TaxTMI 
TaxTMI 
1937 (4) TMI 14
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....ub-section 2 of Sec. 23 of the Income-tax Act and in pursuance thereof the firm produced the head of the family and a munim in support of its accounts. The Income-tax Officer was however, not satisfied with the correctness or the completeness of the firm's accounts and he consequently raised the value of sales from Rs. 3,14,456 to Rs. 3,50,300. He further calculated the taxable income of the firm by discarding the rate of profits shown by the firm and applying a flat rate of Rs. 7 per cent to the amount determined by him. From this order the firm preferred an appeal to the Assistant Commissioner and in the first instance, he remanded the case to the Income-tax Officer for further enquiry. On receipt, however, of the report of the Income-tax Officer on remand, he declined to interfere with the order of assessment. It appears that both these officers were, among other things, mainly impressed by (1) the absence of any stock register and vouchers ; (2) the inability of the firm to prove the total consumption of raw materials as shown in its accounts ; (3) the huge amount of sales, and the abnormally low rate of profit shown by the firm as compared with the other soap manu....
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....in such cases is not maintainable, and that he is equally wrong in suggesting that under Sec. 23 (3), unaffected by the proviso to Sec. 13, an Income-tax Officer can make any estimate that he likes, even though it is not supported by any relevant or admissible material on the record. It will be necessary to examine the whole scheme of the Act in this connection. Chapter 1 deals with " Charge of Income-tax " and consists of two sections, viz., Secs. 3 and 4, the former dealing with " Charge of Income-tax " and the latter with " Application of the Act. " Chapter II is headed " Income-tax authorities " and comprises one section only, viz., Sec. 5, describing the various authorities that can be appointed under the Act. Then comes Chapter III dealing with " Taxable Income " and comprising Secs. 6 to 7. Sec. 6 enumerates the various heads of income chargeable to income-tax, and Secs. 7 to 12 deal in detail with the six heads of income mentioned in Sec. 6. Of these, Sec. 10 relates to ' business ', Sec. 11 to ' professional earnings ' and Sec. 12 to ' other sources '. Sec. 13 is restricted in its application to Secs. 10, 11 and 12 only, and deals with the method....
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....Income-tax Officer after hearing such evidence as such person may produce and such other evidence as the Incometax Officer may require, on specified points, shall, by an order in writing, assess the total income of the assessee, and determine the sum payable by him on the basis of such assessment ". Sub-sec. (4) empowers the Income-tax Officer ' to make the assessment to the best of his judgment ' in cases enumerated there. Out of the other sections in this Chapter Secs. 27, 30 and 37 are the only sections which require consideration. Sec. 27 lays down that in certain cases the assessee may apply to the Income-tax Officer to cancel the assessment and empowers the Income-tax Officer to do so and to make a fresh assessment in accordance with the provisions of Sec. 23, if he is satisfied that the grounds urged by the assessee are sufficient. Sec. 30 provides for appeals against assessment in those cases among others, in which an assessee objects to the amount or rate at which he is assessed under Sec. 23 or Sec. 27 and Sec. 37 confers certain powers of a civil Court for certain specified purposes on the Income-tax authorities. It will thus appear that the only section under wh....
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....e's evidence in support of his accounts is held to be unreliable, inasmuch as Sec. 13 had already made a provision for that contingency and it would have been obviously redundant to repeat in sub-sec. (3) of Sec. 23 what had already been provided for in Sec. 13. There is also no warrant for restricting the interpretation to be put on the words ' method employed ' as used in the second alternative dealt with in the proviso to Sec. 13. In ordinary parlance these words convey the idea of ' the manner in which accounts are kept ' and I see no reason to doubt that the same sense is conveyed here. If the accounts tendered by the assessee are found to be incorrect or incomplete, if they are ' cooked ' or ' fictitious ', it will not be wrong to say that the method of accounting is such that it is not possible to deduce the total income of the assessee therefrom. In my view, therefore, while making an assessment under sub-section (3) of Sec. 23, it is open to the Incometax Officer to invoke the proviso to Sec. 13, if after examining the accounts produced by the assessee under Sec. 22 (4) or after recording the evidence led by the assessee under Sec. 23....
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....erence with their estimate would have been called for. The LORD PRESIDENT remarked : " It may be they did find in fact that the books were badly kept, or that the profit and loss account had not been accurately made out ; but, if that is what they meant as a reason for refusing to look at what was undoubted evidence, they should have said so. There might then have been no difficulty whatever in sustaining their conclusion, which would have been to some such effect as this :- ' The books and accounts you produce are not satisfactory for one reason or another. That being so, we cannot regard them as proving your profits '. LORD SANDS added " If the Commissioner had said that they thought the accounts were fictitious or ' cooked ', then that would have justified their disregarding these accounts, and in those circumstances, we might not have been justified in scrutinizing the grounds upon which they were proceeding and in considering whether they were supported by evidence which would satisfy a Court of law ". LORD MORISON observed : " In this case, the Commissioners have not made a statement t....
