Abhyankar, J.:— This order deciding common questions will dispose of both these petitions.

2. In order to understand the nature of contest between the parties, a few facts giving rise to those petitions may be noticed. The petitioner in Special Civil Application No. 1065 of 1965 is a partnership firm called “Shakti Offset Works”. It carries on business of lithography and art-printing. The petitioner's year of account is ending Diwali. For the account year ending Diwali of 1958, the assessment year is 1959-60. The petitioner filed a return in 1960, in respect of that income for the account year ending Diwali 1958. The petitioner has shown a sum of Rs. 25,000 as loan incurred from some money-lenders at Bombay. The assessment was completed by the Income-tax Officer on or about 13th September, 1963. In this order the Income-tax Officer recorded a finding that the item of Rs. 25,000 could not be allowed as admissible expenditure and he added it as concealed income. An appeal was preferred against this order by the petitioner which was decided by the Appellate Assistant Commissioner on July 25, 1964. The Appellate Assistant Commissioner has upheld the finding regarding this item of concealed income. The Income-tax Officer issued a notice purporting to act under section 274 read with section 271 of the Income-tax Act, 1961. This notice was issued on September 13, 1963, calling upon the petitioner to show cause why they should not be penalised for having concealed their income. It appears that when this notice was pending, the Inspecting Assistant Commissioner also issued a notice under section 274(1), read with section 271 of the Income-tax Act, 1961, on 30th April, 1965. The Inspecting Assistant Commissioner passed an order on 7th September, 1965, imposing a penalty of Rs. 30,000 on the petitioner under section 271(1)(c) of the Income-tax Act, 1961. The petitioner challenges the power of the Inspecting Assistant Commissioner or, for the matter of that, of the Income-tax Officer, to issue notice against the petitioner under the provisions of the Income-tax Act of 1961.

3. The petitioners in Special Civil Application No. 1176 of 1965 are both executors of the will of one Shri N.J Naidu. The late Shri N.J Naidu was trading in a partnership firm called “N.J Naidu and Company”. Shri Naidu during his lifetime received on June 18, 1960, a notice under section 22(2) of the Income-tax Act, 1922, issued on May 11, 1960. By this notice Shri Naidu was called upon to file a return of his income by 20th July, 1960. The income-tax return was to be filed for the assessment year 1960-61, for the account year 1959-60. Actually, the return came to be filed late by Shri N.J Naidu on 4th August, 1961, i.e, after a delay of about a year and a few days. On April 1, 1962, the new Income-tax Act, i.e, the Income-tax Act, 1961, came into force. The Income-tax Officer completed the assessment on 30th April, 1963. Thereafter, the Income-tax Officer issued a notice to Shri Naidu on 29th June, 1963, under section 271(1)(a) of the Income-tax Act of 1961. After receipt of this notice Shri Naidu died on 30th July, 1963. The Income-tax Officer, therefore, issued another notice to the petitioners on April 17, 1964, which was received by them on April 24, 1964. The petitioners submitted an explanation four days later giving reasons why there was a delay in furnishing the return by their father. The Incometax Officer, however, imposed a penalty of Rs. 14,005 on the petitioners by an order passed on 29th June, 1964. The petitioners went up in appeal against this order and the Appellate Assistant Commissioner, in view of the inaccuracy in accounting, reduced the penalty to Rs. 5,000 by his order dated August 17, 1965.

4. In both these petitions the petitioners' contention is that they have been proceeded against in exercise of powers under section 271 and section 274 of the Income-tax Act of 1961, read with the provisions of section 297(2)(g) thereof. Their case is that the provisions of section 297(2)(g.) of the Income-tax Act, 1961, are ultra vires of the powers of the Central Legislature because they offend the protection and guarantee to which the petitioners are entitled under article 14 of the Constitution. Their further contention is that the petitioners on the terms of section 271 itself could not be proceeded against because they did not commit any breach of any of the terms of section 271.

5. The challenge to the vires of section 297(2)(g) is grounded on the averments in the petitions that the petitioners are those assessees who had filed returns of their income for the year prior to the assessment year ending 31st March, 1962, before April 1, 1962. From the mere fact that in cases of the petitioners the assessment was not completed before April 1, 1962, they could not be given a different treatment from several other assessees who had filed their returns before April 1, 1962, but in whose cases the assessments were completed before April 1, 1962. In other words, their contention is that the legislature having made a provision as to the manner in which proceedings for assessment pending on the date of the coming into force of the new Income-tax Act, 1961, should be dealt with in a particular way in respect of the assessees who have been grouped together as assessees who had filed their returns before April 1, 1962, a further differentiation could not be made rationally or reasonably merely on the ground that in some cases the assessments were completed before April 1, 1962, while in the case of others, like the petitioners, the assessments came to be completed after April 1, 1962.

6. Their second contention is that under section 271(1) an Income-tax Officer or an Appellate Assistant Commissioner has to satisfy himself about the contravention by an assessee in respect of one or the other matters provided in clauses (a), (b) and (c) of sub-section (1) of section 271 of the Income tax Act, 1961, in the course of any proceedings under the Act of 1961. Inasmuch as the proceedings taken in the cases of the petitioners could not be said to be proceedings under the Income-tax Act, 1961, the Income-tax Officer or the Appellate Assistant Commissioner had no jurisdiction to exercise power under section 271(1) against the petitioners as these officers could not come to a satisfaction in the course of any proceedings under the Income-tax Act of 1961, the proceedings having been initiated under the Income-tax Act of 1922.

7. The respondents to these petitions are the Income-tax Officer and the Appellate Assistant Commissioner whose orders are challenged. They have filed their returns and are represented by the standing counsel for the department before us. The answer of the respondent in reply to the petitions is that there is no discrimination in the treatment of the petitioners as distinguished from treatment to other similar assessees who had filed their returns before April 1, 1962. They are not being subjected to any hostile treatment or any onerous burden, and, therefore, the challenge on the ground of discrimination is not tenable. The further contention is that the classification made in clauses (f) and (g) of sub-section (2) of section 297, which alone provided for imposition of penalty and the procedure by which the penalty is to be imposed in any given case, is a well-defined classification, the dividing line being whether or not the assessments are completed before or after April 1, 1962. There was a good reason for classifying these two types of assessees, though the assessees of both these classes have filed their returns before April 1, 1962. The treatment provided for them, so far as penal proceedings are concerned, is not different from others in the same class. All others in whose cases assessment was not completed before April 1, 1962, are treated alike and the petitioners could not make a grievance on the ground of differential treatment so far as other assessees in the same class are concerned. As regards the applicability of section 271 to the penal proceedings provided in clause (g) of sub-section (2) of section 297 of the Income-tax Act, 1961, the contention of the respondents is that the provisions of the Income-tax Act of 1961 must be held to be applicable so far as may be, and this may be in the matter of quantum of punishment or penalty that the provisions of the Act of 1961 have been made applicable and not other conditions such as a notice under section 139 which in terms could not be available. In other words, the provisions of clause (g) of subsection (2) of section 297 of the Income-tax Act of 1961 is a separate and independent code providing for imposition of penalty in respect of assessees who have filed their returns already, i.e, before April 1, 1962, but in whose cases the assessment came to be completed after April 1, 1962. It is not necessary, according to this line of argument, to go to any other section of the Income-tax Act, 1961, as clause (g) merely speaks of penal provisions under the new Act applicable in such cases.

