Bengal, counsel appeared for that State as respondents 2 and 3. The judgment was delivered on 21 December 1956 by Justice Bhagwati. All of these petitions raised a single substantial question of law: whether section 5(7A) of the Indian Income-Tax Act, hereinafter referred to as “the Act”, exceeded the authority of Parliament by infringing the fundamental rights guaranteed by Article 14 and Article 19(1)(g) of the Constitution.

The factual background that gave rise to the petitions can be summarized as follows. In Petitions 97 and 97A, the petitioners were the firm of Pannalal Binjrai, engaged in oil-mill operations, merchandising and commission agency, carrying on business at Sahibganj in the Santhal Parganas district and maintaining a branch at 94 Lower Chitpur Road, Calcutta, and R. B. Jamuna Das Chowdhury, a resident of the same location and former karta of a Hindu undivided family that conducted business under the name of M/S Pannalal Binjrai. Before 28 September 1954 both were assessed by the Income-Tax Officer of the Special Circle, Patna. On that date the Central Board of Revenue issued an order transferring their cases to the Income-Tax Officer of Central Circle XI, Calcutta. Subsequently, on 22 January 1955 the Board transferred the case of the second petitioner to the Income-Tax Officer of Central Circle VI, Delhi, and on 12 July 1955 it transferred the first petitioner’s case to the same officer in Delhi. After these transfers the Delhi officer initiated several proceedings against the petitioners, including further assessments and the levy of a penalty for non-payment of tax assessed earlier. The petitioners challenged the validity of the transfer orders, all ensuing proceedings, the assessment orders and the penalty order, contending that the reliance on section 5(7A) was unconstitutional and that the transfers and subsequent actions were therefore void.

The petitioners argued that the income-tax assessments made before the transfers were invalid because section 5 (7A) of the Act was beyond the Constitution’s power. They contended that every proceeding instituted against them by the Income-tax Officer of Central Circle XI, Calcutta, and by the Income-tax Officer of Central Circle VI, Delhi, lacked jurisdiction and therefore was void. The challenge was presented in petitions numbered 44 and 85 of 1956. In Petition No. 44/56 the petitioner was Shri A. L. Sud, the sole proprietor of the establishment known as 14/B Amritlal Sud (Construction). He originally came from Hoshiarpur district in the State of Punjab but, since 1948, he had been residing in Calcutta and conducting his business there. Before 29 June 1959, 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 of Revenue ordered that his case be transferred to the Income-tax Officer of Special Circle, Ambala. The officer in Ambala continued the existing proceedings, instituted additional proceedings and assessed the petitioner under section 23 (4) of the Act for the assessment years 1946-47 and 1947-48. After demands were issued for payment of the assessed tax, the petitioner filed the present petition, challenging the validity of the Central Board of Revenue’s transfer order dated 29 June 1955 and the subsequent proceedings before the Ambala officer, on the ground that section 5 (7A) of the Act was unconstitutional.

Petition No. 85/56 was filed by M/s Bhagwan Das Sud & Sons, Merchants, based in Hoshiarpur and engaged in the trade of rosin and turpentine. Prior to 20 October 1953 they were being assessed by the Income-tax Officer, Hoshiarpur. On that date the Commissioner of Income-tax transferred their case to the Income-tax Officer of Special Circle, Ambala pursuant to section 5 (7A) of the Act. The Ambala officer continued the case, reopened the assessment for the years 1944-45 to 1050-51 and completed assessments for the years 1947-48, 1950-51 and 1951-52. The petitioners thereafter challenged the legality of the transfer order dated 20 October 1953 and the subsequent proceedings before the Ambala officer, maintaining that section 5 (7A) of the Act was ultra vires. Shri A. L. Sud, the petitioner in Petition 44/56, also belonged to the same Hindu undivided family that carried on business under the name and style of M/s Bhagwan Das Sud & Sons, and both of his and the firm’s cases had been transferred to the Income-tax Officer, Special Circle, Ambala by the respective orders. The remaining petitions, numbered 86, 87, 88, 111, 112 and 158 of 1956, are collectively referred to as the Amritsar group. Petition 86/56 was filed by Sardar Gurdial Singh, son of S. Narain Singh; Petition 87/56 by Dr Sarmukh Singh, also a son of S. Narain Singh; and Petition 112/56 by S. Ram Singh, another member of the same family.

In the group of petitions described as the Amritsar group, the petitioners were the sons and the father of S. Narain Singh. The three brothers—S. Gurdial Singh, Dr. Sarmukh Singh, and S. Ram Singh—were identified as the petitioners in Petitions 86/56, 87/56, and 112/56 respectively. Their father, S. Narain Singh, who was the petitioner in Petition 88/56, was the son of S. Basdev Singh. All four individuals served as directors of Hindustan Embroidery Mills (Private) Ltd., which was the petitioner identified as No. 1 in Petition 111/56 and was situated at Chheharta near Amritsar. Before the orders of transfer that are the subject of the present challenge, each of these petitioners had their income-tax matters assessed by the Income-Tax Officer of “A” Ward in Amritsar. Around 29 June 1953, the Commissioner of Income-Tax, invoking section 5(7A) of the Act, ordered that their cases be transferred from the “A” Ward officer to the Income-Tax Officer of the Special Circle in Amritsar. After the transfer, the Special Circle officer continued the assessments and also issued notices under section 34 of the Act covering the assessment years 1947-48 through 1951-52. Each brother and their father subsequently filed a separate petition contesting both the transfer order and the subsequent proceedings before the Special Circle officer on the ground that section 5(7A) of the Act was unconstitutional. Another petitioner, Shri Ram Saran Das Kapur, who was the head and karta of a Hindu undivided family conducting business at Ghee Mandi Gate, Amritsar, was the petitioner in Petition 158/56. Prior to his transfer, his case was being handled by the Income-Tax Officer of “F” Ward in Amritsar. In 1954, the Commissioner again used section 5(7A) of the Act to move his case to the Income-Tax Officer of the Special Circle, Amritsar. The petitioner did not object to this transfer until after an assessment order was made against him, after which he likewise challenged the validity of the transfer order and the ensuing proceedings on the same constitutional basis as the other petitioners.

The petitions numbered 211 to 215 of 1956 constitute what is referred to as the Sriram Jhabarmull group. Although each petition was filed separately, the petitioner in all of them is the same individual, Nandram Agarwalla, who is the sole proprietor of a business carried on under the name and style of “I Sriram Jhabarmull.” The business is engaged, among other activities, in the import and export of piece-goods as commission agents and in dealing with raw wool and other materials. The principal place of business is located at Kalimpong in the Darjeeling district, with an additional branch at Calcutta. These petitions relate to the assessment of the petitioner’s income-tax for the assessment years 1944-45, 1945-46, 1946-47, 1947-48 and 1948-49. Before the contested transfer orders issued under section 5(7A) of the Act, the petitioner’s matters were being assessed by the Income-Tax Officer in Jalpaiguri, Darjeeling. On 5 March 1946, the Commissioner ordered that the petitioner’s cases be transferred from the Jalpaiguri officer to the Income-Tax Officer of Central Circle I in Calcutta. Within a few months, the cases were again transferred to the Income-Tax Officer of Central Circle IV in Calcutta. Further transfers occurred on 8 June 1946, assigning the cases back to Central Circle I, and on 27 July 1946, when the Commissioner of Income-Tax, Central, Calcutta, issued orders under section 5(7A) moving the cases to the Income-Tax Officer of Central Circle IV, Calcutta. The petitioner challenged all of these transfers as unconstitutional and void, seeking to invalidate the subsequent assessment and certificate proceedings that were continued by the Central Circle IV officer on the basis of the alleged unconstitutionality of section 5(7A) of the Act.