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....ous results, as in that case it would be impossible for the Income-tax Officer to disregard the accounts submitted by the assessee, however unreliable they might appear to be. It is pre posterous to say that even if the accounts are found to be fictitious or ' cooked, ' the Income-tax Officer is bound to assess the author of those accounts on those accounts alone. In Commissioner of Income Tax, Burma v. E. M. Chettiyar Firm (4 Rang. 239), the assessee had not submitted full accounts and the Assistant Commissioner had made his own estimate of the assessee's income and had enhanced the assessment. Three Judges of the Rangoon High Court upheld the order, remarking at the same time that it was not an order under Sec. 23 (4). Counsel for the firm has strenuously contended that as the law allows the Income-tax Officer to examine evidence suo motu to test the truthfulness of the accounts, he can come to his own finding only on the basis of the evidence so examined. I am not, however, prepared to hold that any burden is imposed on the Income-tax authorities to prove by ' positive evidence ' that the accounts are unreliable or that the figure at which they assess is t....
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....come of the assessee. In Rochiram Khattar In re again a case from this Court, an estimate of income made by the Income-tax Officer on the ground that the accounts were incomplete was maintained and approved. In Ibrahimbhai Mulla Badruddin v. Commissioner of Income tax, C. P., the learned Additional Judicial Commissioner of Nagpur upheld an assessment made on the basis of the personal experience gained by the Income-tax Officer from the working of other factories and refused to issue a mandamus to the Commissioner holding that no question of law was involved. In I. L. R. 9 Patna 240 which went on appeal to their Lordships of the Privy Council (See Commissioner of Income-tax, Bihar and Orissa v. Sir Kameswar Singh I. L. R. XII Pat. 318, P. C. ; 1934 I. T. R. 94) it had been held that the question whether the assessee's accounts do or do not disclose his real income, is a question of fact, as to which the finding of the Commissioner of Income-tax is binding on the High Court. It was further observed that although, on the one hand, the amount at which an assessee's income is assessed must be based on evidence, on the other hand it is the duty of the assessee to keep su....
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....ual business. While remarking that the Income-tax Officer should have proceeded on judicial principles, the existence of one omission was held to be sufficient by a Division Bench of this Court to justify the action taken by the Incometax Officer. In Bhikhaji Vyankatesh v. Commissioner of Income-tax, C. P. the learned Judicial Commissioner of Nagpur held that the mere filing of a verified statement by an assessee and his statement on oath in support of it are not sufficient to discharge the onus which lies on him to prove the correctness of the return submitted by him. The onus is not under such circumstances shifted to the Income-tax authorities to disprove the correctness of the return. Counsel for the firm has in this connection referred to Pioneer Sports Ltd., Sialkot v. Commissioner of Income-tax, Punjab, and Jambudas v. Income-tax Commissioner but with all respect, I am constrained to remark, that those judgments have not viewed the question from a proper angle of vision. In Pioneer Sports Ltd., Sialkot v. Commissioner of Incometax, Punjab, a Division Bench of this Court, has held that the mere fact that a company shows a low rate of profit was no reason for the Inco....
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....hey had to draw as a matter of evidence upon the facts which they had in evidence before them. But to draw an inference of fact from evidence before you is not a question of law at all. The inference is a question of fact just. as much as the direct evidence of fact, and it would be an appeal against facts, which we are not entitled to entertain and consequently there can be no mandamus. . . . I say, if that w a question of fact, the mere question of whether they appreciated-the evidence rightly or not, and whether they drew a right inference of fact, is not the subject-matter of a mandamus at all. There would be an appeal if there was an appeal, hut there is none". 80 far as the jurisdiction of the Income-tax authorities under the provisions of the Indian Income Tax Act is concerned, the law is practically, the same as in England. They ace the judges of fact while this court is a judge of law and all those matters which are barred from the jurisdiction of the Gourds in England are similarly barred here. The judgments relied upon by the firm therefore, do not render any help to the firm at all. In his statement, the Commissioner has referred to certain English decisions, among o....
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....pened was that he (the Inspector of Taxes) was not satisfied. He was perfectly entitled not to be satisfied ; I cannot conceive why he should not be dissatisfied. It was not because he was raising a point of law, it was because he was saying ' I am not satisfied '. The matter goes before the Additional Commissioners and they are not satisfied . . . . I cannot possibly try that question. These are gentlemen who are entrusted with the duty of fairly administering the law and if it had been said that they were merely masquerading, that they had been pretending to do their duty but that they arbitrarily and injudicially said : ' We will not listen to you . . . . and we perversely decline ' if that was the sort of case against them, of course I cannot try it here ; it would be impossible to try it here. If you want to say anything of that sort, you should go for mandamus against them to hear a point of law ". In Wall v. Cooper, the Commissioners refused to accept the accounts submitted by the assessee as satisfactory evidence and adjourned the proceedings on the assessees undertaking to furnish accounts certified by an accountant. Such accounts were, however, not prod....
