This article is written by Rachel Sethia. This article offers a detailed analysis of the case of Basheshar Nath vs. CIT (1959) along with the background, the facts, issues, legal aspects involved and the judgement with reference to the landmark precedents considered by the Apex Court while passing this judgement. In addition to all this, it has a critical analysis of the case. 

Fundamental rights cannot be given up as they are not only essential for the individuals but also are a part of public policy under the Indian Constitution. It is the duty of the government to protect these fundamental rights. The concept of fundamental rights was adopted from the United State Constitution under which those rights can be waived, but then the same cannot be done in India. It was held by the Supreme Court in the present case of Basheshar Nath vs. CIT (1959). This is a landmark judgement on the Doctrine of Waiver wherein the court held that the government cannot implement any law which is against Article 13 of the Indian Constitution and the citizen cannot voluntarily waive off their fundamental rights. 

Doctrine of waiver, as defined by Black’s Law Dictionary, is the intentional or voluntary relinquishment of a known right. When a person gives away his right to exercise or not to exercise his right intentionally and with full knowledge is said to be a waiver. When a person waives his right, it means that a person can no longer claim that right and is prevented from challenging the constitutionality of that law for the benefit of which, the right is waived. 

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In the case of Olga Tellis & Ors vs. Bombay Municipal Corporation & Ors (1985), the pavement dwellers gave an undertaking that they would not claim any fundamental right to put up huts on pavement or public roads and that the demolition of the huts will not be obstructed by them after a certain date. Later, when the huts were sought to be demolished after the specified date, the pavement dwellers put up the plea that they were protected by Article 21 of the Indian Constitution. It was argued by the respondents in the Apex Court that the pavement dwellers cannot raise such a plea because of their previous undertaking. The court overruled the objection of the respondents and held that fundamental rights cannot be waived. There can be no estoppel against the Constitution. Fundamental rights are not only present in the Constitution to benefit individuals, but also to secure the larger interest of the community. The court observed that no individual can barter away the freedoms conferred on him by the constitution.  

Case Name: Basheshar Nath vs. Commissioner of Income Tax, Delhi, Rajasthan & Ors.

Appellant: Basheshar Nath

Respondents: Commissioner of Income Tax, Delhi & Rajasthan & Ors. 

Court: Supreme Court

Bench of Judges: Chief Justice Sudhi Ranjan Das, Justice J.L Kapoor, Justice K. Subba Rao, Justice N.H Bhagwati and Justice S.K Das

Type of Case: Civil Appeal 

Date of Judgment: 19th November 1958

Citation: AIR 1959 SC149

On 22nd July, 1948, the Central Government referred the appellant’s case to the Income Tax Investigation Commission under Section 5(1) of the Taxation on Income Act, 1947 (hereinafter referred as the Act). Such reference was made because the central government has reason to believe that appellant has evaded tax. Subsequently, the Commission directed the designated officials, under Section 6 of the Act, to examine the appellant’s financial records. It came to the notice of the investigating commissioner that the appellant has been evading tax amounting to Rs. 4,47,915. After the Commission had decided upon the amount of concealed income, the commission offered the appellant to settle the evasion by paying 75% of the concealed amount along with a penalty of Rs. 14,064 to which the appellant on 19th May 1954, agreed to settle under Section 8A of the Act and agreed to pay Rs. 3,50,000 Lakhs by way of tax and penalty. 

The Commission had approved the settlement and conveyed the same to the central government, which accepted it, and the commission officially recorded the settlement. After this, in the case of M. Ct. Muthiah vs. The Commissioner of Income Tax Madras (1955), the Supreme Court declared Section 5(1) ultra vires Article 14 as the procedure applied to persons dealt with thereunder became discriminatory in character which made the settlement made under Section 8A unenforceable as Section 5 was declared unconstitutional rendering it void. Appellant came to know about the same and wrote to the commission to refund his money to which the commission replied that the settlement is binding and is not subject to revocation. Being aggrieved by this decision of the commission, the appellant moved to Supreme Court under Article 136 of the Indian Constitution and obtained special leave to appeal against the order by the commission of settlement. 

  1. Whether the settlement made under Section 8A of the Taxation on Income Act, 1947 (Investigation Commission) is illegal and void?
  2. Can a fundamental right guaranteed by the Constitution be waived?

