9911796707
TMI Blog1978 (4) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... Prahladrai Agarwalla, 2. Babulal Maheswari, 3. Anandilal Bajoria, 4. Srinivas Sultania, 5. Ramkumar Bishwanath, and 6. India Coal Tar Supply Co. As the assessee did not comply with the aforesaid notice, the ITO wrote several letters asking the assessee to produce those books but the assessee did not do so. The contention of the assessee before the ITO was that those businesses did not belong to it and, therefore, it was unable to produce those books. The ITO, however, rejected the said contention and held that those businesses were the benami businesses of the assessee and the assessee had deliberately withheld those books. In these circumstances, the ITO made a best judgment assessment: initiated penalty proceedings and also refused the registration on the ground that the assessee had deliberately failed to comply with the said requisitions contained in the aforesaid notice under s. 22(4) of the Act. In the quantum appeal filed by the assessee, the AAC held that the businesses or the transactions in the names of Prahladrai Agarwalla, Babulal Maheswari, Ramkumar Bishwanath and India Coal Tar Supply Co. were the benami businesses or transactions of the assessee. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the ITO did not suffer from any want of judicial discretion and dismissed the appeal. The assessee filed a further appeal from the aforesaid order of the AAC. The Tribunal held that the words " income, profits or gains " do not mean income, profits or gains as understood under the I.T. Act for the purposes of division between the parties and that under section B of the Schedule to the form prescribed by r. 3 of the Indian I.T. Rules, 1922, the assessee was not required to ascertain the profits in accordance with the provisions of the Act and to apportion them. The Tribunal further held that the mere fact that the assessee indulged in benami businesses and the profits from those benami businesses had not been taken into account by the assessee in its books would not disentitle it from registration. In view of its own contradictory findings regarding the ownership of the business of India Coal Tar Supply Co. in the aforesaid appeals, the Tribunal held that the provisions of s. 23(4) being of a penal nature, could not be used for the exercise of discretionary power of refusal of registration. The Tribunal allowed the appeal and directed the ITO to grant registration after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishwanath and India Coal Tar Supply Co. Depicting the order of the Tribunal as utterly confusing, hopelessly muddled, devoid of meaning and full of rigmarole and contradictions, Mr.Kalyan Ray, learned counsel for the assessee, submitted before us that we should call for a supplementary statement of the case from the Tribunal. But the relevant facts found by the Tribunal being clear to us for the purpose of answering the question in this reference, we are unable to accede to his submission and as such the reliance by Mr. Ray on the case of Keshav Mills Co. Ltd. v. CIT [1965] 56 ITR 365 (SC) is wholly misplaced. That apart, his contention is directed not against the statement of the case but against the order of the Tribunal and, therefore, it must fail as we have no power to ask the Tribunal to rewrite its order. Mr. B. L. Pal, learned counsel for the Revenue, contended that it has been concurrently found by the ITO, the AAC and the Tribunal that the conduct of the assessee has been contumacious in complying with all the terms of the notice issued by the ITO under s. 22(4) of the Act and the ITO was therefore, justified in refusing registration to the assessee. Mr. Pal submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to him, is whether the conduct of the assessee was contumacious and it has failed to comply with the terms of the notice under s. 22(4) of the Act. As to India Coal Tar Supply Co., Mr. Pal argued that in the quantum appeal filed by the assessee it has been held by the Tribunal that this business was a benami business of the assessee and it had also sustained the addition of Rs. 1,21,921 as the income of the assessee from this business in the relevant year and the aforesaid amount having been already included in the assessment of the assessee, it cannot be said that it formed only a small part of the income included in the total income of the assessee. Mr. Pal further drew our attention to the fact that it was admitted before the Tribunal on behalf of the assessee that India Coal Tar Supply Co. maintained books of account which were produced before the ITO in the assessment proceedings of India Coal Tar Supply Co. Admittedly, those books of account were not produced before the ITO by the assessee in utter defiance of the aforesaid notice issued under s. 22(4) of the Act. Therefore, he argues that the view taken by the Tribunal in relation to this business by drawing