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....this, a very brief judgment was delivered by a Division Bench of this Court composed of Le Rossignol and Martineau JJ. upholding the assessment. In the course of the judgment, however, the following observation was made : " We agree with the petitioner that the Income-tax Officer should be governed in his procedure by judicial considerations. He should base the assessment on legal and not mere heresay evidence, which may be the evidence of his officers or of members of the public, but without evidence that items which do not appear in an account should find a place therein, he is not entitled to assume on mere general heresay that those items should appear in the account ". The case of Dunichand Dhaniram v. Commissioner of Income Tax, Punjab, was decided by the same Division Bench about the same time when the previous case was decided. There also the learned Judges observed that the proceedings of an Income-tax Officer were of a judicial nature and that the proviso to Sec. 13 did not justify him in estimating the income of the assessee arbitrarily, by guess work, or without indicating the basis of his assessment. They further remarked that the evidence produced by the assessee s....
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....f account and complies with any other requirements as to specific documents so that he is assessed in the ordinary way under Sec. 23 (3) and not as being in default, the Income-tax authorities cannot assess him upon any figure of profits not warranted by evidence which they have before them ". These observations, too like those made in Muhammad Hayat's case take no account of the proviso to Sec. 13. In Commissioner of Income-tax, Bombay v. Bombay Trust Corporation the following observations were made by their Lordships of the Privy Council which have been relied upon by the firm : " However sceptical the attitude which the Income-tax authorities may think fit to adopt towards the declarations offered and the entries made in the Bombay Company's books, it is necessary, if the assessment made is to be supported, that there shall be some evidence to show that . . . The only rule of evidence to be discovered in the Indian Evidence Act having any bearing upon this question would appear to be illustration (d), Sec. 114, Indian Evidence Act . . . This rule cannot in the present case supply the want of evidence ". These observations of their Lordships of the Privy Council, howev....
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....before him or the truth of the evidence produced by the assessee. If he has ground for believing that such evidence is untrustworthy, he can certainly reject it. Having rejected such evidence it is open to him to pursue the inquiry further and take more evidence which he considers necessary ; but he is not bound to do so. In the absence of any better evidence he is certainly entitled to fall back on the assessment of income made during the previous year, even though that assessment might have been the ' best judgment estimate '. " The above discussion of the authorities relied on by the firm would show that there is no warrant for urging that in spite of the unreliability of the books of account produced by the assessee, the Income-tax Officer is bound to base the assessment on those accounts in the absence of any positive evidence to the contrary. It cannot be denied that there must be some material before the Income-tax Officer on which to base his estimate but no hard and last rule can be laid down by the Court to define what sort of material is required on which his estimate can be founded. The law nowhere contemplates that the Income-tax Officer is a party to the ca....
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....reated fairly, the least he can do is to treat the Income-tax Officer fairly and lay the facts fully before him. The sooner it is understood that these are questions of fact, and questions of fact only and that the slightest attempt to open the door to appeals to this Court on what are alleged to be mixed questions of law and fact, but are really only questions of a fair figure of assessment, must be discouraged, the better " In Maharaja of Darbhanga's Case (12 Pat. 318), their Lordships of the Privy Council upheld the action of the High Court in maintaining an assessment based on guesswork. The remarks made by the learned Chief Justice of the Patna High Court with which their Lordships agreed are quoted in the judgment and are contained in I. L. R. 9 Pat. 240 at pp. 270 and 271. The learned Chief Justice no doubt remarked that the Income-tax Officer was not entitled to make a guess without evidence but the evidence that was considered sufficient in that connection was the state of affairs in the previous years coupled with the fact that the assessee had a large mortgage loan business. This received the approval of their Lordships, who further observed : " If the assessee wi....
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....to make". In Local Government Board v. Alridge (1915 A. C. 120, at page 132) VISCOUNT HALDANE, L. C., defined the expression " acting judicially " in the following manner : " They must deal with the question referred to them without bias, and they must give to each of the parties the opportunity of adequately presenting the case made. The decision must be come to in the spirit and with the sense of responsibility of a tribunal whose duty it is to meet out justice. But it does not follow that the procedure of every such tribunal must be the same ". In the same Judgment at page 137 LORD SHAW observed : " The judgments of the majority of the court below appear to me, if I may say so with respect, to be dominated by the idea that the analogy of judicial methods or procedure should apply to departmental action. Judicial methods may, in many points of administration, be entirely unsuitable, and produce delays, expense, and public and private injury. The department must obey the statute . . . . and if administration is to be beneficial and effective it must be the master of its own procedure ". At p....
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....he question we are bound to give a reply to the question but within the terms of the question. I may say at once that I do not consider that the proposition advanced by the counsel is legally sound. Under sub-section (3) of Sec. 66, the High Court, if not satisfied of the correctness of the Commissioner's decision, is empowered to require the Commissioner to state the case and to refer it. It is nowhere laid down that a question is to be formulated by the Court issuing the mandamus. Further, subsection (5) of the same section lays down that upon the hearing of any such case the High Court is empowered to decide the questions of law raised thereby. This sub-section also does not confine the High Court to the decision of the question of law as formulated by the Commissioner or the Court issuing the mandamus On the other hand, it confers upon it full power to decide the question of law in the form it actually arises from the statement of the case made by the Commissioner. If any authority is needed for this proposition, reference may be made to Shiva Prasad Gupta, In re. In my view, therefore, it is competent to this Court to clarify the issue of law involved in the statement o....