After a brief interval, the petitioner’s cases were moved once again to the Income-tax Officer of Central Circle IV in Calcutta. On 8 June 1946 a further transfer assigned the same cases to the Income-tax Officer of Central Circle 1, also in Calcutta. Subsequently, on 27 July 1946 the Commissioner of Income-tax, Central, Calcutta issued orders under section 5(7A) of the Act, directing that the petitioner’s files be transferred back to the Income-tax Officer of Central Circle IV, Calcutta. These particular orders are the ones that the petitioner contended to be unconstitutional and void, asserting that they invalidated the proceedings that had been continued and later instituted by the Income-tax Officer of Central Circle IV against him on the ground that section 5(7A) of the Act was unconstitutional. It is noteworthy that all of these orders were made before the Constitution came into force; the order dated 27 July 1946 was therefore pre-Constitutional. Nevertheless, after that date the authorities proceeded with complete assessment proceedings for the relevant assessment years, and they also carried out certificate proceedings under section 46(2) of the Act. Later, additional transfers occurred: one order dated 15 December 1947 and another sometime in September 1948 moved the petitioner’s cases from the Income-tax Officer of Central Circle IV to the Income-tax Officer of Central Circle 1, and subsequently back again to Central Circle IV. However, these later transfers are not material to the present suit. The only order that is pressed before the Court is the order of the Commissioner of Income-tax, Central, Calcutta, dated 27 July 1946, which was issued under section 5(7A) of the Act.

The judgments also consider petitions numbered 225 to 229 of 1956, which are collectively referred to as the Raichur group. These petitions concern assessments for the financial years 1950-51, 1951-52, 1952-53, 1953-54 and 1954-55. In each of these petitions the petitioner is the same individual, Kalloor Siddannal, who lives in Raichur in the former State of Hyderabad and conducts business there as a commission agent and distributor of agricultural products. The State of Hyderabad first imposed income-tax in 1946 by means of a special legislative Act; under that Hyderabad Income-tax Act the petitioner was assessed by the Additional Income-tax Officer, Raichur, for the assessment years 1948-49 and 1949-50. From 1 April 1950 the Indian Income-tax Act was extended to Hyderabad, but the Additional Income-tax Officer, Raichur, continued to assess the petitioner for the subsequent years. The cases for the assessment years 1950-51, 1951-52 and 1952-53 remained pending before that officer, and proceedings were initiated in connection with those assessments. On 21 December 1953 the Commissioner of Income-tax, Hyderabad, issued a notification under section 5(7) ordering that the petitioner’s file be transferred from the Additional Income-tax Officer, Raichur, to the Income-tax Officer, Special Circle, Hyderabad. The Special Circle officer then continued the assessment process and issued 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 respective assessment years. Finally, the assessments for those years were completed on 21 March 1955 and 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 under section 5 (7A) and section 64 (5)(b) of the Act, directing that all of the petitioner’s cases be transferred to the main Income-tax Officer at Raichur. The petitioner subsequently challenged both the earlier order dated 21 December 1953 and the later order made in May 1955, contending that the proceedings instituted by the respective officers were unconstitutional and void because section 5 (7A) was ultra vires the Constitution, even though the final assessment was conducted by the main Income-tax Officer, Raichur, under the later transfer order. This raises a common issue in all the petitions: whether section 5 (7A) of the Act is ultra vires the Constitution. In addition to this overarching question, each group of petitions presents factual disputes concerning the alleged discriminatory nature of the specific transfer orders, matters that will be examined later in the appropriate sections of this judgment. Section 5 (7A) of the Act provides: “5 (7A): The Commissioner of Income-tax may transfer any case from one Income-tax Officer subordinate to him to another, and the Central Board of Revenue may transfer any case from any one Income-tax Officer to another. Such transfer may be made at any stage of the proceedings, and shall not render necessary the reissue of any notice already issued by the Income-tax Officer from whom the case is transferred.” This subsection was inserted by section 3 of the Indian Income-tax Amendment Act, 1940 (XL of 1940), following the Bombay High Court decision in Dayaldas Kushiram v. Commissioner of Income-tax (Central) (1) I.L.R. 1940 Bom. 650. Subsequently, the Indian Income-tax Amendment Act, 1956 (XXVI of 1956) added an explanation to section 5 (7A) as a result of the Supreme Court’s decision in Bidi Supply Co. v. The Union of India (1). The explanation reads: “Explanation: In this subsection, ‘case’ in relation to any person whose name is specified in the order of transfer means all proceedings under this Act in respect of any year which may be pending on the date of the transfer, and includes all proceedings under this Act which may be commenced after the date of the transfer in respect of any year.” Consequently, section 5 (7A) together with its explanation must be examined in these petitions. The petitioners argue that sections 64, sub-sections (1) and (2) of the Act confer a valuable right on the assessee, entitling him to inform the taxing authorities that he should not be required to attend proceedings at different locations, a requirement that would otherwise disrupt his business.

Section 5(7A) gives the Commissioner of Income-tax and the Central Board of Revenue an unrestricted authority to move any tax case from one Income-tax Officer to another without any time limitation. This authority is described as being without guidance, uncontrolled and inherently discriminatory. The provisions allow the Commissioner or the Board to single out the case of a particular assessee, even though other assessee in identical circumstances are left untouched, and to transfer that case from one State to another or from one corner of the country to another without stating any objective or providing any reason. Consequently the selected assessee suffers a discriminatory disadvantage, while the other similarly situated assessee continue to be assessed in the locations where they reside or conduct business, as protected under sections 64(1) and 64(2) of the Act. Section 64(5), which was inserted at the same time as section 5(7A), declares retrospectively that the provisions of sections 64(1) and 64(2) shall not apply, among other things, where an order has been issued under section 5(7A). This clause, however, does not deprive an assessee of the valuable right created by sections 64(1) and 64(2) unless section 5(7A) itself is held to be constitutionally valid. As the Court has noted, section 5(7A) is discriminatory in nature and therefore exceeds the powers granted by the Constitution; it cannot protect section 64(5), which is merely a consequence of the earlier provision. The discrimination created by section 5(7A) is substantial and thus violates the equality guarantee in Article 14 of the Constitution. It also infringes Article 19(1)(g) because it imposes an unreasonable restriction on the fundamental right to carry on trade or business, as discussed in Himmatlal Harilal Mehta v. State of Madhya Pradesh. The same constitutional issue concerning section 5(7A) was previously examined by this Court in Bidi Supply Co. v. Union of India. In that case the assessee’s file was transferred by the Central Board of Revenue from the Income-tax Officer of the Calcutta District to the Income-tax Officer of the Special Circle in Ranchi under section 5(7A). The order was an omnibus, blanket transfer expressed in general terms, lacking any reference to a particular case and without any time limitation. It was challenged as void on the ground that section 5(7A) under which the order was made was unconstitutional. By a majority judgment, after reviewing the general principles underlying Article 14, the Court chose not to decide the constitutional question, observing at page 276 that it was not necessary for the present case to pause and consider whether the constitutionality of subsection 7A of section 5 could be supported by any reasonable classification laid down by the Court or whether the Act provides any principle to guide or regulate the discretionary power of the Commissioner or the Board.

The Court examined whether the Commissioner or the Board of Revenue could exercise an unguided and arbitrary power under the sub-section to select individual assessees and place those assessees at a disadvantage relative to other assessees. For the purposes of the present case, the Court concluded that the omnibus order in question was neither contemplated nor sanctioned by sub-section (7A). Consequently, the petitioner remained entitled to the benefits conferred by sub-sections (1) and (2) of section 64. The Court noted that all assessees are generally entitled to those provisions, except where a specific case or cases of a particular assessee for a particular year or years are transferred under sub-section (7A) of section 5, assuming that provision is valid. Even if such a transfer occurs, the assessee’s right under section 64 continues to apply to any other case or cases that are not transferred. The majority judgment then turned to the impact of an unrestricted, timeless omnibus order on the assessee’s rights. It observed that the order would cause considerable inconvenience and harassment to the petitioner because the firm would have to produce its books of account before the Income-Tax Officer, Special Circle, Ranchi, a location many hundreds of miles from its Calcutta place of business. The firm’s partners or principal officers would be compelled to leave the head office for an extended period, thereby neglecting the core business of the firm. The Court further pointed out that there might be no suitable accommodation available for the partners during this period and that the firm would inevitably incur additional expenses for railway fares, freight, and hotel accommodation. Accordingly, the reality of discrimination could not be denied.