8. In support of their contention the petitioners have pointed out that the scheme of the Act of 1922, as distinguished from the scheme of the Income-tax Act of 1961, so far as the incurring of the liability for being penalised is concerned, is entirely different. Section 28 of the Income-tax Act of 1922 reads as follows:

“28.(1) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person—

(a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under subsection (1) or sub-section (2) of section 22 or section 34 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice, or

(b) has without reasonable cause failed to comply with a notice under sub-section (4) of section 22 or sub-section (2) of section 23, or

(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income,

he or it may direct that such person shall pay by way of penalty, in the case referred to in clause (a) in addition to the amount of the income-tax and super-tax, if any, payable by him a sum not exceeding one and a half times that amount, and in the cases referred to in clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such persons had been accepted as the correct income:

Provided that—

(a) no penalty for failure to furnish the return of his total income shall be imposed on an assessee whose total income is less than three thousand five hundred rupees unless he has been served with a notice under subsection (2) of section 22;

(b) where a person has failed to comply with a notice under sub-section (2) of section 22 or section 34 and proves that he has no income liable to tax, the penalty imposable under this sub-section shall be a penalty not exceeding twenty-five rupees;

(c) no penalty shall be imposed under this sub-section upon any person assessable under section 42 as the agent of a person not resident in the taxable territories for failure to furnish the return required under section 22 unless a notice under sub-section (2) of that section or under section 34 has been served on him;

(d) when the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of sub-section (5) of section 23, then, notwithstanding anything contained in the other provisions of this Act, the amount of income-tax and super-tax payable by the firm itself shall be taken to be an amount equal to the tax which would have been payable by an unregistered firm on an income equal to the firm's total income, and, in the cases referred to in clauses (b) and (c), the amount of the income-tax and super-tax which would have been avoided if the income as returned had been accepted as the correct income, shall be taken to be the difference between the amount of the tax which would have been payable by an unregistered firm on an income equal to the firm's total income and the amount of the tax payable by an unregistered firm on an income equal to the income of the firm as actually returned by the firm.

(2) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that the profits of a registered firm have been distributed otherwise than in accordance with the shares of the partners as shown in the instrument of partnership registered under this Act governing such distribution, and that any partner has thereby returned his income below its real amount, he or it may direct, that such partner shall, in addition to the income-tax and super-tax, if any, payable by him, pay by way of penalty a sum not exceeding one and a half times the amount of income-tax and supertax which has been avoided, or would have been avoided if the income returned by such partner had been accepted as his correct income; and no refund or other adjustment shall be claimable by any other partner by reason of such directions.

(3) No order shall be made under sub-section (1) or sub-section (2) unless the assessee or partner, as the case may be, has been heard, or has been given a reasonable opportunity of being heard.

(4) No prosecution for an offence against this Act shall be instituted in respect of the same facts on which a penalty has been imposed under this section.

(5) An Appellate Assistant Commissioner or the Appellate Tribunal on making an order under sub-section (1) or sub-section (2) shall forthwith send a copy of the same to the Income-tax Officer.

(6) The Income-tax Officer shall not impose any penalty under this section without the previous approval of the Inspecting Assistant Commissioner.”

9. With this are to be compared the provisions of section 271 of the Income-tax Act of 1961, which are in the following terms:

“271.(1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person—

(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or

(b) has without reasonable cause failed to comply with a notice under sub-section (1) of section 142, or sub-section (2) of section 143, or

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,—

(i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent, of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent, of the tax;

(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum which shall not be less than ten per cent., but which shall not exceed fifty per cent, of the amount of the tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income;

(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent., but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.

Explanation.—Where the total income returned by any person is less than eighty per cent, of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section.

(2) When the person liable to penalty is a registered firm or an unregistered firm, which has been assessed under clause (b) of section 183, then, notwithstanding anything contained in the other provisions of this Act, the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm.

(3) Notwithstanding anything contained in this section,—

(a) no penalty for failure to furnish the return of his total income under sub-section (1) of section 139 shall be imposed under sub-section (1) on an assessee whose total income does not exceed the maximum amount not chargeable to tax in his case by one thousand five hundred rupees;

(b) where a person has failed to comply with a notice under subsection (2) of section 139 or section 148 and proves that he has no income liable to tax, the penalty imposable under sub-section (1) shall not exceed twenty-five rupees;

(c) no penalty shall be imposed under sub-section (1) upon any person assessable under clause (i) of sub-section (1) of section 160, read with section 161, as the agent of a non-resident for failure to furnish the return under sub-section (1) of section 139.

(4) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that the profits of a registered firm have been distributed otherwise than in accordance with the shares of the partners as shown in the instrument of partnership, on the basis of which the firm has been registered under this Act, and that any partner has thereby returned his income below its real amount, he may direct that such partner shall, in addition to the tax, if any, payable by him, pay by way of penalty a sum not exceeding one and a half times the amount of tax which has been avoided, or would have been avoided if the income returned by such partner had been accepted as his correct income; and no refund or other adjustment shall be claimable by any other partner by reason of such direction.

(4A) Notwithstanding anything contained in clause (i) or clause (iii) of sub-section (1), the Commissioner may, in his discretion—

(i) reduce or waive the amount of minimum penalty imposable on a person under clause (i) of sub-section (1) for failure, without reasonable cause, to furnish the return of total income which such person was required to furnish under sub-section (1) of section 139, or

(ii) reduce or waive the amount of minimum penalty imposable on a person under clause (iii) of section (1), if he is satisfied that such person—

(a) in the case referred to in clause (i) of this sub-section has, prior to the issue of notice to him under sub-section (2) of section 139, voluntarily and in good faith, made full disclosure of his income; and in the case referred to in clause (ii) of this sub-section has, prior to the detection by the Income-tax Officer, of the concealment of particulars of income in respect of which the penalty is imposable, or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars;

(b) has co-operated in any enquiry relating to the assessment of such income; and

(c) has either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed uuder this Act in respect of the relevant assessment year:

Provided that if in a case the minimum penalty imposable under clause (i) or, as the case may be, clause (iii) of sub-section (1) in respect of the relevant assessment year, or where such disclosure relates to more than one assessment year, the aggregate of the minimum penalty imposable in respect of those years, exceeds a sum of rupees fifty thousand, no order reducing or waiving the penalty shall be made by the Commissioner unless the previous approval of the Board has been obtained.

