A) ABSTRACT / HEADNOTE

The landmark Supreme Court judgment in Basheshar Nath v. The Commissioner of Income-Tax, Delhi & Rajasthan & Another, [1959] Supp. SCR 528 examined two profound constitutional issues. Firstly, it tested the constitutional validity of settlements made under Section 8A of the Taxation on Income (Investigation Commission) Act, 1947 (Act No. 30 of 1947) after the commencement of the Indian Constitution. Secondly, it addressed whether fundamental rights under Part III of the Constitution, particularly Article 14, can be waived by individuals.

The appellant Basheshar Nath was subjected to investigation and settlement proceedings under the Act, ultimately leading to a negotiated payment towards escaped tax liability. Relying on the precedents established in Suraj Mall Mohta & Co. v. A.V. Visvanatha Sastri, [1955] 1 SCR 448, and M. Ct. Muthiah v. Commissioner of Income Tax, Madras, [1955] 2 SCR 1247, the appellant challenged the enforceability of such settlements, arguing that the constitutional protections under Article 14 had been violated.

The Supreme Court, through a detailed examination of legislative intent, procedural fairness, and constitutional principles, unanimously held that there could be no waiver of fundamental rights under Article 14. The ruling struck down the settlement and enforced the principle that public policy embedded in constitutional equality is non-negotiable and binding on the State.

Keywords: Fundamental Rights, Article 14, Taxation on Income (Investigation Commission) Act, Waiver of Rights, Settlement Validity, Equal Protection of Laws, Public Policy, Constitutional Mandate.

B) CASE DETAILS

i) Judgement Cause Title:
Basheshar Nath v. The Commissioner of Income-Tax, Delhi & Rajasthan & Another

ii) Case Number:
Civil Appeal No. 208 of 1958

iii) Judgement Date:
November 19, 1958

iv) Court:
Supreme Court of India

v) Quorum:
S. R. Das, C.J., N. H. Bhagwati, S. K. Das, J. L. Kapur, K. Subba Rao, JJ.

vi) Author:
S.R. Das, C.J. (majority opinion); separate concurring opinions by Bhagwati, S.K. Das, and Subba Rao, JJ.

vii) Citation:
[1959] Supp. SCR 528

viii) Legal Provisions Involved:

• Article 14, Constitution of India

• Article 13, Constitution of India

• Taxation on Income (Investigation Commission) Act, 1947 (Act No. 30 of 1947)

• Section 5(1), Section 8A, and Section 6 of the Taxation on Income (Investigation Commission) Act

• Indian Income Tax Act, 1922 (for reference to tax proceedings)

ix) Judgments overruled by the Case (if any):
None explicitly overruled, but narrowed down the interpretation of Syed Qasim Razvi v. The State of Hyderabad, [1953] SCR 589.

x) Case is Related to which Law Subjects:
Constitutional Law, Taxation Law, Administrative Law, Interpretation of Statutes, Public Policy Doctrine.

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The Taxation on Income (Investigation Commission) Act, 1947 was enacted during pre-constitutional India to investigate substantial income tax evasions. It empowered the Central Government to refer cases suspected of tax evasion to a special Commission. The appellant Basheshar Nath’s case was referred in 1948. Subsequent investigation led to a determination of tax liability. Eventually, under pressure, the appellant agreed to a settlement under Section 8A of the Act for ₹3,50,000. However, following key Supreme Court rulings after the Constitution came into force, he challenged the validity of the settlement as violative of Article 14.

The case raised seminal questions on the constitutional legitimacy of applying discriminatory procedures and whether any individual could waive constitutional protections afforded under Part III of the Constitution. The bench engaged with complex constitutional jurisprudence to deliver this landmark ruling.

D) FACTS OF THE CASE

The appellant Basheshar Nath’s case was referred on July 22, 1948 under Section 5(1) of the Act, on allegations of substantial tax evasion. The Commission engaged an Authorized Official under Section 6(3) who conducted investigations, collected records, and submitted reports in 1953. The Commission found ₹4,47,915 of unassessed income.

Facing imminent coercive assessment, the appellant proposed a settlement under Section 8A, agreeing to pay ₹3,50,000. The Commission approved, the Central Government accepted, and a formal order followed on July 5, 1954 permitting monthly installments of ₹5,000. The appellant paid ₹1,28,000 until September 1957.

Meanwhile, the Supreme Court in Suraj Mall Mohta & Co. v. A.V. Visvanatha Sastri, [1955] 1 SCR 448 and M. Ct. Muthiah v. CIT Madras, [1955] 2 SCR 1247, declared Section 5(1) and its investigative procedures discriminatory and void under Article 14. Armed with these decisions, the appellant sought release of attached properties and refund of amounts paid.

The Income Tax Commissioner rejected the request. The appellant then approached the Supreme Court by special leave under Article 136, challenging the continued enforcement of the settlement.

E) LEGAL ISSUES RAISED

i) Whether settlements made under Section 8A of the Act post-Constitution were constitutionally valid.

ii) Whether individuals could waive their fundamental rights under Article 14 of the Constitution.

