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Bhikhi Ram Ramdeo v. Commissioner Of Income-Tax, C.P & U.P
Structured Summary of the Opinion (Bhikiram Ramdeo — Section 66(3), Income-tax Act)
Factual and Procedural Background
This application was brought under Section 66(3) of the Income-tax Act (XI of 1922) by the firm Bhikiram Ramdeo for the assessment year 1934–35 (accounting year 9 October 1932 to 27 September 1933).
An initial assessment was made on 6 March 1935 under Section 23(3). The assessee appealed with respect to certain disallowed expenses; the Assistant Commissioner cancelled that assessment on the ground that the accounts produced were not proper accounts for the money‑lending business and that separate subsidiary accounts must be kept.
A different Income‑tax Officer then issued notices under Section 23(2) and Section 22(4). The assessee produced the same books already produced; on being asked to produce subsidiary accounts the assessee did not comply. The Income‑tax Officer (believing subsidiary books existed and were being withheld) made an assessment to the best of his judgment under Section 23(4), applying the proviso to Section 13 by using a flat rate of 10% on investments to calculate presumed interest, resulting in an assessed income of Rs. 53,460.
The assessee applied to the Income‑tax Officer under Section 27 (which was dismissed), and then appealed both the assessment under Section 23(4) and the dismissal under Section 27 to the Assistant Commissioner. The Assistant Commissioner held that the assessment had properly been made under Section 23(4) and, invoking the proviso to Section 30, refused to admit the appeal; he also dismissed the appeal from the Section 27 order.
The assessee then applied to the Commissioner under Section 33 (review) and Section 66(2) (reference). The Commissioner, exercising review powers under Section 33, reduced the flat rate applied by the Income‑tax Officer from 10% to 8% but declined to make a reference under Section 66(2), holding the Assistant Commissioner’s order to be plainly one under Section 30. The Commissioner declined to review or state a case in respect of the Section 27 dismissal.
The present application to this Court under Section 66(3) seeks an order directing the Commissioner to refer certain questions of law said to arise from the Assistant Commissioner’s appellate order relating to the assessment.
Legal Issues Presented
- Whether the Assistant Commissioner’s order rejecting the appeal (in the context of an assessment made under Section 23(4)) was an order "disposing of the appeal" passed under Section 31 of the Act such that a reference under Section 66(2) or an application under Section 66(3) would be competent.
- Whether the assessment made under Section 23(4) was a true assessment "in fact" and "in good faith" (as opposed to a mere formal or ostensible exercise) so as to bring it within the proviso to Section 30(1) which bars appeal against assessments made under Section 23(4).
Arguments of the Parties
Appellant's (Assessee's) Arguments
- Counsel for the assessee conceded that a reference under Section 66(2) or an application under Section 66(3) would not be competent unless the Assistant Commissioner's order was an order disposing of the appeal under Section 31.
- The assessee contended that when the Income‑tax Officer required production of subsidiary books of account, the requirement was impossible to satisfy because the assessee had no such subsidiary books; therefore the assessment could not properly be said to have been made under Section 23(4).
Respondent's (Revenue / Administrative) Position as Reflected in the Opinion
- The Income‑tax Officer (and subsequently the Assistant Commissioner and the Commissioner on review to a limited extent) treated the accounts produced as incomplete: ledger accounts of debtors and subsidiary accounts were missing and multiple instances showed sums uncredited or investments unrecorded.
- On the basis of those omissions and apparent deliberate default in producing subsidiary accounts under Section 22(4), the Income‑tax Officer made a considered assessment under Section 23(4); the Assistant Commissioner agreed that the assessment was properly made and that no appeal lay by virtue of the proviso to Section 30.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Sheoduttrai Pannalal v. Commissioner of Income‑tax, C.P. & U.P., 1941 9 I.T.R. 118 | The principle that where an assessment has been made in fact and in good faith under Section 23(4), and the Assistant Commissioner (on consideration of facts) finds the assessment properly so made, the proviso to Section 30 bars an appeal; the Assistant Commissioner’s rejection is not an order under Section 31 and therefore questions of law are not referable under Section 66(2) or (3). | The Court reproduced and relied on this observation to determine whether the Assistant Commissioner’s order in the present case was an order under Section 31. The Court found the present facts analogous and applied the same principle to hold the application under Section 66(3) incompetent. |
Court's Reasoning and Analysis
The Court approached the matter by assessing whether the assessment under Section 23(4) was a genuine, considered assessment and whether the Assistant Commissioner had in fact considered the propriety of that assessment (so that the proviso to Section 30 would operate to bar appeals and thereby preclude a reference under Section 66).
The Court set out the factual findings made by the Income‑tax Officer: the books produced lacked ledger accounts for debtors; the assessee failed to produce subsidiary accounts on request and was unable even to prepare a debtor account from the books produced; specific instances were cited where sums or investments were not recorded. On these grounds the Income‑tax Officer concluded the assessee possessed other books not produced and made a best‑judgment assessment under Section 23(4), applying a flat 10% rate to investments.