The Court held that this substantial discrimination was inflicted on the petitioner by an executive fiat that lacked any legal foundation, and that no reasonable classification for legislative purposes could be discerned. It described “the State,” including its Income-Tax Department, as having, by an illegal order, denied the petitioner the equality before the law and equal protection of the laws that other similarly situated Bidi merchants enjoyed. Consequently, the petitioner could legitimately complain of a violation of his fundamental right under Article 14 of the Constitution. The question of the constitutionality of section 5(7A) of the Act was therefore left unresolved, and the decision rested solely on the interpretation of the impugned order. Counsel for the petitioners emphasized the observations of Justice Bose in the minority judgment of the same case, wherein he held that sections 5(7A) and 64(5)(b) of the Act themselves were ultra vires Article 14 of the Constitution and not merely the order of the Central Board of Revenue. The learned judge also referred to a passage from the judgment of Justice Fazl Ali, as cited in the subsequent discussion.

In this case, the Court referred to the decision of State of West Bengal v Anwar Ali Sarkar and also cited M/S Dwarka Prasad Laxmi Narain v State of Uttar Pradesh and Two Others. It noted that there was no hearing and no reasons recorded, merely peremptory orders transferring a case from one place to another without warning. The power granted by the Act allowed transfer from one end of India to the other, and that power had been exercised. The Court observed that a case pending before it involved a transfer from Calcutta in West Bengal to Ambala in Punjab. It further remarked that if Parliament had enacted an order identical to the one made by the Central Board of Revenue—selecting this petitioner’s case for transfer from one State to another without specifying any object or giving any reason—such a law would, in the Court’s judgment, have been invalid. The Court expressed inability to see how the position was improved because the Central Board of Revenue, rather than Parliament, had acted. The Court opined that the power of transfer must be limited by reasonable restrictions that courts could ultimately determine, and that its exercise must comply with natural justice, meaning that parties affected must be heard when reasonably possible and that reasons for the order must be recorded, however briefly, so that it is clear the powers of these quasi-judicial bodies are being exercised justly and properly.

The State’s answer to this argument was fourfold. First, it contended that section 5(7A) of the Act was enacted as a measure of administrative convenience to enable the Commissioner of Income-Tax or the Central Board of Revenue to transfer any case from one subordinate Income-Tax Officer to another when such transfer was considered necessary or desirable. The State supported this view with an affidavit of Shri V. Gouri Shankar, Under-Secretary of the Central Board of Revenue dated 19 November 1956, which explained that the provisions of section 5(7A) were inserted by the Income-Tax Amendment Act, 1940 (Act XL of 1940) with the purpose of reducing procedural difficulties. The affidavit described how, before the amendment, there was no specific provision for transferring a case except through a lengthy and circuitous process, even at the request of the assessee. Consequently, the amendment conferred the power to transfer cases on the Central Board of Revenue and the Commissioner of Income-Tax in order to handle cases involving special features, widespread activities, large ramifications, or inter-related transactions. The State characterized the provisions as administrative in nature.

In the affidavit the State explained that section 5 (7A) of the Income-tax Act, inserted by the Indian Income-tax Amendment Act of 1940, was intended to remove procedural difficulties that had arisen before the amendment. Earlier, the Act contained no specific rule allowing a case to be moved from one Income-tax Officer to another, and a transfer could be effected only after a lengthy and indirect process, even when the assessee requested it. To enable a more efficient handling of cases—whether the transfer was sought by the assessee or required because the case involved extensive activities, wide-reaching ramifications, or inter-related transactions—the amendment gave the Central Board of Revenue and the Commissioner of Income-tax the authority to shift cases as they deemed necessary. The State described this power as essentially administrative in nature, created to facilitate convenient and effective case management.

The State further asserted that an assessee whose case is transferred does not face any discriminatory procedure concerning his assessment. The Income-tax Officer who receives the transferred case must apply the same statutory procedures that govern all assessments, and the officer’s decision remains subject to appeal before the Appellate Assistant Commissioner. The assessee also retains the statutory right to appeal to the Income-tax Appellate Tribunal, to approach the High Court, and ultimately the Supreme Court. Consequently, every assessee—whether assessed by the officer in the area of residence or business or by an officer to whom the case has been transferred—enjoys identical procedural rights and privileges, and no discrimination exists between them. The State noted that the rights provided under section 64 (1) and (2) of the Act are not absolute; they may be limited by the requirements of tax collection and can be denied when the Commissioner of Income-tax or the Central Board of Revenue, acting under section 5 (7A), considers a transfer necessary or desirable after examining all circumstances. The affidavit also emphasized that a transfer under this provision does not result in any discriminatory treatment, nor does it deprive the assessee of statutory rights or expose him to additional prejudice, punitive consequences, or differential treatment. When a transfer is not made at the assessee’s request, the convenience of the assessee is still considered by assigning the case to an officer who is nearest to the area where attendance would be convenient. If administrative needs prevent this, and the assessee asks for the examination of accounts or evidence to be held at a location convenient to him, the officer complies with that request. Any variance between assessees residing or carrying on business in different areas is regarded as a minor deviation from a general standard and does not constitute a denial of equal rights. Finally, the State argued that the power to transfer cases is a discretionary one, not inherently discriminatory, and that the mere possibility of abuse of discretion does not warrant invalidating the provision, even though occasional misuse may occur.

The Court observed that, whenever practicable, an Income-tax Officer who is stationed nearest to the locality where the assessee can conveniently appear should be assigned to the case. In the event that administrative necessities prevent such an assignment and the assessee petitions that the examination of his accounts or the taking of evidence be conducted at a place more convenient to him, the officer is required to honour the assessee’s request and to hold the hearing at the location specified by the assessee. The Court further noted that even if a variation arises between different assessees who reside or conduct business in a particular area as a result of such transfers, the variation is not material. Such a variation constitutes only a minor departure from a general standard and does not amount to a denial of equal rights. The Court emphasized that the power vested in the officer is a discretionary one and that discretion, by its nature, need not be discriminatory. It cautioned against the easy assumption of abuse of power merely because the discretion is exercised by senior officials of the State. While acknowledging that misuse of discretion may occasionally occur, the Court held that the mere possibility of such misuse does not invalidate the statutory provision; only the discriminatory application of the provision could be struck down, not the provision itself.

The petitioners, however, renewed their argument by relying upon a passage from the judgment of Justice Fazl Ali in The State of West Bengal v. Anwar Ali Sarkar, which had been cited by Justice Bose in his minority opinion in Bidi Supply Co. v. The Union of India. The quoted passage stated that the Act, being general and applicable to all persons and to all offences, could not be said to discriminate in favour of or against any particular class, and that any allegation of discrimination could be directed only against the executive authority if the Act were misused. The Court observed that such an argument does not resolve the difficulty, for it would permit the Act to escape challenge even where discrimination is evident, on the ground that the Act is framed in general terms. Moreover, it would prevent scrutiny of the executive’s actions, the authority could merely contend that it was merely acting under the Act. Accepting that line of reasoning, the Court warned, would easily defeat the guarantee of equality under article 14. The Court concluded that the flaw in the argument lay in ignoring the fact that the insidious discrimination complained of was embedded in the Act itself, a draft that inevitably traced any discriminatory outcome to the statute. The central point of the petitioners’ case, the Court noted, was the provisions of sections 64(1) and (2) of the Act, which prescribe the place of assessment. Those provisions read: “64. (1) Where an assessee carries on a business, profession or vocation at any place, he shall…”

Section 64 of the Act specified that an assessee who carries on a business, profession or vocation at a particular place must be assessed by the Income-tax Officer of the area in which that place is situated, and if the business, profession or vocation is carried on at more than one place, the assessment must be made by the Income-tax Officer of the area in which the principal place of such business, profession or vocation is situated. The section further provided that in all other cases an assessee shall be assessed by the Income-tax Officer of the area in which he resides.