(4B) An order under sub-section (4A) shall be final and shall not be called in question before any court of law or any other authority.”

10. Now, the differentia between the two provisions have been criticised in the latest edition of his book on Income-tax by Mr. Palkhivala at page 938. We have checked all reference to the relevant provisions of the Act and it does not seem to be disputed that the changes which are pinpointed by the learned author bring out distinctions between the provisions on this topic in the two enactments. The salient features are that the power of the Appellate Tribunal to impose a penalty which was given under the Act of 1922 is taken away in this Act. In the case of concealment of income, the Inspecting Assistant Commissioner is alone to impose a penalty if the minimum exceeds Rs. 1,000, whereas under the 1922 Act the Income-tax Officer had the power to impose penalty up to the maximum. One of the important distinguishing features is that under the 1922 Act, the Income-tax Officer could not impose penalty without the previous approval of the Income-tax Commissioner, whereas under the 1961 Act, the Income-tax Officer does not have to obtain the sanction of the Inspecting Assistant Commissioner of Income-tax. Under the new Act in certain cases the minimum limit is prescribed, for example, in the case of concealment of income, while under the 1922 Act there was no limit; the maximum penalty imposable in the case of clauses (a) and (b) of sub-section (1) of section 271 of the 1961 Act is reduced, whereas under the corresponding clauses (a) and (b) of section 28(1) of the 1922 Act the maximum up to one and a half times of tax was imposable. Under the 1922 Act there was no limit of time for commencement of penalty proceedings, but under the new Act the penal proceedings are required to be commenced before the completion of the proceedings in which the Income-tax Officer or the Appellate Assistant Commissioner are satisfied that the default attracting the penalty has been committed. Under the 1922 Act there was no limit of time within which the order imposing the penalty could be passed, while under the 1961 Act such a time-limit is imposed under section 275. Another important feature of distinction is regarding prosecution. Under the 1922 Act no prosecution could be instituted in respect of same facts giving rise to penalty, while under the 1961 Act penalty can be imposed and in addition a prosecution can be launched on certain facts.

11. We have reproduced above briefly the distinguishing features of the provisions for imposing penalty, the manner in which the proceedings are to be initiated, the authorities which are competent to impose penalty, the limitation of time and the maximum and the minimum amount of penalty which can be imposed. There is, therefore, no doubt that there is a difference both in the manner of approach to the problem and the manner of dealing with it and consequences regarding lapses on the part of the assessees under the scheme of the two Acts. The contention of the petitioners is that they are exposed to a more enormous set of obligations, being required to face penal proceedings under the 1961 Act, than they would have been if the penal proceedings were to be initiated against them under the Act of 1922. To this line of argument the reply on behalf of the department is that there is no greater onerous proceedings in the matter of quantum of penalty inasmuch as the maximum penalty that could be imposed so far as the cases of concealment of income are concerned is the same, namely, up to a maximum of one and a half times the tax that could be levied. Actually, this limit is reduced under the new Act to 50 per cent, of the amount if there is a complaint of infraction of clause (a) or (b) of section 271(1), analogous to clauses (a) and (b) of sub-section (1) of section 28 of the Act of 1922. The department further contends that the very concept of discrimination in the context of hostile treatment under article 14 of the Constitution postulates a greater burden being imposed by the impugned piece of legislation. The argument is that in the instant cases the petitioners cannot complain of a greater burden inasmuch as the maximum penalty that can be imposed for concealment of income both under the Act of 1922 as well as under the Act of 1961 is the same. It is the maximum amount of penalty that should be decisive of whether or not the burden in one case or the other is onerous, and no other factor. In support of this contention the learned counsel has invited our attention to a few decisions.

12. In Indra and Co. v. Union of India See Appendix No. 1, p. 664 infra. section 297(2)(g) of the Income-tax Act of 1961 seems to have been challenged before the High Court on the ground that it violated the guarantee under article 20(1) of the Constitution. A few facts will be useful to understand the circumstances in which the question was taken to the High Court. The petitioners were a registered firm and a partner thereof. They were served with a notice under section 22(2) of the Income-tax Act of 1922 on 30th May, 1961, for the assessment year 1961-62. The petitioners did not file any return in compliance with this notice till after the coming into force of the Income-tax Act of 1961. They did file a return on December 28, 1962. The assessment was completed on April 19, 1963, in accordance with the provisions of the new Act, but while doing so the Income-tax Officer issued a notice to the petitioners to show cause why penalty should not be imposed on them for their failure to submit returns in time in pursuance of the notice on 30th May, 1961. The conten tion of the petitioners was that section 297(2)(g) which made a special provision in respect of penalty proceedings being taken against the assessees in whose cases assessment was completed after April 1, 1962, violated the guarantee under article 20 of the Constitution. The case appears to have been argued on the footing that the failure to submit the return in pursuance of the notice had taken place prior to the coming into force of the new Act, which came into force on April 1, 1962, and at that time the penalty was imposable under section 28(1)(a) of the Income-tax Act of 1922; but under the provisions of that Act there was a minimum amount of penalty which was liable to be imposed. On the other hand, the petitioners before the court having been dealt with under the provisions of section 271 and section 274 of the Income-tax Act of 1961, they were subjected to a law under which both the minimum and maximum amounts of penalty were required to be imposed and thus they were denied the guarantee of article 20 of the Constitution.

13. It appears that along with this contention article 14 of the Constitution was also pressed into service by the petitioners before the court. With respect to article 14 the argument was that the distinction made between the assessments completed before the coming into force of the new Act and those completed after the coming into force of the new Act was violative of article 14 of the Constitution. The court in repelling this contention observed that in all cases where the material adduced before the court in matters relating to article 14 is unsatisfactory, the court may have to allow the State to lean on the doctrine of initial presumption of constitutionality. They further observed that in the case no material was placed before them to show that the provision was abused or was capable of being abused in any manner. Observations have also been made in repelling the challenge under article 14 of the Constitution to the following effect

“It is to be borne in mind that penalties prescribed under the Income-tax Act for failure to submit the return of income in time are not in the nature of punishment imposed for conviction of an offence. Such penalties are more or less compensatory in character to make good the loss that may be caused to the State revenues on account of late submission of returns of income and in consequence late realisation of the tax. Therefore, the provisions relating to imposition of penalties can be said to form integral parts of the proceedings relating to assessment. It was, therefore, open to the legislature to make a distinction regarding assessments which were completed before the coming into force of the new Act and those which are to be completed after the coming into force of the new Act.”

