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Judgment
Mitter, J.—The question posed in this case is:
Whether the validity of the assessment made u/s 23(4) of the Indian income tax Act could be challenged by the Assessee before the Tribunal when no proceeding u/s 27 of the said Act had been taken against the said assessment and also no reduction in the quantum having been asked for in the appeal actually filed, the Assessee could get any relief ?
The facts are as follows: The Assessees are Sudhir Kumar Laha and Manindra Kumar Laha described in the assessment proceedings as shebaits and legal representatives of Anath Krishna Laha, deceased. The case relates to the assessment year 1947-48, the corresponding accounting year having ended on March 31, 1947. The deceased, Anath Krishna Laha, was an executor appointed by the will of Joggeswar Laha dated December 22, 1920, along with one Radhakanta Paul and Nrityakali Dassi, as executrix. By his will Joggeswar Laha bequeathed his business to his nephew Anath Krishna Laha and directed his executors and executrix who were also appointed trustees to carry out certain religious and charitable trusts mentioned in his will. He also appointed shebaits of three deities to be installed as directed in his will. Provision was also made for expenses in connection with the Puja of the deities and for meeting of certain other expenses. After the discharge of the said expenses the balance was to be utilised for the payment of rates, taxes, Government revenue and other incidental expenses. The surplus, if any, was to be utilised by the executrix, executors and trustees in such manner as might appear to them fit and proper for other religious and charitable acts. Joggeswar Laha died on January 22, 1921. Probate of the will was taken soon thereafter. The statement of the case shows that the administration of the estate was complete prior to the assessment year 1947-48. For the assessment years 1942-43 to 1946-47, income from the properties were assessed in the hands of the shebait Anath Krishna Laha in the name of three deities. The income tax Officer, however, thought that the assessment should be made in the name of the executors and trustees for the assessment years 1946-47 to 1954-55 inclusive and he started proceedings u/s 34(1)(a) of the Act. This case relates to the assessment year 1947-48 for which assessment was made on March 7, 19(sic) u/s 23(4) of the Act as no return had been filed. The Assessee appealed unsuccessfully to the Appellate Assistant Commissioner and then to the Appellate Tribunal. He filed no application u/s 27 but contended that the assessment u/s 23(4) was invalid. The revenue authorities contended that as the assessment had been made u/s 23(4) and no application had been made u/s 27 all that the Assessee could do was to question the quantum of the assessment and that it was not open to him so challenge the basis or legality thereof. This contention was upheld by the Tribunal relying upon the decision in Padampat Singhania Vs. Commr. of Income Tax, U.P. and Ajmer-Merwara, Lucknow, . The question before us is whether it is open to an Assessee who claims that he is not liable at all to be assessed to prefer an appeal u/s 30(1) of the Act against a best of judgment assessment u/s 23(4), he having filed no return and not having taken proceedings u/s 27 of the Act.
On a plain reading of the sections it appears to me that the Tribunal had erred in law. Provisions for submitting returns of income are made in Section 22 of the Act. Under Sub-section (1) of the section it is obligatory on the income tax Officer to give notice by publication in the press and in the prescribed manner on or before May 1, in each year requiring every person whose total income during the previous year exceeded the maximum amount which is not chargeable to income tax to furnish a return of his total income and total world income during that year. u/s 22(2) it is also competent to the income tax Officer where he is of opinion that a particular person has an income which renders him liable to income tax to serve a notice calling upon him to submit a return. Under Sub-section (4) the income tax Officer is authorised to serve a notice on any person who has made a return calling upon him to produce or caused to be produced such accounts or documents as he may require for the purpose of the section. The assessment then takes place u/s 23. Under Sub-section (1) it is open to the income tax Officer if he is satisfied that the return submitted is correct and complete to assess the total income of the Assessee and to determine the sum payable by him. Under Sub-section (2) he may serve a notice requiring the Assessee to produce or cause to be produced any evidence on which the Assessee may rely in support of his return if he is not satisfied about the correctness of the return. Where such a notice has been complied with it is open to the income tax Officer after hearing such evidence as may be produced to proceed under Sub-section (3) and make an order in writing assessing the total income of the Assessee determining the sum payable by him. Sub-section (4) deals with cases where the Assessee fails to make a return required by any notice given under Sub-section (2) of Section 22 or has not made a return or a revised return under Sub-section (3) of till section or fails to comply with the terms of a notice or under Sub-section (4) of the said section or having made a return, fails to comply with all the terms of a notice issued under Sub-section (2) of Section 23. In such a case the income tax Officer must make the assessment to the best of his judgment and determine the sum payable by the Assessee on the basis of such assessment.
