Wort, J.@mdashThis is a reference by the late Sir Dawson-Miller, J., and Ross, J., arising out of an Income Tax matter. The terms of reference are:
Whether the case of
2. The facts which it is necessary to state for the disposal of this question are brief. The assessee received notice on 15th April 1925 u/s 22(2), Income Tax Act 1922, asking him to make a return as to the profits of his business and on 6th August 1925 he received a further notice u/s 22(4) and 23(2), the first asking him to produce books and the second asking him for certain evidence under the sub-section which I have mentioned. On 21st August, in compliance with the notice u/s 22(4) the assessee produced his books of account. On the 6th September the Income Tax officer made an order in his order-sheet which raises the question which is debated in this case. The order runs:
Accounts examined. There are many disclosures. The account need be checked again with Pachrukh account and the Chilhawaria account which latter was not produced. It is found that he has a business in grains etc., at Chilhawaria, where the firm goes by the name of Ramawtar Hiralal. He is directed to bring the account with original bijaks and bijak bahi on the 12th September 1925.
3. On the 21st January 1926 the assessee was assessed summarily u/s 23(4). It is argued that this was illegal as there was no power in the Income Tax officer to issue a notice u/s 22(4) in the circumstances.
4. It was established in the case which was argued before the late Chief Justice and Ross J., that on the order-sheet under that date the assessee put his initials as having received notice of the direction by the Income Tax officer to produce the books according to the order. One question raised in argument by the learned Counsel on behalf of the assessee was that although it has been decided that as a fact notice was served on the assessee there was no notice which sufficiently complied with the Income Tax Act, and it is argued that in spite of the decision of fact it is still open to the assessee to argue that he has received no notice. In our judgment there is no substance in that point. First of all we have the decision of fact that he has received notice and secondly as the Income Tax Act of 1922 makes no provision as to the form of notice it seems to us that the point now taken on that is unarguable and in our judgment must be decided against the assessee. The remainder of this judgment, therefore, must proceed on the basis that in fact on the 6th or 7th September 1925 the assessee received a notice u/s 22(4) and Section 23(2).
5. The main substance of the argument addressed to us is first of all that the notice contemplated by Section 22(4) is a notice which can be served only before a return has been made under the earlier part of the, section. Taking the section by itself there seems to us to be no basis for that argument, but the point which is raised is that taking Section 22 with Section 23 it is clear that the notice which is contemplated by Section 22(4) can be served only before the return has been made. But dealing first of all with the construction of Section 22 by itself, it provides:
(4) 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 Sub-section (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.
6. The condition precedent entitling the officer to serve that notice is clearly that a notice has been served under Sub-section (2), Section 22 and to suggest that there is any restriction as to the time when it may be served appears to us to be an entirely artificial construction of the section. As has already been stated there is one condition precedent and it that is complied with, the section, construing it by itself, is sufficiently complied with.
7. But the argument which is addressed to us more particularly depends upon the construction of Sub-section (4), Section 23. The argument can be beat stated by the words of the judgment in the case which is referred to us, the judgment of Mullick, J., in Brij Raj Rang Lal v. Commissioner of Income Tax AIR 1927 Patna 390. He states in the course of his judgment:
The words "or having made a return" would be quite unnecessary if they were not intended to be in sharp antithesis to the preceding words, and to show that in the view of the legislature a notice u/s 22(4) concerns only the stage before the filing of a return.
Section 23(4) provides that:
If the principal officer of any company or any other person fails to make a return,
and then it gives the circumstances u/s 22(2) (which deals of course with a demand by the officer for a return).
or fails to comply with all the terms of a notice issued under Sub-section (4) of the same section
(that is the notice to which we have already referred, the demand by the officer for accounts and documents) and then comes the clause in the section upon which most of the argument addressed to us has been based:
Or, having made a return, fails to comply with all the terms of a notice issued under Sub-section (2) of this section.
8. The argument in fact is that Sub-section (4) of Section 23 is to be divided into two parts, the first division applying to the state of affairs when a return has not been made and the second applying to the case when in fact a return has been made. But there are clearly three cases contemplated by the sub-section and the words, "having made a return" are descriptive of the third class provided for by Sub-section (2), Section 23. The argument is met by the judgment of the Chief Justice of Bengal in In the matter of Messrs. Harmukhrai Dulichand AIR 1926 Cal. 587. In the course of his judgment he says:
In my judgment the exposition which the Commissioner of Income tax has given is correct. He points out that the sub-section contemplates three distinct cases and, to my mind it is abundantly shown by him that there is no warrant in the statute for saying that after a return is made the power given by Clause (4) of Section 22 is gone. The only ground which I have discovered for that opinion is the insertion of the harmless words "having made a return" into Clause (4), Section 2. It seems paradoxical and improbable that the making of a return should put an end to the power of the Income Tax officer.
9. That appears to be a complete answer to the argument that once having made a return in compliance with the earlier part of Sub-section (2) then the power which is given by the legislature to the officer under Sub-section (4) is gone. As has been pointed out in the course of the argument that would lead to this drastic state of affairs; an officer may issue a notice under Sub-section (4) having already issued a notice to make a return under the earlier part of the section; he might state a date for the compliance with the notice under Sub-section (4) which was earlier than the date for compliance with the making of the return under the earlier part of the section. If the argument is right then the result would be that as a result of the failure to comply with the notice requiring the production of books, although that was at an earlier date than the necessity to comply with the notice to make a return, yet he might forthwith assess the assessee summarily although in fact the return had not been made. That is the very evil the assesses wishes to avoid That is reducing the argument to an (sic) and a construction of that nature would seem to us to be quite unwarranted by the terms of the section. Books of account were produced on 21st August 1925, and the order of 6/7th September demanded the production of the Chilhawaria branch; and another aspect of the same argument is that when once the Income Tax officer serves a notice u/s 22(4) the enquiry assumes a judicial character and his power u/s 23(4) ceases and he is limited to requiring evidence on particular points, and in any event he could not under the order of 6/7th September demand further accounts. We see nothing in the Act to warrant the view that any of the powers under the Act ceases before the assessment has been finally made.
10. The other point which has been raised is that, even supposing there was a notice u/s 22(4), no mention was made in that notice of the section or sections under which the notice was served and in consequence the assessee is in a difficult position or is penalized, in the case of non-compliance with one section, although the right of appeal remains, non-compliance with the notice under the other section does away with the right of appeal. There seems to us to be no basis for this argument for the simple reason that nowhere in the Act is there any provision making it necessary for the officer serving the notice to state the section under which the notice is served or to state the section under which his powers have been granted. There appears therefore to be no substance in that point either. That being so it must be stated that, in our opinion, in so far as the case of Brij Raj Rang Lal v. Commissioner of Income Tax (1) was a decision on the construction of Section 22(4) it was wrongly decided.
11. In these circumstances the Income Tax Commissioner is entitled to his costs in this Court and before the late Chief Justice and Ross, J. Hearing fee Rs. 500.