Arguments by the appellant

  • The plea taken by the appellant was that since Section 5(1) of the Act has been declared unconstitutional, the basis of the investigation report submitted by the commission no longer exists. Therefore, any settlement based or relying on this Section was not enforceable. 
  • It was argued by the appellant that the Commission of Income Tax qualifies as a Tribunal under Article 136 of the Indian Constitution and was performing judicial duties when the order was passed by it which is now under question. 
  • It was also argued by the appellant that essentials for applicability of the doctrine of waiver were absent in the present case. Therefore, the doctrine of waiver will not be applicable. 

Arguments by the respondent

  • The respondent argued that the appellant had waived the fundamental right enshrined in Article 14 of the Constitution by voluntarily entering into a settlement with the commission and was therefore not entitled to challenge the settlement. 
  • It was argued on behalf of the respondent by the Attorney General that the said Act was established before the Constitution came into force and back then the fundamental rights were not recognized. Therefore, the procedure of the said act cannot be questioned even if the procedure was discriminatory. 
  • The Attorney General representing the respondent also argued that since the inception of enforcement of the Constitution, the appellant has not been compelled to comply  with the procedure prescribed in the said Act. He voluntarily proposed a settlement, which was accepted by the government on the recommendation of the commission. 
  • Further, it was argued on behalf of the respondent that the order in question was merely a reply to the communication received by it from the appellant. 
  • The Attorney General representing the respondents contended that there has not been any ruling from the court in which the court declared that Section 5(1) of the Act completely void. He argued that upon examining the various Sections of the Act, it becomes apparent that the investigation commission has two separate and distinct procedures or jurisdictions one for investigation and another for settlement. He asserted that the jurisdiction granted to the investigation commission under Section 8A, introduced into Act in 1949, remains unaffected by the decision in M. Ct. Muthiah vs. The Commissioner of Income Tax Madras (1955) case. He mentioned that if the investigation commission had the  authority to consider and approve the taxpayer’s application for settlement and refer it to the central government, then the latter also had jurisdiction to accept it and to issue necessary orders under Section 8A. His argument is that the decision in Muthiah’s case did not render Section 8A constitutionally invalid. 

Indian Constitution

Article 13

Laws inconsistent with or in derogation with fundamental rights: A great emphasis was paid to this Article of the Constitution because it states that any law existing in India before the enforcement of the Indian Constitution that conflicts with the provisions of the Constitution will be considered void to the extent of their inconsistency. The State cannot enact any law that diminishes or infringes upon the rights outlined in Part III of the Indian Constitution. Any law created in violation of this provision will be void to the extent of the violation in this Article, unless specified otherwise. Law here includes orders, bye-laws, ordinances, regulations, rules, practices or customs that carry legal forces in India. Law in force includes laws passed or established by the legislature or any other competent authority in India before the Constitution’s enforcement and not previously repealed, regardless of whether they are currently in effect overall or in specific regions. 

The provision (Section 8A) in question under this judgement is held to be in derogation of fundamental rights, leading to violation of Article 13 as well. 

Article 14 

Equality before law: This Article is divided into two parts, which are equality before law and equal protection of law. The former means that everyone shall be treated equally in the eyes of law and there shall be no discrimination, while the latter means the same law shall be applied to all the people living across the society. 

The first landmark judgement pertaining to Article 14 was the case of S.G Jaisinghani vs. Union of India (1967), in which the Apex court held that absence of arbitrary power is a fundamental aspect of rule of law, which requires that any discretion given to the authorities must be defined and limited. Justice Subba Rao, emphasised on the rule of law, which underpins our entire constitutional system, fundamentally requires that arbitrary powers be eliminated. He stated that in a system governed by the rule of law, any discretion granted to the executive authorities must be confined within clearly defined boundaries. This case really puts a light on the fact that fundamental rights are above all and in no case can be waived or infringed, be it by any authority or individual. 

The present case deals with a procedure mentioned under Section 5(1) of the Taxation on Income Act, 1947, and it has been held  discriminatory and unconstitutional in nature according to the Article 14 of the Indian Constitution. 

Issue 1: Whether the settlement made under Section 8A of the Taxation on Income Act, 1947 (Investigation Commission) is illegal and void?

While addressing the first issue, the then Hon’ble Chief Justice held that Section 8A of the Act makes it clear that an individual who is a party to the case referred to the commission for investigation may apply for settlement before the investigating commission. Therefore, this makes the settlement procedure a part of the entire investigation provision. It is the duty of the commission to fully satisfy itself with regards to settlement before referring the settlement to the Central Government. Hence, it is wrong to say that settlement and investigation can be two different procedures. 