Section 29 of the Act provides for service of a notice of demand.
Section 27 runs as follows:
Where an Assessee within one month from the service of a notice of demand issued as hereinafter provided, satisfies the income tax Officer that he was prevented, by sufficient cause from making the return by Section 22 or that he did not receive the notice issued under Sub-section (4) of Section 22, or Sub-section (2) of Section 23, or that he had not a reasonable opportunity to comply, or was prevented by sufficient cause from complying, with the terms of the last mentioned notice, the income tax Officer shall cancel the assessment and proceed to make a fresh assessment in accordance with the provision of Section 23.
The scope of Section 30(1) will be clear if it is recast as follows:
Any Assessee-
(i) objecting to the amount of income assessed u/s 23 or Section 27, or the amount of loss computed u/s 24 or the amount of tax determined u/s 23 or Section 27 or
(ii) denying the liability to be assessed under this Act, or
(iii) objecting to the cancellation by the income tax Officer of the registration of a firm under Sub-section (4) of Section 23 or to a refusal to register a firm u/s 27, or
(iv) objecting to any order under Sub-section (2) of Section 25 or Section 25A or Sub-section (2) of Section 26 or Section 28 made by the income tax Officer, or
(v) objecting to any penalty imposed by an income tax Officer under Sub-section (6) or Section 44E or Sub-section (5) of Section 44F or Sub-section (1) of Section 46, or
(vi) objecting to a refusal of an income tax Officer to allow a claim of a refund u/s 48, 49 or 49F, or to the amount of the refund allowed by the income tax Officer under any of those sections,
and
any Assessee, being a company, objecting to an order made by an income tax Officer under Sub-section (1) of Section 23A, may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order.
Section 31 provides for the hearing of appeals by the Appellate Assistant Commissioner.
An appeal being a creature of statute any person who (sic) its to prefer an appeal must show that his grievance fells within one or other of the categories enumerated above. Thus he may object to the amount of income assessed u/s 23 or Section 27. Again though not objecting to the amount of income assessed he may complain against the tax determined u/s 23 or Section 27. His grievance may be directed to the cancellation by the income tax Officer of the registration of his firm under Sub-section (4) of Section 23 or a refusal to register a firm under Sub-section (4) of that section or to make a fresh assessment u/s 27. Again he may be a person who denies his liability altogether under the Act. All the categories of persons with grievances enumerated above are disjunctive. I can see no valid ground for holding that a person who denies liability to be assessed under the Act but has not cared to file a return or appeared before the income tax Officer and urged that he is not liable to be assessed and who took no steps to satisfy the income tax Officer that he was prevented from making a return required by Section 22 or that he did not receive the notice under Sub-section (4) of Section 22 or Sub-section (2) of Section 23 or that he had not reasonable opportunity to comply, or was prevented by sufficient cause from complying with the terms of the said notices, is precluded from filing an appeal. Where a person claiming to be exempt from assessment under the Act files no return, he may be in difficulty in conducting his appeal and the Appellate Assistant Commissioner may in his discretion refuse to receive any evidence in support of the person''s claim to exemption from assessment. Whether the Appellate Assistant Commissioner will make any further enquiry as envisaged by Sub-section (2) of Section 81 is a matter for him to consider and if the person against whom an order u/s 23(4) has been made is not allowed to bring forward documents on which his claim rests he has only himself to blame. But it may be that the person can successfully press his appeal relying on the evidence already on record before the Appellate Assistant Commissioner. For instance, in the present case it is clear that the income tax Officer had the will and probate of the will of Joggeswar Laha on the record. He also had papers and documents in connection with the assessment of various assessment years in the past. The persons sought to be taxed as the representatives of Anath Krishna Laha might have been able to satisfy the Appellate Tribunal on those documents that assessment as executrix, executor and trustees was not justified. They could not have proceeded u/s 27 as they were not prevented by any sufficient cause from making a return u/s 22; nor could they have said that they did not receive any notice under Sub-section (2) of Section 23. Section 27, in my opinion, provides for cancellation of assessment only in certain specified cases. Where the person sought to be assessed has no such cause for cancellation but has made no return although called upon to do so his right of appeal u/s (sic)0(1) is not lost if his case is that he has no liability under the Act. I(sic)y opinion, a person who denies his liability to be assessed under the Act need not take any steps u/s 27 even when he did not appear before the income tax Officer and thereby suffered a best of judgment assessment to be made under Sub-section (4) of Section 23.
