- (1.) THE following judgments were delivered. NIAMATULLAH - This is an application by a firm styled Jot Ram Sher Singh of Muzaffarnagar, under Section 66 (3) of the Income Tax Act, for an order requiring the Commissioner of Income Tax to state a case and to refer certain questions for decision by this Court.
(2.) THE case relates to the assessment of income-tax on the applicants for the year 1930-31. THE assessees made a return, in which they showed a loss of Rs. 2,845-5-0 in 1929-30. THEy had to be assessed on the income of the preceding year, i.e., 1929-30, corresponding to the Sambat year 1986. A notice was issued under Section 23 (2) requiring them to prove the correctness of their return. THEy produced certain accounts, and were assessed, on May 23, 1930 on an income of Rs. 5,113. THE order of assessment recorded by the Income-tax Officer, shows that the account books for 1986 Sambat were before him. Whether complete accounts had been produced or those for a particular branch of the assessees business were the only accounts then produced is not clear. It is, however, clear that the Income Tax Officer did not then raise any question concerning the accounts. THE proceedings took place before Income Tax Officer, Muzaffarnagar, who made certain enquiries from Income Tax Officer, Rohtak, where the assessees had some business connections. THE latter informed the Income Tax Officer, Muzaffarnagar, that the assessees had considerable business in that district in the names of their sons and grandsons, and suggested that the personal accounts of their sons and grandsons should be carefully examined. In the meantime the Income Tax Officer, Muzaffarnagar, who had first made the assessment , was succeeded by another officer, who took proceedings under Section 34, which provides for assessment on income which had escaped notice and for cases in which too low an assessment was made. THE assessees were called upon by a notice to produce their accounts for Sambat 1986. THEy did not produce such accounts and alleged that the same had been lost. THEy relied upon evidence consisting of a police report and a telegram and other evidence. THE Income Tax Officer however did not accept the story of the loss of the accounts and proceeded to make a fresh assessment under Section 34. It cannot be disputed that all the provisions contained in Section 22 and 23 are applicable to proceedings under Section 34. THE Income Tax Officer made an assessment to the best of his judgment under Section 23 (4), as the result of the failure of the assessees to produce their account book for Sambat 1986. THEre is no doubt that if the finding of the Income Tax Officer, namely that the account books had been deliberately withheld, were correct, assessment under Section 23 (4), i.e. assessment to the best of his judgment was justified. THE significance of such an assessment is that no appeal lies therefrom (see Proviso to Section 30). In making a fresh assessment the Income Tax Officer estimated the assessees income to be Rs. 75,000. They were accordingly called upon to pay income-tax on the amount. The assessees made an application under Section 27 which empowers the Income Tax Officer to cancel the assessment and to make a fresh assessment if he is satisfied that the assessee was prevented by sufficient cause from complying with the notice under Section 23 (2). The Income Tax Officer dismissed the assessees application under section 27 holding that no sufficient cause had been established. The cause which the assessees had attempted to show was the loss of their accounts for Sambat 1986 - a fact which had already been investigated and found not proved. An appeal to the Assistant Commissioner under Section 27 was unsuccessful. The assessees applied to the Commissioner under Section 33 for revision of the orders passed by the Income Tax Officer. The commissioner set aside the assessment and directed further enquiry and a fresh assessment. The Income Tax Officer again assessed the tax on an income of Rs. 75,000. The assessees again applied under Section 27 and finally moved the Commissioner in revision. The previous revision had been disposed of by Mr. Muir, who was subsequently succeeded by Mr. Wali Muhammad, who dealt with the second revision. The revision was dismissed and an application by the assessees for a reference to the high Court was also dismissed. The principal question which the assessees desired to raise and which, they submitted, is one of law, was whether an Income Tax Officer can arbitrarily assess on an assumed income in making a best judgment assessment under section 23 (4). The Commissioner held that in the first place the assessment was not arbitrary, and in the second place, even if it was arbitrary, there could be no appeal or reference against it. There were other subsidiary questions which it is not necessary to mention. A preliminary question which calls for decision in this case is whether the High Court can require the Commissioner to state a case for decision by the High Court of questions of law arising from an assessment under Section 23 (4), Income Tax Act. Having carefully examined the scheme of the Act, I am constrained to hold that the High Court has no such power. Section 66 (1) empowers the Commissioner to make a reference to the High Court whenever in the course of any assessment a question of law arises before him. But the right of the assessee to insist on the Commissioner making a reference to the High Court and his right to move the High Court for an order requiring the Commissioner to state a case and make a reference are limited. Under Section 66 (2) the assessee can apply to the Commissioner requiring him to refer to the High Court any question of law arising out of orders under Section 31 or Section 32, or a decision by a Board of Referees under Section 33A. No order under Section 32 was passed against the assessees, nor are we concerned with any decision by a Board of Referees Under Section 33A.