The Assistant Commissioner independently scrutinised the accounts and reached substantially the same conclusions: portions of the money‑lending business and corresponding capital did not appear in the books; numerous investments were omitted; certain sums were uncredited. He described the accounts produced as "worthless for income‑tax purposes" and concluded there had been a deliberate default in respect of the notice under Section 22(4), thereby justifying an assessment under Section 23(4) and invoking the proviso to Section 30 to deny a right of appeal.
The Court observed that, even if it were open to question whether the Income‑tax Officer was right in concluding that other books existed, the assessment itself was founded on rational grounds and was a considered exercise of judgment made in good faith. The Assistant Commissioner had also carefully examined the accounts and considered the propriety of the Income‑tax Officer’s decision. Applying the principle from Sheoduttrai Pannalal (quoted in the judgment), the Court concluded that where an assessment has been actually and in good faith made under Section 23(4) and the Assistant Commissioner has found it properly so made, the proviso to Section 30 bars appeal and the Assistant Commissioner’s order rejecting the appeal is not an order under Section 31. Consequently, a reference under Section 66(2) or an application under Section 66(3) is not competent.
The Court expressly refrains from deciding a different hypothetical situation: where an Income‑tax Officer only purports to make an assessment under Section 23(4) (i.e., a mere formality) and the Assistant Commissioner rejects an appeal under the proviso to Section 30 without considering the propriety of the assessment. That scenario was not before the Court and was left open.
Holding and Implications
Holding: The Court held that the Assistant Commissioner’s order in this case was not an order under Section 31 of the Act and that the application under Section 66(3) was therefore incompetent. The Court dismissed the application.
DISPOSITION: Application dismissed (with costs).
Direct consequences and practical effects:
- The application under Section 66(3) was dismissed and the assessee’s request for a direction to the Commissioner to refer questions of law to this Court was refused.
- The Court awarded costs: counsel for the Department was entitled to a fee of Rs. 75, and a copy of the order was to be sent to the Commissioner of Income‑tax, Central and United Provinces under the seal of the Court and the Registrar’s signature.
Broader implications: The opinion applies the prior principle from Sheoduttrai Pannalal to reiterate that when an assessment under Section 23(4) is real and in good faith and the Assistant Commissioner finds it properly made, the proviso to Section 30 bars appeal and no reference under Section 66(2)/(3) lies. The opinion does not purport to establish a new general rule beyond this application of existing authority; it leaves open other factual permutations (notably where an assessment is only ostensible) for future consideration.
1. This is an application under Section 66(3) of the Income-tax Act (XI of 1922). The assessee is a firm, Bhikiram Ramdeo. The assessment year with which we are concerned is 1934-35 and the accounting year was from the 9th October 1932 to the 27th September 1933.
2. Originally an assessment was made on the 6th March 1935 under Section 23(3) of the Act; but when the assessee appealed in respect to certain expenses which had been disallowed, the Assistant Commissioner cancelled the assessment on the ground inter alia that “the accounts produced are in fact no accounts in respect to the money-lending business” and that the assessee “must be keeping separate accounts of money-lending business”.
3. Thereupon the Income-tax Officer—not the same officer who had made the assessment of 6th March 1935…. issued notice to the assessee under Section 23(2) and Section 22(4) of the Act. The assessee produced the same books of account which he had produced before, and another notice was then issued for production of subsidiary accounts. No such accounts were forthcoming, and the Income-tax Officer, for reasons which at this stage it is unnecessary to mention, was of opinion that such accounts did exist and were being purposely withheld. He accordingly made an assessment to the best of his judgment under Section 23(4) of the Act and, having recourse to the proviso to Section 13, he applied a flat rate of 10 per cent. upon the investments with a view to calculate the interest which might be presumed to have been received during the year of account. The assessment was accordingly made on an income of Rs. 53,460.
4. The assessee applied to the Income-tax Officer under Section 27 of the Act, but his application was dismissed. He then appealed to the Assistant Commissioner both from the assessment order which had been made under Section 23(4) and also from the order of dismissal in respect to the application under Section 27. The Assistant Commissioner, for reasons which appear in his order and which we shall consider at a later stage, was of opinion that the assessment had properly been made under Section 23(4) of the Act and that no appeal lay having regard to the proviso to Section 30, and he accordingly refused to admit it; and he dismissed the appeal from the order of the Income-tax Officer under Section 27 of the Act.
5. The assessee then preferred a combined application under Section 33 and under Section 66(2) to the Commissioner of Income-tax in respect to both these appellate orders. As regards the appellate order in respect to the assessment under Section 23(4), the Commissioner in exercise of his powers of review under Section 33, reduced the flat rate which had been applied by the Income-tax Officer from 10 per cent. to 8 per cent. but he declined to make a reference to this Court under Section 66(2) of the Act, holding that the Assistant Commissioner's order “was plainly one under Section 30.” As regards the order dismissing the application under Section 27, the Commissioner declined either to exercise his powers of review under Section 33 or to state a case for this Court under Section 66(2).
6. The assessee has now applied to this Court under Section 66(3) of the Act and we are requested to direct the Commissioner of Income-tax to refer certain questions of law to this Court for decision. These questions of law are said to arise out of the appellate order relating to the assessment.