We now have to consider several decisions laying down the proposition that an appeal from an order made u/s 23(4) can only be limited to the amount of income assessed if no resort was made to Section 27. Before considering the decision relied on by the Tribunal a note must be made of a judgment of this Court in the case of NABA KUMAR SINGH DUDHURIA Vs. COMMISSIONER OF Income Tax, BENGAL., . There the return of income submitted was signed not by the Assessee but by an agent. The income tax Officer failed to notice this and issued a notice u/s 23(2) calling for evidence in support of the return. During the proceedings he came to have reason to believe that certain items of interest had not been disclosed in the return. He issued a notice calling upon the Assessee to show cause why a penalty should not be imposed u/s 28(1)(c) of the Act. It was then that the Assessee informed the income tax Officer that the tax proceedings were misconceived inasmuch as the return was invalid not having been signed by the karta of the Hindu family. This was accepted by the income tax Officer. He thereupon proceeded to assess the Hindu undivided family u/s 23(4) on the basis that no return had been made. The Assessee contended before the Appellate Assistant Commissioner that the assessment should have been made u/s 23(3) on the ground that the income tax Officer had, in the first instance, accepted the return as a valid one. The Appellate Assistant Commissioner upheld the assessment u/s 23(4). The Appellate Tribunal held that the Assessee could not raise this question in appeal inasmuch as it had not adopted the procedure u/s 27 of the Act. The Court noted that prior to amendment of Section 30 in the year 1939 there was a specific proviso to Section 30 that no appeal would lie in respect of an assessment made u/s 23(4) or under that Sub-section read with Section 27. McNair J. who delivered the leading judgment said
Section 30 gives the Assessees the right to object to the amount of income assessed u/s 23 or Section 27. They may also object to the amount of tax determined under those sections and they may appeal if they object to the refusal of the income tax Officer to make a fresh assessment u/s 27. To that extent only has the proviso in the same section of the Act prior to the amendment been limited. What the Assessees are apparently trying to do now as it appears to me is to raise an objection not merely to the amount of the assessment or to the amount of tax determined under any provision of Section 23, but to object to the validity of the assessment. Although Section 30 as amended grants them a right of objecting to the quantum of the assessment, it does not, in my view, give them the right to leave aside the machinery which has been provided by Section 27 and to come to the Court and ask that the Court should deal with it without having had the matter dealt with, as provided by the Act, by the income tax authorities. It appears to me that on repealing the proviso in the old section the Legislature has expressly limited the manner in which appeals may be allowed against decisions u/s 23 or Section 27 and by inserting the words applicable to Section 23 or Section 27 with the word ''amount'' they have definitely intended that the Assessee''s right of appeal u/s 30 should be limited as regards those sections to the quantum of the assessment or tax.
