1930 (4) TMI 9 - HC - Indian Laws

Summary

Issues:
1. Whether the Income Tax authorities can require an assessee assessed under Section 23(4) to produce original accounts of a foreign business.
2. What account-books can the Income Tax Officer request for inspection?
3. Can the Income Tax Officer proceed with assessment under Section 23(4) if the assessee fails to produce the account books?

Analysis:

1. The judgment addresses the issue of whether the Income Tax authorities can demand an assessee assessed under Section 23(4) to produce original accounts of a foreign business. The court opined that the Income Tax Officer is indeed entitled to request such documents. In this case, the assessee, conducting business in Penang in partnership, was asked to provide account-books related to the Penang business. Despite the assessee's claims of inability to produce the books, the court found the story improbable and supported the Commissioner of Income Tax's decision to disbelieve the explanation provided by the assessee.

2. The next issue pertains to the specific account-books that the Income Tax Officer can demand for inspection. The court clarified that the officer can request account books necessary to verify the assessee's tax return or to estimate the assessee's income. In this instance, the Penang account-books were deemed relevant as they were essential to determine whether remittances from Penang to British India were sourced from profits or capital. The court emphasized that the officer could require access to various records, including ledgers, cash books, and daybooks, to make such assessments effectively.

3. Lastly, the judgment delves into whether the Income Tax Officer can proceed with assessment under Section 23(4) if the assessee fails to produce the requested account books. The court established that the officer must demonstrate that the assessee could reasonably comply with the production order. If the account-books are typically within the assessee's control, the burden lies on the assessee to show incapability of production. Conversely, if the books are not usually under the assessee's control, the officer must prove the assessee's ability to produce them. In this case, since the court found that the account-books were accessible to the assessee and he failed to comply with the production notice, the Income Tax Officer was justified in making the assessment under Section 23(4) of the Income Tax Act.

In conclusion, the court ruled in favor of the Income Tax authorities, affirming their right to request original accounts of foreign businesses from assesses under Section 23(4) and to proceed with assessment if the assessee fails to produce the required documents. The judgment underscores the importance of cooperation and compliance with such requests in tax assessments.