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1934 (1) TMI 18 - ALLAHABAD HIGH COURT

1934 (1) TMI 18 - ALLAHABAD HIGH COURT - [1934] 2 ITR 129 - Dated:- 11-1-1934 - Niamatullah And Bennet, JJ. For the Assessee : K. N. Katju, M. N. Haul For the Income Tax Commissioner : K. Verma JUDGMENT Niamatullah, J. This is an application by a firm styled Jot Ram Sher Singh of Muzaffarnagar, under Section 66(3) of the Income Tax Act, for an order requiring the Commissioner of Income Tax to state a case and to refer certain questions for decision by this Court. The case relates to the assessme .....

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come Tax Officer, shows, that the account books for 1986 Sambat were before him. Whether complete accounts had been produced or those for a particular branch of the assessees' business were the only accounts then produced is not clear. It is, however, clear that the Income Tax Officer did not then raise any question concering the accounts. The proceedings took place before the Income Tax Officer, Muzaffarnagar, who made certain enquiries from the Income Tax Officer, Rohtak, where the assesse .....

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hich had escaped notice and for cases in which too low an assessment was made. The assessees were called upon by a notice to produce their accounts for Sambat 1986. They did not produce such accounts and alleged that the same had been lost. They relied upon evidence consisting of a police report and a telegram and other evidence. The Income Tax Officer however did not accept the story of the loss of the accounts and proceeded to make a fresh assessment under Section 34. It cannot be disputed tha .....

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ent, was justified. The significance of such an assessment is that no appeal lies therefrom (See Proviso to Section 30). In making a fresh assessment the Income Tax Officer estimated the assessees' income to be ₹ 75,000. They were accordingly called upon to pay income-tax on that amount. The assessees made an application under Section 27 which empowers the Income Tax Officer to cancel the assessment and to make a fresh assessment if he is satisfied that the assessee was prevented by su .....

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plied to the Commissioner under Section 33 for revision of the orders passed by the Income Tax Officer. The Commissioner set aside the assessment and directed further enquiry and a fresh assessment. The Income Tax Officer again assessed the tax on an income of ₹ 75,000. The assessees again applied under Section 27 and finally moved the Commissioner in revision. The previous revision had been disposed of by Mr. Muir, who was subsequently succeeded by Mr. Wali Muhammad, who dealt with the se .....

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there could be no appeal or reference against it. There were other subsidiary questions which it is not necessary to mention. A preliminary question which calls for decision in this case is whether the High Court can require the Commissioner to state a case for decision by the High Court of questions of law arising from an assessment under Section 23(4) Income Tax Act. Having carefully examined the scheme of the Act, I am constrained to hold that the High Court has no such power. Section 66(1) .....

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t of orders under Section 31 or Section 32, or of a decision by a Board of Referees under Section 33A. No order under Section 32 was passed against the assessees, nor are we concerned with any decision by a Board of Referees under Section 33A: The only question is whether there was an order under Section 31. That section deals with the exercise by the Assistant Commissioner of his appellate power. Section 30 prescribes the limits of the appellate powers of the Assistant Commissioner. An appeal l .....

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n made. Section 30, Proviso, expressly declares that there shall be no appeal from an assessment to the best of the Income Tax Officer's judgment under Section 23(4) or under that sub-section read with Section 27. Accordingly no question of law or fact arising from such assessment can be the subject of consideration by the Assistant Commissioner for the simple reason that no appeal lies to him, with the result that the Assistant Commissioner can never have an occasion to pass in appeal an or .....

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taken by the majority of the judges composing the Full Bench. It is said that there is no other section under which such an order in limine can be passed. With great respect I would point out that a tribunal cannot "dispose of an appeal" if what purports to be an appeal is not appeal and is held by the tribunal to be incompetent. Where the Assistant Commissioner rejects what purports to be an appeal on the ground that none lies, he gives effect to the Proviso to Section 30, and his or .....

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ave assessed to the best of his judgment under Section 23(4) if the latter stated in his order that a case existed for assessment to the best of his judgment. Any abuse of power by the Income Tax Officer or perversity of judgment is to be corrected by the Commissioner in revision, but the Assistant Commissioner has no jurisdiction, where he has before him what purports to be an appeal from an assessment under Section 23(4). It is only if he has jurisdiction to entertain the appeal that he can sa .....

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aw which arises from the best judgment assessment, sought to be set aside by an application under Section 27, cannot fall within the purview of Section 27. This being so, the question whether a wholly arbitrary assessment under Section 23(4) on assumed income or on conjectural estimate thereof involves an error of law cannot be the subject of reference under the orders of the High Court. All other similar questions arising in connection with such assessment cannot be brought before the High Cour .....

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in dealing with questions arising in the course of assessment by officers subordinate to him. He can, in the exercise of those powers, interfere with an assessment made by the IncomeTax Officer to the best of his judgment under Section 23(4). He may also decide the question whether such assessment was arbitrary and unreasonable. As a matter of fact, Mr. Muir did interfere with the first assessment. The Commissioner may also make a reference to the High Court for decision of any question of law .....