14. We must make it clear that these observations are not relied upon on behalf of the department in these cases as supporting classification. This case is principally under article 226 of the Constitution, challenging the validity of the classification, but the decision is relied upon with regard to the observations vis-a-vis the provisions of article 20(1) of the Constitution to the following effect:

“What this article hits at is the infliction of a penalty greater than the one that could be inflicted at the time the act was done. However, the procedure prescribed under the new Act cannot on this account be held to be bad. It will be open to the petitioners to urge before the taxation authorities as to what extent a penalty could, if at all, be legally imposed on them.”

15. Our attention was invited to another decision of the Kerala High Court in a case reported as P. Ummaliumma v. Inspecting Assistant Commissioner of Income-tax. In that case for the assessment year 1954-55 the Income-tax Officer initiated assessment proceedings under section 34(1)(a) of the Act of 1922, and completed the assessment on 15th September, 1962. Under section 274(2) and section 271 of the Income-tax Act, 1961, penal proceedings were commenced and penalty was imposed for deliberate concealment of a particular income. A petition under article 226 of the Constitution was moved to seek quashing of the notice demanding penalty, on the ground of violation of article 20(1) of the Constitution. In repelling this contention the High Court pointed out that there was no conviction for any offence involved when the penalty was imposed and held that article 20(I) would have application only when the person is subjected to a penalty greater than that which might be inflicted under the law, but a penalty would come within the purview of article 20(1) of the Constitution only if the earlier part of the clause is attracted, i.e, there must have been a conviction for an offence. Although concealment of income is an offence under section 52 of the repealed act and also an offence under section 277 of the new act, penalty imposed under section 28(4) of the repealed Act and under section 277 of the new Act of 1961 is not imposed on the basis that it was an offence. Penalty is exacted not because an act or omission by an assessee constitutes an offence, but because that act or omission would constitute an attempt at evasion on the part of the assessee and, therefore, it was held that article 20 of the Constitution could have no application. Having thus held that the article was not called in aid at all for application, the court has also observed that the maximum penalty was the same both under section 28 of the repealed Act and under section 271 of the new Act, and, therefore, it could not be said that the assessee was subjected to a greater penalty under the Act of 1961 because the minimum was specified in section 271 of the Act of 1961.

16. The learned counsel has also relied on certain observations of the Supreme Court in K. Satwant Singh v. State of Punjab [1960] 2 S.C.R 89, 111, 113.. In this case again the question was regarding the applicability of article 20 of the Constitution to the provisions of section 10 of the ordinance under which the accused, Satwant Singh, appears to be convicted for an offence under section 420, Indian Penal Code. At page 111 the Supreme Court observed as follows:

“It cannot be said that section 10 of the ordinance in imposing the minimum fine which a court shall inflict on a convicted person was imposing a penalty greater than that which might have been inflicted on the person under the law in force at the time of the commission of the offence, where under such law the extent of fine which would be imposed is unlimited.”

17. Then again at page 113 the following observations are made:

“The total sentence of fine—‘ordinary’ and ‘compulsory’—in the present case cannot be said to be greater than that which might have been imposed upon the appellant under the law in force at the time of the commission of the offence, because the fine which could have been imposed upon him under section 420 was unlimited. A law which provides for a minimum sentence of fine on conviction cannot be read as one which imposes a greater penalty than that which might have been inflicted under the law at the time of the commission of the offence where for such an offence there was no limit as to the extent of fine which might be imposed…. Under article 20 of the Constitution all that has to be considered is whether the ex post facto law imposes a penalty greater than that which might be inflicted under the law in force at the time of the commission of the offence.”

18. In our opinion, the observations made in considering the applicability of article 20 of the Constitution will not be apposite in determining whether the penalty imposed under section 271 and the procedure under the Income-tax Act of 1961, in comparison with the penalty imposed and the procedure under the Income-tax Act of 1922 are onerous or not. It will be seen that by the very terms of article 20 of the Constitution the guarantee is restricted to not being subjected to a penalty greater than that which might have been inflicted under the law, and it is with reference to this argument that the question posed came to be answered in the above decisions. Obviously, there being no difference in the maximum penalty that could be imposed under the two laws, there could be no violation of article 20 of the Constitution. No question of article 14 of the Constitution being violated was canvassed in any of these decisions, and we do not think that the consideration which will be relevant under article 20 of the Constitution will be identical or even material in determining a challenge under article 14 of the Constitution.

19. Besides the quantum of penalty which comes to be imposed under the parallel provisions of the two Acts, there are other features which cannot be lost sight of We have reproduced above the resume of the changes made in the procedure and the punishments which are liable to be inflicted in the penal proceedings under the two Acts. In our opinion, the protection that is given to an assessee governed in the matter of penal proceedings under the Act of 1922 in the Income-tax Officer not being able to initiate proceedings or inflict penalties except after concurrence of the Inspecting Assistant Commissioner is a valuable guarantee given to the assessee. Similarly, the immunity from prosecution on the basis of facts which have led to a penalty being imposed under section 28 of the Act of 1922, which is absent from the provisions of the Income-tax Act of 1961, is a material departure from the scheme of liability for the penalty under the two Acts. These features along with the provisions of punishments cannot therefore be lost sight of in a case where there is any ground for complaint of discrimination between two assessees similarly situated. We are unable to accept the contention of the learned counsel for the revenue that there is no such material departure, not only in the matter of quantum of fine that may be imposed but also in the manner and the circumstances in which the proceedings can be initiated or completed.

20. The petitioner in Special Civil Application No. 1065 of 1965 has given an illustration showing how the consequence of following the provisions of one Act or the other materially differ in their impact. In paragraph 17 of its petition it has given examples of cases of two assessees, A and B, whose return of income is taken to be rupees one lakh each. Assuming that the income-tax authorities had assessed rupees nine lakhs as the taxable income in the hands of each of these two assessees and a further sum of Rs. 1,000 is to be found as concealed income in the case of each of these assessees, the consequences under the two Acts will be patently different. Under section 28(1)(c) of the old Act, in the case of A whose assessment may be completed before the 1st of April, 1962, a reasonable penalty not exceeding Rs. 5,000 may be imposed. But in the case of B, by the mere fact of his assessment being completed after April 1, 1962, under section 271(1)(c) of the Income-tax Act of 1961, the penalty would not be less than Rs. 1,40,000 which is a minimum penalty under section 271(1)(a) which provides for the minimum penalty being 20 per cent, of the tax that could be levied, not exceeding one and a half times the tax, which would have been avoided if the income returned had been accepted as the correct income. That that would be the basis for calculation now seems to be judicially accepted under the decision of this court in Mansukhlal and Brothers v. Commissioner of Income-tax. The possibility of such a result therefore in a given case cannot be lost sight of in determining whether the provision which separates the assessees in whose cases assessment is completed after April 1, 1962, for a different treatment is not discriminatory.

