TMI Blog1930 (12) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 23(4), does the Income-tax Officer possess absolutely arbitrary authority to assess at any figure he likes, or is he to be guided by any judicial principles, or rules of equity, justice and good conscience? The answer to the first question depends upon the construction to be placed upon sub-section (4) of section 22 of the Income-tax Act (XI of 1922). Before examining the language of that sub-section, a brief reference may be made to the procedure followed by an Income-tax Officer in obtaining a return of the income chargeable to income-tax. It is provided that, in the case of a company, the principal officer thereof shall furnish, on or before the 15th day of June in each year, a return of the total income or the company during the previous year, and that, in the case of any person other than a company, the Income-tax Officer shall serve upon him a notice requiring him to furnish a return of his total income. The provisions of the law relating to the furnishing of a return or a revised return of the income, which are embodied in sub-sections (1) to (3) of section 22, do not present any difficulty. We now come to sub-section (4) of that section. which runs as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made under section 22 is correct and complete, he shall assess the total income of the assessee and shall determine the sum payable by him on the basis of such return. (2) If the Income-tax Officer has reason to believe that a return made under section 22 is incorrect or incomplete, he shall serve on the person who made the return a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any evidence on which such person may rely in support of the return. (3) On the day specified in the notice issued under sub-section (2). or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income-tax 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. (4) If the principal officer of any company or any other person fails to make a return under sub-section (1) or sub-section (2) of section 22, as the case may be, or fails to comply with all the terms of a notice issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossible that, while making an enquiry under section 23(3) he may stand in need of the assessee's accounts for a period allowed by the law, or a document in his possession, should he proceed under section 23(3) and section 37 (both of which provisions confer upon him the necessary power), or is he entitled to issue a notice under section 22, sub-section (4) and, in the event of non-compliance with the terms of the notice, to make a summary assessment under section 23(4)? A perusal of the language of section 23(4) shows that there are only three cases in which the Income-tax Officer can make an assessment to the best of his judgment. These cases are :- (1) Where no return has been made. (2) Where there has been a failure to comply with the terms of a notice issued under sub-section (4) of section 22 requiring an assessee to produce accounts or other documents specified therein. (3) Where the return has been made, but the Income-tax Officer considers it to be incorrect or incomplete and serves a notice upon the assessee requiring his appearance or the production by him of evidence in support of his return, but the assessee does not comply with the terms of the notice. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice under section 22(4) may take place before the return is made; but in practice it is only after the submission of the return that any necessity for examining the accounts or documents is felt. The documentary evidence referred to in section 22(4) would ordinarily be useful for checking the return, and the Income-tax Officer would require its production after he has received the return. At any rate, one thing is absolutely clear that the notice contemplated by section 23(2) can issue only after the return has been made; and the phrase having made a return merely emphasizes that fact. It is no doubt an obvious fact, and the use of the phrase in question does not add anything to what was already well known. The words having made a return appear to be superfluous so far as the sub-section, as at present worded, is concerned. The explanation of this redundant phraseology may be found in the previous history of the law penalising the failure of the assessee to comply with the requisition of the Income-tax Officer. In the Indian Income-tax Act of 1918, section 18(4) which corresponds to section 23(4) of the present Act, was in these terms: - (4) If the principal officer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining a return from the assessee was intended to apply only to the stage prior to the commencement of the enquiry into the assessment of income to be made under the latter section. No serious argument can. however, be built upon the marginal notes which, even if they are treated as forming part of the Act, cannot control its operation. The chronological order, in which the Statute directs the Income-tax Officer to conduct his proceedings, would lend colour to the contention that section 22 was intended to regulate his proceedings at the preliminary stage, at which he calls for the return, receives it and checks-it, if necessary, by the accounts and documents kept by the assessee. After performing this function he proceeds to the next stage, namely, that of making an assessment. At that stage, it may be necessary for him to make an enquiry into the income of the assessee' and to take evidence. But for that purpose he has ample power under section 23(2) and (3) and section 37 to call for all the evidence which may be required on both sides. It may, therefore, be argued that, when the Statute has made a special provision for obtaining all the evidence, required for an enquiry, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 23, sub-section (3) vide, Chandra Sen Jaini v. Commissioner of Income-tax, United Provinces 3 ITC 17 Harmukhrai Dulichand v. Commissioner of Income-tax 3 ITC 198 Ram Khelawan Ugam Lal s case ( supra) and Ramaswami Chettiar v. Commissioner of Income-tax, Madras 3 ITC 290 . The contention urged on behalf of the assessee was accepted by a Division Bench of this Court in Khushi Ram Karam Chand v. Commissioner of Income-tax, Punjab 2 ITC 517 which was followed by Mukerjee J. in an exhaustive judgment in Lachhman Prosad Babu Ram v. Commissioner of Income-tax. United Provinces 4 ITC 61 . There are no doubt plausible arguments in support of that contention, but after bestowing my careful consideration upon the matter I do not think that they would justify a limitation upon