The Bombay High Court interpreted these provisions in the case of Dayaldas Kushiram v. Commissioner of Income-tax (Central) (supra). Justice Beaumont, speaking at page 657, observed that in his opinion section 64 was intended to ensure that, as far as practicable, an assessee should be assessed locally and that the area to which an Income-tax Officer is appointed must, insofar as the exigencies of tax collection allow, bear a reasonable relation to the place where the assessee carries on business or resides. Justice Kania, who was then a judge of that Court, went a step further at page 660, stating that a plain reading of the section shows that the requirement is imperative and that it also confers a valuable right on the assessee. According to that judgment, the assessee is entitled to tell the taxing authorities that he shall not be required to attend assessment proceedings at different places that would disrupt his business.

The learned judges therefore appeared to treat the provisions of sections 64(1) and 64(2) more as establishing a substantive right for the assessee rather than merely providing a matter of administrative convenience. If a right indeed arose from those provisions and continued to be enjoyed by all assessees except the one whose case was transferred under section 5(7A) of the Act to another Income-tax Officer outside the area where he resides or carries on business, the affected assessee could contend that, in comparison with other assessees, he was subjected to discrimination, inconvenience and harassment.

Consequently, it became necessary to examine whether any such right was actually conferred upon the assessee by sections 64(1) and 64(2). On its face, the language of those provisions suggested that an assessee was entitled to be assessed by the Income-tax Officer of the specific area where he resides or carries on business. Moreover, when a question arises concerning the place of assessment, section 64(3) directs that the question be determined 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 are not in agreement. In either situation, the assessee is afforded an opportunity to present his views before any determination is made.

This statutory scheme indicates that the convenience of the assessee is the primary consideration in fixing the place of assessment. Nevertheless, the provisions also recognise that the exigencies of tax collection must be taken into account and that the fundamental objective of the Act—the assessment of income-tax—must be fulfilled. Thus, while the right to local assessment is emphasized, it is not absolute and may yield to the practical requirements of effective tax administration.

The Court explained that the income-tax authorities created under Chapter 11 of the Act exist primarily to determine the correct amount of tax that each assessee must pay. Deciding which of these authorities will handle a particular assessment must take into account not only the convenience of the assessee but also the practical needs of tax collection. To assess tax in a more convenient and efficient manner, it may sometimes be necessary for an Income-Tax Officer from a jurisdiction other than the one where the assessee lives or conducts business to conduct the assessment. This may be required when the nature and volume of the assessee’s business demand an investigation into his affairs at a location different from his residence or place of business, or when the assessee is linked with various other individuals or organisations in a way that makes an extra-territorial investigation essential before a proper assessment can be made. Such situations illustrate the circumstances in which the Income-Tax authorities might transfer a case from the officer of the area in which the assessee resides or carries on business to another officer, whether that officer is in the same state or a different one. The Court noted that this principle was underscored by Beaumont, C.J., in Dayaldas Kushiram v. Commissioner of Income-Tax (Central) at page 146, where he used the phrase “as far as practicable” to describe the assessee’s right to be assessed locally, and the phrase “so far as exigencies of tax collection allow” to describe the appointment of an officer to assess the tax payable by the particular assessee. In a later decision, Dayaldas Kushiram v. Commissioner of Income-Tax (Central) (1), Beaumont, C.J., observed that the Income-Tax Act does not fix the place of assessment; rather, it identifies the officer who has the power to assess, sometimes referring to locality, but an appeal would be against the assessment order of the officer, not against the Commissioner’s order determining the place of assessment. This indicated that the provision does not grant the assessee a right to be assessed in a specific location but merely designates which officer may assess him. The Court further pointed to the Federal Court’s ruling in Wallace Brothers & Co. v. Commissioner of Income-Tax, Bombay, Sind & Baluchistan (2), where Spens, C.J., observed that clause (3) of section 64 provides that any question concerning the place of assessment shall be settled by the Commissioner or by the Central Board of Revenue, and that Proviso 3 to that clause stipulates that if the assessee questions the place of assessment, the officer, if not satisfied with the correctness of the claim, must refer the matter for determination before any assessment is made. The Court concluded that these provisions show that the issue is fundamentally one of administrative convenience rather than jurisdiction, and that it is not a matter for judicial adjudication.

The Court explained that under section 64 of the Income-tax Act, if an assessee disputes the claim of correctness, the Income-tax Officer must, unless satisfied with the claim, refer the matter for determination under the relevant sub-section before making an assessment. The Court noted that these provisions are intended primarily for administrative convenience rather than to define jurisdiction, and they are not matters for judicial adjudication. Nevertheless, the Court observed that a previous decision in Bidi Supply Co. v. Union of India described the benefit given by sections 64(1) and (2) as a right of the assessee, and the Court could no longer say that no such right to be assessed by the Income-tax Officer of the area where the assessee lives or carries on business exists. This right, however, 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 depends on two factors: first, the convenience of the assessee as provided in section 64(1) and (2), and second, the needs of tax collection. The Commissioner of Income-tax and the Central Board of Revenue, being the highest authorities under the Act, may transfer a case from the officer of the area where the assessee resides or does business to another officer when tax-collection exigencies justify such a transfer. The Court further held that an infringement of the assessee’s right by a transfer order under section 5(7A) does not amount to a material infringement; it is merely a minor deviation from the general rule and does not necessarily deny equal rights, because even after transfer the case proceeds under the same procedural framework prescribed by the Act. The production and investigation of books of account, inquiries by the Income-tax Officer, and the entire assessment procedure, including any further appeals, remain unchanged in a transferred case as in cases handled by the officer of the assessee’s own area. Accordingly, there is no differential treatment and no basis for claiming discrimination against similarly situated assessee. The Court also referred to its earlier observation in M. K. Gopalan v. State of Madhya Pradesh, quoting that “In support of the objection raised under article 14 of the Constitution, reliance is placed…”.

In this matter, the Court referred to its earlier decision in the case of Anwar Ali Sarkar. That earlier decision was limited to situations where an individual case was assigned to a special court that was authorized to conduct the trial by a procedure that differed substantially from the ordinary procedure. The Court observed that discrimination could arise in such circumstances when persons who had committed similar offences were subjected to materially different procedures, thereby prejudicing some of them. In the present case, however, the Special Magistrate, acting under section 14 of the Criminal Procedure Code, is required to conduct the trial entirely according to the normal procedural regime. Consequently, the type of discrimination described in the Anwar Ali Sarkar decision and the subsequent cases does not occur here. The Court therefore held that a law granting discretionary authority in these circumstances cannot be characterised as discriminatory and, accordingly, is not violative of article 14 of the Constitution. The Court concluded that there is no substance to the contention that the present scheme breaches the equality guarantee.

The Court also cited the observations of Justice Mukherjea, as recorded in The State of West Bengal v. Anwar Ali Sarkar, page 325. In that passage, Justice Mukherjea, agreeing with the Attorney-General, stated that where the differences are not material, there may be no discrimination in the proper sense of the word, and that minor deviations from the general standard need not amount to a denial of equal rights. The judgment then turned to the provisions of section 64(5) of the Income-Tax Act, noting that, as the section presently stands, the provisions of sections 64(1) and 64(2) do not apply and have never been deemed to apply to an assessee whose case has been transferred under section 5(7A) to a particular Income-Tax Officer for assessment. Section 64(5) was introduced by the Income-Tax Law Amendment Act, 1940 (Act XL of 1940) at the same time as section 5(7A). It was therefore advanced that an assessee whose case is transferred in this manner has no right under sections 64(1) and 64(2), and that only those assessee who are not subject to section 5(7A) can enjoy the benefit of sections 64(1) and 64(2). The Court rejected this argument, observing that section 5(7A) is the very foundation for the enactment of the relevant provision in section 64(5). If section 5(7A) were held to be unconstitutional because it is discriminatory, then the corresponding part of section 64(5) must also fail. The contention was further advanced that section 5(7A) itself is discriminatory and violates the fundamental right guaranteed by article 14. The Court noted that the power vested in the Commissioner of Income-Tax and the Central Board of Revenue is described as a naked and arbitrary power that is not guided or controlled by any rules. No rules have been framed and no directions issued to regulate or guide the discretion exercised in making such transfers, and consequently the transfers are left to the unrestrained will of the Commissioner or the Board.

