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Issues Involved:
1. Whether the Income-tax Officer can issue a notice under section 22(4) after the commencement of an enquiry under section 23(3). 2. Whether the Income-tax Officer possesses arbitrary authority to assess income under section 23(4) or must be guided by judicial principles. Detailed Analysis: Issue 1: Notice under Section 22(4) after Commencement of Enquiry under Section 23(3) The primary question is whether the Income-tax Officer can issue a notice under section 22(4) after starting an enquiry under section 23(3). The court analyzed the language of section 22(4) and concluded that it empowers the Income-tax Officer to serve a notice requiring the production of accounts or documents at any stage of the proceedings. This includes before the submission of a return, after the submission but before the enquiry, and even during the enquiry. The court emphasized that the statute does not impose any restriction on the timing of the notice. The court rejected the argument that section 22(4) should only be used before the return is made, noting that the language of the statute is clear and does not suggest any such limitation. The court also referenced previous judicial decisions supporting this interpretation, including cases from the United Provinces and Madras High Courts. The court concluded that the Income-tax Officer can issue a notice under section 22(4) even after the commencement of an enquiry under section 23(3) and, on the assessee's failure to comply, assess the income under section 23(4). Issue 2: Arbitrary Authority of Income-tax Officer under Section 23(4) The second issue concerns whether the Income-tax Officer has arbitrary authority to assess income under section 23(4) or must be guided by judicial principles. The court clarified that while the Income-tax Officer has discretion in making assessments under section 23(4), this discretion is not absolute. The assessment must be made "to the best of his judgment," which implies that it should be based on reason and justice, not on arbitrary or capricious grounds. The court cited the Rangoon High Court's decision in P.K.N.P.R. Chettyar Firm v. Commissioner of Income-tax, Burma, which held that the assessment must be "not arbitrary, vague and fanciful, but legal and regular." The court agreed that the Income-tax Officer must be guided by the rules of justice, equity, and good conscience, even though strict judicial principles do not bind him. The assessment should be reasonable and based on available material, not purely on the officer's private opinion. The court concluded that an assessment made purely on whim and caprice cannot be considered as made "to the best of his judgment." Therefore, the Income-tax Officer must follow principles of justice and fair play in making assessments under section 23(4). Separate Judgments: - Harrison, J. and Johnstone, J.: Both agreed with the learned Chief Justice without adding anything further. - Tek Chand, J.: Agreed with the Chief Justice's answers but expressed hesitation regarding the first question. He highlighted the need for legislative review and redrafting of sections 22 and 23 to avoid potential injustices. - Dalip Singh, J.: Found considerable difficulty in answering the first question and suggested that section 22(4) should not apply after a notice under section 23(2). However, he reluctantly agreed with the majority view due to the weight of authority. In summary, the court held that the Income-tax Officer can issue a notice under section 22(4) after the commencement of an enquiry under section 23(3) and must be guided by principles of justice, equity, and good conscience in making assessments under section 23(4).
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