TaxTMI 
TaxTMI 
1929 (7) TMI 7
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....e account year of the assessees commenced on the first day after the Dewali festival of a Hindi year. On different occasions the assessees submitted returns for Cawnpore and Bombay. With regard to Calcutta business they submitted no return to the officer at Cawnpore but submitted one to the officer in Calcutta. On 11th August 1927, the Income-tax Officer of Cawnpore issued a combined notice under Section 23(2) and Section 22(4) of the Act requiring the assessees to produce, on 15th August their accounts and evidence relating to their income at Calcutta and other branch places of business. On 26th August 1927 accounts were produced for Cawnpore and Bombay business while with regard to the Calcutta accounts, an application was presented to the effect that it would be detrimental to the Calcutta business to send the Calcutta accounts to Cawnpore and also to send the munib, who was conversant with them, to explain the accounts. It was stated that the munib was in the sole charge of the Calcutta business. After examining the Cawnpore and Bombay books the Income-tax Officer of Cawnpore postponed the case sine die pending receipt of a report of the Income-tax Officer o....
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....Cawnpore officer purported to act under Section 23(4) of the Act. 4. The assessees went up in appeal to the Assistant Commissioner of Income-tax. That officer held that no appeal lay to him, as the assessment had been rightly made under Section 23(4) of the Act. 5. Thereupon the assessees asked the Commissioner to make this reference and the Commissioner accordingly sent up the following questions for the opinion of the High Court. 6. These are: (1) Has an Income-tax Officer jurisdiction to issue a notice under Section 22(4) after the commencement of an inquiry under Section 23(3)? (2) Was the notice under Section 22(4) issued by the Income-tax Officer, Cawnpore, on 22nd February 1928, invalid, because it included accounts and documents connected with the Calcutta shop? (3) Was the notice invalid? (a) because it was issued in form A, intended for use where a return had not been made, though modified so as to suit the assessees' case in which a return had been made? (b) because 25th April 1927(the date mentioned in it) was that on which the notice under Section 22(2) was ....
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.... been unjustly shut out from the exercise of such a right. The Income-tax Officer of Cawnpore purported to act, in making the assessment under Section 23(4) "to the best of his judgment." Under Section 30 of the Act, no appeal lies where an Income-tax Officer is entitled to make and does make an assessment to the best of his judgment. 9. Section 23(4) runs as follows: If... any... person fails to make a return under... Sub-section 2, Section 22... or fails to comply with all the terms of a notice issued under Sub-section 4 of the same section, or having made a return, fails to comply with all the terms of a notice issued under Sub-section 2 of this section, the Income-tax Officer shall make the assessment to the best of his judgment. 10. A plain reading of Sub-section 4, Section 23, would suggest that there are three cases in which an Income-tax Officer is entitled to "make assessment to the best of his judgment." They are (I am not mentioning the case of a company: (1) when a proposed assesssee fails to make a return under Section 22(2); (2) where he fails to comply with all the terms of a noti....
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....upposed to use words without a meaning. 14. Then he quotes from Erle, C.J.: To reject words as insensible is the ultima ratio when an absurdity would follow from giving effect to the words of an enactment as they stand (ibid). 15. Again Lord Hord Holt is quoted as having said: I think we should be very bold men, when we are entrusted with the interpretation of Acts of Parliament, to reject any words that are sensible in an act. 16. It will be seen from the above quotations which are from very high authorities, that unless and until the language used in a statute makes the meaning entirely insensible, every word used must be given its plain meaning. 17. It has, however, been urged that the plain moaning of the words, "having made a return" cannot be given effect to for this reason, Section 22(4) is worded in language without limit of time, and, therefore, it would not do to import into it a limit of time. In other words, it is urged that a notice under Section 22(4) of the Act may be issued at any time, even after an an enquiry under Section 23 of the Act has started. I agree that if Section 22(4) stood by itself,....
