Successor liability under income-tax assessment: notice-based proceedings and best judgment assessment upheld despite amendment and non-compliance claim.

Successor liability under the unamended Section 26(2) of the Income-tax Act, 1922 attached where the successor was carrying on the business when assessment proceedings were initiated and continued, because "at the time of making an assessment" was construed to cover the entire assessment process from notice to completion. The deeming words treating the successor as having carried on the business throughout the previous year and received its profits were treated as controlling. An amendment to Section 26(2) did not displace the unamended provision where notice commencing proceedings had already been issued. The asserted sufficient cause for non-compliance with notice under Section 22(4) failed because it was only a challenge to liability, so the best judgment assessment was upheld.

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Issues: Whether a successor who took over the business after the relevant accounting year could be assessed under Section 26(2) of the Income-tax Act, 1922 in respect of escaped income of the predecessor, and whether the assessee was prevented by sufficient cause from complying with the notice so as to invalidate the best judgment assessment.

Analysis: The liability of a successor under the unamended Section 26(2) was held to arise where the successor existed and was in business at the time the assessment proceedings were taken, the expression "at the time of making an assessment" being construed to mean the course of assessment proceedings beginning with service of notice and continuing until the assessment order. The words deeming the successor to have carried on the business throughout the previous year and to have received its profits were treated as the key words of the provision. The Court followed the view that the process of assessment commences with notice under Section 22(2), and held that the amendment to Section 26(2) did not prevent application of the unamended provision where notice initiating proceedings had been issued before the amendment. The assessee's asserted sufficient cause was only the same unsuccessful challenge to liability and therefore did not show inability to comply with the notice under Section 22(4).

Conclusion: The successor was liable to be assessed for the escaped income of the predecessor under Section 26(2) of the Income-tax Act, 1922, and the best judgment assessment was upheld; the answer to the referred question was in the affirmative against the assessee.

Ratio Decidendi: For successor liability under Section 26(2) of the Income-tax Act, 1922, "at the time of making the assessment" means during the pendency of the assessment proceedings from initiation by notice until completion, not merely at the moment the assessment order is signed.

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