1929 (7) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of Income-tax Officer to issue notice under Section 22(4) after commencement of inquiry under Section 23(3).
2. Validity of notice under Section 22(4) including accounts and documents connected with a branch office.
3. Validity of notice based on form and date discrepancies.
4. Requirement of separate notices under Section 22(2) for each branch of business.
5. Compliance with notice under Section 22(4) based on the statement of the assessee's agent.
6. Presumption of existence of accounts or documents when denied by the assessee.
7. Jurisdiction of the principal Income-tax Officer to compel submission of returns and production of accounts for branch offices.
8. Binding nature of the report from the Income-tax Officer of a branch office.
9. Appropriateness of assessment under Section 23(4).

Issue-wise Detailed Analysis:

1. Jurisdiction to Issue Notice under Section 22(4) After Commencement of Inquiry under Section 23(3):
The court concluded that an Income-tax Officer does not have jurisdiction to issue a notice under Section 22(4) after the commencement of an inquiry under Section 23(3). The plain reading of Section 23(4) suggests that there are three occasions when an Income-tax Officer is entitled to "make assessment to the best of his judgment." These are when a proposed assessee fails to make a return under Section 22(2), fails to comply with all the terms of a notice issued under Sub-section 4, Section 22, or fails to comply with all the terms of a notice issued under Sub-section 2, Section 23. The court emphasized that the power to issue a notice under Section 22(4) is limited by the time frame imposed by Section 23(4).

2. Validity of Notice under Section 22(4) Including Accounts and Documents Connected with a Branch Office:
The court held that the notice was invalid not because it included accounts and documents connected with the Calcutta shop, but because the issue of such a notice was illegal after an inquiry had commenced under Section 23(3). The jurisdiction to assess tax on the income derived from all sources, including branch offices, was affirmed, but the timing of the notice was crucial.

3. Validity of Notice Based on Form and Date Discrepancies:
(a) The court found that the form used for the notice was immaterial. The invalidity lay in the issue of the notice after the inquiry had started.
(b) The date mentioned in the notice was not material and did not affect the issue of the notice if it was otherwise valid.

4. Requirement of Separate Notices under Section 22(2) for Each Branch of Business:
The court clarified that Section 64(1) of the Income-tax Act authorizes the Income-tax Officer at the headquarters to assess the income-tax for all branches of the business, irrespective of their location. There is no requirement in Section 22(2) for separate notices for separate places of business.

5. Compliance with Notice under Section 22(4) Based on the Statement of the Assessee's Agent:
The court stated that it was open to the Income-tax Officer to disbelieve the statement of the assessee's agent that no account book was kept and to hold that one was kept. However, this answer was subject to the earlier finding that the notice was illegal.

6. Presumption of Existence of Accounts or Documents When Denied by the Assessee:
The court held that the presumption of the existence of accounts or documents depends entirely on the circumstances of the case. In this particular case, the Income-tax Officer was justified in holding that there was an account book showing the income from the house property at Cawnpore and that it had been intentionally withheld.

7. Jurisdiction of the Principal Income-tax Officer to Compel Submission of Returns and Production of Accounts for Branch Offices:
The court affirmed that the Income-tax Officer at the principal place of business has jurisdiction to compel the submission of returns and production of accounts for branch offices, even if an independent inquiry has been conducted by the Income-tax Officer at the branch locations. However, the powers should not be exercised oppressively.

8. Binding Nature of the Report from the Income-tax Officer of a Branch Office:
The court concluded that the Income-tax Officer at the principal place of business was not bound by the report of the Income-tax Officer at the branch office and was not required to refer the matter back for further inquiry. The assessment should always be on the merits after an inquiry has started.

9. Appropriateness of Assessment under Section 23(4):
The court found that the assessment was not rightly made under Section 23(4). The Income-tax Officer should have pronounced judgment on the merits to allow for an appeal. The court emphasized that the notices issued had been effectively waived, and it would be unfair to penalize the assessee without giving a fresh opportunity to produce the accounts.

Conclusion:
The court provided detailed answers to each question posed by the Commissioner of Income-tax, emphasizing the importance of adhering to the statutory provisions and ensuring fair treatment of the assessee. The assessment under Section 23(4) was ultimately deemed inappropriate due to procedural irregularities and the waiver of notices.