BIDI SUPPLY CO. vs. THE UNION OF INDIA AND OTHERS.

Case Analysis

BIDI SUPPLY CO. vs. THE UNION OF INDIA AND OTHERS.

April 23, 2025

A) ABSTRACT / HEADNOTE

This landmark case, Bidi Supply Co. v. Union of India & Ors., 1956 SCR 267, is a seminal constitutional law decision from the Supreme Court of India interpreting the applicability of Article 14—equality before law—of the Indian Constitution. The petitioner, a firm carrying on business in Calcutta, challenged a sweeping and unexplained transfer of its income tax assessments to Ranchi under Section 5(7-A) of the Indian Income Tax Act, 1922, arguing that such a transfer, done without notice or opportunity to represent, violated its fundamental rights under Articles 14, 19(1)(g), and 31. The Court held the transfer invalid due to the absence of procedural fairness and excessive discretionary power vested in the tax authorities. The judgment stands as a powerful rebuke to arbitrary executive action and fortifies the principle of natural justice in administrative law. Justice Bose’s concurring opinion further elucidated the dangers of unchecked executive discretion in a democracy, warning of rising Star Chamber-like practices. This case remains a bulwark against executive overreach and promotes judicial oversight to protect individual liberties.

Keywords: Natural Justice, Article 14, Tax Assessment Transfer, Section 5(7-A), Arbitrary Action, Executive Discretion, Constitutional Law, Fundamental Rights

B) CASE DETAILS

i) Judgement Cause Title: Bidi Supply Co. v. Union of India & Others

ii) Case Number: Petition No. 271 of 1955

iii) Judgement Date: March 20, 1956

iv) Court: Supreme Court of India

v) Quorum: S.R. Das, C.J., Vivian Bose, Bhagwati, Jaganadhadas, B.P. Sinha, JJ.

vi) Author: Chief Justice S.R. Das; concurring opinion by Justice Vivian Bose

vii) Citation: AIR 1956 SC 479; [1956] SCR 267

viii) Legal Provisions Involved: Article 14, Article 19(1)(g), Article 31 of the Constitution of India; Sections 5(7-A) and 64(5)(b) of the Indian Income Tax Act, 1922

ix) Judgments overruled by the Case: None expressly overruled

x) Case is Related to which Law Subjects: Constitutional Law, Taxation Law, Administrative Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The present case arose when Bidi Supply Company, a Calcutta-based firm, received a sudden communication that its income tax assessment records were being transferred from Calcutta to Ranchi by the Central Board of Revenue under Section 5(7-A) of the Indian Income Tax Act, 1922. The petitioner claimed that this transfer was made without prior notice or opportunity to be heard, thereby infringing the principles of natural justice and violating constitutional guarantees. The matter was brought before the Supreme Court under its original jurisdiction under Article 32, invoking breach of fundamental rights.

The petitioner objected not only to the specific transfer order but also challenged the constitutional validity of Section 5(7-A) and Section 64(5)(b), asserting they provided arbitrary powers to tax authorities and were ultra vires the Constitution. The case called into question the permissible scope of executive discretion and the procedural safeguards under the rule of law. It offered the Supreme Court a significant opportunity to reinforce constitutional protections against executive excesses in tax administration.

D) FACTS OF THE CASE

The petitioner, Bidi Supply Co., was a registered firm under the Indian Partnership Act, having its principal place of business in Calcutta, where all relevant records, banking accounts, and operational control existed. Since inception, the company had been regularly assessed in Calcutta for its income tax liabilities. All prior assessments (including 1948–49 to 1950–51) were completed by the Income Tax Officer, District III, Calcutta.

In 1955, the firm received a letter indicating that pursuant to an order dated 13 December 1954, issued under Section 5(7-A) of the Income Tax Act, its assessment records were being transferred to Ranchi, a city located significantly away from the firm’s operational base. No specific assessment year was cited, and no reasons were recorded. The firm was also not afforded an opportunity to object or make submissions against this administrative action. The Central Board’s order was generic and made without case-specific application of mind, thereby constituting an arbitrary exercise of power.

Faced with procedural injustice and the practical burden of handling assessments in Ranchi, the firm approached the Supreme Court under Article 32, seeking redress for breach of Articles 14, 19(1)(g), and 31.

E) LEGAL ISSUES RAISED

i) Whether Section 5(7-A) and Section 64(5)(b) of the Indian Income Tax Act, 1922, are ultra vires Article 14 of the Constitution.

ii) Whether the omnibus order of transfer without prior notice or hearing violated the principle of natural justice.

iii) Whether such a transfer without limitation of scope or time constitutes arbitrary executive action.

iv) Whether the order of transfer infringed Article 19(1)(g) (freedom to practice any profession or business) and Article 31 (right to property) of the Constitution.