21. It also could not be denied that the substantial right of immunity from prosecution and the salutary provision of a superior officer like the Inspecting Assistant Commissioner, being required to apply his mind before a decision 1 is taken to initiate proceedings for imposing penalty for concealment of income, were valuable safeguards against abuse of discretionary powers by the inferior authority. These safeguards do not appear in the new Income-tax Act of 1961. The legislature may have good reasons for the omission, but we are not concerned in this petition about their validity. The fact remains that these safeguards are no longer available to the assessees like the petitioner, merely on the ground that the assessment comes to be completed after the coming into force of the Act on April 1, 1962. We are unable to find therefore that the two causes of action are treated alike in the matter of either imposition of penalty or the manner or method of initiation and completion of proceedings for imposing a penalty under the new Act and the old Act.

22. But it is urged on behalf of the department that the question of discrimination or discriminatory treatment or hostile action will not be relevant if it is shown that persons like the petitioner formed a well-defined class and it is further shown that within that class there is no discrimination inter se. In support of this contention it was argued that the dividing event between the two classes of assessees, both of which have filed their returns before April 1, 1962, in respect of the assessment year ending on 31st March, 1962, and prior to that, is the date of the coming into force of the new Income-tax Act, 1961. It also synchronises with the commencement of the financial year 1962-63. It is contended that the law requires that assessment proceedings must be completed within a period of four years from the date of the year of the assessment. Inasmuch as there were bound to be some cases pending on the date the new Act was to come into force, it was necessary for the legislature to make some provision in respect of such pending cases. These pending matters were divided by the legislature into two classes, namely, those cases in which assessment has been completed before the date of the coming into force of the Act and those cases in which the assessment remains to be completed till after the coming into force of the new Act. The initiation of proceedings for imposing of penalty, if any, cannot be taken unless assessment is completed. Therefore, the completion of the assessment has been properly selected as the dividing line between the two classes of assessees.

23. That the legislature has power to classify the objects on which the provisions of a piece of legislation should operate cannot be disputed. But, in order to find out whether the classification is rational or reasonable, it is to be further established that the dividing line has some rational nexus with the object with which the classification is made. The object of classification of the two types of assessees—rather, the sub-classification, to be more precise, among the assessees who had filed their return before the coming into force of the Act in the matter of imposition of penalty has to be established. We have found it difficult to appreciate how, in order to achieve that object, the fact that in some cases the assessment was completed before April 1, 1962, while in other cases the assessment was not completed could at all furnish a valid ground of distinction. We asked the learned counsel appearing for the revenue whether it is not possible for an appellate authority in the case of an assessee whose assessment is completed before April 1, 1962, to come to the conclusion that there is a concealment of income as a result of the finding of that appellate authority. Such finding could be reached by the appellate authority even after April 1, 1962, in those cases where the assessment was completed before April 1, 1962. Thus, if the completion of assessment has any relevance in determining whereunder and in which circumstances the penal proceedings should be initiated or carried out, it does not appear that the date, April 1, 1962, plays any important part. The contention of the petitioner is that the fact of completion of assessment before April 1, 1962, or after April 1, 1962, is a mere fortuitous circumstance. That is an event which is not controllable either by the assessee or by the income-tax authority. If that be the position, it is contended, the opponents have to establish that there is an overriding consideration which would justify the creation of the class of assessees like the petitioners in whose cases the assessment comes to be completed after April 1, 1962, for a different treatment in the matter of imposition of penalty than those assessees in whose cases it happens that assessment proceedings have been completed before April 1, 1962. It does not seem to be disputed on either side that completion of assessment referred to in clauses (f) and (g) of subsection (2) of section 297 is completion of assessment by the Income-tax Officer and not by any other authority.

24. The petitioners in this connection invited our attention to a Full Bench decision which lays down the principles for adjudication of the question whether there has or has not been a violation of the protection guaranteed under article 14 of the Constitution vis-a-vis a legislative provision. Balabhau Manaji v. Bapuji Satwaji is the Full Bench decision of this court. In this case section 242(3) of the M.P Land Revenue Code came to be examined when challenged as ultra vires of article 14 of the Constitution. The principle on which article 14 has to be applied has been laid down by the learned Chief Justice at page 21 thus

“The principle briefly stated is that article 14 does not prohibit the legislature from classifying or in setting up different classes to some of which the law may apply and to others the law may not. But in order that there should be a classification which can be upheld by the court, the classification must be on some rational basis. The distinction made between one class and another must be such as must be intelligible and the classification also must have some rational nexus with the object which the legislation is intended to achieve.”

25. In that case, under the M.P Land Revenue Code pending suits were divided into two classes, (1) those which were filed before 25th March, 1954, and (2) others which were filed after that date. In finding that there was no justification for dividing the suits in these two classes and directing that the latter class of suits should be dismissed, the learned Chief Justice observed as follows:

“Now, let us apply these two tests to the legislation we have before us. It is perfectly true that it is open to the legislature to have a classification on the basis of time just as much as it can have a basis on geographical or territorial considerations. But if the legislature brings about a classification on the basis of time, the point of time selected must be for some rational and intelligible consideration. A purely arbitrary or capricious selection of time could not possibly form the basis of a rational classification. The date selected, March 25, 1954, we have been told by the Special Govern ment Pleader, was because the Select Committee reported on that date. It is difficult to understand how the date affords any rational basis for a classifi cation on that ground of time……Therefore, when the petitioner filed his suit on June 15, 1954, he did so long before the right was taken away by the legislature by the President giving his assent to the legislation on Febru ary 5, 1955. Why a litigant who filed a suit on March 24, 1954, should be differently treated from a litigant who filed a suit after March 25, 1954, it is difficult to understand. The object of article 14, as has been so often said, is that persons should be uniformly treated by law unless there is some rational reason why they should be treated differently.”

26. Even more apposite are the observations of the Full Bench when dealing with the cases of legislation regarding pending matters. At page 23 the learned Chief Justice has quoted the following observations of the Supreme Court in Rao Shiv Bahadur Singh v. State of Vindhya Pradesh:

“……… But there is no reason why pending proceedings cannot be treated by the legislature as a class by themselves having regard to the exigencies of the situation which such pendency itself calls for. There can arise no question as to such a saving provision infringing article 14 so long as no scope is left for any further discrimination inter se as between persons affected by such pending matters.”

27. In the further part of the report reference is made to the well-known case of Shree Meenakshi Mills Ltd. v. A.V Visvanatha Sastri, wherein the provisions of section 5(1) of the Taxation on Income (Investigation Commis sion) Act, 1947 (Act XXX of 1947), were struck down on the ground that there was no rational basis for dividing the tax-evaders whose cases were referred to the Investigation Commission by the Central Government on 1st September, 1948, and those whose cases were not so referred on or before that date.