inspir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cited before it by the departmental representative. Mr. Pal also cited the case of Durga Prasad Chandi Prasad v. CIT [1971] 79 ITR 553 (Pat). In this case, their Lordships of the Patna High Court, relying on the observations of the Madras High Court in the case of J. M. Sheth v. CIT [1965] 56 ITR 293 (Mad), held that the ITO was justified in refusing renewal of registration under s. 26A of the Act while exercising his discretion under s. 23(4) of the Act. The Madras High Court observed as follows (p. 296): " We have no doubt that the statute does not compel the officer to deprive the assessee of the benefit of registration under the last part of s. 23(4). In other words, it would be wrong to assume that the defaults listed in s. 23(4) of the Act would lead to a two-fold penal consequence: (1) a best judgment assessment, and (2) in the case of firms, refusal to register or cancellation of the existing registration, if any. It is, therefore, incumbent upon the Income-tax Officer to consider the question of registration on the materials available before him instead of refusing registration on the ground that a different conclusion would be illogical or not self consistent. What ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own assessment. Those books of account of India Coal Tar Supply Co. were, however, not produced before the ITO in the assessment proceedings of the assessee in spite of notice under s. 22(4) of the Act, issued by the ITO, and further requisitions for production thereof made by the ITO by subsequent letters. The finding of the AAC that the books of account of India Coal Tar Supply Co. were not produced before the ITO in the assessment proceedings of the assessee even though specifically called for by the ITO, was not challenged by the assessee before the Tribunal and the Tribunal did not find the same to be incorrect. The said finding of the AAC should, therefore, be taken to be admitted by the assessee. In our opinion, the view taken by the Tribunal in the matter of India Coal Tar Supply Co., as stated by us earlier, was not only non germane to the consideration before it, but also entirely wrong. Mr. Roy next contended that a mere default in the production of books will not attract the penalty of cancellation or refusal of registration and the exercise of discretion requires further factors apart from an assessment under s. 23(4) of the Act. According to Mr. Roy, if valid rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oy dilated upon the dictionary meaning of the word " contumacy " and submitted that in legal parlance the word means " wilful disobedience to the summons or order of a court ". Section 23(4) speaks about failure on the part of the assessee to do the things enumerated in that section. In short, there must be a default on the part of the assessee as contemplated by s. 23(4) of the Act. Default, Mr. Roy submitted, may be a technical default. Mr. Roy again dilated upon the dictionary meaning of the word " default ", which means " failure of something or failure in performance Mr. Roy submitted that a mere default is not sufficient for imposing the penalty of refusal of registration under s. 23(4)., There must be a default on the part of the assessee without reasonable cause and then the next question will be, in the case of such a default, what will be the course of action of the ITO. Although, in the instant case Mr. Roy argued, that it may be said that there has been a default on the part of the assessee without reasonable cause, still the question remains what would be the course of action of the ITO. Mr. Roy contended that the ITO, in the instant case, at first gave one opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction, wrong or mis-statement of facts in the statement of the case and his contention must, therefore, fail and, accordingly, it is unnecessary for us to deal with the cases cited at the Bar in this behalf. Mr. Roy then contended that this reference is incompetent, for, according to him, the aforesaid question is a pure question of fact. In Askaran Kissenlal v. CIT [1969] 73 ITR 522 (Cal), at p. 531 of the report, this court says thus: "...... the only relevant consideration for deciding whether the action of the Income-tax Officer in refusing registration under section 23(4) was justified are: (1) whether there had been a default on the, part of the assessee as contemplated in that section, and (2) whether such default was of such a nature as to merit the penalty of denial of registration. " Mr. Roy, therefore, argued that no legal principles are involved in determining the aforesaid two factors, for, according to him, the question as to whether there had been any default on the part of the assessee is pure question of fact and if there has been such a default the question as to whether it is of such nature as to merit the penalty of denial of registration is also a conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court