1978 (4) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was right in holding that the Income-tax Officer (ITO) was not justified in refusing to register the assessee-firm under Section 26A of the Indian Income-tax Act, 1922.

Issue-Wise Detailed Analysis:

1. Refusal of Registration by ITO under Section 26A:
The primary issue in this case is whether the Tribunal correctly held that the Income-tax Officer was not justified in refusing to register the assessee-firm under Section 26A of the Indian Income-tax Act, 1922.

Facts and Circumstances:
The assessee-firm applied for registration for the assessment year 1949-50. During the assessment proceedings, the ITO issued a notice under Section 22(4) requiring the assessee to produce books of certain businesses, which the assessee failed to do. The ITO deemed these businesses as benami (held in another's name for the benefit of the assessee) and made a best judgment assessment, initiated penalty proceedings, and refused registration under Section 26A due to non-compliance.

Contentions and Findings:
- The assessee argued that the businesses did not belong to it, hence it could not produce the books. The ITO rejected this contention, holding that the businesses were benami and the books were deliberately withheld.
- The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, noting that the assessee had previously admitted to owning some of these businesses and had failed to produce the books, which was a material default.
- The Tribunal, however, held that the refusal of registration was not justified, stating that the income from the benami businesses formed a small part of the total income and that the penal provisions had already been invoked against the assessee.

Arguments by Counsel:
- The Revenue argued that the ITO, AAC, and Tribunal all found contumacious conduct by the assessee, justifying the refusal of registration. The Tribunal's view that the smallness of the income from benami businesses should be ignored was incorrect.
- The assessee's counsel contended that the Tribunal found no contumacious conduct regarding India Coal Tar Supply Co. and that the ITO's order lacked sufficient material to establish objective satisfaction.

Court's Analysis:
- The court noted that the Tribunal's order was confusing and contradictory but found the relevant facts clear enough to answer the question.
- The Tribunal's findings on the benami nature of the businesses and the contumacious conduct of the assessee were not disputed.
- The court held that the ITO's discretion under Section 23(4) was judicial and should be exercised based on proper and relevant considerations, not arbitrarily or capriciously.
- The court found that the ITO's refusal to register the assessee-firm was justified due to the deliberate non-compliance with the notice under Section 22(4).

Conclusion:
The court concluded that the Tribunal was wrong in holding that the ITO was not justified in refusing registration. The ITO had exercised his discretion judicially, considering the deliberate default by the assessee in withholding the books of the benami businesses. The court answered the question in the negative, in favor of the Revenue, and held that the assessee should bear the costs of the reference.

Final Judgment:
The Tribunal's decision was overturned, and the ITO's refusal to register the assessee-firm was upheld. The court emphasized that the principles laid down in previous cases must be followed, and irrelevant considerations should not influence the exercise of discretion under Section 23(4).