the scope of the sub-section when its language is wide enough to apply to all the stages of the proceedings before the Income-tax Officer. As observed by Lord Esher in The Queen v. The Judge of the City of London Court [1892] 1 QB 273. If the words of an Act are clear, you must follow them, even though they lead to manifest absurdity. The Court has nothing to do with the question whether the Legislature h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rangoon High Court in P.K.N.P.R. Chettyar Firm v. Commissioner of Income-tax, Burma 4 ITC 87 that, when Statute says that the Income-tax Officer shall make the assessment to the best of his judgment it means that he must make it according to the rules of reason and justice, not according to private opinion, according to law and not humour , and that the assessment is to be not arbitrary, vague and fanciful, but legal and regular . The Legislature, in allowing the Income-tax Officer to make the assessment To the best of his judgment, has no doubt conferred upon him discretion in the matter of assessing the income; and, if the assessee withholds the account-books or documents upon which a reliable estimate of income can be founded, the assessment must ex necessitate rei be to Borne extent arbitrary. But, as laid down by the Rangoon High Court S.P.K.A.A.M. Chettyar Firm v. The Commissioner of Income-tax 4 ITC 182 it must nevertheless be reasonable and should not proceed purely on the Income-tax Officer's private opinion to the exclusion of all material before him. Such an assessment cannot be said to have been made to the best of his judgment. There may be cases, such as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and, if possible, of redrafting and rearranging them. This seems all the more necessary as the interpretation, which the Courts have felt bound to put on these sections, is likely to work great injustice in some cases. As has been pointed out by the learned Chief Justice in a case in which enquiry under section 23(2) and (3) has been started and is even practically complete it is open to the Income-tax Officer to ignore the whole of the evidence produced before him by merely issuing at that stage a notice to the proposed assessee under sub-section (4) of section 22 to produce certain documents and on his failure to do so, not only to invest himself with the power to make an arbitrary assessment but also to deprive the assessee of the right of appeal to the Assistant Commissioner and of asking the Commissioner to make a reference under section 66 to the High Court on any questions of law, which might arise for decision on the assessment. Dalip Singh, J.:- Considerable difficulty arises in my opinion in answering the first question referred to this Court. As I read sections 22 and 23 of the Income-tax Act, which are the relevant sections concerned, it appears to me that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shall hear the evidence which the person may produce and such other evidence is the Income-tax Officer may require on specified points and shall then assess the total income of the assessee and determine the assessment. Section 23(4) lays down that if the person fails to make a return under sub-section (2) of section 22, or fails to comply with the terms of a notice issued under sub-section (4) of section 22, or fails to comply with the terms of a notice issued under sub-section (2) of section 23, the Income-tax Officer shall make the assessment to the best of his judgment. The question that arises, therefore, is, whether the provisions of section 22(4) are available to the Income-tax Officer after action has been taken under section 23(2). [There can be no doubt that no time limit is fixed in section 22(4), but it seems to me that section 22(4), from its place n the section, would seem to confer a power on the Income-tax Officer to secure a correct return, while sections 23(2), 23(2) and 23(4) give power to the Income-tax Officer to secure a correct assessment; and, if the general scheme of the Act supports this, there would be automatically a time limit placed on the oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpreted to mean that the Income-tax Officer can demand the person's attendance for the purpose of examining him and that the Income-tax Officer can further demand that person to produce all that evidence, not on which the person himself relies as a matter of fact but all that evidence on which the person might or could rely if his return were a correct return. In other words that the Income-tax Officer would be empowered to demand from the person making the return such account books and so on, as would go to prove his return correct if, as a matter of fact, that return were correct. I am fully aware that this construction involves interpreting the word may in the section as if it were might'. But, as pointed out, it is difficult to make sense of the section without some such interpretation. If then this construction is the correct one, it is obvious that section 23(2) confers practically the same power as section 22(4) so far as it serves to secure evidence on which the Income-tax Officer may come to some conclusion as to the assessment to be made, and it would follow, therefore, that section 22(4) could not apply after a notice had been given under section 23(2). To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be inflicted in such a case is where the evidence on which the Income-tax Officer could come to a correct conclusion as to the return, is in the hands of the person making the return and that person I refuses to furnish the Income-tax Officer with that evidence. The Legislature might, in my opinion, here, again seek to penalise such a person by arbitrary assessment. In all other cases it would seem to me that the person cannot be arbitrarily assessed, but, of course, it is open to the Income-tax Officer on the materials at his disposal to come to some conclusion as to what the assessment of such a person should be, independently of the return made by such a person. Where, however, he had complied with the terms of a notice under section 23(2) it is difficult to see how action could then be taken under section 22(4). In the case in question the matter would have been only, of academic interest, for the finding of fact by the Income-tax Officer is that the person did not comply with the terms of the notice under section 23(2), that is to say, if my interpretation of the sections is correct. However, as a matter of fact, in this case the Income-tax Officer did not purport to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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