observed that the findings reached by the Tribunal were prima facie findings of fact and before rejecting these findings the court must be satisfied that there were grounds in the case recognised by law, which empowered the court to interfere with those findings. In Lysaght v. IRC [1928] 13 TC 511, the question was whether the appellant was resident and ordinarily resident in U.K. for certain years and in dealing with the above question the House of Lords considered whether the findings of the Commissioner that the respondent was resident and ordinarily resident in England is a finding of fact, which cannot be disturbed. The House of Lords observed that the distinction between question of fact and question of law was difficult to define, and held that the word " reside " or " residence " in other Acts may have special meaning, but in the Income-tax Acts it is used in its common sense and it is essentially a question of fact whether a man does or does not comply with its meaning. In CIT v. Lakhiram Ramdas [1962] 44 ITR 726 (SC) was a case of reassessment under s. 34(1)(a) of the Indian Income-tax Act, 1922, on the ground of omission or failure on the part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 23A of the Indian I.T. Act, 1922, made by the ITO and this court, inter alia, observed that whether the payment of a larger dividend than that declared would be unreasonable by reason of losses in the earlier years or of the smallness of profit for that particular year, was a question of fact. This court, however; considered the facts of the case and came to the conclusion that the finding of the ITO, in that case, that a larger dividend could have been reasonably paid, was based on no evidence. In Phool Chand Gajanand v. CIT, [1966] 62 ITR 232, the Allahabad High Court, in considering what was the previous year relevant to a particular source of income, observed that the same was a question of fact and whether there was a system of accounting for the undisclosed sources of the assessee and whether any option was exercised by it in respect of the previous year relating to that source, were questions of fact. The above short resume made by us of the decisions cited by Mr. Roy clearly shows that none of the said decisions related to the question before us or applied to the facts and circumstances of this case. In further support of his argument that the question in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 197 (Cal). Mr. Pal also cited the decision of this court in Aluminium Corporation of India Ltd. v. C. Balakrishnan [1959] 37 ITR 267 (Cal), which lays down that the discretion to be exercised by the WTO in the case of an application made by the assessee for a stay of realisation of the taxes assessed and not to treat the assessee as in default, had to be exercised in a judicial manner. Reliance was also placed by Mr. Pal on the decision of the Patna High Court in Laheriasarai Central Co-operative Bank Ltd. v. CIT [1968] 69 ITR 441, of the House of Lords in Farmer (Surveyor of Taxes) v. Trustees of the late William Cotton [1915] 6 TC 590, and of this court in Worth Trading Co. v. CIT [1973] TLR 54 (Cal). The case of Laheriasarai Central Co-operative Bank Ltd. [1968] 69 ITR 441 (Pat), was on the exercise of discretion by the Tribunal in condoning the delay in filing an appeal before it and their Lordships of the Patna High Court observed that " it is well-settled, whether a discretion vested in a Tribunal under a statute has been exercised judicially or not is question of law ". In Farmer (Surveyor of Taxes) v. Trustees of the late William Cotton [1915] 6 TC 590, the House ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontumacy in connection therewith ...... We should also point out in the instant reference that the refusal to renew registration under section 23(4) is in the nature of a penalty imposed on an assessee who has committed certain specified defaults... All that we intend to say is that the effect of an insufficient ground on the Income-tax Officer in exercising his discretion must be subjected to review by the appellate authority... In our opinion, the Appellate Assistant Commissioner was fully competent to go into the merits of the appeal against the order of refusal to grant registration whatever his view on the best judgment assessment might have been. Under the provisions of section 31(3)(c) of the Act, after examining the merits of the appeal and testing the contentions raised on behalf of the assessee in the light of recognised judicial principles we have discussed in this judgment, the Appellate Assistant Commissioner was free either to confirm the order of refusal, or cancel it and direct the Income-tax Officer to register the firm. " It was, therefore, submitted on behalf of the Revenue that the exercise of discretion by the ITO under s. 23(4) of the Act in refusing to regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Tribunal had neither followed