COMMISSIONER OF INCOME-TAX Vs. MAHALIRAM RAMJIDAS

JUDGEMENT

(1.) THIS is an appeal by the Commissioner of Income-tax, Bengal, against a judgment of the High Court of Judicature at Fort William in Bengal delivered on a reference made under Section 66(1) of the Indian Income-tax Act, 1922. The respondents are a registered partnership firm carrying on business in Calcutta.

(2.) THE question in the appeal turns on the true construction of Section 34 of the Indian Income-tax Act, 1922. That Section enacts: 34. If for any reason income, profits or gains chargeable to income-tax has escaped assessment in any year or has been assessed at too low a rate, the Income-tax Officer may, at any time within one year of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-Section (2) of. Section 22, and may proceed to assess or re-assess such income, profits or gains, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that Sub-Section: Provided that the tax shall be charged at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be.

(3.) THOUGH the appeal is concerned with a general question of the construction of Section 34, it is necessary for a clear understanding of it that the facts which give rise to it should be briefly explained under reference to other material provisions of the Act which were in force in 1932-33, the year of assessment. These provisions are to be found in Section s 22 and 23 of the Act. Under Section 22(2). the Income-tax Officer must serve notice on 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, requiring him to furnish a return in the prescribed form of his total income during the previous year. Sub-Section (4) authorises the Income-tax Officer to serve on any person upon whom a notice has been served under Sub-Section (2) a further notice requiring him to produce accounts and documents, subject to the limitation that he shall not require the production of any accounts relating to a period more than three years prior to the year previous to the year of assessment. Section 23 provides for the making of the assessment. Sub-Section (1) requires the Income-tax Officer, if he is satisfied that the return made under Section 22 is correct and complete, to assess the total income and to determine the sum payable. Under Sub-Section (2) if the Income-tax Officer has reason to believe that the return is incorrect or incomplete, he must serve1 on the person who made the return a notice requiring him either to attend at the Income-tax Officer's office or to produce any evidence relied on in support of the return. Sub-Section (3) provides that the Income-tax Officer, after hearing such evidence as the person who made the return may produce and such other evidence as the Income-tax Officer may require on specified points, shall by an order in writing assess the total income and determine the sum payable. Sub-Section (4) makes provision for an assessment by the Income-tax Officer to the best of his judgment if the assessee fails to make a return or to comply with the terms of the notices issued to him. This whole procedure, it may be recalled, not only applies on first assessment but is also prescribed by Section 34 if for any reason income, profits or gains have escaped assessment or have been assessed at too low a rate.