28. It is to be noted that a reference was also made to a later decision of the Supreme Court in Thangal Kunju Musaliar v. Venkatachalam, which explained the decision in Shree Meenakshi Mills case and in which the view is taken that if the classification is justified on administrative grounds the legislation may not be vulnerable. We do not find that in the present case the department seeks to justify the classification between the assessee whose assessment is completed prior to April 1, 1962, and those in whose cases assessments have been completed after April 1, 1962, on the ground of any administrative convenience. We are not, therefore, required to examine in detail the reasoning under which the subsequent case was decided in the Supreme Court. It seems to have been held that the classification was not made with reference to the date of reference but on the ground of administrative expediency.

29. It is true that before the classification made by the legislature could be struck down, it is to be established that it is either arbitrary or fanciful or capricious or unjust. That such a finding is necessary is now well-settled. The learned counsel for the revenue also invited our attention to two American decisions, namely, (a) Orient Insurance Co. v. Dagas 172 U.S 557, 562., and (b) Sanders v. Armour Fertiliser Works 292 U.S 190, 206.. What we are called upon to decide is that the contention of the petitioner in this case that the classification with reference to the date of coming into force of the Act, namely, April 1, 1962, is arbitrary and also unrelated to the object for which the classification could be legitimately made. We are not at all impressed by the argument that the classification was necessary because initiation of proceedings could not be taken before the assessment was completed. It is true that the Income-tax Officer or the Appellate Assistant Commissioner, as the case may be, is required to determine the quantum of penalty with reference to the tax which is determined as payable. But from that circumstance it cannot be held that the very initiation of proceedings is held over until after the completion of the assessment. A perusal of the opening words of section 271(1) and section 275 of the Income-tax Act of 1961, would show that the proceedings for imposition of penalty have to be commenced before the completion of assessment proceedings. Section 275 provides that no order imposing a penalty under this chapter shall be passed after the expiry of two years from the date of completion of proceedings in the course of which proceedings for imposition of penalty have been commenced. Similarly, the opening words of section 271(1) provided for the Income-tax Officer or the Appellate Assistant Commissioner being satisfied in the course of any proceedings under the Act that the assessee has done one or the other of the defaults mentioned in the sub-clauses and on his being satisfied he may direct such person to pay by way of penalty the amounts indicated in the subsequent provision. Thus, the event which gives a cause of action for initiation of proceedings for imposing penalty is not held over until after the completion of assessment proceedings. If the completion of assessment proceedings, therefore, is not relevant to determine whether or not the Income-tax Officer or the Appellate Assistant Commissioner should initiate proceedings for imposing penalty on the assessee, we fail to see how the date on which the assessment is completed in a particular case can have any bearing in determining whether the assessment should be governed by one set of provisions in one case and a different set of provisions in the matter of penalty in another case.

30. A similar view has been taken in the Punjab High Court in the case in State of Punjab v. S. Kehar Singh. In that case different consequences were provided for according as allottees of land under the provisions of the Displaced Persons (Compensation and Rehabilitation) Act, 1954, were either prior or subsequent to a particular date. A similar contention was advanced before the Full Bench that properties regarding which schemes were published between particular specified dates were covered by the Act while those schemes which were published later were not within its scope. The result was that in village “A” the impugned Act would be operative and in the neighbouring village “B” it would not be so, although the persons in both the villages would be similarly placed and circumstanced, with this difference that in the former village the scheme was published between particular dates and in the latter it was not. The dividing line having been found to have no nexus with the object of classification or object of the legislation, it was struck down by the Full Bench as violating the guarantee under article 14 of the Constitution.

31. The principle and characteristics of the assessment proceedings in respect of the assessees who have filed their returns before April 1, 1962, had not changed or become different in different cases according as the assessments come to be completed before April 1, 1962, or after April 1, 1962. If the date of completion of assessment is not a relevant factor in determining whether or not penal proceedings should be initiated, or whether the assessee has or has not committed one or the other wrongs, we fail to see what turns on dividing the two classes of assessees with reference to the date of completion of the assessment proceedings.

32. A perusal of the provisions of either section 28 of the repealed Act or section 271 of the Act of 1961 will show that the infraction of the provisions of the Act takes place as soon as the return is filed. We are unable to accept the contention of the learned counsel for the revenue that at least in the case of a charge of concealment of income, the concealment can be said to have taken place only when the Income-tax Officer finds that there has been such a concealment. Whenever an assessee returns an income, deliberately omitting to include an item of income or profit, or making a false return showing the item of income or profit as an item of expenditure, the impugned act takes place with the filing of the return in that manner. It is even more patent when the charge is non-furnishing of return in pursuance of a notice either under section 22 of the old act or under section 139 of the new act or non-compliance with further notices under sub-section (4) of section 22 or sub-section (2) of section 23 under the Act of 1922, and a similar failure to furnish a return to comply with the notices under section 139 or 148 of the Act of 1961, or under sections 142 and 143 as provided in the Act of 1961. That such satisfaction is entered by the Income-tax Officer at a later date shows that the adjudication of the act or omission of the delinquent assessee is postponed to the date of recording such finding. But, from that it cannot be inferred or legitimately urged that the infraction has not taken place when the returns were filed. Some time must necessarily elapse between the filing of the return and commencement of proceedings for assessment, and during such proceedings the income-tax authority records satisfaction whether there has been failure to comply with the provisions of the Act in respect of matters provided in section 28 of the old Act or section 271 of the new Act.

33. The date of completion of the assessment makes no difference so far as this aspect is concerned. In fact, it has no impact either on incurring of the liability or for imposition of penalty. We are therefore unable to see how the classification made by clause (g) of sub-section (2) of section 297 of the Income-tax Act of 1961 can be justified either as relevant or having any relation to the object with which it is concerned. So far as making a provision for imposing a penalty is concerned, there is no difference between the assessees who have filed returns but in whose cases the assessment was completed prior to April 1, 1962, and assessees who have filed returns but in whose cases assessment was not completed or could not be completed till April 1, 1962. In this connection the learned counsel for the revenue invited our attention to a decision of the Supreme Court in Hathising Manufacturing Company v. Union of India. The case arose under the provisions of the Industrial Disputes Act and of section 25-FFF, which was subsequently added. The grievance that seems to have been made before the Supreme. Court was that whereas the employers-petitioners were hit by the provisions of new section 25-FFF because they had closed their industry after a particular date, those who had closed their industry prior to that date were not required to bear the burden of section 25-FFF. On that ground it was urgedthat the guarantee under article 14 of the Constitution was denied to the employers like the petitioners in that case. Repelling the contention their Lordships observed as follows:

“article 14 of the Constitution is not violated by making by law a distinction between employers who closed their undertakings on or before November 27 (28?), 1956, and those who closed their undertakings after that date. The State is undoubtedly prohibited from denying to any person equality before the law or the equal protection of the laws, but by enacting a law which applies generally to all persons who come within its ambit as from the date on which it becomes operative, no discrimination is practised. When Parliament enacts a law imposing a liability as flowing from certain transactions prospectively, it evidently makes a distinction between those transactions which are covered by the Act and those which are not covered by the Act, because they were completed before the date on which the Act was enacted. This differentiation, however, does not amount to discrimination which is liable to be struck down under article 14. The power of the legislature to impose civil liability in respect of transactions completed even before the date on which the Act is enacted does not appear to be restricted. If, as is conceded—and in our judgment rightly—by a statute imposing civil liability in respect of post enactment transactions, no discrimination is practised, by a statute which imposes liability in respect of transactions which have taken place after a date fixed by the statute, but before its enactment, it cannot be said that discrimination is practised.”