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case of orders under Section 31. The present case itself affords a striking instance of the desirability of such power being given. The Income Tax Officer who made an assessment in the first instance, found the income to be ₹ 5,113. In making a fresh assessment to the best of his judgment his successor estimated the income to be ₹ 75,000. The 'estimate' rests on nothing but what the Income Tax Officer chose to assume as the income in Sambat 1986. The so-called reasons, on wh .....

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ment to the best of his judgment the Income Tax Officer might well have drawn inferences from receipts in those years. Such inferences together with other facts which a careful enquiry might disclose could have formed a satisfactory basis for an assessment. It should be borne in mind that an assessment under Section 23(4) should not be influenced by a desire to punish the assessee for noncompliance with a notice under Section 22 or Section 23, however culpable such non-compliance may be. Any del .....

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the best of his judgment," and its application to the facts of a particular case. My examination of the relevant sections of the Income Tax Act has led me to the conclusion that the High Court cannot in this case direct the Income Tax Commissioner to make a reference to this Court for decision of the question which the assessees desire to raise. The view that I have taken is in accord with Abdul Bari Chowdhury v. Income Tax Commissioner, Burma. We have been referred to Muhammad Hayat Haji .....

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cation by an assessee asking for this Court to call on the Commissioner of Income Tax to state a case under Section 66(3) of the Income Tax Act. The questions on which learned counsel presses that a case should be stated are those numbered (1), (3), (4) and (5) in the application and are as follows:- (1) Whether in the absence of any evidence whatever to prove the possession of the 4 account books for the Sambat year 1986 by the petitioner, the Income Tax Officer was justified in law in holding .....

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case the assessment was really made under Section 23(3) of the Act and the appeal to the Assistant Commissioner of Income Tax should have been entertained and heard on the merits? (5) Whether the assessment being purely arbitrary and based on no materials whatever was justified in point of law? The facts of the case have been set out in the order of the Income Tax Officer making the assessment dated June 29, 1932, These facts are that for the year in question 1930-31 there was first of all an a .....

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n 34 on the ground that income had escaped assessment, and the Income Tax Officer required that the books should be produced again. By this time the books had been lost according to the assessee and they were not produced. The Income Tax Officer therefore claimed that he had a right to make a best judgment assessment under Section 23(4) and proceeded to do so. A revision was filed to the Commissioner against that best judgment assessment, and the Commissioner set it aside by an order dated Novem .....

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are arbitrary and that the assessment is based on no materials, and therefore is not a valid assessment in law. The assessee made an application under Section 27 for cancellation of the best judgment assessment on the ground that he was prevented by sufficient cause from producing the books, and that application was rejected. The assessee then filed an appeal before the Assistant Commissioner of Income Tax both against the order rejecting the application under Section 27 of the Income Tax Act an .....

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Commissioner to state a case which he refused to do. In this connection the Commissioner referred to the ruling reported in Abdul Bari Chowdhury v. Commissioner of Income Tax, Burma, that the assessee had no right of application for reference to the High Court in the case of a best judgment assessment under Section 23(4). The first question which has arisen for decision in this appeal is whether the order which the assessee desires can be made by this Court. The powers of this Court to require .....

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the Commissioner to refer to the High Court any question of law arising out of such order.........." A question therefore must be in regard to any question of law arising out of an order under Section 31 or Section 32. Section 31 deals with the hearing of an appeal by an Assistant Commissioner, and Section 32 deals with the hearing of an appeal by the Commissioner against an order passed by an Assistant Commissioner under Section 28, or an order enhancing an assessment under Section 31(3). .....

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. There were in fact two appeals before the Assistant Commissioner, Nos. 25 and 26. One of these, appeals was against the order of the Income Tax Officer rejecting the application under Section 27 of the Income Tax Act, and the other appeal was against the assessment under Section 23(4). The Assistant Commissioner disposed of these two appeals by one order dated September 1, 1932, noting on the other appeal that it was governed by this order. In regard to the appeal against the order under Secti .....

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ear 1986 by the petitioner, the Income Tax Officer was justified in law in holding that the petitioners had been guilty of non-production of the said books; The assumption underlying this question is that it was necessary for the finding that there should be some oral evidence to the effect that the books were still in the possession of the assessee. This is a very common delusion and is constantly brought forward in argument. The theory is contrary to the provisions of Section 103 of the Indian .....

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duced was not sufficient to prove his allegation. No question of law arises from their decision on this point. The question No. 3 which I have quoted does not appear to embrace any point of law which could arise and it appears to be merely an argument against the action of the Income Tax Officer based on the idea that because the assessee had made the allegation in regard to the loss of his books, which was subsequently held to be untrue, therefore the Income Tax Officer ought not to have taken .....

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mit the appeal, and further he held:- Clearly, therefore, the Assistant Commissioner refused to entertain this appeal under Section 31 on the ground that no appeal lay. This is in accordance with the Proviso in Section 30 which is as follows:- Provided that no appeal shall lie in respect of an assessment made under sub-section (4) of Section 23, or under that sub-section read with Section 27. In spite of this clear provision in the Act learned counsel for the assessee has argued at length that a .....