In this matter, the Court observed that the authority to transfer assessment cases was placed entirely in the unchecked discretion of the Commissioner of Income-tax or the Central Board of Revenue, without any mechanism to ensure that such power was exercised properly or to provide a safeguard against possible injustice arising from its misuse. The Court quoted the observation of Mr. Justice Matthews in Yick Wo v. Hopkins, noting that actions or inactions stemming from hostility, bias, partisan zeal, favoritism or other concealed and difficult-to-detect motives can generate injustice, and that such potential abuse becomes evident to anyone who reflects briefly on the matter. The Court further paraphrased Justice Das, stating that the issue was not merely an unconstitutional administration of a statute that otherwise appeared valid, but rather that the unconstitutionality was manifest on the face of the statute itself. The Court reminded that the primary purpose of the Income-tax Act is to levy, assess and collect income tax. Although the preamble of the Act does not expressly describe it as an act to consolidate and amend the law relating to income-tax and super-tax, this purpose is unmistakably reflected in the preamble of the First Indian Income-tax Act of 1886 (Act II of 1886). Consequently, every provision within the Act was crafted to achieve that purpose. The Court traced the structure of the Act, beginning with the imposition of income-tax, followed by the establishment of a hierarchical system of authorities tasked with assessing the tax, with the Central Board of Revenue positioned at the apex. An Appellate Tribunal was created to hear appeals from decisions of the Appellate Assistant Commissioners, and the Act also contains detailed provisions concerning taxable income, methods of assessment and related matters. Income-tax Officers were vested with the initial duty of assessing the tax liability of each assessee. Assistant Commissioners of Income-tax functioned as appellate authorities over the decisions of those officers, while the Income-tax Appellate Tribunal served as the final appellate body, except for 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 were designated primarily as administrative authorities overseeing the Income-tax Officers and the Assistant Commissioners, with responsibility for allocating and supervising the work of these officials. The Court emphasized that all officers and personnel engaged in executing the Act were required to observe and adhere to the orders, instructions and directions issued by the Central Board of Revenue, which is the highest authority within the hierarchy.

In this case, the Court observed that the Central Board of Revenue occupied the highest position in the income-tax hierarchy and that, although the provisions of section 64 (1) and (2) ordinarily required the assessment work to be performed by the Income-tax Officer of the area where the assessee lived or carried on business, section 5 (7A) conferred on 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 move any case from one Income-tax Officer to another. The Court described this arrangement as the administrative machinery created for assessing the incomes of persons liable to income-tax. Consequently, the Court accepted that the State’s contention—that section 5 (7A) existed for the sake of administrative convenience—had considerable force. Nonetheless, the Court emphasized that the power vested in the Commissioner of Income-tax and the Central Board of Revenue must be exercised in a manner that was not discriminatory. Because no specific rules or directions had been issued regarding the exercise of that power in particular situations, the appropriate authority was required to decide, on a case-by-case basis, which cases warranted the use of the transfer power, keeping in view the object of the Act and the purposes to be achieved. The Court noted that the cases presented to the income-tax authorities were of diverse types and that no two cases were alike. It further explained that the nature of the assessees’ businesses could introduce complications, and that in some instances the scale of activities, the breadth of transactions, or the inter-related nature of the business might necessitate transferring a case from one Income-tax Officer to another in order to achieve convenient and efficient assessment. In such circumstances, the Commissioner of Income-tax or the Central Board of Revenue had to exercise its discretion, bearing in mind the exigencies of tax collection. The Court pointed out that, although there might be a common characteristic linking the assessee whose case was transferred with those whose cases remained with the local Income-tax Officer, many other attributes would differ. For example, one assessee might have such extensive activities and ramifications that his case needed to be moved from the Officer of his own area to an Officer in another area of the same State, designated as “X”. Another assessee, though belonging to a similar category, might be more conveniently and efficiently assessed in a different area, either within the State or outside it, referred to as “Y”. The considerations weighing with the Commissioner of Income-tax or the Central Board of Revenue in deciding whether to transfer a case to area “X” or area “Y” would depend upon the specific facts and circumstances of each case, rather than on any fixed rule.

In this case, the Court observed that the decision to transfer a taxpayer’s file must be taken according to the particular circumstances of each case, and that no uniform rule could be prescribed to decide whether a transfer should occur at all or to which Income-tax Officer the file should be sent. The Court explained that such discretion must reside in the competent authority, and that the mere fact that a taxpayer’s file is moved from the officer of the area where the taxpayer lives 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. The Court further held that even if there exists a possibility that persons belonging to the same class might be subjected to discriminatory treatment, that possibility alone does not invalidate the statutory provision granting the power of transfer. It was noted that this power is not vested in junior officials but in senior officers such as the Commissioner of Income-tax and the Central Board of Revenue, who act on information supplied by the Income-tax Officers concerned. Accordingly, the power is discretionary rather than inherently discriminatory, and an abuse of that power cannot be presumed merely because it is exercised by high-ranking officials. ( Vide Matajog Dobey v. H. S. Bhari (1)). The Court also reiterated the general presumption that public officials discharge their duties honestly and in accordance with law. ( Vide People of the State of (1) [1955] 2 S.C.R. 925, 932; New York v. John E. Van De Carr, etc.). Moreover, the Court cited its earlier decision in A. Thangal Kunju Musaliar v. M. Venkitachalam Potti (2), observing that, with respect to possible discrimination in referring cases to the Income-tax Investigation Commission, the administration of the law is to be presumed to be carried out without bias unless the contrary is shown. The Court warned, however, that this presumption cannot be stretched indefinitely; it does not require the existence of some hidden or unknown motive for treating certain individuals or corporations in a hostile or discriminatory manner. ( Vide Gulf, Colorado, etc. v. W. H. Ellis (3)). The Court recognized that there may be instances where improper exercise of the power results in injustice, but it held that the mere possibility of discriminatory treatment does not, by itself, strike down the legislation. Where an abuse of power does occur, the aggrieved parties have sufficient legal remedies. ( Vide Dinabandu Sahu v. Jadumony Mangaraj (4)). The Court clarified that it is the abuse of the power, not the provision that confers the power, which may be struck down. Finally, the Court pointed out that it would be virtually impossible for a taxpayer to challenge a specific order of transfer 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 typically known only to the authority and are not recorded in the order or communicated to the taxpayer.

The Court explained that an order issued by the Income-Tax Department or the Central Board of Revenue cannot automatically be called discriminatory simply because the reasons that prompted the authority to make the order are known only to the authority itself and are not recorded in the order or communicated to the assessee. The burden, therefore, falls on the assessee to show that the order of transfer represents an abuse of the power vested in the authority. The Court observed that this concern is misplaced. Although the authority’s internal reasons are not disclosed, the responsibility to prove an abuse of power rests with the party challenging the order, but that burden does not require proof “to the hilt.” The Court cited earlier decisions to illustrate that the standard of proof in similar situations is less stringent. For example, when an accused person rebuts a presumption or establishes an exception that would exonerate him, the evidence must only satisfy the trier of fact that the asserted probability is reasonable, as held in Rex v. Carr-Briant. Likewise, a detainee under the Preventive Detention Act who seeks to demonstrate a lack of bona fides in the detaining authority need not meet the highest level of proof; it is sufficient that the absence of bona fides be reasonably probable, as explained in Ratanlal Gupta v. District Magistrate of Ganjam and Brundaban Chandra Dhir Narendra v. State of Orissa (Revenue Department).

If an assessee attempts to impugn an order of transfer by alleging that the circumstances, taken at face value, render the exercise of power discriminatory, the Court held that the authority is then required to explain the factual circumstances that led to the order. The Court will examine those circumstances with particular reference to the purpose intended by section 5(7A) of the Act, as set out in paragraph 4 of the affidavit of Shri V. Gouri Shankar, Under-Secretary, Central Board of Revenue, which was cited earlier. After reviewing the explanation, the Court will form its own opinion regarding the bona fides of the order. If the Court is not satisfied that the order was made in a bona-fide exercise of the power conferred by section 5(7A), it will set aside the order. The Court further stated that the degree of satisfaction required will vary according to the specific facts of each case, and that it will reach a conclusion after considering all the circumstances disclosed in the record, including those referenced in the authorities cited, such as [1943] 1 K.B. 607, I.L.R. 1951 Cuttack 441, 459, and I.L.R. 1952 Cuttack 529.