It should be noted that the Assessees there were not denying the total liability under the Act. It was not their case that they could not be assessed at all under the Act. Their grievance was that the assessment should have been made u/s 23(3), that is to say, that the income tax Officer should have heard the evidence as was produced as also other evidence which he might require on specified points and only then determined the sum payable. In that case it was certainly open to the Assessees to make an application u/s 27 when they found that the return had not been properly submitted for want of a proper signature by the karta; they might have satisfied the income tax Officer that this was due to a bona fide mistake or that the karta was for some reason or other unable to sign the return and on such grounds asked for cancellation of assessment. Where they do not adopt such a course it was only open to the Assessees to object to the amount of income assessed or to the amount of tax determined u/s 23 or Section 27 in their appeal. They could not urge that the assessment was invalid because the income tax Officer had refused to hear the evidence produced or because he did not require the production of further evidence. When there is no denial of liability under the Act the appeal from an order u/s 23 must be limited to the quantum of income assessed or to the quantum of tax determined or to the cancellation of the registration under Sub-section (4) of Section 23 or to a refusal to register a firm under that provision. Naba Kumar Dudhuria''s case (Supra), therefore, does not lay down the broad proposition contended for that no appeal can be filed under any assessment made u/s 23(4) unless proceedings have first been taken u/s 27.
The question of appealability of an order u/s 23(4) came up for consideration by the Allahabad High Court in Chhotelal Gobardhan Das Vs. Commr. of Income Tax, U.P. and V.P. Lucknow, . There the Assessee, a Hindu undivided family, returned a loss of Rs. 13,320 in respect of its speculation business. By a notice u/s 22(4) the Assessee was asked to produce its books of account for verification of this loss. None were produced on the ground that no books were maintained. Treating this as a default in complying with the terms of the notice an assessment was made u/s 23(4) on an estimated income of Rs. 10,000. An appeal was preferred from this to the Appellate Assistant Commissioner. The Assessee also filed an application u/s 27 praying for the cancellation of the assessment alleging that there was sufficient reason for noncompliance with the notice issued u/s 22(4). This application was dismissed. Against such dismissal the Assessee appealed to the Appellate Assistant Commissioner. Both the appeals were heard. The appeal against the order u/s 27 was dismissed while the other appeal from the order u/s 23(4) was allowed in part. Against this last order the Assessee went up in second appeal to the Tribunal. Before the Tribunal it raised grounds against the estimate of Rs. 10,000 and further contended that no order u/s 23(4) should have been passed. The Tribunal granted relief by reducing the estimate from Rs. 10,000 to Rs. 5,000. Regarding the second contention the Tribunal observed that no appeal against the Appellate Assistant Commissioner''s order u/s 31 confirming the income tax Officer''s order u/s 27 having been brought up to the Tribunal the appeal relating to the merits of the assessment could not be gone into. The question before the Allahabad High Court was whether in appeal u/s 30(1) of the income tax Act against an order passed u/s 23(4) the validity of the assessment made under the latter section could be challenged when no second appeal against the order of the Appellate Assistant Commissioner confirming the order of the income tax Officer u/s 27 refusing to cancel the assessment so made was filed.
The Allahabad High Court referred to Nabakumar Singh Dudhuria''s case (Supra) and pointed out that
an Assessee may u/s 30(1) appeal against an order of refusal to make a fresh assessment u/s 27 but where the income tax Officer had made an assessment u/s 23(4) of the Act, or, has made a fresh assessment u/s 27, the Assessee can appeal u/s 30(1) and object to the amount of income assessed or the amount of loss. computed or to amount of tax determined. The scope of the two appeals is entirely separate and while, in the case of one, the question for consideration is whether sufficient cause had or had not been made out for a fresh assessment, in the other it is accepted that the income tax Officer was entitled to make assessment u/s 23(4) and the dispute merely relates to the merits of the case, i.e., whether the amount assessed was in excess, or, whether the right amount of income tax had been imposed on the Assessee.
