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TMI Blog1929 (7) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ent occasions the assessees submitted returns for Cawnpore and Bombay. With regard to Calcutta business they submitted no return to the officer at Cawnpore but submitted one to the officer in Calcutta. On 11th August 1927, the Income-tax Officer of Cawnpore issued a combined notice under Section 23(2) and Section 22(4) of the Act requiring the assessees to produce, on 15th August their accounts and evidence relating to their income at Calcutta and other branch places of business. On 26th August 1927 accounts were produced for Cawnpore and Bombay business while with regard to the Calcutta accounts, an application was presented to the effect that it would be detrimental to the Calcutta business to send the Calcutta accounts to Cawnpore and also to send the munib, who was conversant with them, to explain the accounts. It was stated that the munib was in the sole charge of the Calcutta business. After examining the Cawnpore and Bombay books the Income-tax Officer of Cawnpore postponed the case sine die pending receipt of a report of the Income-tax Officer of Calcutta which report, he had recently called for at assessee's request. He thought that if a complete report was received fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer held that no appeal lay to him, as the assessment had been rightly made under Section 23(4) of the Act. 5. Thereupon the assessees asked the Commissioner to make this reference and the Commissioner accordingly sent up the following questions for the opinion of the High Court. 6. These are: (1) Has an Income-tax Officer jurisdiction to issue a notice under Section 22(4) after the commencement of an inquiry under Section 23(3)? (2) Was the notice under Section 22(4) issued by the Income-tax Officer, Cawnpore, on 22nd February 1928, invalid, because it included accounts and documents connected with the Calcutta shop? (3) Was the notice invalid? (a) because it was issued in form A, intended for use where a return had not been made, though modified so as to suit the assessees' case in which a return had been made? (b) because 25th April 1927(the date mentioned in it) was that on which the notice under Section 22(2) was returned after service, and not that on which it was actually served on the assessees, which was apparently 23rd April 1927? (4) Is it incumbent on the Income-tax Officer of the principal place of business, where an assessee is assessed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his judgment. 9. Section 23(4) runs as follows: If... any... person fails to make a return under... Sub-section 2, Section 22... or fails to comply with all the terms of a notice issued under Sub-section 4 of the same section, or having made a return, fails to comply with all the terms of a notice issued under Sub-section 2 of this section, the Income-tax Officer shall make the assessment to the best of his judgment. 10. A plain reading of Sub-section 4, Section 23, would suggest that there are three cases in which an Income-tax Officer is entitled to make assessment to the best of his judgment. They are (I am not mentioning the case of a company: (1) when a proposed assesssee fails to make a return under Section 22(2); (2) where he fails to comply with all the terms of a notice issued under Sub-section (4), Section 22; and (3) fails to comply with all the terms of notice issued under Sub-section 2, Section 23. 11. These three occasions, it will be noticed, are enumerated in the same order in which the rules for asking for a return or compliance with a notice are enacted. The rule as to calling for a return comes first and is the first of the occasions mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen from the above quotations which are from very high authorities, that unless and until the language used in a statute makes the meaning entirely insensible, every word used must be given its plain meaning. 17. It has, however, been urged that the plain moaning of the words, having made a return cannot be given effect to for this reason, Section 22(4) is worded in language without limit of time, and, therefore, it would not do to import into it a limit of time. In other words, it is urged that a notice under Section 22(4) of the Act may be issued at any time, even after an an enquiry under Section 23 of the Act has started. I agree that if Section 22(4) stood by itself, it would be uncontrolled by any time limit. But is not a time limit imposed by the four words, having made a return already quoted? 18. If there be any obscurity in an enactment, an apparent contradiction, the meaning of the Act has to be found within the four corners of the Act itself. Craies quotes from Coke the following (see p. 92): The office of a good expositor of an Act of Parliament is to make construction on all the parts together and not of one part only by itself.... 19. And again at p. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analogy, I may point out that under the Civil Procedure Code no appeal is allowed where a decree follows a compromise or a decree follows an award. Surely the parties do not commit any contempt of Court by coming to terms, nor do they commit any contempt of Court by entering into a reference to arbitration which is followed by an award. 23. Similarly, there is no appeal from the verdict of the jury, in a criminal case except as to punishment, with which the jury have nothing to do. The principle underlying the shutting out of an appeal, in all such cases is the same namely there is nothing which can be taken before a Court of appeal for the exercise of its judgment. Where the parties come to terms, no benefit can be reaped by an appeal. Where an award is made, the judgment is given by the chosen arbitrator of the parties and the Court of appeal cannot be called upon to exercise its own judgment. An arbitrator in coming to his decision is not fettered by rules of evidence. The result is, the appeal is shut out because there is no proper materials, on which the appellate Court may exercise its judgment. Similarly, in a jury trial, the jury do not give any reason for their verdict, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , with the aid of the assessee's accounts and documents, he would decide to hold an enquiry. Where he wants to hold an enquiry and the assessee does not help him with materials and evidence, here again there is nothing for the taxing officer, to go upon, except his own judgment which, again means unverified and unsubstantiated information. Here, again, there will be no sense in allowing an appeal; for the appellate officer would have no materials on which to form judgment. Apparently, the accounts and documents called for under Section 22(4), would not be sufficient to satisfy the doubts of the taxing officer, for it must be taken that they have been examined and have been disbelieved. By themselves, then, those documents would not furnish any proper criteria for investigation. But where an enquiry has started and has been conducted at least partially, there would be materials on the record which might fairly be submitted to the consideration of an appellate officer. It is in the last mentioned case alone that an appeal would be allowed with justification. 25. It is hardly conceivable that it was considered to be just that an appeal should be shut out in a case like the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inquiry its proper place would have been in Section 37. The whole question is, in what cases an appeal has been allowed by the Act and in what cases they have not been allowed? 27. I need not repeat what I have already stated, namely an appeal has been shut out only when it would serve no useful purpose. That is to say, an appeal has been shut out where the appellate officer would have no material on which to decide a case. But where materials are on the record, whether sufficient or insufficient, an appeal has been allowed. 28. I may mention here that one of the main reasons which has actuated the learned Judges of different High Courts to hold that Section 22(4) must be unlimited in its application, in point of time, is that it is a useful rule of law, which must be made use of by the Income-tax Officer, for the benefit of the assessee himself. Those learned Judges, with all respect to them, have overlooked, at least have not quoted in their judgment the provisions of Section 37, Income-tax Act, which confers on the Income-tax Officer all the powers of a civil Court, trying a suit. Certainly, it may happen that an order made in the course of the enquiry by the Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessee, to be applied at any time to shut out an enquiry by the appellate Court and for the acceptance, as final word, of the Income-tax Officer's assessment, we should expect the clearest language being employed for the purpose. As against the argument that Sub-section 4, Section 22 is a very useful rule and should not be limited in its operation by the four words, having made a return to be found in sub-R. 4, Section 23, the following may be usefully quoted from Craies' book at p. 106: ... if there be admissible, in any statute, what is called an equitable construction, certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute. 31. As I have already said, there is no necessity to press Section 22(4) into the service of the Income-tax Officer holding an enquiry under Section 23. He has ample powers for the purpose of the enquiry, the same powers which a civil Court has got in trying a suit. 32. As for authority on the interpretation of Section 22(4) and Section 23(4) the majority of them are in favour of reading Section 23(4) as if the words, having made a return did not exist in the sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swer is an emphatic no. 36. Question 2.-My answer is that the notice is 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 enquiry had commenced under Section 23(3). 37. Question 3(a).-My answer is that the form used is immaterial. The invalidity lies in the issue of the notice after the enquiry had started. 38. Question 3(b).-Answer.