The Assessees are a Hindu joint family and were sought to be assessed for the year 1926-1927 as members of a joint family. They claimed an allowance for interest which they said was paid on sums of money standing in the books as borrowings from the wives of the male members. These sums according to the assessees have been standing for several years in their books as moneys which belonged to the ladies and which they lent to the firm and on which interest has been paid to them. So far as the female members are concerned, it is not disputed that they were being taxed separately as if the interest paid to them was income which they derived from moneys which they lent to the firm. This was going on till 1923 when the Income-tax Officer instituted an enquiry as to whether these sums were really loans to the trade made by the female members. Notice was given, enquiry was held, affidavits were filed and the Income-tax Officer came to the conclusion that these were loans and the allowance was made for interest which was paid to the female members of the family. This went on according to the petitioners till the accounting year 1925-1926. In 1926-1927 enquiry was again opened on this question. The Income-tax Officer wanted to re-open the question and he asked the assessees to produce the accounts from 1917-1920. A combined notice was issued under Sect. 22 (4) and 23 (2). The accounts from 1917-1920 were not produced, it being alleged that the books were not available as they were lost. Upon that, the Income-tax Officer of Sattur disallowed the claim made for reduction on account of interest paid to the female members and his note is “Interest payments to the assessees' female relations have been disallowed as the assessees have withheld the production of earlier books which alone will show whether the amounts standing to their credit are their own stridhanam amounts or not.” He evidently acted on the mere fact of non-production of the account books. An appeal was made to the Assistant Commissioner of Income-tax who, after setting out all the facts in paragraph 2 of his order, held that the Income-tax Officer was not precluded from re-opening the question. He made further enquiries, examined the parents and relations of the ladies and came to the conclusion for the reasons given by him that these amounts were not proved to be the stridhanam moneys of the ladies lent to the firm. He upheld the Income-tax Officer's decision. Then there was an appeal to the Commissioner and he upheld the order of the Assistant Commissioner and refused to refer the questions asked on the ground that no questions of law arose. On a petition to the High Court he was ordered to refer the following questions:

(a) Whether when in a previous year of assessment a decision was arrived at after investigation and enquiry that certain amounts standing in the name of certain ladies in the petitioners' accounts were the stridhanam amounts belonging to them and as such the interest paid in respect of the said amounts was held to be a valid deduction, it is open to the Income-tax authorities to re-open the question of the ownership of the amounts in a subsequent year of assessment and whether the authorities are not barred by principle of res judicata or otherwise from re-opening the said question.

(b) Whether when amounts are shown in the assessees account books as the amounts belonging to certain ladies of the family and the Income-tax authorities have treated the said amounts for several years as such and when they have assessed the ladies separately in respect of the said amount on that basis, it is competent for the authorities to levy assessment in respect of the very same amount on the petitioners, the assessment on the ladies having become final not having been set aside by appropriate proceedings.

(c) Whether in the absence of any affirmative evidence on the part of the Grown it is open to the authorities to presume that the amounts standing prima facie in the name of the ladies belonged to the petitioners.

(d) Whether there was any legal evidence before the Income-tax Officer and the Assistant Commissioner in support of their findings as to ownership of the said amounts.

(e) Whether there is any jurisdiction for the Income-tax authorities purporting to act under Sect. 37 of the Act to call upon assessees to produce accounts relating to a period prior to three years of assessment and whether any inference can be drawn against the assessees by reason of non-production thereof of such accounts.

(f) Whether when goods are sent to an assessee for the purpose of sale on commission and a certain small amount is charged on the consignor for each bag sent as and for Mahimai which is paid over by the assessee either immediately or subsequently to the trustees of the Mahimai fund (sic) in tact, the said amount is liable to be assessed for income-tax.

(g) Whether when debts are actually written off by the assessees as an irrecoverable bad debt it is open to the authorities to disallow a deduction in respect of the same on the ground that the origin of the debt has not been proved.

It is argued before us that where an Income-tax Officer holds an enquiry and comes to a decision, that decision has the force of res judicata and precludes the question being re-opened subsequently and that even if not res judicata it operates as an estoppel; secondly, that the Income-tax Officer was not entitled to call for accounts relating to a period more than three years' prior to the previous year as he is prohibited from doing so by the proviso to Sect. 22 (4); that the requisition for the production of the account books for the years 1917-1920 was therefore illegal and consequently no adverse inference can be drawn from the non-production of the account books nor can the non-production be made the basis of an assessment and that in the present case the Income-tax Officer having proceeded mainly on that ground alone, the assessment levied by him on that footing is illegal.

As regards the question of res judicata we do not think the contention can be accepted. The argument for the petitioners is that where an authority in constituted by a statute for determining judicially the legal rights and obligations of parties whether inter se or between themselves and the Crown and where that authority has to determine not only whether an obligation exists but also the measure of that obligation, that authority is a Court and the decisions of that authority are final and conclusive subject to such remedies by way of appeal or otherwise as are conferred by law. For this broad proposition there is no authority.