The Tribunal in this case relied upon the decision in Sir Padampat Singhania v. Commissioner of income tax, U.P. and Ajmer-Merwara (Supra). There the question posed was whether the Tribunal was correct in holding that the Appellate Assistant Commissioner was not competent to entertain an objection to the assessment being made u/s 23(4) in proceedings other than those through Section 27. The facts before the Court were as follows:
In compliance with notices issued u/s 23(2) of the Act the three Assessees, Sir Padampat Singhania, L. Kailashpat Singhania and L. Lakshmipat Singhania, filed their returns in separate cases. The income tax Officer then issued notices u/s 22(4) for production of account books. These notices not being complied with he proceeded to make the assessments u/s 23(4). No application u/s 27 was filed on behalf of any of the Assessees and assessments were made u/s 23(4). The Assessees filed three appeals before the Appellate Assistant Commissioner who came to the conclusion that the income tax Officer was not justified in proceeding u/s 23(4) and after having recorded that finding he considered the assessment on the merits and made certain adjustments reducing the total income. The income tax Officer appealed against this order and the Tribunal came to the conclusion that no application having been filed u/s 27 and there being no appeal before the Appellate Assistant Commissioner against an order u/s 27, in the appeal against the assessment order u/s 23(4) the Appellate Assistant Commissioner had no right to go into the question whether the assessment was or was not properly made. The Tribunal allowed the appeal and held that a best judgment assessment u/s 23(4) could not be said to be an assessment u/s 23(3).
It was pointed out by the Allahabad High Court that
after the amendment of Section 30 in the year 1939 the Assessee had got two rights:
(i) to question the validity of an assessment u/s 23(4) in the same way as before, that is, by an application u/s 27 appeal to the Appellate Assistant Commissioner and further appeal to the Appellate Tribunal ; or
(ii) If he did not challenge his liability to be assessed u/s 23(4) he could appeal against the quantum of the tax imposed to the Appellate Assistant Commissioner and the Tribunal.
The Court referred to its decision in Chhotelal Gobardhan Das''s case and to Naba Kumar Singh Dudhuria''s case (Supra) and held that there was no reason to change the opinion already expressed.
Again, it will be noted that this was not a case of total denial of liability. The appeal, therefore, suffered from the limitations already mentioned.
The two Allahabad cases and the Calcutta decision were referred to with approval in Mauladin Ayub Firm Vs. Commissioner of Income Tax, Bombay South, . The sections were examined at some detail by Chagla, C.J. who observed that
the whole scheme is a harmonious one and constitutes a coherent whole. When a case falls u/s 27, then any grievance that the Assessee has against the income tax Officer for not making the requisite order must be litigated in an appeal against an order u/s 27. When Section 27 has no application, then any question that might arise in appeal which has a bearing with regard to an order made by the income tax Officer u/s 23(4) can be litigated in an appeal u/s 30. But as we have already pointed out, apart from cases of cancellation of registration, which, in terms, do not fall u/s 27, every other case of contumacious refusal of an Assessee of complying with any notice issued by the income tax Officer must necessarily fall u/s 27 and an order made by the income tax Officer that he would proceed to assess u/s 23(4) can only be challenged u/s 27.
With respect, I agree with the observations made and only desire to point out that the learned Chief Justice was not considering a case where a person denied his liability altogether under the Act. Where a person''s case is that he is not liable to be taxed under the Act he may appeal u/s 30 from an order made u/s 23(4). Section 30 expressly gives that right. If the case is of a person who does not deny liability altogether but who has disregarded notices served on him and failed to proceed by way of Section 27 his appeal must be limited to the quantum of assessment or the tax determined. He cannot challenge the validity of the assessment.
The point was examined again in Gaurishanker Kedia Vs. Commissioner of Income Tax, Bombay City II, , and the learned Judges of the Bombay High Court said that
the scope and ambit of an appeal, where the Assessee was amenable to the provisions of the Indian income tax Act, have been considered by this Court in Mauladin Ayub Firm against the Commissioner of income tax.
It will therefore be noticed that the dicta of the learned Judges were confined only to cases where the Assessees did not deny their liability under the Act. Such a situation arose in M. M. Muthuwappa Vs. Commissioner of Income Tax, Madras, . The first question which was referred to the Court by the Tribunal in that case was
whether it was open to the Assessee to raise the question of non-liability to be assessed under the Act at the appellate stage when no such contention was raised before the income tax Officer who made an assessment u/s 23(4) of the Act.
