1931 (3) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Whether an arbitrary assessment under Section 23(4) of the Income Tax Act involves a question of law.
2. The jurisdiction of the High Court under Section 66(3) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Whether an arbitrary assessment under Section 23(4) of the Income Tax Act involves a question of law:

The court examined the provisions under Sections 23(4), 27, 30(1), 31(3), and 33 of the Income Tax Act to determine if an arbitrary assessment involves a question of law. Section 23(4) allows the Income Tax Officer (ITO) to make an assessment to the best of his judgment if the assessee fails to comply with the requirements. The court noted that the assessment under Section 23(4) is inherently an estimate and must be made on inadequate materials, implying it is somewhat arbitrary. However, it emphasized that if the ITO makes the assessment bona fide and "to the best of his judgment," the assessee cannot complain about its arbitrariness. The court clarified that the word "arbitrary" in the context of the question propounded did not imply a fraudulent or reckless assessment but rather an assessment based on the ITO's opinion without substantial materials. The court concluded that such an assessment does not involve a question of law and should be answered in the negative.

2. The jurisdiction of the High Court under Section 66(3) of the Income Tax Act:

The court discussed the jurisdiction of the High Court under Section 66(3), which allows the High Court to require the Commissioner to state a case if a question of law arises from the Assistant Commissioner's order. The court emphasized that the issues arising in the course of income tax assessments are primarily factual. It highlighted that under Section 27, the ITO must cancel an assessment if the assessee proves sufficient cause for non-compliance. The court also noted that the Assistant Commissioner could confirm, cancel, or vary the ITO's order under Section 31(3). However, the court clarified that an assessment made under Section 23(4) is final unless canceled under Section 27 or set aside under Sections 31 or 33. The court concluded that questions related to the validity of an assessment under Section 23(4) do not constitute a question of law that can be referred to the High Court under Section 66(3). It further stated that the High Court's jurisdiction under Section 66(3) is limited to questions of law arising from the Assistant Commissioner's order and does not extend to the validity of assessments under Section 23(4).

Conclusion:

The court held that an arbitrary assessment under Section 23(4) does not involve a question of law and that the High Court does not have jurisdiction under Section 66(3) to require the Commissioner to state a case regarding the validity of such an assessment. The court emphasized that the ITO's assessment under Section 23(4) is final and conclusive unless challenged under the specific provisions of the Income Tax Act. The court's decision overruled previous judgments that suggested otherwise, reinforcing the limited scope of judicial intervention in income tax assessments.