1942 (9) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Validity of notice under Sections 34 and 22(2) due to transfer of the case.
2. Validity of notice under Section 22(4) issued by an Income-tax Officer not of the area.
3. Legitimacy of Mr. G.H. Gondalia's appointment as an Income-tax Officer.
4. Necessity of fresh notice under Section 43 for the assessment year 1935-36.
5. Evidence for failure to comply with notices under Sections 22(2) and 22(4).
6. Right of appeal against the assessment order under Section 23(4).
7. Exercise of judgment by the Income-tax Officer under Section 23(4).
8. Costs and conduct of the parties.

Issue-wise Detailed Analysis:

1. Validity of Notice under Sections 34 and 22(2) Due to Transfer of the Case:
The Court held that the notice issued on 19th March 1937 under Sections 34 and 22(2) did not cease to be valid due to the abolition of the Special Circle and the transfer of the assessee's case to the Income-tax Officer, Section I (Central). This decision aligns with previous rulings such as Dayaldas Khushiram v. Commr. of Income-tax, Central (Bom.) (1943) 11 I.T.R. 67.

2. Validity of Notice under Section 22(4) Issued by an Income-tax Officer Not of the Area:
The Court concluded that the notice under Section 22(4) dated 8th August 1939, though initially invalid, was validated by the Governor-General's Ordinance of December 1939. This conclusion is also supported by the precedent set in Dayaldas Khushiram v. Commr. of Income-tax, Central (Bom.) (1943) 11 I.T.R. 67.

3. Legitimacy of Mr. G.H. Gondalia's Appointment as an Income-tax Officer:
The Court found that Mr. G.H. Gondalia, who made the assessment order dated 3rd January 1940, was not duly appointed as an Income-tax Officer. The order by the Commissioner of Income-tax (Central) merely appointed him to perform the functions of an Income-tax Officer but did not substantively appoint him as one. Additionally, Mr. Gondalia continued to draw the salary of an Assistant Income-tax Officer and signed the assessment orders as such, indicating he was not properly appointed.

4. Necessity of Fresh Notice under Section 43 for the Assessment Year 1935-36:
The Court held that a fresh notice under Section 43 was not necessary for the assessment year 1935-36. The assessees had been assessed and paid the tax for that year, which amounted to an admission on their part that they were the agents of the principal for that year. The re-assessment under Section 34 was part of the assessment for the year 1935-36, and the facts necessary to constitute them as agents remained unchanged.

5. Evidence for Failure to Comply with Notices under Sections 22(2) and 22(4):
The Court found that there was no evidence to show that the assessees were not prevented by sufficient cause from complying with the notices under Sections 22(2) and 22(4). The assessees had resisted the proceedings until the Governor-General's Ordinance of 30th December 1939, which validated the notice. The Court held that the assessees should have been given reasonable time to produce their books after the notice became valid, which was not done.

6. Right of Appeal Against the Assessment Order under Section 23(4):
The Court held that the assessees were entitled to file an appeal to the Appellate Assistant Commissioner against the assessment order dated 3rd January 1940 under Section 23(4) of the Act. The amendment of 1939 removed the proviso that barred appeals against assessments made under Section 23(4), and since the order was made after the amendment, it was appealable.

7. Exercise of Judgment by the Income-tax Officer under Section 23(4):
The Court concluded that the Income-tax Officer did not exercise his judgment honestly and without caprice in making the best judgment assessment under Section 23(4). The officer made the assessment without giving the assessees any time to produce their books after the notice was validated, which was deemed arbitrary and capricious.

8. Costs and Conduct of the Parties:
The Court ordered the Commissioner to pay one-third of the assessees' costs, noting that the Commissioner failed on the more important questions. The Court emphasized that the number of questions, their difficulty, the amount of evidence involved, and the conduct of the parties were considered in determining the costs.

Conclusion:
The reference was answered accordingly, with the Court providing detailed reasoning for each issue and emphasizing the importance of proper appointments, the necessity of reasonable time for compliance, and the right to appeal. The Court also highlighted the conduct of the parties in determining costs.