1934 (1) TMI 18 - HC - Income Tax

Summary

Issues Involved:

1. Whether the High Court can require the Commissioner of Income Tax to state a case for decision by the High Court of questions of law arising from an assessment under Section 23(4) of the Income Tax Act.
2. Whether the Income Tax Officer was justified in law in holding that the petitioners had been guilty of non-production of the account books for Sambat year 1986.
3. Whether the Income Tax Officer was justified in commencing proceedings under Section 34 of the Act and then proceeding under Section 23(4) of the Act.
4. Whether the assessment was really made under Section 23(3) of the Act and whether 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 was justified in point of law.

Issue-Wise Detailed Analysis:

1. High Court's Power to Require the Commissioner to State a Case:

The High Court examined whether it could 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) of the Income Tax Act. It was held that the High Court has no such power. Section 66(1) allows the Commissioner to make a reference to the High Court if a question of law arises during any assessment. However, the right of the assessee to insist on such a reference is limited under Section 66(2) to orders under Section 31 or Section 32, or decisions by a Board of Referees under Section 33A. Since no order under Section 32 or decision by a Board of Referees was involved, the court concluded that the High Court could not require the Commissioner to make a reference in this case.

2. Justification of Non-Production of Account Books:

The court addressed whether the Income Tax Officer was justified in law in holding that the petitioners had been guilty of non-production of the account books for Sambat year 1986. The court noted that the burden of proof lay on the assessee to prove the loss of the account books. The Income Tax Officer and the Assistant Commissioner found the evidence provided by the assessee insufficient to prove the alleged loss. Thus, no question of law arose from their decision on this point.

3. Commencement of Proceedings under Section 34:

The court considered whether the Income Tax Officer was justified in commencing proceedings under Section 34 of the Act and then proceeding under Section 23(4) of the Act. It was argued that the Income Tax Officer should not have taken proceedings under Section 34 and 23(4) based on the assessee's untrue allegation regarding the loss of books. The court found that no question of law could arise from such an argument.

4. Assessment under Section 23(3) and Appeal to Assistant Commissioner:

The court examined whether the assessment was really made under Section 23(3) of the Act and whether the appeal to the Assistant Commissioner of Income Tax should have been entertained and heard on the merits. The Assistant Commissioner had held that no appeal lay from an assessment under Section 23(4) as per the Proviso to Section 30, which explicitly states that no appeal shall lie in respect of an assessment made under sub-section (4) of Section 23. The court affirmed that the intention of the Act was to limit the remedy of the assessee to an application for revision to the Commissioner under Section 33, not an appeal.

5. Arbitrary and Unjustified Assessment:

The court addressed whether the assessment being purely arbitrary and based on no materials was justified in point of law. It was held that an assessment to the best of the Income Tax Officer's judgment should not be influenced by a desire to punish the assessee for non-compliance. The Income Tax Officer's judgment should proceed on some data, including legitimate presumptions arising from non-production of account books. The court noted that the Income Tax Officer might have drawn inferences from receipts in preceding and subsequent years to form a satisfactory basis for assessment. However, the court concluded that the High Court could not direct the Commissioner to make a reference for decision of the question of law regarding the arbitrary nature of the assessment.

Conclusion:

The application was dismissed with costs. The court concluded that the High Court could not direct the Commissioner to state a case for decision by the High Court of questions of law arising from an assessment under Section 23(4). The fee of the counsel for the Income Tax Commissioner was assessed at Rs. 75.