7. Learned counsel for the assessee concedes that, having regard to the provisions of Section 66(2) of the Act, a reference under that sub-section or an application under sub-section (3) will not be competent unless it can be shown that the order of the Assistant Commissioner out of which the alleged questions of law are said to arise was an order “disposing of the appeal” passed under Section 31 of the Act. The proviso to Section 30(1) reads as follows:
“Provided that no appeal shall lie in respect of an assessment made under sub-section (4) of Section 23, or under that sub-section read with Section 27”.
8. It is thus clear that if a particular assessment can be said to have been an assessment made under Section 23(4), there will be no appeal by reason of the aforesaid proviso to Section 30 and consequently there will be no order under Section 31. But learned counsel for the assessee contends that when the Income tax Officer called upon him to produce subsidiary books of account, he was being required to do the impossible inasmuch as he had no such books, and therefore it cannot be said that there was any proper assessment under Section 23(4). We had occasion to consider an almost exactly similar question in Sheoduttrai Pannalal v. Commissioner of Income-tax, C.P & U.P 1941 9 I.T.R 118., in which a large number of authorities were reviewed; and the following observation from the judgment in that case may usefully be reproduced here. We said:—
“Having regard to the authorities which we have cited, we are of opinion that where—as in the case before us—an, assessment has been made, not in form only but in fact, not ostensibly but actually and in good faith, under Section 23(4) of the Act, and where—as here—the Assistant Commissioner, upon consideration of the facts, has found that the assessment was properly so made, the proviso to Section 30 bars an appeal; and the order of the Assistant Commissioner rejecting the appeal is not an order under Section 31 inasmuch as he has not ‘disposed of’ the appeal. It follows from this, having regard to the provisions of sub-section (2) of Section 66, that there can be no question of law referable to the High Court under that sub-section or under sub-section (3).
We express no opinion—for it is unnecessary to do so—as to what the law would be in a case where the Income-tax Officer merely purports to make an assessment under Section 23(4) and where the Assistant Commissioner rejects the appeal under the proviso to Section 30 without having given any consideration to the propriety or otherwise of the order of assessment. Whether in such a case a reference would be competent under Section 66(2) or Section 66(3) or whether the assessee's remedy would be confined to an application under Section 33 is a question which does not fall to be considered in these proceedings.”
9. We now have to consider whether the conditions there laid down by us have been satisfied in the case with which we are now dealing. The Income-tax Officer examined all the books of account which the assessee produced and found that the ledger accounts of all the debtors did not find place in them. The assessee was then required to produce “subsidiary accounts”, but this was not done; and the assessee was even unable to prepare an account of the various debtors from the books which had been produced. The Income-tax Officer has cited various instances where sums of money had not been credited, and he says:
“………the money-lending business is on a very big scale. When it is not possible to find out the out-standings against each debtor from the account books, there is no certainty if the entire interest realised from different debtors has been duly accounted for. This is further proved by the instances noted above.”
10. Finally the Income-tax Officer arrived at the conclusion that the assessee had other books of account which he was not producing.
11. The Assistant Commissioner scrutinised the accounts with considerable care and arrived at the same conclusion as the Income-tax Officer. After setting out certain grounds, he says:
“It is apparent therefore that a considerable portion of the money-lending business does not find place in the books nor does the corresponding portion of the capital.”
12. Then he says:—
“There are numerous investments which do not find place in the existing accounts.”
13. He gives instances of some of these investments and says:
“Thus the accounts produced before the Income-tax Officer were worthless for income-tax purposes.”
14. He then proceeds to mention a number of other instances in which sums of money had not been credited anywhere in the assessee's books of accounts and in the end he says:
“There was thus a deliberate default in respect of the notice under Section 22(4) and the assessment was therefore rightly made under Section 23(4); No right of appeal arises against such an assessment.”
15. The Income-tax Officer may have been right or may have been wrong in holding the assessee was necessarily in possession of other books of account—a view which was shared by the Assistant Commissioner—but the order of assessment is based on rational grounds. It is a considered order and it cannot possibly be said that the Income-tax Officer failed to exercise his judgment or that the, assessment was one of form only. It was a real and actual assessment under Section 23(4) and there is nothing whatsoever to suggest that it was made otherwise than in good faith. Nor can it be said that the Assistant Commissioner failed to consider the propriety or otherwise of the Income-tax Officer's decision to proceed under Section 23(4). He himself carefully examined the accounts and arrived at the conclusion that the Income-tax Officer had been fully justified in making an assessment to the best of his judgment under Section, 23(4) of the Act. This being so and having regard to the observations which we have already cited from our judgment in Sheoduttrai Pannalal v. Commissioner of Income-tax, C.P and U.P, we are of opinion that the order of the Assistant Commissioner from which the alleged questions of law are said to arise was not an order under Section 31 of the Act and that this application under Section 66(3) is therefore incompetent.
16. In the result we dismiss this application with costs. Counsel for the Department is entitled to a fee of Rs. 75. A copy of this order will be sent under the seal of the Court and the signature of the Registrar to the Commissioner of Income-tax Central and United Provinces.
17. Application dismissed.
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