Discussing most of the cases noticed above and the provisions of the Act the learned Judges of the Madras High Court took the view that there was
nothing in any of the relevant provisions of the Act which places any fetter upon the right of the Assessee to deny his liability to be assessed at all [as distinct from his liability to be assessed u/s 23(4)] in the appeal before the Appellate Assistant Commissioner. The powers of the Appellate Assistant Commissioner are far greater than those of the Tribunal. The entire assessment is before him. Though in a case to which Section 27 might be attracted his jurisdiction might be limited somewhat, we can see nothing in Section 31 or in any other provision which denies the right of the Assessee to question his liability to be assessed. The mere fact that that ground was not taken before the income tax Officer is not sufficient to our minds to deny this right to the Assessee. Indeed Section 30 specifically provides for an appeal on this ground.
Accordingly the question was answered in the affirmative and in favour of the Assessee.
In Gokuldas Chunnilal v. Commissioner of income tax AIR 1932 Nag. 152, on an application u/s 66(3) of the Act for stating a case to the High Court by the Tribunal where the question in issue was whether the Assessee was liable as an agent of two firms at Indore with whom he had business dealings, it was observed by Staples A.J.C. that the view taken by the Commissioner that the income tax Officer''s order u/s 23(4) having been correctly made, the Assistant Commissioner was wrong in entertaining the appeal even on the point of the applicant''s liability, was not justified. Accordingly, an order was made for the statement of the case u/s 66(3).
Reference may also be made to the case of (1940) 8 ITR 126 (Oudh) . There the applicant was paid a sum of Rs. 30,700 as maintenance allowance by the taluqdar of the Oel estate during the year 1933-34 and Rs. 36,000 during the year 1934-35. She was the grand-mother of the then taluqdar. The names of the guzaradars of the estate were intimated to the income tax Department by the taluqdar. The income tax Officer enquired by letter if the guzaradars including the applicant were members of a joint Hindu family with the taluqdar or not, upon which the Raja replied in the negative. Thereupon the income tax Officer issued notices calling upon the Rani to furnish returns of her income for the years mentioned and the Rani submitted her returns. The income tax Officer accepted the returns and without any further notice assessed her on the amounts shown therein. From these orders of assessment the Assessee appealed to the Assistant Commissioner of income tax denying her liability to be assessed under the Act. The only question argued in appeal was whether the Assessee was a member of the joint Hindu family or not. Having lost she applied to the Commissioner of income tax u/s 66(2) of the Act alleging that the question of law as to whether she would be deemed to be a member of a Hindu undivided family should be decided by the Chief Court of Oudh. At the hearing before the Chief Court a preliminary objection was taken by the Revenue on the ground that as the assessment had not been objected to before the income tax Officer no appeal was maintainable before the Assistant Commissioner. The High Court remarked that there was nothing in the income tax Act to justify the view that it was incumbent upon the Assessee to deny his liability to assessment before the income tax Officer to invest him with a right of appeal u/s 30 of the Act. They further pointed out that the prescribed form in the notice did not contain any heading or column under which the person served with a notice was required to state whether he was liable to assessment or not; According to the Chief Court
mere filing of a return therefore cannot be said to be tantamount to an admission by the person submitting the return that he is liable to assessment.
The Court also said
the words ''denying his liability to be assessed under the Act'' in Section 30(1) are not confined to the denial of liability before the income tax Officer but include, and must include, his denial in the appeal filed by him.
In our view, the Tribunal was not justified in rejecting the appeal on the ground that Section 30(1) of the Act precluded an appeal against a best of judgment assessment u/s 23(4) merely because the Assessee had filed no return and had taken no proceedings u/s 27 of the Act. If the case of the Assessee is that he is not liable at all under the Act his appeal is not incompetent. The question posed must be answered in the affirmative and against the Department which must pay the costs of the Assessee.
Masud, J.
I agree.