F) PETITIONER/APPELLANT’S ARGUMENTS

i) The counsels for Petitioner / Appellant submitted that

The petitioner’s counsel, S.O. Isaacs, argued that the transfer order under Section 5(7-A) lacked specificity, notice, and procedural fairness, thus violating the basic tenets of natural justice. He submitted that the right to be assessed at one’s principal place of business was a significant safeguard under Section 64(1) and (2) of the Income Tax Act, and the impugned order unlawfully divested the petitioner of that right.

It was further submitted that the statutory amendments in 1940, particularly the addition of Section 5(7-A) and the amendment to Section 64(5)(b), allowed unregulated executive discretion and created a mechanism that allowed discrimination, thereby violating Article 14. The counsel emphasized that no discernible policy or guiding principle governed how or when such transfers were to be made, and thus arbitrary selection of one assessee (Bidi Supply Co.) amounted to hostile discrimination.

They argued that forcing the company to appear in Ranchi imposed financial and logistical hardship, interfering with its right to carry on business under Article 19(1)(g) and depriving it of property and legal certainty, contrary to Article 31.

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondent submitted that

M.C. Setalvad, the Attorney General of India, argued that Section 5(7-A) represented a valid delegation of administrative power to the tax authorities, consistent with the legislative intent to ensure effective tax administration. He emphasized that efficiency in assessment procedures sometimes warranted transfer of cases across jurisdictions and such power was essential for the effective discharge of tax functions.

He contended that no fundamental right to assessment at a particular place existed, and such transfers, being administrative, did not attract Article 14 scrutiny unless shown to be malicious or targeted. The order was described as a lawful and valid exercise of statutory discretion.

Furthermore, the Attorney General attempted to justify the order by citing administrative needs and practical constraints of taxation in multiple locations, pointing out the location of the petitioner’s factories near Chakradharpur in Bihar.

H) RELATED LEGAL PROVISIONS

i) Constitution of India

Article 14 – Right to Equality
Article 19(1)(g) – Freedom to practise any profession or business
Article 31 – Right to Property (as it stood prior to repeal)

ii) Indian Income Tax Act, 1922

[Section 5(7-A)] – Transfer of case from one Income Tax Officer to another
[Section 64(1)-(5)(b)] – Place of assessment and restrictions on such transfer

H) JUDGEMENT

a. RATIO DECIDENDI

i) The Court held that the order of transfer issued by the Central Board of Revenue did not conform to the statutory scheme under Section 5(7-A). The section contemplated transfer of a particular assessment case already pending, not a wholesale omnibus transfer covering indefinite assessment years. The order lacked specificity and failed to refer to any assessment year.

The Bench observed that the order lacked procedural safeguards, including notice, opportunity to be heard, and recorded reasons, making it arbitrary and discriminatory, thus violating Article 14 of the Constitution.

It emphasized that even though the statute permitted transfers, they must follow just and fair procedures, respecting the rules of natural justice and equality before law.

b. OBITER DICTA

i) Justice Bose, in his concurring opinion, declared that Sections 5(7-A) and 64(5)(b), in their current form, were themselves ultra vires Article 14. He warned that such unguided discretionary power, without procedural protections or objective criteria, creates the potential for executive tyranny.

He famously remarked, “In a democracy functioning under the Rule of Law, it is not enough to do justice; it must be seen to be done.”

c. GUIDELINES

Executive orders transferring tax assessments must:
- Refer to a specific assessment year
- Be issued only during pending proceedings
- Not be omnibus or general in nature
- Respect procedural fairness, including notice and hearing
- Record reasons for the transfer
Sections permitting such transfer must include procedural safeguards and not confer arbitrary power

I) CONCLUSION & COMMENTS

The Bidi Supply Co. judgment underscores the critical importance of procedural fairness in executive decision-making. The Supreme Court decisively ruled that unchecked administrative power, even in tax matters, must be subject to constitutional limitations. It reaffirmed that equality before the law is not a formal guarantee but one that has substantive content, ensuring non-arbitrariness and fair treatment.

Justice Bose’s opinion remains particularly influential for his powerful articulation of the philosophy of the Constitution, drawing a line against executive authoritarianism. This case is a beacon of due process jurisprudence and continues to be cited in contemporary debates about arbitrary administrative actions and natural justice.

J) REFERENCES

a. Important Cases Referred