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Reference Case No. 39 of 1959, answered on 15th February 1960.
S. 23 (4)‑"Best judgment" assessment without issuing notice under S. 23 (2)‑Illegal.
The Return filed by assessee under section 22 (2) of the Income‑tax Act was not accompanied by copies of the Profit and Loss Account and the Balance Sheet and hence the Income‑tax Officer drew attention to the assessee's omissions but they did not take any step to rectify the mistake. The Income‑tax Officer then issued notice under section 22 (4) of the Act requiring the assessee to produce their account books. This direction was also not complied with. Thereafter, the Officer made an assessment to the best of his judgment under section 23 (4) of the Act. The Officer, however, before making this order, did not issue a notice as required under section 23 (2) of the Act:
Held, that in the event of an incomplete Return being filed, the Income‑tax Officer cannot exercise summary power under section 23 (4), Income‑tax Act, 1922 for default under section 22 (4) without issuing notice under section 23 (2).
Failure to issue notice under section 23 (2) rendered the assess ment under section 23 (4) illegal.
The assessee's Return was to be regarded only as an incomplete Return and not an invalid or no return in the eye of law. Hence it was the duty of the Income‑tax Officer to serve a notice under section 23 (2) upon the assessee requiring him either to attend at the Income‑tax Officer's office or to produce any evidence on which he may rely in support of his Return. In other words, the assessee must be given a proper opportunity to support his own Return by such evidence as he desires.
The Income‑tax Officer was not entitled to exercise summary powers under section 23 (4) just because the assessee had not complied with the notice under section 22 (4).
The Statute intends that when a person submits a Return with which the Income‑tax Officer is not satisfied he is bound to serve a notice under section 23 (2).
Gopinath Biswambar Roy v. Commissioner of Income‑tax, East Bengal (1950) 18 I T R 976 approved.
Ram Khelawan Ugam Lal v. Commissioner of Income‑tax I L R 7 Pat. 852 ; R. M. S. R. M. Ramaswami Chettiar and others v. Commissioner of Income‑tax I L R 52 Mad. 194 and In the matter of Messrs Harmukhrai Dulichand 32 C W N 710 distinguished.
--Act to be so construed as not to render other parts superfluous, void or insignificant‑To be construed as a whole‑Court's duty to reconcile, especially in case of taxing statute.
An Act ought to be so construed that no part of it becomes superfluous, void or insignificant.
Every Act must be construed as a whole and the duty of the Court must be, as far as possible, to reconcile the various provi sions of the Statute. This obligation is all the greater in a taxing statute.
Queen v. The Bishop of Oxford (1879) 4 Q B D 245 ref.
A. F. M. Mesbahuddin for A. Matin Khan Chowdhury for Applicant.
Nemo for Respondents.
Dates of hearing: 2nd and 4th February 1960.
‑‑This is a reference by the Income‑tax Tribunal under section 66 (1) of the Income‑tax Act. The facts leading up to this reference are as follows:
The Return filed by M/s. Aizuddin Gazi and Muhammad Soleman Sardar under section 22 (2) of the Income‑tax Act (hereinafter referred to as the Act) for the assessment year 1949‑50 was not accompanied by copies of the Profit & Loss Account and the Balance Sheet and hence the Income‑tax Officer drew their attention to the said omissions but they did not take any step to rectify the mistake. The Income‑tax Officer then issued notice under section 22 (4) of the Act requiring the assessee to produce their account books. This direction was also not complied with. Thereafter, the officer made an assessment to the best of his judgment under section 23 (4) of the Act. The Officer, however, before making this order, did not issue a notice as required under section 23 (2) of the Act. The assessee‑firm then filed an appeal against the said assessment on the ground that the aforesaid assessment was bad for want of notice under section 23 (2). Relying on the decision of this Court in the case of Gopinath Biswambar Roy v. Commissioner of Income Tax, East Bengal reported in ((1950) 18 I T R 976), the Appellate Assistant Commissioner upheld the contention of the assessee and set aside the assessment and ordered for fresh assessment. The Appellate Tribunal also upheld the order of the Appellate Assistant Commissioner and dismissed the appeal filed by the Income‑tax Commissioner. Thereafter, at the instance of the Commissioner, the following question was referred to this Court under section 66 (1) of the Act:
"Whether in the facts and in the circumstances of the case it could be held that failure to issue notice under section 23 (2) rendered the assessment under section 23 (4) illegal "
The learned Advocate appearing for the Income‑tax Commissioner has contended that the facts in the case of Gopinath Biswambar Roy, being somewhat different from the present case, the said decision is not applicable here.
