1964 (1) TMI 67 - HC - Income Tax

Summary

Issues Involved:
1. Compliance with notices under sections 22(2) and 22(4) of the Indian Income-tax Act, 1922.
2. Validity of assessment under section 23(4) of the Act.
3. Refusal of renewal of registration under section 26A.
4. Competence of the Appellate Assistant Commissioner to examine the merits of the Income-tax Officer's refusal to register the firm under section 23(4).

Issue-wise Detailed Analysis:

1. Compliance with Notices under Sections 22(2) and 22(4):
The assessee, a firm of three partners, failed to comply with notices issued under sections 22(2) and 22(4) of the Indian Income-tax Act, 1922. The Income-tax Officer noted this non-compliance and assessed the income under section 23(4). The Officer stated, "Assessed under section 23(4) on a total income as indicated above. For reasons recorded by the separate order under section 26A registration is refused to the firm. The firm is to be treated as unregistered firm and should pay tax directly." This non-compliance was a significant factor in the refusal to renew the firm's registration.

2. Validity of Assessment under Section 23(4):
The assessment under section 23(4) was upheld due to the default in complying with the notice under section 22(2). The Tribunal found that "if the section 23(4) order stood as it must because the section 27 appeal had been dismissed by the Appellate Assistant Commissioner, the Income-tax Officer's discretion to refuse renewal of registration could not be assailed." This indicated that the assessment under section 23(4) was valid and binding.

3. Refusal of Renewal of Registration under Section 26A:
The Income-tax Officer refused the renewal of registration, stating, "Registration is a concession granted to assessees under certain circumstances detailed in the Rules and in the Act prescribed for the same. This concession is not surely meant for recalcitrant assessees." The refusal was based on the non-compliance with notices under sections 22(2) and 22(4). The Appellate Assistant Commissioner found that sufficient time had not been granted to comply with the notice under section 22(4) and thus, the refusal to renew registration was improper. However, the Tribunal upheld the Income-tax Officer's decision, stating that the refusal as a penalty under section 23(4) was valid.

4. Competence of the Appellate Assistant Commissioner:
The primary legal question was whether the Appellate Assistant Commissioner was competent to examine the merits of the refusal to register the firm under section 23(4) after upholding the assessment under the same section. The Tribunal held that the Appellate Assistant Commissioner was not competent to interfere with the Income-tax Officer's discretion once the assessment under section 23(4) was upheld. However, the High Court disagreed, stating, "The Appellate Assistant Commissioner was fully competent to go into the merits of the appeal against the order of refusal to grant registration whatever his view on the best judgment assessment might have been."

Conclusion:
The High Court concluded that the Appellate Assistant Commissioner was indeed competent to examine the merits of the Income-tax Officer's refusal to register the firm under section 23(4). The Court noted that the refusal to renew registration under section 23(4) is a discretionary penalty and should be reviewed on its merits by the appellate authority. The answer to the referred question was thus in the affirmative, affirming the competence of the Appellate Assistant Commissioner to examine the merits of the refusal to register the firm. The respondent was ordered to pay the costs of the reference.