In this matter, the Court observed that it would not be powerless to set aside an abuse of authority where the circumstances justified such intervention, and that the taxpayer would not be left without a remedy. The Court referred to the observations of Justice Fazl Ali in the earlier decision of State of West Bengal v. Anwar Ali Sarkar, specifically at pages 309-310, where the authority had claimed that it could not be blamed because it was acting under the statute. The Court explained that such a claim would not automatically protect the order from challenge, because even when an authority purports to act under the Act, its actions remain subject to the scrutiny described earlier, and the order may be annulled if it is found to be mala fide or discriminatory against the taxpayer. The petitioners placed particular emphasis on the observations made at page 277 of the majority judgment in Bidi Supply Co. v. Union of India, which, in the context of the omnibus wholesale order under consideration, highlighted the substantial discrimination suffered by the taxpayer compared with other bidi merchants who were in a similar position. The inconvenience and harassment that the taxpayer endured were characterized as violative of Article 14 of the Constitution, and it was contended that Section 5(7A) was unconstitutional in its breadth because it permitted the Commissioner of Income-Tax or the Central Board of Revenue, as appropriate, to issue a transfer order that would subject the taxpayer to inconvenience and harassment at their arbitrary discretion. The Court noted, however, that this argument of inconvenience was not conclusive. It held that there is no fundamental right for a taxpayer to be assessed in a particular geographical area or locality. Even when viewed in the context of Sections 64(1) and 64(2) of the Act, the right conferred upon a taxpayer to be assessed in a specific area is not absolute; it is subject to the practical requirements of tax collection. Any difference, if it exists, between the position of the taxpayer and that of other taxpayers who continue to be assessed by the Income-Tax Officer of the area where they reside or conduct business is not a material difference but merely a minor deviation from the general standard, and therefore does not amount to a denial of equal rights, as explained by Justice Mukherjea in State of West Bengal v. Anwar Ali Sarkar at page 325. The Court further pointed out that the inconvenience to the taxpayer is intended to be minimized by the concerned authority by transferring the case to the Income-Tax Officer who is nearest to the place where it would be convenient for the taxpayer to appear. If, because of administrative exigencies, such a transfer is not possible, the taxpayer may request that the examination of accounts or evidence be conducted at a location convenient to him, and the Income-Tax Officer is expected to comply with that request.

The Court observed that when an assessee requests the hearing to be conducted at a particular location, the authority should honor that request. The Court stated that it must accept the statement made in paragraph five of Shri V Gouri Shankar’s affidavit at face value. If this approach is followed, the assessee will not suffer any inconvenience or harassment, and the appropriate balance between the individual's rights and the public interest will be maintained.

The Court then explained that the power vested in the Commissioner of Income-Tax or, as the case may be, the Central Board of Revenue under section 5 (7A) of the Act is not an unfettered, arbitrary, or naked power. This authority is not free to select one assessee from among similarly situated taxpayers for preferential or discriminatory treatment. Instead, the power is directed by the purpose of the Act, namely the imposition, assessment, and collection of income tax, and it must be exercised to facilitate a more convenient and efficient tax collection process. A broad discretion is granted to the officials for the purpose of transferring cases from one Income-Tax Officer to another, and this discretion cannot be characterised as discriminatory.

The Court distinguished between discretion that affects a constitutional fundamental right and discretion that concerns a statutory right. When a statute deals with a non-fundamental right, the statute may limit that right; however, a fundamental right cannot be taken away by statute. For example, discretion involved in issuing licences for trade or in imposing censorship on freedom of speech must be guided by clear rules and must fall within the realm of reasonable restrictions. Such discretion is different from discretion that does not touch fundamental rights, such as the transfer of tax cases. Although transferring a case may cause inconvenience due to a change of venue, it does not constitute an infringement of a fundamental right.

Consequently, the Court held that the discretion must be examined from two perspectives: (1) whether it permits any real and substantial discrimination, and (2) whether it encroaches upon a fundamental right guaranteed by the Constitution. Article 14 can be invoked only when both conditions are met. Applying this test, the Court concluded that the discretion vested in the Commissioner of Income-Tax or the Central Board of Revenue under section 5 (7A) does not amount to discrimination nor does it infringe any fundamental right.

In this case, the Court observed that the provision contained in section 5(7A) of the Act was not discriminatory. Consequently, the Court held that section 5(7A) did not offend Article 14 of the Constitution, nor did it impose an unreasonable restriction on the fundamental right to carry on trade or business guaranteed by Article 19(1)(g). The Court further noted that any misuse of power under the provision could be remedied through appropriate legal action, either under Article 226 or Article 32 of the Constitution. Accordingly, the Court clarified that while an order made pursuant to section 5(7A) could be struck down if it was mala fide or violative of fundamental rights, the provision itself could not be invalidated. The challenge to the constitutional validity of section 5(7A) therefore failed. Nevertheless, the Court advised that, wherever practicable, the principles of natural justice should be observed before the Commissioner of Income-Tax or the Central Board of Revenue issues a transfer order under section 5(7A). Specifically, the Court suggested that the affected party should receive notice of the intended transfer, be given a reasonable opportunity to present his or her views, and that the reasons for the transfer be recorded in writing, even if only briefly.

The Court then pointed out that when a question arises under section 64 concerning the place of assessment, the Commissioner, the Commissioners, or the Central Board of Revenue must afford the assessee an opportunity to be heard under section 64(3) before deciding the matter. In light of this procedural safeguard, the Court found it surprising that an order made under section 5(7A)—which moves a case from one Income-Tax Officer to another regardless of the assessee’s residence or place of business—might be issued without granting the assessee a similar chance to be heard. The Court emphasized that there was no presumption against the honesty or bona fides of an assessee and that, as a general rule, the tax authorities should not deny a reasonable opportunity to be heard when a transfer order contravenes the normal procedure set out in sections 64(1) and 64(2). The only exception, the Court observed, would be where giving notice would frustrate the very purpose of the transfer. Finally, the Court noted that reducing the reasons for the transfer order to writing would help the assessee understand why the Commissioner of Income-Tax or the Central Board of Revenue deemed the transfer necessary or desirable, and would also assist the court in assessing the bona fides of the order if its validity were later challenged.

The Court observed that providing the reasons for an order in writing assisted the court in assessing the bona fides of the order if it were later challenged as being mala fide or discriminatory, and it expressed the hope that Income-tax authorities would observe the foregoing procedure wherever feasible. The next point of attack concerned the orders issued by the Commissioner of Income-tax or the Central Board of Revenue in the present petitions, which were described as omnibus, wholesale transfer orders that fell within the mischief identified in Bidi Supply Co. v. Union of India and were therefore affected by the majority judgment in that case. The State contended that the orders were valid by virtue of the explanation appended to section 5(7A) by the Indian Income-tax Amendment Act, 1956 (26 of 1956). It was recalled that the explanation had been inserted to overcome the situation created by the majority judgment and that all proceedings against a particular assessee, whether relating to the same year or to previous years and pending before the Income-tax Officer, were intended to be incorporated in the transfer order, as were any proceedings that might be commenced after the date of transfer with respect to any year, whether the year of transfer or any year preceding or succeeding it. The core structure of section 5(7A) was retained, while the explanation was added to broaden the connotation of the word “case” used in that provision. The manner in which this result was achieved attracted criticism because the term “case” was effectively equated with the term “file”, so that when a case of a particular assessee was transferred under section 5(7A) the entire file of that assessee was moved from one Income-tax Officer to another. This seemingly inartistic approach appeared to be driven by the necessity of preserving section 5(7A) in its existing form, but the Court noted that it must be examined whether the intended outcome had indeed been realized by the addition of the explanation in the manner adopted. By reading section 5(7A) together with its explanation, it became clear that whenever any case of a particular assessee pending before an Income-tax Officer was transferred to another Officer, whether within the State or outside it, all proceedings pending against the assessee under the Act for the same year as well as for previous years were to be transferred simultaneously, and all proceedings that might be commenced after the transfer with respect to any year were also to be included, so that the Income-tax Officer to whom such case was transferred would be in a position to

