Madras H.C : The petitioner has challenged the constitutional validity of s. 158BB(1)(c) of the IT Act, 1961 (‘the Act’).

Counsel Appeared

Pushya Sitaramana, for the Petitioner : S.V. Subramanian with C.V. Rajan, for the Respondents

ORDER

R. JAYASIMHA BABU, J. :

The petitioner has challenged the constitutional validity of s. 158BB(1)(c) of the IT Act, 1961 (‘the Act’). That provision occurs in Chapter XIV-B which lays down a special procedure for assessment of search cases under s. 158BA. Sec. 158B(a) defines a block period to mean previous year relevant to 10 assessment years preceding the previous year in which the search was conducted under s. 132 of the Act or any requisition was made under s. 132A of the Act and includes in the previous year in which such search was conducted or requisition made the period, upto the date of the commencement of such search, or as the case may be, the date of such requisition. Undisclosed income is defined in s. 158B(b), inter alia, to be the income which has not been or would not have been disclosed for the purpose of the Act. Sec. 158BA provides that the special procedure set out in Chapter XIV- B shall be adopted in search cases covered by that section “notwithstanding anything contained in any other provisions of this Act”. The Explanation to that provision states that the assessment made under this Chapter will be in addition to the regular assessment in respect of each previous year included in the block period; that the total income undisclosed relating to the block period shall not include the income assessed in any regular assessment as the income of such block period, and that the income assessed under that Chapter shall not be included in the regular assessment of any previous year included in the block period. Sub-s. (3) of s. 158BA of the Act requires the AO not to include such part of the income which relates to the assessment year for which the previous year is not ended or the date of the filing of the return of income under s. 139(1) has not expired, provided such income or transaction is recorded on or before the date of search or acquisition in the books of account or other document maintained in the normal course of business relating to such previous year. Sec. 158BB deals with computation of undisclosed income. It provides that the undisclosed income of the block period would be aggregated to the total income of the previous year within the block period computed in accordance with Chapter IV of the Act on the basis of the evidence found as a result of search or requisition of the books of account or documents and such other materials or information as are available with the AO as reduced by the aggregate of the total income or as the case may be, as increased by the aggregate of the losses of such previous years determined, inter alia , where the due date for filing a return of income has expired but no return of income has been filed, as Nil, as provided in cl. (c) of sub-s. (1) of s. 158BB.

The learned counsel for the petitioner contended that this provision is unconstitutional as it has the effect of depriving an honest assessee of the several deductions allowable under other provisions of the Act even in cases where an assessee has, by relying on s. 139(4) of the Act, filed a return of income after the due date specified in s. 139(1) but before the expiry of the period specified in s. 139(4). Sec. 139(4) enables a person who has not filed a return within the time allowed under s. 139(1) or under a notice issued under s. 142(1) to furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

The petitioner in this case had not filed his return for the asst. yr. 1994-95 as also for the asst. yr. 1995-96 on or before 31st Aug., 1994 and 31st Aug., 1995, respectively. The search was conducted in his premises on 18th Jan., 1996. Thereafter, the assessment was made for the block period by taking into account the amount ascertained as having been not disclosed at the time of search and adding thereto the income shown in the return filed by the assessee on 29th March, 1996 after search. According to the assessee, the inclusion of the income shown in the returns filed within the extended date provided under s. 139(4) has the effect of depriving the petitioner of the valuable right conferred on him by s. 139(4) and, therefore, s. 158BB(1)(c) is arbitrary, ultra vires the Act, and unconstitutional.

The provision with which we are concerned is a provision in a taxing statute. It is open to the Parliament to classify the taxpayers on any rational basis and also treat the different classes of taxpayers differently. It is also permissible for the Parliament to further classify in a rational and non-arbitrary manner, the assessees in relation to their conduct. The Parliament can legislate with respect to the assessees who comply with the requirements of law and extend such concessions as it deems fit to such assessees, which concessions it may choose to deny to those who have violated the law and such violations have been established by reason of the action taken by the authorities. It is in that background and with the object of laying down a special procedure for the assessment of the assessees who fail to comply with the law by not disclosing in full their taxable income and by not paying the taxes properly due from them that Chapter XIV-B consisting of ss. 158B to 158BH was inserted in the IT Act by the Finance Act, 1995 w. e. f. 1st July, 1995.

The assumption made in the scheme of the Act that a person who comes forward with the return or with further information after a search, does so only on account of the detection already effected under the search and the likelihood of further exposure is a reasonable assumption and it can in noway be regarded as arbitrary. The special procedure provided in Chapter XIV-B is meant to apply to all such cases notwithstanding anything contained in any other provisions of the Act, as provided in s. 158BA(1) and the other provisions of the Act, therefore, cannot control the contents of this chapter except to the extent provided for in Chapter XIV-B. There is no fundamental right in an assessee to commit breaches of the law. The right that can be asserted by one who has chosen to violate the law is the right to be treated in a manner similar to that in which other similar offenders are treated. Chapter XIV-B accords similar treatment to all persons belonging to the class to whom that Chapter is to apply. There is no discrimination therein among those who suffer such searches.

The learned counsel for the petitioner emphasised the words used in the definition of ‘undisclosed income’ which refer to income which has not been or would not have been disclosed. The counsel submitted that in cases where, as in the case of the present petitioner, the assessee had paid advance tax, such payment would clearly indicate his intention to disclose his income and it could not be said that such person would not have disclosed his income.

The payment of advance tax by itself does not establish an intent to disclose the income. The disclosure is to be made by filing the return. Even in search cases where the time for filing the return under s. 139(1) has not expired, income disclosed in the books of account is not treated as undisclosed income. All that is denied to the assessee in search cases is the opportunity to file return after the period specified in s. 139(1) and to claim that the income that he would have disclosed in a belated return is not to be regarded as undisclosed income. The reason for denying such the opportunity in search cases is obvious. After having suffered a search, the assessee is not to be enabled to escape the consequences of his failure to disclose all his income by filing a return after the search and after the expiry of the time prescribed under s. 139(1) and by disclosing therein income which had remained undisclosed up to the date of the search. Sec. 158BB(1)(c) is not in anyway unconstitutional.

The writ petition is dismissed. Consequently, WMP Nos. 4539 and 4540 of 1997 are dismissed.

[Citation : 249 ITR 378]