In Gopinath's case, the facts were as follows : The assessee Gopinath was asked by a notice under section 22 (2) of the Act to furnish the Return for the assessment year 1944‑45, by 23rd October, 1944. Soon thereafter, the officer served him with a notice under section 22 (4) requiring him to produce their Books of Accounts. The assessee, after taking several extensions of time, filed on 20‑3‑45 his Return without Balance Sheet and Profit & Loss Account and asked for time to produce the Books of Account. By letter dated 19‑6‑45 the Income‑tax Officer drew the attention of the assessee that the Return was not accompanied by the Balance Sheet and Profit & Loss Account and that he should remove the said defect forthwith. The assessee, however, did not take any step to rectify the mistake. Further, in spite of obtaining several extensions of time, he did not file the Books of Account. Hence the Officer made an assessment to the best of his knowledge under section 23 (4) of the Act. As at no stage of these proceedings notice under section 23 (2) was issued, the assessee challenged the legality of, the assessment and prayed for reopening of the assessment, but the Income‑tax Officer refused his prayer. The order of the Income‑tax Officer was upheld by the Appellate Assistant Commissioner and the Tribunal. Thereafter, at the instance of the assessee, the following questions were referred to the High Court under section 66 (1) of the Act:
"(1) whether, in view of the fact that the return filed by the assessee was not accompanied by copies of profit and loss' account and balance‑sheet, there was non‑compliance with the terms of the notice under section 22 (2) so as to justify an assess ment under section 23 (4)
"If the answer to the first question be in the negative,
(2) whether, in the circumstances of the case, when the Income tax Officer, without issuing a notice under section 23 (2), issued a notice under section 22 (4) and the assessee failed to comply with the terms of such notice there can be said to be a default under section 22 (4) so as to justify an assessment under section 23 (4) "
The High Court answered the first question in the negative and the second question in the affirmative.
In the above case, the Court held:
(1) that a Return, to which a Profit & Loss Account is not attached, cannot be held to be no Return under section 22 (2) ;
(2) that in cases where the Return substantially complies with the requirement of rules but there is some omission, the Income‑tax Officer should issue a notice under section 23 (2) of the Act before rejecting the Return as being no Return at all ;
and (3) that as the Income‑tax Officer did not issue a notice under section 23 (2) of the Act giving an opportunity to the assessee to complete the Return, he would not be justified in making the assessment under section 23 (4). For the above reasons, the Court answered the first question in the negative.
While dealing with the second question, the Court held (1) that a notice under section 22 (4) is not dependent on an action to be taken by the Income‑tax Officer under section 23 (2). Both these sections are intended to serve different purposes, namely, section 22 (4) has reference to accounts and documents and section 23 (2) gives a right to call ; (2) that section 23 (4) gives the power of summary assessment in any of the following cases:
(i) where a person fails to make a Return under section 22 (2) :
(ii) where a person fails to comply with the terms of notice under section 22 (4) ;
and (iii) where a person fails to comply with all the terms of the notice issued under section 23 (2).
Each of these is an independent default and justifies the Income‑tax Officer to make a summary assessment. Hence the Court answered the second question in the affirmative.
The Income‑tax Tribunal, while dealing with the present case, pointed out the distinguishing feature between Gopinath's case and this case as follows : "In the Dacca case (Gopinath's case) notice under section 22 (4) was issued and served before the Return was filed, So there was no occasion on that date when the notice was issued to have resort to section 23 (2) as that section applies only to a case where a Return has been filed." Hence they held that the answer to the second question in the Gopinath's case was not applicable to this case.
They further held that after the Return was filed the service of notice under section 23 (2) was incumbent and, in the absence of the said notice, the Department was not entitled to make summary assessment for default in complying with the notice under section 22 (4). They also pointed out that as an independent default under section 22 (4) the arbitrary assessment could stand if the particular illegality (i e., non‑service of notice under section 23 (2) stated above) was not there.
Mr. Mesbahuddin, the learned Advocate for the Income‑tax Commissioner, has argued that the assessee, by failing to comply with the terms of notice under section 22 (4), made a default, and hence the Income‑tax Officer was entitled to make a summary assessment under section 23 (4) without any notice under section 23 (2). In support of his contention, he has relied on the following decisions:
(1) Ram Khelawan Ugam Lal v. Commissioner of Income‑tax reported in I L R 7 Pat. 852.
(2) R. M. S. R. M. Ramaswami Chettiar and others v. Commis sioner of Income‑tax reported in I L R 52 Mad. 194.
(3) In the matter of Messrs Harmukhrai Dulichand reported in 32 C W N 710.
In Ram Khelawan's case (I L R 7 Pat. 852) a notice was issued under section 22 (2) asking the assessee to make a Return as to the profits of his business. The assessee then received a further notice under sections 22 (4) and 23 (2), the first asking him to produce Books of Account and the second asking him to adduce certain evidence. The assessee then produced his Books of Accounts. The Income tax Officer then directed him to produce his Bijaks and Bijak Bahi. As he failed to do so, he was summarily assessed under section 23 (4). A Full Bench of the Patna High Court held that there was not sufficient compliance of notice under section 22 (4) and hence the Department was justified in making a summary assessment under section 23 (4). In the above case a notice under section 23 (2) had been issued and hence this decision is not of much help in the present case.