34. We do not see how assistance could be had from these observations on behalf of the respondents. The class of assessees in whose cases assessment was completed after April 1, 1962, is a well-defined class. Of course, the legislature can always say that, certain categories of persons may form one class and certain others the other class. This is an incident of legislative power, but the validity of exercise of that power has to be decided on the touch-stone of equality and equal protection before the laws guaranteed under article 14 of the Constitution. The mere fact that the legislation divides assessees into two classes cannot by itself be its justification. Justification has to be found somewhere else, namely, in a rational nexus between the classification and the object to be achieved. If the respondents are not able to show that nexus, then, in our opinion, it is not possible to uphold the contention that classification is rational or just.

35. That it is arbitrary is obvious when the date of coming into force of the Act is found to have no bearing on the division of assessees into two classes, one governed by one set of provisions and the other governed by another set of provisions.

36. The learned counsel for the petitioners has made available to us priivately a printed copy of the judgment of their Lordships of the Supreme Court in what is known as the Bonus case (Civil Appeal No. 187 of 1966, Writ Petition No. 3 of 1966, and Writ Petition No. 32 of 1966, decided on 1 August 5, 1966). A copy of this judgment is also furnished to the learned counsel for the respondents and our attention has been invited to the observations at print page 20 of this copy. This copy should be retained with the records of the case. It appears a distinction was drawn for different treatment according as a dispute between certain employers and their workmen or employees was or was not binding before the specified authority on 29th May, 1965. According as this condition was or was not satisfied by the particular employer, the consequences of the applicability of the different provisions of the Payment of Bonus Act were different. After examining the reasons urged in support of this classification, their Lordships observed:

“Assuming that the classification is founded on some intelligible differentia which distinguishes an establishment from other establishments, the differentia has no rational relation to the object sought to be achieved by the statutory provision, viz., of ensuring peaceful relations between capital and labour by making an equitable distribution of the surplus profits of the year. Arbitrariness of the classification becomes more pronounced when it is remembered that in respect of the year subsequent to the year for which the dispute is pending, liability prescribed under the Act is attracted even if for such subsequent years no dispute is pending, whereas to an establishment in respect of which no dispute is pending immediately before May 29, 1965, no such liability is attracted. Therefore, two establishments similarly circumstanced having no dispute pending relating to bonus between the employers and the workmen in a particular year would be liable to be dealt with differently if in respect of a previous year (covered by section 33) there is a dispute pending between the employer and the workmen in one establishment and there is no such dispute pending in the other. Liability imposed by the Act for payment of bonus is for reasons already set out more onerous than the liability which had arisen under the Full Bench formula prior to the date of the Act. Imposition of this onerous liability depending solely upon the fortuitous circumstance that a dispute relating to bonus is pending between workmen or some of them immediately before May 29, 1965, is plainly arbitrary and the classification made on that basis is not reasonable.”

37. The petitioners seek aid from this latest decision in support of their contention that there is no rational nexus between the object with which the provision has been made for imposing penalty and selecting the date for differentiating as to this provision of law by which the proceedings should be governed. In our opinion, this contention is well-founded and has not been satisfactorily answered by the respondents.

38. We may now notice one more argument in support of the legislation. The particular provision appears in a section of the new Act dealing with repeals and consequences of repeals. Sub-section (1) of section 297 says that the Indian Income-tax Act, 1922, is repealed. But sub-section (2) of section 297 keeps alive the provisions of the repealed Act for certain purposes. Under clause (a.) of sub-section (2) where a return of income has been filed before the commencement of the new Act by any person for any assessment year, proceedings for assessment of that person for that year may be taken and continued as if this Act has not been passed. The case of this assessee is covered by this clause and so far as the assessment of income is concerned, it will be governed by the repealed Act. So far as the assessees who have not filed their returns before April 1, 1962, even in respect of the assessment year ending 31st March, 1962, assessment of such persons is to be made according to the procedure in the new Act. Then there are other provisions regarding the proceedings which are pending at the commencement of the Act before the income-tax authorities, in which case also it is provided that they are to be disposed of as if the new Act had not been passed. There is yet another class of assessees in respect of whom proceedings are pending before the income-tax authorities at several levels. Then comes sub-clause (f) under which any proceedings for imposition of penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and such penalty may be imposed as if the new Act had not been passed, i.e, in compliance with the provisions of the repealed act of 1922. Then follows clause (g) which is impugned before us in this petition. Referring to the scheme of section 297 it is urged on behalf of the respondents that clause (g) is a special provision with respect to pending matters under the provisions of the repealed Act. If there was no provision like clause (g) of sub-section (2) of section 297, it is said, the income-tax authorities would have no power to initiate penal proceedings for imposition of penalty by having recourse to the provisions of the old Act.

39. With regard to assessments completed after April 1, 1962, we are unable to appreciate the force of this contention. As far as we can see, the provisions of section 6 of the General Clauses Act are applicable to all Central Acts except to the extent of a different intention apparent in any provision in the repealing Act. Assuming that the provisions like clause (g) of sub-section (2) of section 297 were not to be made by the legislature, we do not understand why under the provisions of sub-clause (c) or (d) or (e) of section 6 of the General Clauses Act, proceedings for imposition of penalty could not have been initiated and penalty imposed under the provisions of the repealed Act, i.e, the Income-tax Act of 1922. But the contention of the learned counsel for the revenue is that clause (g) is an express provision as regards penalty to be imposed and a procedure is prescribed for imposition of such a penalty. Therefore, in the absence of such a provision, other provisions of section 6 could not be attracted and that is a purpose for which clause (g) has been enacted in the new Act. Now, clause (g) speaks of any proceedings for the imposition of a penalty in respect of any assessment for the year ending 31st March, 1962, or any earlier year which is completed on or after the 1st day of April, 1962, and which may be initiated and any such penalty may be imposed under the provisions of the new Act. Now this clause contemplates two types of proceedings. In other words, proceedings in which return has been filed prior to April 1, 1962, but in which assessment has been completed after April 1, 1962, are obviously covered by clause (g). But, in our opinion, there is nothing to indicate why clause (g) would not be applicable even to those assessees who filed their returns after April 1, 1962, in respect of assessment year ending 31st March, 1962, and prior perfod, and in whose cases assessments must necessarily be completed after April 1, 1962. The case which went to the Rajasthan High Court was obviously a case falling under clause (g) because the return in that case was filed in receipt of notice after April 1, 1962, in respect of the preceding assessment year. That being the position, we do not see what defence such an assessee could have in resisting application of provisions of clause (g) to this case apart from the contention founded on article 20 of the Constitution. But we have not been able to understand how a distinction could be made in the case of other assessees who have filed their returns earlier as is obviously made to provide application of different laws in clauses (f) and (g) according as assessment comes to be completed prior to April 1, 1962, or after April 1, 1962. That some assessment cases would be pending and not completed need not be disputed. That provision has to be made for such pending cases of assessment is also obvious to anyone, but the legislature has to indicate what rational basis or reasons were to be found in making out provisions so far as penal proceedings alone are concerned according as the assessment proceedings in the case of this class of assessees came to be completed prior to or after April 1, 1962. We have been unable to discover any such basis.