The case of Behram Khurshed Pesikka vs. State of Bombay (1954), was referred by the Supreme Court in the present case where it was observed that there are two key factors which makes the Statute to be declared unconstitutional, firstly, whether the law in question restricts the legislature in exercising its power or whether it affects the legislature in enforcement of that particular law and secondly, the intention of the constitutional provision has to be considered if it was made for an individual or for public policy, which is being offended by that statute in question. Therefore, when a state enacts a law exclusively within the union’s jurisdiction, it is rendered invalid because the Constitution grants specific powers to the Union and the states, a state cannot overstep its boundaries by legislating on matters reserved for Union and on the other hand, if a limitation is placed on exercise of the legislative power in the public interest, the entire statute is nullified. This is a well established principle in American Law. 

The case of M. Ct. Muthiah vs. The Commissioner of Income Tax Madras (1955) was heavily relied on by the court in the present case. In this case, it was held by the court that Section 5(1) was discriminatory and violative of Article 14 because it created an unfair situation. After the enforcement of the Indian Constitution, Section 34 of the IT Act covers the same field but was more favourable to the Taxpayers. Having two substantially different procedural laws one more favourable to taxpayers and one less favourable operating in the same area leads to discrimination under Article 14 of the Constitution. This disparity in treatment of the Taxpayers led to declaration of Section 5(1) as unconstitutional. In the result, it was held that barring those cases which are already concluded by the reports made by the commission and directions given by the government, the cases which were pending after January 26, 1950 were hit by Article 14. The assessment orders were accordingly quashed as being unconstitutional. 

Justice S.K Das held that Section 5(1) is a discriminatory provision and is an integral part of the procedure prescribed under the Act, Justice further held that the court is satisfied that the report which led to the settlement was made by the investigation commission in pursuance of and as a direct result of discriminatory procedure which it followed. The Investigation Commission followed the only procedure of investigation prescribed under the Act, which was a drastic and summary procedure and if that procedure became void on the coming into force of the Constitution, the jurisdiction of the investigation commission practically came to an end. While observing this, the court referred to the case of Lachmandas Kewalram Ahujaand Another vs. State of Bombay (1952)

Therefore, the settlement made between the appellant and the commission was declared to be illegal and the order pertaining to that settlement was set aside. 

Issue 2: Can a fundamental right guaranteed by the Constitution be waived?

In the case of Dawson’s Bank Limited vs. Nippon Menka Kabushiki Kaisha (1935), it was held that waiver is a troublesome term in the legal sense. If someone intentionally relinquishes or abandons a known legal right or their conduct suggests that they are giving up a known right or privilege, then it will be considered as a waiver. 

The then Chief Justice while addressing the second issue held that the breach which is being complained by the appellant is found under Article 14 of the Indian Constitution therefore, it is only going to be appropriate to address this issue in relation with Article 14 only. Therefore, the second issue before us shall be “can a fundamental right given under Article 14 be waived”? For disposing this appeal, it is not necessary for the court to consider whether any of the fundamental rights enshrined under Part III of the Indian Constitution be waived. 

It is important to understand whether the right to equality is present for individual benefit or for a larger public interest. By plain reading of the Article, it can be interpreted that this article is present in the Constitution on sound public policy. The court observed that a few points which shall be noticed and which creates a mandate under Article 14 are that the Article commands the State, and it is imposed on the State that every citizen within the territory of India shall enjoin equality before law. In addition to this, it is to be noticed that the benefit of this article is not only limited to citizens, but is available to every individual within the territory of India. After this it is to be considered that the term state given under Article 12 which is also hit by the obligation of Article 14 includes the Government, Parliament of India, Legislature and Government of all the states, all local or other authorities within the territory of India. Therefore, Article 14 protects every individual from discrimination from both legislature as well as executive. 

Another pertinent observation by the CJ was that the true intent of Article 14 is understood, and that it is the obligation of the state to protect it. So it comes to the question, “can a breach of an obligation imposed on the State be waived by any person?” It is open to the State to disobey the constitutional mandate but when the questions will be raised to the State for non-performance of the obligation, will it be right for the state to answer that “true you directed me not to deny any person equality before the law, but this person said that I could do so, for he had no objection to my doing it.”

Justice N.H Bhagwati observed that the preamble of the Indian Constitution with reference to Article 13 along with the language used in making the fundamental rights leads us to a clear conclusion that fundamental rights present in the Indian Constitution do not distinct on the basis that if they are enacted for individual benefit or for public policy unlike the Constitution of the United States. As a developing democracy, it is the duty of the Apex Court to protect the fundamental rights mentioned under Part III of the Indian Constitution. It is important to consider India’s social, educational, economical and political context. While certain limitations on these rights are mentioned in the Constitution itself, such as in Article 19, 33 and 34 there is no justification for imposing ideas from the United States or relying on their Supreme Court rulings. 