-The date was not material and does not affect the issue of the notice, if it was otherwise valid. 39. Question 4.-Answer.-Section 64(1), Income-tax Act, authorizes the Income-tax Officer at Cawnpore to assess the income-tax at the headquarters for all the branches of the business wheresoever situated and there is nothing in Section 22(2) which requires that separate notices should be issued for separate places of business. 40. Question 5.-Answer.-It was open to the Income-tax Officer to disbelieve Sheonath Pandey when he stated that no account book was kept and to hold that one was kept. It was also open to the Income-tax Officer to hold as to the account sheets of Calcutta, that his order had not been complied with. This answer, however, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain questions of law arising under the following circumstances: 47. Messrs. Lachman. Das Babu Ram the assessees carry on business at three places, viz., Cawnpore, Bombay and Calcutta, the first named being the principal place of business where they have been assessed to income-tax to which the reference relates. They were required by a notice issued on 22nd April 1927' under Section 22(2), Income-tax Act, to submit on or before 31st May 1927 a return of their total income in the previous year. On 2nd May 1927, the Income-tax Officer, who had issued the notice already mentioned, wrote to the Income tax Officers of Bombay and Calcutta asking for reports in regard to the assessees' profits at those places. On 1st August 1927, the assessees submitted a return in respect of their income derived from the Cawnpore concerns. Subsequently they submitted a similar return with regard to their income of the Bombay business. They did not make any return to the Income-tax Officer Cawnpore regarding their profits derived from Calcutta. On 11th August 1927, a combined notice under Section 22(4) and Section 23(2) requiring them to produce their accounts relating to the Calcutta branch a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Commissioner with his own opinion. The answers to these questions largely depend on a consideration of Sections 22(2) and (4) and 23 which are quoted below: 22(2) In the case of any person other than a company whose total income is, in the Income-tax Officer's opinion, of such an amount as to render such person liable to income-tax, the Income-tax Officer shall serve a notice upon him requiring him to furnish, within such period not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth (along with such other particulars as may be provided for in the notice) his total income during the previous year. (4) The Income-tax Officer may serve on the principal officer of any company or on any person upon whom a notice has been served under Sub-section (2) a notice requiring him, on a date to be therein specified, to produce, or cause to be produced, such accounts or documents as the Income-tax officer may require: Provided that the Income-tax Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year. 23. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n served under Sub-section (2), 51. i.e. to any person who has been previously called upon to furnish a return. The scope of the section is thus narrowed down to the absurd limits of the time after a notice for return has been served and before the return is made. It will be observed that notice under Section r 22(4) can be issued only to a person who has been previously required to furnish a return, and if the contention put forward on behalf of the assessees is sound, notice under Section 22(4) cannot be issued after a return has been made. 52. I am unable to accept such a reading of Section 22(4) otherwise quite general and unqualified as regards time, which leads to the result I have indicated and which can hardly serve any useful purpose in making an assessment. To give effect to the interpretation contended for on behalf of the assessees we have to insert some such words as and who has not made the return after the words Sub-section (2). It is one of the elementary rules of construction of statute that it should be so read as to avoid introducing what the legislature has not thought fit to introduce, and that a construction which has that effect should be rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, but because an alternative method of achieving a certain object is available it does not follow that another if it is otherwise permissible should be denied. There is a difference between the provision contained in Section 22(4) and that laid down in Section 37. The latter applies to assesses and others in a position to give evidence; while the former which is more drastic, is applicable only to assessees who are to be visited with certain consequences in cases of failure to produce accounts. 