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.... the appeal is to be shut out as a matter of punishment. Unless an Income-tax Officer is actuated by malice or chagrin on account of the non-compliance with his order, ho will, if he does his duty, assess a tax which, in his opinion, would be just and fair, "to the best of his judgment" does not imply any penal imposition of tax but what is only a fair and reasonable tax, having regard to all the information, as to circumstances, the Income-tax Officer may possess, without any formal enquiry. It must therefore, be taken that the rule shutting out an appeal was not meant for the punishment of the assessee. By way of analogy, I may point out that under the Civil Procedure Code no appeal is allowed where a decree follows a compromise or a decree follows an award. Surely the parties do not commit any contempt of Court by coming to terms, nor do they commit any contempt of Court by entering into a reference to arbitration which is followed by an award. 23. Similarly, there is no appeal from the verdict of the jury, in a criminal case except as to punishment, with which the jury have nothing to do. The principle underlying the shutting out of an appeal, in all such cases is the same n....
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....hold an enquiry as to its correctness. 24. If the assessee fails to submit the accounts and the documents required, he does not put the Income-tax Officer in a position to form a definite judgment and the only thing that remains open to the officer is to act "to the best of his judgment," which means in plain words, to act on such information obtained privately as he may possess. In such a case, to allow an appeal would be meaningless. The appellate officer would have no materials on which to go. Again, where the Income-tax Officer is not satisfied with the return submitted by the assessee, possibly even after its scrutiny, with the aid of the assessee's accounts and documents, he would decide to hold an enquiry. Where he wants to hold an enquiry and the assessee does not help him with materials and evidence, here again there is nothing for the taxing officer, to go upon, except his own judgment which, again means unverified and unsubstantiated information. Here, again, there will be no sense in allowing an appeal; for the appellate officer would have no materials on which to form judgment. Apparently, the accounts and documents called for under Section 22(4), would not....
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..... For this purpose he has been invested with the powers of a civil Court by Section 37, Income-tax Act itself. If he has all the powers of a civil Court trying a suit, why can he not ask the assessee, under those powers to produce the very accounts and documents which he thinks are needed for a fair assessment? Surely, a civil Court can call upon a party to produce any document in his possession or power. The power of the Income-tax Officer to call for documents and accounts is not limited by the language of Section 23(3), Income-tax Act, or even by Sub-section 4, Section 22. If Section 22(4) was meant to be only a part of the power of an officer in holding an inquiry its proper place would have been in Section 37. The whole question is, in what cases an appeal has been allowed by the Act and in what cases they have not been allowed? 27. I need not repeat what I have already stated, namely an appeal has been shut out only when it would serve no useful purpose. That is to say, an appeal has been shut out where the appellate officer would have no material on which to decide a case. But where materials are on the record, whether sufficie....
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....me is before he is assessed on the income. If it had been the intention of the legislature that the mere word of the taxing officer should be final one should find a clear indication of that in the language of the statute. Craies in his invaluable book on Interpretation of Statute Law says at p. 195: Express and unambiguous language appears to be absolutely indispensable in statutes passed for the following purposes: (1) imposition of tax.... (2) Altering or excepting from the operation of clearly established principles of law.... 30. If the meaning of Section 22(4) read with Section 23(4) is this that the power of an Income-tax Officer should be allowed to hang, like the sword of Democles, on the head of the proposed assessee, to be applied at any time to shut out an enquiry by the appellate Court and for the acceptance, as final word, of the Income-tax Officer's assessment, we should expect the clearest language being employed for the purpose. As against the argument that Sub-section 4, Section 22 is a very useful rule and should not be limited in its operation by the four words, "having made a return" to be found in....