Final Judgement

The Supreme Court ultimately passed a judgement in favour of the appellant, setting aside the questionable order of the commission in the present case and quashing all the proceedings against the appellant. Chief Justice SR Das and Justice J.L Kapoor observed that Article 14 cannot be waived off under any circumstance in addition to this, Justice N.H Bhagwati observed that Part III of the Constitution which mentions the fundamental rights cannot be waived off by any citizen. Justice Subha Rao pointed to the socio-economic conditions and held that poverty and backwardness amongst many Indian citizens was a reason against not allowing waiver of fundamental rights. Many precedents which allow waiver of fundamental rights of the U.S were mentioned while arguing the present case but were rejected due to the behaviour of the parties and to keep the matter at hand short, the U.S precedents were not discussed in detail. 

On the other hand, Justice S.K Das was of a different view and observed that fundamental rights which are given for individuals benefit can be waived and fundamental rights given for public policy cannot be waived. 

This case is an examination of the validity of settlement made under the Taxation of Income Act,1947 after the enactment of the Indian Constitution, with a great emphasis on the issue whether fundamental rights given under the Constitution can be waived off regardless of whether a fundamental right is enacted for the benefit of an individual or for the public interest. The Constitution makes no distinction, and the obligation on the State to protect the fundamental rights remain inviolable. The court acknowledged the fact of the socio-economic realities of India where people are not educated, not aware and asserts that it is also the duty of the judiciary to protect these rights even against the individuals themselves. The major focus of the case is how the Apex Court protects the fundamental rights and keeps it intact even when there is an agreement to settlement. 

The Apex Court had elaborated on the significance of upholding constitutional mandates and held that the doctrine of waiver cannot be pleaded pertaining to fundamental rights. The court observed that Article 14 which makes equality before law mandatory, cannot be waived, as it serves as an admonition to the State to safeguard the fundamental rights and ensure equality as a matter of public policy. The court stated that no individual can relieve the State of its solemn obligation imposed by the Constitution. 

While there were dissenting observations amongst the bench, the majority established the precedent that an individual cannot waive of his fundamental right. This landmark decision solidifies that fundamental rights cannot be relinquished and are non-negotiable, especially in the context of settlement agreements under specific legislative frameworks. 

In a gist, this case is a successful attempt at upholding the Constitution above all and setting an example that fundamental rights shall prevail above all, which makes it a landmark precedent and hence the same has been relied upon by the courts as and when required. 

While referring to the present case, it was held by the Apex Court in the case of Kalpraj Dharamshi and Ors. vs. Kotak Investment Advisors Ltd. and Ors. (2021), held that waiver is the intentional relinquishment of rights. It involves conscious abandonment of an existing legal right, advantage, benefit, claim or privilege which, except for such a waiver, a party could have enjoyed. It is an agreement to not to assert a right, there can be no waiver.

Further in the case of Lombardi Engineering Limited vs. Uttarakhand Jal Vidyut Nigam Limited (2023), the Apex Court referred the present case and held that in the case of Basheshar Nath vs. CIT, the Supreme Court of India examined whether fundamental rights guaranteed under the Indian Constitution can be waived. The concept of estoppel and waiver are both aimed at ensuring honesty and good faith in everyday transactions. The court held that the fundamental rights cannot be waived off especially those present under Article 14 of the Indian Constitution. 

In another case of Abhimeet Sinha and Ors. vs. High Court of Judicature at Patna and Ors. (2024), the Apex Court referred to the present case and observed that estoppel, that is the doctrine of waiver, will not be applicable when the arbitrariness affects fundamental rights under Article 14 and 16 of the Indian Constitution. 

The decision under this case has turned out to be a landmark precedent and has been referred to by many courts over the years. It is also pertinent to note that the concept of fundamental rights was taken from the Constitution of the United States therefore, the idea behind the fundamental rights given in the Constitution of the United States is to be understood and a comparison between the intention of the drafters behind the Indian and the American Constitution is to be drawn. The American Constitution mainly outlined the powers and structure of the government broadly leaving a room for further laws and interpretation to fill in the loopholes and not every detail was mentioned in the Constitution of the United States. On the other hand, the Indian Constitution is more specific where it not only defines rights but also lays out the limits to those rights for the greater good of society. So it tries to balance individual rights with the needs of the society. However, this difference doesn’t really affect the issue that was discussed in the case. Both Constitutions make these rights and restrictions subject to interpretation by courts, which means that the judges can decide what the rights mean and how the restrictions apply.  

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