56. Reliance has been placed on a case decided by a Division Bench of the Lahore High Court, reported in A.I.R. 1928 Lahore p. 219 Khushi Ram Karam Chand v. Commissioner of Income-tax, Punjab. It does support the contention of the assessees in the case before us. The reasons given by the learned Judges for not giving effect to the plain language of Section 22(4) are thus stated by them: The words having made a return and the order in which the defaults are enumerated in Section 23(4) indicate that a notice under Section 22(4) precedes the notice and enquiry under Section 23. It is significant that Sub-section (4), Section 22 does not authorize a summary assessment in the case of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have already disposed of. The learned Judges who decided that case do not seem to be inclined to accept it, and on the contrary are of opinion that Section 22(4): is apparently intended to help the Income-tax Officer in deciding whether he will accept the return or proceed to make any enquiry. 60. It seems to me that the words having made a return in Section 23(4) have been used because Sectionr 23(2) to which they relate presupposes that a return has been made. In cases to which Section 22(1) and (2) apply, return is out of question; while in oases to which Section 22(4) applies return may or may not have been made. The object of introducing these words in relation to Section 23(2) is to indicate what is certain to have happened, unlike the preceding two cases in which a return might or might not have been made. They cannot be so read as to imply that in the first two cases return could not have been made. 1 have already pointed out, one of the objections to such a construction, viz., that we, in effect insert some such words and who has not made the return after Sub-section (2) in Section 22(4) which is more vicious than treating the words ''having made the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrangement that one Income-tax Officer requires another to furnish information in matters supposed to be better known to him, but in doing so he does not divest himself of the powers which the law has conferred on him, so as to become functus officio. My answer to question 2 is in the negative. 63. The opinion of the Commissioner on questions 3 and 4 has not been challenged by the learned advocate for the assessees, and I think rightly. I answer them in the negative. Questions 5 and 6 have been argued together and may be so disposed of. They are as follows: (5) Was the Income tax Officer entitled in the face of the statement of Pandit Sheonath Pandey, the assessees mukhtar-i-am dated 14th March 1928, to hold that the notice under Section 22(4) dated 22nd February 1928 had not been complied with? (6)When an assessee denies the existence of accounts or documents, may the Income tax Officer presume the existence of such accounts or documents? 64. Where the Income-tax Officer has reason to believe that certain accounts and documents are in the possession or power assessee and calls upon him under Section 22(4) to produce them, but the assessee denies the existence of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be referred to. As stated by me in that connexion the Income-tax Officer, Cawnpore, which is the principal place of the business of the assessees, had jurisdiction to assess the tax on their income from all sources. It follows that he could call for a return of their income from all sources including the Calcutta branch and to direct the production of accounts thereof. The assessees are not relieved of the obligation imposed on them by making a return of their income derived from a branch concern to the Income-tax Officer of the district where such branch concern is carried on and by producing accounts relating thereto before such officer. The law gives to the assessee no choice in this matter. I answer the seventh question in the affirmative and question 8 in the negative. Question 9 as it stands is too widely put. It runs thus: (9) In all the circumstances of this case, was the assessment rightly made under Section 23(4)? 68. Taking it as it stands the language would include the question whether the Income-tax Officer was right in the exercise of his discretion to proceed under Section 23(4) or under Section 23(3). But I think the learned Commissioner making the referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer this notice is referred to as having been one under Section 23(2), but that is apparently a misprint, and this notice of 22nd February 1928, was presumably a notice asking for evidence on specified points in accordance with Sub-section (3), Section 23. On the same data 22nd February, he issued another notice under Section 22(4) calling for certain Cawnpore headquarters accounts. On 14th March 1928, one Sheonath was examined on oath, and this appears to be the only occasion on which any evidence was heard. On 30th March, after certain reports had been received, the Income-tax Officer asked for further accounts. The representative of the firm asked for a further reference to the Calcutta branch, but this was refused as the day, 30th March, was the last day but one for the close of the financial year, and the Income-tax Officer proceeded to a summary assessment, purporting to act under Section 23(4). Upon the assessee appealing to the Assistant Commissioner it was held that he had no right of appeal owing to the fact that the assessment had been made and properly