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....s from the assessee. Such being the case, with utmost respect, I am unable to agree"with the view taken in this Court or in the Courts in Bombay, Madras and Calcutta. If the points, that have struck me as very very material and as fully answering the objections and arguments of the learned Judges had been considered by them, I would, certainly, have bowed to their decisions. 33. But as things stand, the arguments that weigh with me have not been considered, at least in their entirety, by the learned Judges and my inability to accept the views of so many eminent Judges I trust, is fully justified. 34. I would now come to the several questions put by the Commissioner of Income-tax and attempt to answer them. In view of a general discussion of the law given above, I will not discuss the reasons of the answers except where they are really necessary. 35. Question 1.-My answer is an emphatic no. 36. Question 2.-My answer is that the notice is invalid not because it included accounts and documents connected with the Calcutta shop, but because the issue of such a notice was illegal after an enquiry had commenced under Section 23(3). 37. Question 3(a).-My answer is that ....
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....istered as inoppressively as may be possible, always having an eye to the convenience of the subject whom it is proposed to tax. 43. Question 8.-Answer.-As already stated in answer to question 7, although the officer at Cawnpore was not an appellate officer to the officer in Calcutta, yet the Cawnpore officer was not bound by the report of the Calcutta officer and was not bound to refer the matter back to the Calcutta officer. As regards the assessment according to one's judgment, the assessment should always be on the merits, after an enquiry has started and not "according to judgment" (if that is meant to shut out an appeal.) 44. Question 9.-Answer: No. 45. The Income-tax Officer was bound to pronounce judgment, on the merits, so as to allow of an appeal. Niamatullah, J. 46. This is a reference under Section 66(2), Income-tax Act 1922 made by the Commissioner of Income-tax for decision of certain questions of law arising under the following circumstances: 47. Messrs. Lachman. Das Babu Ram the assessees carry on business at three places, viz., Cawnpore, Bombay and Calcutta, the first named being the principal place of business where they have b....
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.... correspondence between the Income-tax Officer, Cawnpore and that of Calcutta an assessment was made on the 30th March 1928. The income of the Calcutta branch was assessed at Rs. 40,000 under Section 23r(4). The significance of assessment under Section 23(4) is that it is based on the "best judgment" of the Income-tax Officer and that no appeal lies from such an assessment. An appeal was, however, preferred from this assessment on the ground that it could not in law be considered to be one under Section 23(4-) so as to deprive the assessees of the right of appeal. The Assistant Commissioner who heard the appeal in the first instance, ruled that Section 23(4) applied and that the appeal was incompetent. A further appeal to the Commissioner led to the reference under consideration. The questions which emerge from this statement of facts and which we are called upon to decide are nine in number and are mentioned at pp. 5 and 6 of the statement of facts submitted by the Commissioner with his own opinion. The answers to these questions largely depend on a consideration of Sections 22(2) and (4) and 23 which are quoted below: 22(2) In the ....
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....fails to comply with all the terms of a notice issued under Sub-section (2) of this section, the Income-tax Officer shall make the assessment to the best of his judgment. 49. The first question which calls for a decision of this Court has been stated in these terms: Has an Income-tax Officer jurisdiction to issue a notice under Section 22(4) after the commencement of an enquiry under Section 23(3)? 50. The contention before us has gone further and it has been argued that notice under Section 22(4) cannot be issued after a return required by Section 22(2) has been made. In this view Section 22(4) applies only to cases where for some reason not easily conceivable the Income-tax Officer desires inspection of the assesses' accounts before he has any idea of the sources of their income, of the amount of their income and of the contigency of the accounts being needed to test the correctness of the figures to be mentioned in the return. Section 22(4) clearly lays down that a notice under that section can be issued to: any person upon whom a notice has been served under Sub-section (2), 51. i.e. to any pe....
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....he Income-tax Officer may consider it advisable to issue a notice under Section 22(4) calling for accounts and another under Section 23(2) requiring the assessee to produce such evidence as ho desires to adduce in support of his return. It is to be observed that a notice under Section 23(2) is in the interests of the assessee and must be issued; while one under Section 22(4) may or may not be issued according as the Income-tax Officer may or may not deem it expedient having regard to the circumstances of the case, but if issued must be obeyed. The plain language of the sections enables one to arrive at the result indicated above. It is, however, pointed out that Section 37, Income-tax Act, empowers the Income-tax Officer to direct the production of documents by any person, assessee or otherwise, in the manner laid down by the Civil Procedure Code in relation to suits and proceedings before civil Courts, and it is argued that after an enquiry initiated by Section 23(2) has commenced, the production of accounts is to be enforced not by a resort to a notice under Section 22(4) but by the exercise of the power confer....