The Court explained that, when a case concerning a particular assessee was transferred from one Income-tax Officer to another, the new officer was empowered both to continue any proceedings that were already pending and also to institute fresh proceedings against the assessee for any tax year. It held that the pending proceedings at the moment of transfer could be pursued by the new officer without the need to re-issue notices that had already been served by the officer from whom the file was transferred, because the notice-issuing rule contained in the main body of section 5(7A) continued to apply to those existing proceedings. The Court further clarified that this rule applied only to the proceedings that had been transferred; it left untouched any further proceedings that might be started after the transfer, for which new notices would have to be issued in the usual manner. The petitioners contended that cases which had been closed in earlier years could not be reopened by the officer to whom the file was transferred, and they argued that the phrase “after the date of transfer in respect of any year” at the end of the explanatory note should be read as “after the date of transfer in respect of the year of transfer.” According to that interpretation, the officer would be barred from initiating any new proceedings concerning years that had already been closed before the transfer date. The Court rejected this contention as untenable. It observed that the wording used was “in respect of any year” and not “in respect of the year,” and that these words had to be read together with the preceding phrase “may be commenced” rather than with “after the date of transfer.” A proper construction, the Court said, indicated that the inclusive portion of the explanation referred to all proceedings under the Act that might be commenced in respect of any year after the transfer date. The date of transfer related only to the specific year in which the case was transferred; attaching the phrase “in respect of any year” to “after the date of transfer” would create a nonsensical result. Accordingly, the phrase “in respect of any year” logically modified the words “which may be commenced,” and in that juxtaposition the inclusive meaning of the explanation became clear. The Court concluded that this reading dispelled the petitioners’ argument. Consequently, the Court held that the wholesale orders of transfer issued against the petitioners by the Commissioner of Income-tax or the Central Board of Revenue were upheld by the explanatory note to section 5(7A) and were therefore not unconstitutional or void. The remaining issue, the Court noted, was whether the individual orders against the petitioners were factually discriminatory or were exercised in mala fide fashion, constituting an abuse of the powers vested in the Commissioner of Income-tax or the Central Board of Revenue.

In this matter, the Court observed that the situation fell within the scope of section 5(7A) of the Act. The petitions numbered 211 to 215 of 1956, which concerned the Shiram Jhabarmull group, were identified as having a distinctive feature that required separate consideration. All of the orders that were the subject of these petitions had been issued by the Commissioner of Income-tax, Central, Calcutta, on 27 July 1946. After those orders, the Income-tax Officer of Central Circle IV, Calcutta, continued to entertain further proceedings against the petitioners for an indeterminate period. These subsequent proceedings ultimately resulted in assessment orders, and the authorities also instituted certificate proceedings under section 46(2) of the Act to recover the tax that had been assessed prior to the commencement of the Constitution.

The central issue that arose was whether the petitioners could challenge those transfer orders as being unconstitutional and void. The Court noted that it was settled law that Article 13 of the Constitution did not operate retrospectively. Consequently, any action taken before the Constitution came into force, if done under a law that was valid at that time, could not be attacked on the ground that it violated fundamental rights later guaranteed by Part III of the Constitution. The Court referred to the decision in Keshavan Madhava Menon v. The State of Bombay, where it was held that a pre-Constitutional act could not be invalidated simply because the law under which it was done became inconsistent with the Constitution after its commencement.

To elucidate this principle, the Court quoted observations of Justice Das made at page 235 of the aforementioned case. Justice Das explained that Article 13(1) nullified only those existing laws that were inconsistent with the exercise of fundamental rights after the Constitution’s commencement; it did not have a retrospective effect. He emphasized that an act performed before the Constitution could not be said to be void merely because the law later became inconsistent with fundamental rights, for that would improperly confer retrospective operation on the Constitution. The Court also cited the cases of Syed Qasim Razvi v. The State of Hyderabad and Laxmanappa Hanumanthappa Jamkhandi v. Union of India to reinforce this position.

Applying this rule, the Court concluded that the petitioners could not complain about the transfer orders dated 27 July 1946. The same reasoning was extended to the petitions numbered 225 to 229 of 1956, which involved the Raichur group, as well as petitions numbered 86, 87, 88, 111, 112 and 158 of 1956, which involved the Amritsar group. All of these petitions were placed in the same category as the Shiram Jhabarmull group. Regarding the Raichur group, the Court noted that an order of transfer had been made on 21 December 1953 by the Commissioner of Income-tax, Hyderabad, which transferred the petitioner’s cases. The Court’s analysis indicated that such transfers, being executed before the Constitution’s commencement, were not subject to invalidation on the basis of constitutional infirmity.

In the first set of petitions, the petitioner’s case was originally transferred from the Additional Income-tax Officer in Raichur to the Income-tax Officer of the Special Circle in Hyderabad. Subsequent to that, an order issued by the Commissioner of Income-tax, shortly before 19 May 1955, moved the petitioner’s file from the Income-tax Officer of the Special Circle, Hyderabad back to the principal Income-tax Officer in Raichur. Consequently, the petitioner returned to the jurisdiction of the Raichur officer, and the Court found it difficult to imagine any legitimate claim of inconvenience or harassment that could be raised on that basis. The Court observed that the petitioner’s conduct appeared motivated by an intention to postpone payment of income-tax lawfully due to the Revenue by exploiting a mere procedural technicality. In the second group of petitions, the Commissioner of Income-tax ordered the transfer of the petitioners’ files from the Income-tax Officer, “Ward, Amritsar” or the Income-tax Officer “F-Ward, Amritsar” to the Income-tax Officer of the Special Circle, Amritsar. Both officers were located in the same building and operated under the same roof, rendering any argument of inconvenience or harassment scarcely tenable. A further common feature of both groups was that none of the petitioners originally objected to the transfers; rather, they accepted the jurisdiction of the officers to whom their cases had been assigned. Only after the Court’s decision in Bidi Supply Co. v. Union of India, pronounced on 20 March 1956, did the petitioners revive their claims, the Amritsar group on 20 April 1956 and the Raichur group on 5 November 1956. By having acquiesced to the jurisdiction of the transferred officers, the petitioners could not invoke Article 32 of the Constitution for relief. The Court reiterated that such conduct disqualifies the petitioners from obtaining any relief from this Court, citing authority from Halsbury’s Laws of England (Vol. II, 3rd Ed., p. 140, para 265), Rex v. Tabrum, Ex Parte Dash(1) and O. A. O. K. Lakshmanan Chettiar v. Commissioner, Corporation of Madras and Chief Judge, Court of Small Causes, Madras(2). Accordingly, the orders of transfer issued by the Commissioner of Income-tax or the Central Board of Revenue with respect to the three categories of petitioners—the Sriram Jhabarmull group, the Raichur group and the Amritsar group—could not be challenged as unconstitutional or void. The Court then turned to the remaining two sets of petitioners. The first of these comprised the petitioners in Petitions Nos. 97 and 97-A of 1956, who were oil-mill owners, merchants and commission agents conducting business at Sahibganj in the Santhal Parganas district and maintaining a branch at 97, Lower Chitpur Road, Calcutta.

