LexJAIN BROS. & OTHERS versus THE UNION OF INDIA & OTHERS
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A JAIN BROS. & OTHERS v. THE UNION OF INDIA & OTHERS November 18, 1969 253 3 (M. HIDAYATULLAH, C.J., ]. M. SHELAT, C. A. VAIDIALINGAM, A. N. GROVER AND A. N. RAY, JI.] c D E F G Income Tax A.ct, 1922 s. 23(5) as amended by Finance A.ct· 1956- Do~h!e Taxation-Taxation of income in the hands of firm and. fXlrfners- VaJid1ty-Jncome Tax A.ct, 1961-Sections 297(2) (g), 271(2)-1/ con- travenes Constitlltion of India Article 14. A notice under s. 22(2) of the Income Tax Act, 1922, was served on the appellant, a registered firm, call(ng upon it to submit a return of the mcome for the assessment year 1960-61. A return was filed, but not within time. The assessment was completed in November 1964. In view of the amendment made by the Finance Act of 1956 in s. 23(5) of the Act of 1922, the tax payable by the firm as also the amount to be included in the income of each partnet was determined. The Income Tax Officer also passed an order under Cl. (a) of s. 27l(i) of the Act of 1961 im- posing a penalty for non-compliance with the notice under s. 22(2) of the 1922 Act. The appellants challenged in a writ petition the validity and constitutionality of s. 23(5) of the Act of 1922 and s. 297(2)(g) and s. 271(2) of the Act of 1961. The High Court dismissed the petition. In the appeal to this Court it was contended (i) section 23(5) was invalid for the reason that the same income in the hands of po th the firm and the partners could not be simultaneously subjected to tax; (ii) cl. (g) of s. 297(2) was violative of Article 14 inasmuch as in the matter of imposi- tion of penalty it discriminated between two sets of assessees with re- ference to a particular date, namely completion of assessment plroceedings on or after the first day of April 1962, the date of commencement of the Act of 1961, the classification thus being arbitrary depending on the accident of the date of completion of the assessment and (iii) s. 271 (2) contravened Article 14, because, in the case of assessees other than regis- tered firms the maximum penalty imposable unde'r s. 271 (!) (i) could not exceed fifty per Cent of the tax payable by the assessee; whereas in the case of a registered firm the maximum penalty was not made to depend upon the tax assessed on or payable by such firm. HELD : (i) After the Act of 1956 the firm did not cease to be an assessee; on the contrary it was recognised as a separate entity and was subjected to tax as such. There can be double taxation if the legislature haS distinctly enacted it. It i$ only when there are general words of taxa- tion and they have to be interpreted they cannot be so interpreted as to tax the subject twice over to the same- tax. The Constitution does not contain any prohibition against double taxation even if it be assumed that -such a taxation is involved in the case of a firm and its partners after the amendment of s. 23(5) by the Act of 1956; nor is thelre any other enactment which interdicts such taxation. Even ifs. 23(5) provides for the machinery for collection and recovery of tax, once the legislature has in clear terms indicated that the income of the firm can be taxed as also the income i~ the hands of tl:ie partners, the distinction betwee.n a charging and a machinery section is of no consequence. Both sections have to be read together and construed harmoniously. [258 B, E-G] 254 SUPR.EME COURT REPORTS [f970] 3 S.C.R. Commissioner of Income tax, Bombay South v. Murlidhar lliawar & Puma Ginning & Pressing Factory, 60 I.T.R. 95 distinguished; .The Com- 1nissioner of Inland Revenue v. Frank Bernard· Senderson 8 T.C. 38 and Stevens v. The Durban-Roddepoor; Gold Mining Co, Ltl., 5. T.C. 402 referred to. (ii) The date, first day of April 1962, which has been elected by the legislature for the purpose of els. (f) and (g) of s. 297(2) ·cannot be characterised as arbitrary or fanciful. It is the date on which the Act of 1961 actual1y came into force. For the application and the implemerita- tion of the Act of 1961 it was necessary to fix a date and the stage of the proceedings which were pending for providing by which enactment they would be governed. Pending proceedings can be treated by the legislature as a class for the purpose of Art. 14. There was every justification for providing in els. (f) and (g) that the date of the completion of the assessment would be determin;itive of the enactment undelr which the pro-- ceedings for penalty we
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