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....r the former will precede the notice contemplated by the latter. Assuming for a moment that the legislature intended to confer a power on the Income-tax Officer to issue a notice, non-compliance with which should attract the operation of Section 23(4), whether such notice is issued before or after the commencement of the enquiry, where is the provision to be inserted? If it be placed between sub-Ss. (2) and (3), Section 23, to make it plain that such notice can be issued after the commencement of the enquiry it would lead to the result, according to the reasoning based on the order of the provisions, that the Income-tax Officer has no power to issue such a notice before the commencement of the enquiry. It follows, therefore, that the arrangement of the provisions is not a safe guide in this particular instance. It is not disputed that the language of Section 22(4) is wide enough to enable the Income-tax Officer to issue before the commencement of the enquiry a notice under Section 22(4) which if disobeyed will entail the consequences mentioned in Section 23(4). 59. The words "having made a return" occurring in Section 23(4) founded on....
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.... under Section 22(4) issued by the Income-tax Officer Cawnpore, on 22nd February 1928, invalid, because it included accounts and documents connected with the Calcutta shop? 62. That the Income-tax Officer of Cawnpore had jurisdiction to assess tax on the income derived by the assessees from the Calcutta branch of their business is not disputed, and in View of the provisions of Section 64, Income-tax Act, such jurisdiction cannot be denied. This being so, it can scarcely be maintained that a notice issued under Section 22(4) calling upon the assessees to produce or cause to be produced their accounts of the Calcutta branch is invalid. It was certainly open to the Income-tax Officer Canpore to require the Income-tax Officer Calcutta to send the account books which appear to have been produced before him by the assessees, who were for some reason of their own reluctant to have such accounts subjected to the scrutiny of the Income-tax Officer, Cawnpore. The latter preferred to make the assessees responsible for the production of these accounts and whether he was right or not in the exercise of his power to adopt the more drastic of the two courses open ....
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....cer shall cancel the assessment and proceed to make a fresh assessment in accordance with the provisions of Section 23. 65. From the finding arrived at by the Income-tax Officer under Section 27 adversely to the assessee an appeal has been allowed by Section 30 of the Act, and if he satisfies the appellate authority that he was prevented from complying with the notice under Section 22(4) because the accounts and documents to which it related did not exist, he will escape the consequences of disregarding that notice. It must be conceded that the procedure laid down for an assessee, who is believed to possess certain accounts and documents, to vindicate his denial in that respect, is clumsy and one sided, but such appears to be the law as it stands. I answer questions 5 and 6 in the affirmative. 66. Questions 7 and 8 may be disposed of together. They are as follows: (7) Has the Income-Sax Officer of an assessee's principal place of business jurisdiction to compel such assessee to submit a return and produce accounts in respect of a branch business when he has submitted a return, produced account", and otherwise complied with all t....
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....tion is of utmost importance to the income-tax authorities and the public who pay the tax, that on the point, different High Courts have taken different views and that it might be desirable to require a Bench of three Judges to hear the point and decide it to avoid a further difference of opinion, and a second reference. 70. Question 1 is as follows: 71. Has an Income-tax Officer jurisdiction to issue a notice under Section 22(4) after the commencement of an enquiry under Section 23(3)? 72. This is a reference under Section 98, Civil P. C, made by a Division Bench of this Court in a matter arising under the Income-tax Act of 1922. Notice was served on Lachhman Das Babu Ram a firm with their headquarters at Cawnpore and branches in other places, under Section 22(2), Income-tax Act, to make a return of their income. After certain proceedings, which it is unnecessary to detail, a combined notice was sent to the firm on 11th August 1927, in the form known as form B, drafted apparently under the authority of the Board of Revenue but not incorporated in any way in the Income-tax Act. This so-called combined notice purports to be a not....