40. Neither the procedure nor the character of the proceedings in respect of the assessees who have filed their returns and who have been artificially divided into these two classes is altered by the fact of completion of the proceedings of the assessment on one date or the other, with reference to April 1, 1962. In fact, the completion of proceedings does not seem to have any bearing on this question. We have, therefore, come to the conclusion that the challenge made to the provisions of clause (g) of sub-section (2) of section 297 as violative of article 14 of the Constitution is well-founded and must be upheld. To that extent, therefore, namely, to the extent to which clause (g) permits proceedings for penalty being initiated or completed under the provisions of the new Act, i.e, the Income-tax Act of 1961, in the case of assessees who have already filed their returns before April 1, 1962, it is not warranted and is invalid.

41. We also find considerable difficulty in accepting the contention of the revenue that proceedings could properly be taken under section 271 of the Income-tax Act of 1961 against the assessees who have already filed their returns and whose cases would be pending on the date of the coming into force of the new Income-tax Act. section 297(2)(g) requires, if otherwise avai-able, that proceedings for imposition of penalty may be initiated and such penalty may be imposed under this Act, i.e, the Income-tax Act of 1961. That clause by itself cannot be said to make a provision for imposing of penalty. In other words, that itself is not a charging section. What it provides is indication of the law by which the penal proceedings should be governed. Therefore, one is referred back to the provisions in the Income-tax Act of 1961 to find out which provision is applicable in the matter of imposition of penalty. Those provisions are sections 271 to 275. But as we have pointed out already, the opening words of section 271(1) postulate that the proceedings must be proceedings under the Act of 1961, during the course of which the Income-tax Officer or the Appellate Assistant Commissioner has to be satisfied either that the assessee has failed to furnish a return or failed to comply with a notice or has concealed a particular part of his income. If the proceedings are initiated under the repealed Act, it would not be said that the Income-tax Officer would be satisfied, in the cource of the proceedings under the Income-tax Act of 1961, that the assessee has infringed one or the other of the provisions mentioned in clause (a), (b) or (c) of section 271. Thus, the initial condition for taking cognizance or initiating proceedings for imposing a penalty cannot possibly be satisfied in respect of the assessees who have already filed returns under the repealed Act, and under the provisions of section 297(2)(a) in whose cases proceedings have to be continued and assessments have to be completed under the repealed Act. We have already held that it is during these proceedings for assessment that proceedings for penalty have to be initiated. In fact, it does not appear that the Income-tax Officer can postpone the decision of initiation of penal proceedings till after the completion of assessment in the case of such assessees. If that be the scheme of the Act, it is not possible for the Income-tax Officer while dealing with the case of the assessees like the petitioners who have already filed returns before April 1, 1962, but whose assessments have to be completed under the repealed Act, to take action under the provisions of section 271(1) of the new Income-tax Act.

42. The learned counsel for the department suggested a possible way to get out of this difficulty, and according to him, what clause (g) of sub-section (2) of section 297 provides is merely with regard to the quantum of penalty that could be levied under the new Act and not the initiation of proceedings under the new Act. In other words, before accepting this suggestion we have to introduce a fiction and hold that sub-clause (g) of sub-section (2) of section 297 provides that the proceedings may be initiated as if they were under the Act but not wholly so. We do not think that there is any scope for attributing such intent on the part of the legislature and introducing a fiction. There are several difficulties which were mentioned at the Bar, once ground is opened for reading a fiction in the statutory provision by way of interpretation. We, therefore, do not think that on the wording of section 271 it may be possible for an Income-tax Officer in the case of assessees, who have already filed returns and whose cases were pending completion of assessment on the date of coming into force of the Income-tax Act of 1961, to take action under section 271 itself. Mr. Joshi, learned counsel appearing for the revenue, contesting the case of the other petitioners, namely, the executors of the will of Shri Naidu, who had to answer the charge of late filing of return, supported the order on the ground that the penalty imposed under the Income-tax Act of 1961 is actually less so far as the maximum is concerned though there is also a minimum, namely, 2 per cent, of the tax for every month of default. The argument is that whereas there was a regulated discretion under section 28(1)(a) and the maximum penalty would be as high as one and a half times the amount of the tax, the new provision in limiting the penalty to 50 per cent, of the tax is more rational and, therefore, it could not be complained that it was discriminatory. The short answer to this argument is that there are other disabilities under which even an assessee who has made a default in complying with the notice for filing of the returns suffers under the provisions of the new Income-tax Act, which he did not under the provisions of the repealed Act. It is not possible for courts to say which of the two sets of provisions is more or less onerous and what will be their combined effect on the rights of the assessee. The glaring fact is that the assessees who have filed their returns prior to April 1, 1962, are being sub-divided into two categories in respect of imposition of penalties under the provisions of the law which have no similarity although some of the provisions are more onerous than others in the two systems. The guarantee that is given to the citizen under article 14 of the Constitution is of equal treatment. It may be that the law by which the petitioners claim to be governed may impose penalties and obligations as well as the rights. But the question is whether the legislature has the power, without disclosing good ground for separation of the cases of the two categories of assessees who are otherwise equal, in subjecting them to differential treatment. It is the differential treatment that is the gravamen of the charge and not whether a particular assessee is imposed with more or less burden. We are, therefore, satisfied that even in the case of assessees concerned in the second petition, the classification is equalty vulnerable and there is no escape from the conclusion that they have a right to say that they should not be governed by the new Act.

43. Thus the result is that we allow the petitions and quash the orders of the two income-tax authorities imposing fine because the two authorities could not have proceeded against the petitioners in exercise of their powers under section 297(2)(g) read with section 271 or section 274 of the Income-tax Act, 1961. As the petitioners succeeded, they will be entitled to their costs in each case.