the principles laid down by this court in Askaran Kissenlal's case [1969] 73 ITR 522 (Cal) nor did it find that in the matter of exercise of his discretion, the ITO did not follow the said principles. On the contrary, the Tribunal has sought to lay down a principle which was wholly unwarranted and also applied extra-judicial tests, namely, (1) smallness of the amount ascertained by the ITO in the assessment proceedings of the in the cases of Prahladrai Agarwalla, Ramkumar Bishwanath and Babulal Maheswari, and (2) different views as to the ownership of India Coal Tar Supply Co. which were taken by the Tribunal in the assessment proceedings of India Coal Tar Supply Co. and in the assessment proceedings of the assessee, and that too in two different years. He argued that by the above process the discretion under s. 23(4) of the Act which is given only to the ITO was substituted by the Tribunal by its own discretion, which the Tribunal has no jurisdiction to do. The Tribunal, however , can set aside the order of the ITO on certain well recognised legal principles and that is a question of law. Reliance was also placed on behalf of the Revenue on Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king an investigation into its business affairs. The AAC gave an opportunity to the assessee for producing the books, but the assessee did not avail of that opportunity on some frivolous pretext. In those circumstances, it was held by this court that the registration was rightly refused by the ITO. Therefore, the ITO in, considering the question as to whether the nature of the default is such as to merit the denial of registration must take into account whether it is a mere technical default or a deliberate default with a view to avoiding the tax liability. If it is a mere mere technical default, the registration cannot be refused. But if it is a deliberate default with a view to avoiding the tax liability, the ITO will be justified in refusing to register the firm. Accordingly, it cannot be said that no legal principle was involved in determining the said question. Mr. Roy then argued that the Tribunal did not consider or apply any legal principle in holding that the ITO was not justified in refusing to register the assessee-firm. But we overrule his contention as the relevant portion of the order of the Tribunal, quoted earlier, clearly shows that it has laid down various leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of a penalty imposed on an assessee who has committed certain specified defaults. When this penalty is being imposed upon the assessee on two grounds (default under s. 22(2) and default under s. 22(4)) one of which the appellate authority rejects as insufficient-(the Appellate Assistant Commissioner has found that sufficient time had not been granted for complying with the notice issued under s. 22(4)) the effect on the mind of the Income-tax Officer that the insufficient ground had created to persuade him to exercise his discretion in favour of refusal has to be carefully reviewed in appeal. We have not been able to lay our hands on any direct authority on this point under the Income-tax Act. We may incidentally refer to the observations of Pickford L. J. in Cheater v. Cater [1918] 1 KB 247 at page 252 that 'If a judge states two grounds for his judgment and bases his decision upon both, neither of those grounds is a dictum'." Mr. Roy, also relied on the decision of the Supreme Court in Dhirajlal Girdharilal v. CIT [1954] 26 ITR 736 (SC), where the Supreme Court observed as follows (p. 740): " When a court of fact acts on material, partly relevant and partly irrelev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apart from it, there is no merit in his contentions. Four out of those six businesses were the benami businesses of the assessee. The ITO issued notice under s. 22(4) of the, Act for production of the books also of those four benami businesses. He also gave repeated opportunities to the assessee for production of those books. The assessee deliberately withheld those books from the ITO. In these circumstances, it cannot be said that the order of the ITO is bad in law. To us it also appears that the Tribunal has invented certain novel tests for the exercise of discretion by the ITO under s. 23(4) of the Act which are not warranted by law. The principles on which the ITO must act have been clearly laid down by this court in the case of Askaran Kissenlal [1969] 73 ITR 522 (Cal) and also in Prabhat Mills Stores Co. Ltd. [1966] 59 ITR 197. We have already quoted elsewhere what this court has said in Askaran Kissenlal's case. In the case of Prabhat Mills Stores Co. Ltd. [1966] 59 ITR 197, this court observed (p. 207): "To our mind in an appeal against an order of refusal under s. 23(4) the relevant considerations are defaults with respect to provisions mentioned therein and contumacy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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