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in revision to the Commissioner and the Commissioner set the assessment aside by his order of November 28, 1931. But instead of applying again in revision to the Commissioner against the new assessment of June 29, 1932, the assessee has adopted the wrong remedy and has attempted to proceed by way of appeal to the Assistant Commissioner and by way of requiring this Court to direct the Commissioner to state a case. It is not apparent why the assessee should have adopted this wrong method of proce .....

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ard to a question of law arising out of an order under Section 31 or Section 32, and there was no suggestion that a reference could be made where there was a case of a best judgment assessment under Section 23(4). The ruling therefore does not support the case of the assessee at all. Another case on which the assessee relies is Muhammad Hayat Haji Muhammad Sardar v. Commissioner of Income Tax. In that ruling a Full Bench of the Lahore High Court considered the question as to whether in the makin .....

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thority whatever for the proposition put forward by learned counsel for the assessee, that is, that the assessee has a right to ask this Court to call upon the Income Tax Commissioner to state a case on this point. Learned counsel had altogether failed to notice that the ruling in question arises on a reference by the Commissioner of Income Tax himself, as is stated on page 130. A reference by the Commissioner comes under Section 66(1), and such a reference may be on a question of law arising &q .....

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has this Court jurisdiction to direct the Commissioner to state a case on the point under Section 66(3). Learned counsel laid stress on the case of Ananda v. Commissioner of Income Tax. The Court had ordered the Commissioner to state a case on two points in regard to an assessee who claimed that he had no income arising in British India, and who had been assessed under Section 23(4), and whose petition under Section 27 had been rejected. The Assistant Commissioner held that the assessment was ri .....

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nt only and should have rejected the appeal in limine. The case was ordered to be stated on the two points: (1) Whether a person who has been assessed under Section 23(4) is entitled to prefer an appeal to the Assistant Commissioner on the ground that he was not liable to be assessed under the said Act, or whether the Proviso to Section 30, clause (1), is a bar to the appeal; and (2) Whether on the facts of the present case the assessee is liable to be assessed under the Act. The Full Bench foun .....

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ot the facts established before the Assistant Commissioner are such as to bring the assessee within the ambit of the Proviso to Section 30(1)." (Page 311, column 1). He also held on page 310, columns 1 and 2: "In so rejecting the appeal he is, in my opinion, under Section 31 'disposing of an appeal' and such disposal is 'a proceeding in connection with an assessment under this Act.'" In column 2 he then proceeds to discuss the ruling, Duni Chand v. Commissioner of .....

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der disposing of the appeal under Section 31. The other ground which is given on page 310, column 1, is as follows:- "Whatever the technical legal considerations the general duty of the Court to stand between the subject and the Crown in the matter of illegal taxation forces me to regard this contention as very unattractive." Now in England there is such a general duty, because the English Courts inherit the jurisdiction of the Court of the Exchequer, which had this special jurisdictio .....

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ot; the jurisdiction of the High Court is limited to the decision of points of law on a reference arising under certain conditions. Mr. Justice Fazl Ali, on page 316, column 2, gave his reason in these words: "as far as I am aware there is no section in the Income Tax Act except Section 31 under which the order could have been passed." And on page 320, column 2, Mr. Justice Dhavle gave a similar ground: "If the order be not an order under Section 31, there is no other section in t .....

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31. I consider that the appeal under Section 31 relates to the matters enumerated by the sub-section 30 (1), that is the amount or rate of assessment or the liability to be assessed etc. The question of whether an appeal is barred by the Proviso to Section 30(1) is a question which is decided under that proviso and not under Section 31. The judgment of the Patna High Court was not unanimous on the point, and Mr. Justice Wort says on page 313, column 2: "The assessee's main contention i .....

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that the Proviso does not prohibit the assessee in the case of a 'summary assessment from appealing as regards his liability......In my judgment the word 'assessment' in the Proviso is used in the wider sense... If the assessee had no appeal there could be no order under Section 31 excepting an order stating that no appeal lay. It is not such an order which is contemplated by Section 66, and if it is not, the Commissioner cannot be called upon to state a case as no question of law a .....

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decided under the next section. (2) Section 30(1) lays down the subject-matter of an appeal under Section 31, and then proceeds to exempt a certain kind of case-presumably it must exempt it from the operation of Section 31. (3) The obvious intention of the Act is to penalize an assessee who brings himself within the provisions of Section 23(4). It would be contrary to that in intention to strain the language of the Act and allow such an assessee to have the right to bring any question before thi .....

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d under Order 7, Rule 11, which is applied to appellate Courts by Section 107(2). And where the appellate Court returns a memorandum of appeal for presentation to the proper Court, it acts under Order 41, Rule 10, and Section 107(2). There is no provision in Order 41 for such orders by an appellate Court. It would not be correct to refer to such orders as "orders under Order 41 of the Civil Procedure Code." Similarly it is not correct to refer to the order of an Assistant Commissioner .....

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