1953 (3) TMI 26 - HC - Income Tax

Assessee company held liable for escaped income under Income-tax Act

The court held that the assessee company was liable for the escaped income of Maneklal Chunilal under the old Section 26(2) of the Income-tax Act. The ... - Issues Involved:1. Liability of the assessee company for the escaped income of Maneklal Chunilal under Section 26(2) of the Income-tax Act.2. Applicability of the amended versus the old Section 26(2).3. Validity of the best judgment assessment under Section 23(4) due to non-compliance with Section 22(4) notice.4. Whether the assessee company was prevented by sufficient cause from complying with the notice under Section 22(4).Detailed Analysis:1. Liability of the Assessee Company for the Escaped Income of Maneklal Chunilal under Section 26(2) of the Income-tax Act:The primary issue was whether the assessee company, which succeeded Maneklal Chunilal, was liable for his escaped income. The assessment for Maneklal Chunilal was made for the Samvat Year 1992, ending on November 14, 1936. The assessee company succeeded him on September 16, 1937. The Income-tax Officer served a notice under Section 34 on March 14, 1939, followed by another notice under Section 22(4) to produce certain books of account. The assessee company's failure to produce the accounts led to a best judgment assessment under Section 23(4). The Tribunal confirmed the assessment, raising the question of the company's liability for Maneklal Chunilal's escaped income.2. Applicability of the Amended versus the Old Section 26(2):The determination of liability hinged on whether the old or amended Section 26(2) applied. The amendment to Section 26(2) came into effect on March 31, 1939. The old Section 26(2) stated that if a person carrying on business was succeeded by another, the successor would be assessed as if they had carried on the business throughout the previous year and received all profits for that year. The assessee argued that since they succeeded Maneklal Chunilal after the Samvat Year 1992, they should not be liable under the old Section 26(2). However, the court noted a precedent from the Madras High Court (Commissioner of Income-tax v. Nachal Achi) that supported the Commissioner's interpretation, indicating that the successor could be liable even if they did not succeed during the accounting year.3. Validity of the Best Judgment Assessment under Section 23(4) due to Non-Compliance with Section 22(4) Notice:The assessee company argued that the best judgment assessment was improper because they were not liable for the escaped income. The court examined whether the old or amended Section 26(2) applied at the time of making the assessment. The Calcutta High Court's decision in Krishna, Hydraulic Press Ltd. v. Commissioner of Income-tax suggested that the law in force during the escapement year should apply. However, the court disagreed, emphasizing that the relevant date for determining liability was when the assessment proceedings were initiated, i.e., the issuance of the notice under Section 34 on March 14, 1939, when the old Section 26(2) was still in force.4. Whether the Assessee Company was Prevented by Sufficient Cause from Complying with the Notice under Section 22(4):The assessee company contended that they had sufficient cause for not complying with the Section 22(4) notice, as they believed they were not liable for the escaped income. The Tribunal had framed the question inappropriately, suggesting that the assessee was prevented by sufficient cause. The court clarified that no authority had held the assessee was prevented by sufficient cause and rephrased the question to reflect that the assessee was not prevented by sufficient cause. Consequently, the court answered the question in the affirmative, holding the assessee liable for the escaped income and responsible for the costs.Conclusion:The court concluded that the assessee company was liable for the escaped income of Maneklal Chunilal under the old Section 26(2) of the Income-tax Act. The best judgment assessment under Section 23(4) was valid, and the assessee was not prevented by sufficient cause from complying with the notice under Section 22(4). The reference was answered accordingly, with the assessee ordered to pay the costs.