In R. M. S. R. M. Ramaswami Chettiar's case (I L R 52 Mad. 194), it was held that even after an assessee had submitted a Return of his income and, had complied with the terms of the notice issued to him under section 23 (2) of the Act, the Income‑tax Officer had power to call for the accounts under section 22 (4), and if they were not produced to make an assessment under section 23 (4). Here also there was no question of absence of notice under section 23 (2).
In the matter of M/s. Harmukhrai Dulichand (32 C W N 710), a combined notice under sections 23 (2) and 22 (4) was served on the assessee. The assessee complied with the notice under section 23 (2) but did not comply with that under section 22 (4). It was, therefore, held that the Income‑tax Officer was entitled to make assessment under section 23 (4). The above case is also distinguishable from the present case. Hence, in our opinion, none of these decisions is really of much assistance to the Income‑tax Commissioner.
Here we may point out that an Act ought to be so construed that no part of it becomes superfluous, void or insignificant ; See Queen v. The Bishop of Oxford reported in ((1879) 4 Q B D 245). Furthermore, every Act must be construed as a whole and the duty of the Court must be, as far as possible, to reconcile the various provisions of the Statute. This obligation is all the more greater in a Taxing Statute. Therefore, we must look to the provisions of sections 22 and 23 of the Act. The purpose of sections 22 and 23 has been described by Rankin, C. J., In the matter of M/s. Harmukhrai Dulichand (32 C W N 710 at p. 712) as follows:
"By section 22 provision is made to the effect in the case of companies that the principal officer shall before the fifteenth of June in each year furnish a return of income without being asked. Provision is also made in the case of other persons whose total income is in the Income‑tax Officer's opinion such as to render such persons liable to income‑tax, that the Income , tax Officer may serve a notice requiring a return to be made. The concluding paragraph of that section then provides that 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 subsection (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 he shall not require the production of any accounts relating to a period more than three years prior to the previous year. That provision which enables the income‑tax Officer to require the production of accounts or documents is in the case of persons other than companies a power given on condition that a notice has been served requiring the making of a return. There is no sign in that clause of any further condition.
When we came to the next section we find that the section begins by dealing with the case of a return as to which the income‑tax Officer is satisfied. In that case he assesses on the basis of the return. It then goes on to deal with a case where the income‑tax Officer has reason to believe that a return made is incorrect or incomplete, and the language of the statute imposes upon the Income-tax Officer the duty of serving upon the assessee a notice requiring him either to attend at the income‑tax Officer's office or to produce any evidence on which such person may rely in support of the return. The meaning of that clause is that when a return is made the Income‑tax Officer shall not reject it and take some other basis as the basis of assessment without giving the assessee an opportunity to appear before him and give any evidence which he may desire to give. The power under clause (4) of section 22 is a power to the income‑tax Officer which has reference to accounts and docu ments and to no other form of evidence. The right under section 23 (2) is a right to call any evidence that the assessee may desire to call."
In the instant case the Return which had been filed was not accompanied by Balance Sheet and Profit & Loss Account. If there was an invalid Return or no return in the eye of law, then a notice under section 23 (2) would be unnecessary and the assessment under section 23 (4) for default in respect of notice under section 22 (4) would be legal. In view of the decision in Gopinath's case, the Return filed in this case is to be regarded only as an incomplete Return. Hence it was the duty of the Income tax Officer to serve a notice under section 23 (2) upon the assessee requiring him either to attend at the Income‑tax Officer's office or to produce any evidence on which he may rely in support of his Return. In other words, the assessee must be given a proper opportunity to support his own Return by such evidence as he desires. This has however not done and the Income‑tax. Officer exercised summary power under section 23 (4) because the assessee did not comply with the notice under section 22 (4). This he was not entitled to do. The Statute intends that when a person submits a Return with which the Income‑tax Officer is not satisfied he is bound to serve a notice under section 23 (2). As already pointed out, section 23 (2) imposes a duty on the Income‑tax Officer to give such notice before assessing the tax. Hence Ahmad, J., has rightly observed in the Gopinath's case that in cases where the return substantially complies with the requirement of Rules but there is some omission, the Income‑tax Officer should issue a notice under section 23 (2) of the Act. We are, therefore, of opinion that there is no substance in the contention of the learned Advocate for the Commissioner that, in the event of an incomplete Return being filed, the Income‑tax Officer can exercise summary power under section 23 (4) for default under section 22 (4) without issuing notice under section 23 (2). For the reasons stated above, the answer to the question must be in the affirmative.
As no one has appeared for the assessee, we make no order as to costs.
The records may be sent back to the Tribunal as soon as possible.
‑I agree.
Reference answered.
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