F) PETITIONER/ APPELLANT’S ARGUMENTS

i) The counsels for Petitioner / Appellant submitted that:

The appellant argued that the entire settlement process under Section 8A stemmed from the original referral under Section 5(1). The Supreme Court had already held in Suraj Mall Mohta and Muthiah’s cases that proceedings initiated under Section 5(1) were discriminatory. The coercive environment forced the appellant into an unfair settlement, violating Article 14.

They emphasized that Article 14 guarantees equality before the law, forbidding differential procedures for similarly situated taxpayers. The existence of two parallel regimes — one under the Income Tax Act, 1922 and another under the Investigation Commission Act — arbitrarily disadvantaged some taxpayers.

Citing Behram Khurshed Pesikaka v. State of Bombay, [1955] 1 SCR 613, they argued that fundamental rights under Article 14 could not be waived as they reflect public policy and constitutional command, binding on the State.

The settlement lacked voluntariness since it arose under duress from the coercive investigative machinery.

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondent submitted that:

The Attorney General contended that even though Section 5(1) might have been struck down, Section 8A provided an independent settlement mechanism distinct from the discriminatory investigation. He argued that the appellant voluntarily entered into the settlement, fully aware of its implications, thereby waiving any objection to the procedure.

The Attorney General relied on American jurisprudence concerning waiver of constitutional rights, including Cooley on Constitutional Limitations and U.S. Supreme Court precedents, arguing that personal rights can be waived where public policy permits.

He also relied on Syed Qasim Razvi v. State of Hyderabad, [1953] SCR 589, asserting that voluntary consent could validate otherwise questionable proceedings.

Further, they argued that after having benefited from the settlement’s concessions and having paid substantial amounts, the appellant could not now claim invalidity.

H) RELATED LEGAL PROVISIONS

i)

• Article 14, Constitution of India

• Article 13, Constitution of India

• Section 5(1), 6, 7, and 8A of the Taxation on Income (Investigation Commission) Act, 1947

• Indian Income Tax Act, 1922 (Section 34, 46, etc.)

I) JUDGEMENT

a. RATIO DECIDENDI

i) The Court unanimously rejected the respondents’ submissions. It held that:

• The entire process of settlement under Section 8A was inseparable from investigation under Section 5(1). The latter being unconstitutional tainted the former.

• There was only one integrated procedure under the Investigation Act. Settlement was an option arising “during investigation” — hence, inseparable from unconstitutional investigation.

• Article 14 embodies public policy and constitutional command. Individuals cannot waive its protection, as waiver would allow the State to escape constitutional obligations imposed for the public good.

• Mahajan, C.J.’s opinion in Behram Khurshed Pesikaka was endorsed, holding that fundamental rights exist both for individuals and to uphold constitutional structure and cannot be contractually surrendered.

• American precedents, while persuasive in some contexts, were not applicable to the Indian constitutional framework where Articles 12-14 impose binding obligations on State authorities.

• The reference to Qasim Razvi’s case was inapposite as the facts in Basheshar Nath’s case involved continuous use of discriminatory powers after the Constitution came into effect.

• Since Section 5(1) had been held void in Suraj Mall Mohta and Muthiah’s cases, all proceedings emanating from it, including settlements under Section 8A, were unconstitutional.

b. OBITER DICTA 

i) The Court emphasized that the doctrine of waiver should be applied extremely narrowly in India. Any attempt to contractually compromise constitutional commands must fail where fundamental rights intersect with public policy.

c. GUIDELINES 

i) The Court laid broad constitutional guidelines:

• No person can waive Article 14 protections.

• State obligations under Article 14 remain absolute.

• Executive and legislative discrimination attracts constitutional invalidity, regardless of individual consent.

J) REFERENCES

a. Important Cases Referred

i) Suraj Mall Mohta & Co. v. A.V. Visvanatha Sastri, [1955] 1 SCR 448
ii) M. Ct. Muthiah v. The Commissioner of Income-Tax, Madras, [1955] 2 SCR 1247
iii) Behram Khurshed Pesikaka v. State of Bombay, [1955] 1 SCR 613
iv) Syed Qasim Razvi v. The State of Hyderabad, [1953] SCR 589
v) The State of Travancore-Cochin v. The Bombay Co., Ltd., [1952] SCR 1112
vi) The State of Bombay v. R.M.D. Chamarbaugwala, [1957] SCR 874
vii) Laxmanappa Hanumantappa Jamkhandi v. Union of India, [1955] 1 SCR 769
viii) Dewan Bahadur Seth Gopal Das Mohta v. Union of India, [1955] 1 SCR 773
ix) Baburao Narayanrao Sanas v. Union of India, [1954] 26 ITR 725

b. Important Statutes Referred

i) Constitution of India — Articles 12, 13, 14, 136
ii) Taxation on Income (Investigation Commission) Act, 1947 — Sections 5(1), 6, 7, 8, 8A
iii) Indian Income Tax Act, 1922 — Sections 34, 46, 23(5), 24B, 25A(2), 26(2), 44