made under Section 23(4). The assessee thereupon required the Income-tax Officer to refer the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has been referred to us does not appear to us to arise on the facts of the case. We may add that Mr. Bajpai, the Government advocate who has represented the case here for the Crown has had the advantage of the presence of the Income-tax Officer in Court assisting him in the case, and Mr. Bajpai himself, after having consulted the Income-tax Officer agrees that no inquiry under Section 23(3) can be said to have commenced until 14th March 1928. Even if it could be be said to have commenced on 22nd February 1928, the date on which a notice was issued under Section 23(3) to produce evidence as regards the specified point of the purchase of a house, a point which we have not to decide it is manifest that that the notice under Section 22(4) of 11th August 1927, was long prior to that date. 79. We therefore, direct that this case be returned to the Bench that referred it to us, with the expression of our opinion that the point referred to us does not on the facts of the case arise. 80. (On return of the case the original Bench delivered the following judgments.) Mukerji, J. 81. By an order of this Bench dated 22nd February 1929 we directed that the matter in difference betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Calcutta. The Bombay and Cawnpore accounts were produced but the Calcutta accounts were not produced before the Officer at Cawnpore. The Income-tax Officer at Cawnpore issued a notice, on on 11th August 1927, which was a combined notice under Section 23(2) and 22(4) of the Income-tax Act, to produce the Calcutta accounts on 15th August. To this order the assesses demurred and requested the Income-tax Officer at Cawnpore not to press his order but to allow them to produce their accounts before the Income-tax Officer at Calcutta. To this request the officer at Cawnpore acceded and wrote to the Officer in Calcutta as follows: see p. 9 Appendix A: It is, therefore, the Calcutta shop account which is the most important. I would request you to examine these books again and obtain copies.... I would have taken all this trouble on myself, but the assessee is unwilling to show the Calcutta shop accounts to me. The case is important and requires your personal attention. I have fixed the case for 6th March 1928, and shall be extremely obliged to have your reply before that date. 86. This letter was written as late as on 24th February 1928, and evidently after some other correspond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended to be operative. I have already pointed out that the letter addressed by the Income-tax Officer of Cawnpore to the Income-tax Officer at Calcutta is dated 24th February 1928: see Appendix A. and was, therefore, written two days after the notice dated 22nd February 1928 had been issued. From the portion of the letter quoted above it will be seen that the Income-tax Officer at Cawnpore was perfectly willing to accept the report of the Calcutta Officer and it was not his intention to enforce either the notice of 11th August 1927 or that of 22nd February 1928. 89. Whether we accept the opinion of the Full Bench or whether we decide on our own initiative, there can be no doubt that both the combined notices had been waived so to say, and it would be extremely unfair on the part of the Income-tax Officer to turn round and say without giving the assessee a fresh opportunity to produce the books, that their failure on previous occasions to produce accounts subjected them to the penalty of having a best judgment assessment made against them. 90. In view of this fresh argument and in view of the opinion expressed by the Full Bench, I am clearly of opinion that the answer to que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J. and myself, the Income-tax Officer had jurisdiction to proceed under Section 23(4), unless he is otherwise debarred from taking that course. On receipt of the finding of the Full Bench, the assessees pressed for the consideration of the question that the first notice (of 11th August 1927) had been waived. The second notice (of 22nd February 1928) being ignored, as we must ignore in view of the ruling of the Full Bench, I must now consider the effect of the former. I have had the advantage of reading the judgment of my learned colleague, and find myself in agreement with him in holding that, under the circumstances of the case stated by him, it was waived with the result that it loses its legal effect altogether. 96. In accordance with the view expressed by the Full Bench and for the reasons stated above, I have to answer question 9 in the negative, which I accordingly do. 97. Let the following answers to the questions put by the Commissioner of Income-tax be returned as the answers of the Court. Along with the answers will be sent copies of all the judgments of the Judges forming this Bench and to which the question 1 was referred for an answer. 98. Question 1.-In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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