The petitioners, who operated an oil-mill business with a branch in Calcutta, had their matters referred to the Income-tax Investigation Commission because authorities believed they had deliberately avoided paying tax on a large sum. It was alleged that the petitioners had concealed income of more than eight lakh rupees and had carried on commercial activities over a wide geographic area, generating substantial profits that were not recorded in their books of account or reflected in any of the tax returns they filed. Following the Supreme Court’s decision in Surajmull Mohta & Co. v. A. V. Viswanatha Sastri (2), approximately three hundred and twenty cases that had been sent to the Income-tax Investigation Commission under section 5(4) of the Taxation on Income Investigation Commission Act (XXX of 1947) were invalidated and consequently had to be reopened under section 34(IA) of the Income-tax Act. In order to dispose of these reopened matters promptly, special investigative “circles” that were not based on territorial jurisdiction were created in Bombay and Calcutta, as the existing circles were already overburdened and could not accommodate the additional workload. The three hundred and twenty cases were allocated between these special circles according to the geographic location of the respective assessees. Because the petitioners were residents of Bihar but maintained a branch in Calcutta, their files were assigned to one of the Central Circles situated in Calcutta. Later, in October 1954, the Supreme Court declared section 5(1) of the Taxation on Income Investigation Commission Act (XXX of 1947) unconstitutional in Meenakshi Mills Ltd. v. Viswanatha Sastri (2). As a result, the cases that had been referred under that provision and were pending before the Income-tax Investigation Commission on 17 July 1954 could no longer proceed under that Act. Approximately four hundred and seventy such cases therefore had to be reopened under section 34(1A) of the Income-tax Act. The Government, believing that a similar approach to the earlier batch would accelerate disposal, decided to allocate these cases to Income-tax Officers appointed without regard to territorial boundaries. Consequently, in addition to the special circles already established in Bombay and Calcutta, five new circles were created in Calcutta, four in Bombay, and nine further circles were set up at major centres such as Kanpur, Ahmedabad, Madras and Delhi to handle the increased volume. Because the nine circles in Calcutta collectively received about two hundred and eighty cases belonging to Calcutta assessees, the remaining cases that did not pertain to that area were re-assigned to the newly created circles where the workload was lighter. It was subsequently observed that Central Circle VI had a comparatively lower workload than the other circles, and on that basis the petitioners’ files were transferred to the Income-tax Officer of Central Circle VI, Delhi. The circumstances leading to these transfers were documented in affidavits submitted by Shri V. Gouri Shankar, Under-Secretary of the Central Board of Revenue, dated 19 November 1956 and 3 December 1956.

The Court observed that the affidavits filed by Shri V. Gouri Shankar, Under-Secretary of the Central Board of Revenue and dated 19 November 1956 and 3 December 1956, demonstrated clearly that the petitioners’ cases were moved first from the Income-Tax Officer of the Special Circle at Patna to the Income-Tax Officer of Central Circle XI at Calcutta, and subsequently from the Calcutta officer to the Income-Tax Officer of Central Circle VI at Delhi, solely for reasons of administrative convenience. The affidavits further revealed that the examination of accounts and the taking of evidence were conducted at locations chosen by the assessee in order to accommodate his convenience, and that the Income-Tax Officers were instructed to follow those preferences. As an illustration, the officer of Central Circle VI at Delhi travelled to Sahibganj to examine the accounts of petitioner No. 1 there; later, when that assessee happened to be in Delhi on other business and requested that the examination be held in Delhi, the officer promptly repositioned the case and carried out the examination at the new venue. In light of these circumstances surrounding the transfers from Patna to Calcutta and from Calcutta to Delhi, and given that the petitioners were afforded all reasonable conveniences with respect to the examination of their accounts and evidence, the Court found no foundation for the allegation that the transfer orders were in any way discriminatory. The Court then turned to the matters raised in Petitions Nos. 44 and 85 of 1956. The petitioner in Petition No. 44/56 was Shri A. L. Sud, originally a resident of Hoshiarpur district in Punjab who, since 1948, had been living and maintaining an office in Calcutta. He was the son of Shri Bhagwan Das Sud and a member of the Hindu undivided family styled M/S Bhagwan Das Sud & Sons, of which Shri Bhagwan Das Sud acted as the karta. This family conducted business in Hoshiarpur and in several other centres such as Bareilly, Calcutta and Bombay. Shri A. L. Sud had been engaged in trade both as a participant in the family venture and in his own individual capacity from 1946 onward. The joint family was alleged to have evaded a substantial amount of income tax and to have undertaken inter-related transactions in respect of their dealings, with the petitioner being a co-partner in the enterprise. Consequently, it was deemed necessary for a proper assessment of the petitioner’s income that his case also be dealt with by the Income-Tax Officer who was assessing the joint family, and the petitioner was assured that the hearing would be arranged with the least possible inconvenience to him. Accordingly, his case was transferred from the Income-Tax Officer of the Survey Circle at Calcutta to the Income-Tax Officer of the Special Circle at Ambala by an order of the Central Board of Revenue dated 29 June 1955. In Petition No. 85/56, the petitioner was the firm M/S Bhagwan Das Sud & Sons; its case had earlier been transferred by the Commissioner of Income-Tax from the Income-Tax Officer at Hoshiarpur to the Income-Tax Officer of the Special Circle at Ambala by an order made under section 5(7A) of the Act on 20 October 1953.

The case of the petitioners was transferred to the Income-tax Officer of the Special Circle at Ambala by an order made under section 5(7A) of the Income-tax Act dated 20 October 1953. The petitioners maintained their principal office at Hoshiarpur in the State of Punjab, but their business operations were spread across many regions of the country, including Assam, Bombay, Bareilly, Calcutta and Kanpur, where they carried out contracts for the Government and other parties. It was alleged that the petitioners had concealed taxable income amounting to more than Rs 30 lakhs, and the authorities considered it necessary to conduct a thorough investigation of these widely dispersed activities in order to address the alleged extensive tax evasion. Consequently, their case was transferred to the Income-tax Officer, Special Circle, Ambala, as indicated above. The officer at Ambala consented to examine the petitioners’ accounts and the relevant evidence at Hoshiarpur, thereby accommodating the petitioners’ convenience. However, the petitioners objected to this arrangement on the ground that their counsel was based in Delhi and that a venue in Ambala would be more suitable for their legal representation. As a result, the matters of both petitioners were transferred from the respective Income-tax Officers who had been assessing them at Calcutta and Hoshiarpur to the Income-tax Officer, Special Circle, Ambala. The authorities also provided all necessary conveniences for the examination of the accounts and evidence at the new venue. In light of these steps, the petitioners’ claim of discrimination, inconvenience or harassment lost its force, and the transfers could not be characterized as discriminatory.

The Court observed that the allegation of discriminatory treatment could not be sustained, noting that in the four earlier petitions—Petition Nos. 97 and 97-A of 1956, and Petition Nos. 44/56 and 85/56—the Central Board of Revenue or the Commissioner of Income-tax, as appropriate, had directed the concerned Income-tax Officers to minimise inconvenience to the assessees, even permitting examinations to be conducted at the assessees’ residences or places of business. Despite the assessees’ denials recorded in affidavits filed in rejoinder, the Court presumed that such facilities would continue to be extended in the future, thereby preventing any unnecessary inconvenience or harassment. The Court stressed that a humane and considerate administration of the provisions of the Income-tax Act would alleviate the assessees’ apprehensions and would preclude any perception that the Revenue administered the Act with “an evil eye and unequal hand.” Accordingly, the Court concluded that the petitions lacked any substantive ground and ordered that they be dismissed with costs. The Court further directed that one set of costs be awarded between the respondents in each individual petition and that a single set of costs be awarded for each group of petitions, namely: (1) Petitions Nos. 97 and 97-A of 1956; (2) Petitions Nos. 44/56 and 85/56; (3) Petitions Nos. 86/56, 87/56, 88/56, 111/56, 112/56 and 158/56; (4) Petitions Nos. 211 to 215 of 1956; and (5) Petitions Nos. 225 to …

The Court recorded that the petitions falling in the fifth group, specifically those numbered 225 through 229 of the year 1956, were dismissed. In reaching this determination, the Court applied the same conclusion that had been reached for the earlier groups of petitions, namely that there was no substantive ground to maintain the proceedings. Consequently, each of the petitions numbered 225, 226, 227, 228 and 229, all filed in 1956, was ordered to be dismissed. The dismissal applied to the entire set of petitions within this range, and no further relief or cost orders were granted in respect of these particular petitions.