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....have had some difficulty in ascertaining the facts on the basis of which we are asked to decide this question. The following appears in the statement of the Income-tax Officer at p. 3: The assessees now desire that I should make a reference to the Honourable High Court on the following points of law (Appendix E) (as propounded by them): (a) Whether the notice issued under Section 22(4) on 22nd February 1928, was legally valid inasmuch as, it was issued after the commencement of proceedings under Section 23(3), etc. 75. It does not appear, however, that we have to consider the effect of the notice on 22nd February 1928, at all. The notice under Section 22(4), which we have really to consider, is referred to at p. 8 of the Income-tax Officer's statement, at para. 20, point 9. It is referred to us as follows: The assessees clearly failed to comply with the notice under Section 22(.4), issued on 11th August 1927, calling for the production of their Calcutta accounts. This default justifies the assessment under Section 23(4). 76. The Assistant Commissioner also said in his order dated 15th June 1928, which is printed as ....
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....f the nine questions referred to the High Court by the Commissioner of Income-tax, did not arise. This Bench thought that the learned Judges who expressed the opinion quoted above were not authorised under the provision of law under which the reference was made, to say that the question did not arise. This Bench accordingly addressed the learned Chief Justice again proposing that the said question 1 might again be referred to other Judges. The learned Chief Justice thereupon called a meeting of the Judges of the Court and the majority of the Judges decide that it was open to the three Judges, to whom the question had been referred, to say that the question did not at all arise and that such opinion would be binding on the Division Bench which referred the question. 82. The matter was again placed before us. We have heard the counsel for the parties. Dr. Katju has argued that on the judgment delivered by the three learned Judges mentioned above, the answer to question 9 as recorded by us previously should be reconsidered. He has argued and in my opinion quite correctly that question 9 and question 1 are not identical. Question 1 is: Has an Income-tax Officer jurisdiction....
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....ould not be made the basis of an order under Section 23(4), Income-tax Act, namely an assessment to the best of the judgment. 87. It will be remembered that there were two notices issued against the assessee, both purporting to be combined notices under Section 22(4) and Section 23(3), one was dated 11th August 1927 and the other was dated 22nd February 1928. It was on account of the failure to comply with both these notices, that the Income-tax Officer purported to act udder Section 23(4), Income-tax Act. When the assessees questioned the propriety of this assessment "to the best of judgment" they questioned the validity of the notice of 22nd February 1928: see point (a) at p, 3 of the statement of the case. The learned Commissioner is required by law to give his own opinion on the points referred to the High Court for its opinion. In answering question 9: see p. 8 of the statement of the case, the learned Commissioner did not rely on the notice issued on 22nd February 1928, but relied on the notice of 11th August 1927 only. For this reason the Bench consisting of three learned Judges of this Court expressed the opinion that the notice of 22nd....
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....rded on 22nd February 1929, the detailed answer which is also in the negative recorded above be returned to the Commissioner of Income-Tax. 93. I note that Mr. Bajpai the learned Government Advocate has argued in Court for 4½ days and that he is entitled to a fee of Rs. 1100. He should get this fee from the Government. As regards the costs of this reference, I would direct that the Government should pay the costs of the assessees. Niamatullah, J. 94. In my order of 22nd February 1929, I answered question No. 9 in the affirmative, because, in my view, disregard of a notice under Section 23(2) of the Income-tax Act entitles the Income-tax Officer to proceed under Section 23(4) and if he does so, the assessee has no right of appeal. Whether the Income-Tax Officer could do so under the circumstances of the present case depended on the effect of two notices issued by him (1) on 11th August 1927, and (2) on 22nd February 1928. It had boon contended on behalf of the assessees that the first notice had been waived. I did not deal with this argument, because if it be accepted with regard to the first, the second notice, which in my opinion cannot be said ....