(3.) THE only question is whether there was an order under Section 31. That section deals with the exercise by the Assistant Commissioner of his appellate power. Section 30 prescribes the limits of the appellate powers of the Assistant Commissioner. An appeal lies to the Assistant Commissioner from an assessment under Section 23 or Section 27, but no appeal lies from an assessment under Section 23 (4). Appeals also lie from an order of the Income Tax Officer refusing to make a fresh assessment under Section 27, an order under Section 25 (2), Section 25A or Section 28. It is thus clear that the Assistant Commissioner can pass an order under Section 31 (in appeal) in certain cases which do not include one in which an assessment under Section 23 (4) has been made. Section 30, Proviso, expressly declares that there shall be no appeal from an assessment to the best of the Income Tax Officers Judgment under Section 23 (4) or under that sub-section read with Section 27. Accordingly no question of law or fact arising from such assessment can be the subject of consideration by Assistant Commissioner for the simple reason that no appeal lies to him, with the result that the Assistant Commissioner can never have an occasion to pass in appeal an order under Section 31 in relation to a best judgment assessment. As already shown, the High Court can require the Commissioner to make a reference for decision by the High Court of a question of law, only if it arises from an order under Section 31. It is argued, on the authority of Ananda v. Income Tax Commissioner, that the order of the Assistant Commissioner rejecting an appeal on the ground that it did not lie, is an order under Section 31 disposing of an appeal. This is the view taken by the majority of the judges composing the Full Bench. It is said that there is no other section under which such an order in limine can be passed. With great respect I would point out that a tribunal cannot dispose of an appeal if what purports to be an appeal is no appeal and is held by the tribunal to be incompetent. Where the Assistant Commissioner rejects what purports to be an appeal on the ground that none lies, he gives effect to the Proviso to Section 30, and his order should be deemed to be one under it and not under Section 31. In passing such an order, the Assistant Commissioner refuses to entertain the appeal, and cannot be considered to be disposing of an appeal, which implies the assumption that the appeal lay, was entertained and disposed of, after discussion of some question falling within the purview of the appeal. In my opinion it is not open to the Assistant Commissioner to express the opinion that the Income Tax Officer should not have assessed to the best of his Judgment under Section 23 (4) if the latter stated in his order that a case existed for assessment to the best of his judgment. Any abuse of power by the Income Tax Officer or perversity of judgment is to be corrected by the Commissioner in revision, but the Assistant Commissioner has no jurisdiction, where he has before him what purports to be an appeal from an assessment under Section 23 (4). It is only if he has jurisdiction to entertain the appeal that he can say whether the assessment was perverse or arbitrary. That stage cannot be reached if he is not allowed by law to entertain an appeal from it. A refusal to make a fresh assessment under Section 27 can proceed only on the ground that the assessee was not prevented by any sufficient cause from complying with the notice under Section 22 or Section 23. If any question of law arises from such refusal, it can certainly be the subject of reference under the orders of the High Court. But any question of law which arises from the best judgment assessment, sought to be set aside by an application under Section 27, cannot fall within the purview of Section 27. This being so, the question whether a wholly arbitrary assessment under Section 23 (4) on assumed income or on conjectural estimate thereof involves an error of law cannot be the subject of reference under the orders of the High Court. All other similar questions arising in connection with such assessment can not be brought before the High Court at the instance of assessees unless the Income Tax Commissioner chooses to act under Section 66 (1). ;