1942 (2) TMI 23 - HC - Income Tax

Court affirms power to adjust profit basis under Indian Income-tax Act Sections 31 & 32

The Court determined that the Assistant Commissioner and the Commissioner of Income-tax were authorized to alter the basis of profit calculated by the ... - Issues:1. Assessment of income under different heads - property, business, and money-lending.2. Dispute regarding the calculation of profits on sales under the proviso to Section 13 of the Indian Income-tax Act.3. Appeal against the assessment order by the assessee.4. Enhancement of assessment under the head of business by the Assistant Commissioner.5. Appeal to the Commissioner of Income-tax and subsequent reduction of the rate from 26.7% to 18%.6. Application under Section 66(2) and Section 66(3) of the Act to refer questions of law to the Court.7. Interpretation of the authority of the Assistant Commissioner and the Commissioner of Income-tax to change the basis of profit calculated by the Income-tax Officer.Analysis:The judgment pertains to a reference under Section 66(3) of the Indian Income-tax Act, involving a dispute over the assessment of income for the year from Dewali 1933 to Dewali 1934. The Income-tax Officer initially assessed the total income at &8377; 31,760, including income from property, business, and money-lending. The assessment under the head of business was calculated at a flat rate of 16% on sales under the proviso to Section 13 of the Act. The assessee appealed against the assessment order specifically concerning income from property, leading to the Assistant Commissioner enhancing the assessment of income from business to &8377; 31,500 by applying a rate of 26.7% based on a six-year average.Subsequently, the Commissioner of Income-tax reduced the rate from 26.7% to 18% upon the assessee's appeal. The assessee then sought to refer questions of law to the Court under Section 66(2) and Section 66(3) of the Act, which was initially rejected but eventually accepted by a Bench of the Court. The main question raised was whether the Assistant Commissioner and the Commissioner of Income-tax had the authority to change the basis of profit from 16% as calculated by the Income-tax Officer to a higher percentage.The Court analyzed previous decisions and legal provisions to determine the authority of the higher authorities in altering the basis and manner of assessment applied by the Income-tax Officer. Referring to case law, the Court emphasized that while the Income-tax Officer's discretion in assessment should not be interfered with if reasonably exercised, the higher authorities have the power to set aside the basis and manner of assessment if found incorrect. Sections 31 and 32 of the Act grant wide powers to the Assistant Commissioner and the Commissioner of Income-tax to enhance assessments and pass orders as deemed fit, without restrictions based on the method adopted by the Income-tax Officer.In conclusion, the Court held that the Assistant Commissioner and the Commissioner of Income-tax had the authority under the law to change the basis of profit from the percentage calculated by the Income-tax Officer to a higher percentage if deemed necessary, thereby answering the referred question in the affirmative.