So far as the Income-tax Act is concerned, there is nothing in the Act which states that an Income-tax Officer proceeding to assess the income of an assessee and to determine the amount of such assessment is a Court. On the contrary the provisions of Sect. 37 suggest that except for certain purposes the Income-tax Officer is not a Court.

Sect. 37 states that the Income-tax Officers specified therein shall, for the purposes of Chap. IV, have the same powers as are vested in a Court under the Civil Procedure Code when trying a suit in respect of the following matters, namely:—(a) enforcing the attendance of any person and examining him on oath or affirmation, (b) compelling the production of documents, and (c) issuing commissions for the examination of witnesses; and any proceeding before an Income-tax Officer, Assistant Commissioner or Commissioner under this chapter shall be deemed to be a “judicial proceeding” within the meaning of Sects. 193 and 228 of the Indian Penal Code.

If an Income-tax Officer in making an investigation was a Court, there is no necessity for the provisions of Sect. 37. It is only for the purposes stated in that section that he is to be deemed a Court.

In Lal Mohan Poddar v. Emperor(1) it was held that a proceeding before an Income-tax Officer on the production of account books pursuant to a notice under Sect. 23 (2) of the Income-tax Act is a judicial proceeding only for the purposes of Sects. 193 and 228 but not of Sect. 196 of the Penal Code and that a conviction under Sect. 196 for the production of false accounts is bad in law. The learned Judges (C. C. Ghose and Cammiade, JJ.), observed:

“As we read Sect. 37, it seems to us to be clear that the Legislature has for the purpose of punishing offences under Sects. 193 and 228 of the Indian Penal Code (and under no others) converted proceedings before the officers mentioned therein, which are not judicial proceedings ordinarily, into judicial proceedings.”

In In re Harmukhrai Dulichand(2) the question arose whether an Income-tax Officer is a Court. Rankin, C. J., observed:

“It has been said that the income-tax Officer must; proceed in a judicial manner and Sect. 37 has been mentioned in this connection. Fundamentally, no doubt, the Income-tax Officer must proceed in a judicial spirit and come to a judicial conclusion upon properly ascertained facts; though I would point out that the Income-tax Officer is not a Court, he has not the procedure of a Court, and he is to some extent a party or judge in his own case.”

In Mahadev Ganesh v. Secretary of State for India the question was whether an officer acting under the Sea Customs Act, 1878, and adjudicating on the question whether a certain property was to be confiscated was a Court and it was held that he was not a Court. Sir Norman Macleod, C.J, observed:

“I have no doubt that the Collector, who is not bound to adjudge on confiscation and penalty as if the matter was proceeding in a Court of law according to the provisions of the Civil or Criminal Procedure Code, dealt with the various statements before him in a careful and judicial manner.”

The question again arose for decision on a reference in The Commissioner Of Income-Tax v. Massey & Co., Ltd., Ltd., Madras where the question referred was whether the decision of an Income-tax Officer in a previous enquiry constituted the matter res judicata and the Full Bench answered the question in the negative. Though there is no discussion in the judgment of this question as the Judges evidently thought it was not arguable it cannot be said that because no reasons are given in the judgment the opinion is not binding on us. It was an answer to a question referred and not merely obiter.

Reference has been made to In re Nataraja Aiyar(3), where the question was as regards the power of the High Court to issue a writ of certiorari against an Income-tax Officer who instituted criminal proceedings under Sect. 476 of the Criminal Procedure Code. Sundara Aiyer, J., was of opinion that the High Court had no jurisdiction. Sadasiva Aiyar, J., was of opinion that the High Court had jurisdiction. There are some observations in the judgment of both the learned Judges which, it is argued, support the contention of the petitioners that the Income-tax Officer is a Court. The facts were that the Income-tax Officer issued a notice under Sect. 476 of the Criminal Procedure Code to show cause why the petitioner should not be prosecuted for making a false-statement.

Sect. 37 of the Income-tax Act states that the proceedings under Chapter IV which refer to assessment should be deemed to be judicial proceedings within the meaning of Sects. 193 and 228 of the Indian Penal Code. So that where proceedings are sought to be taken for perjury it may well be contended that so far as the proceedings are concerned, the Income-tax Officer should be deemed to be a Court attracting the provisions of the Code as regards revision and appeal to the High Court. So far as we can see, the question was not raised nor was it necessary to be raised as to whether an Income-tax Officer was a Court when he assessed parties to income-tax. The contention of the petitioner was that the Income-tax Officer in determining the appeal did not act as a Court, that he had no jurisdiction to pass an order under Sect. 476 of the Criminal Procedure Code and that even if he was a Court, he had no jurisdiction to pass the order long after the proceedings terminated. The Public Prosecutor stated that there was no power in the High Court to issue a writ of certiorari for various reasons. It was unnecessary for the purpose of that case to decide whether an Income-tax Officer proceeding to assess an asseasee was a Court. And if the observations of the learned Judges can be said to lay down any such broad proposition we would respectfully dissent from it.

In this connection we may state that the Income-tax Department has been held in England to be only a department of the Executive and not to be a Court of Justice.

In Local Government Board v. Arlidge Viscount Haldane observed:

“My Lords, when the duty of deciding an appeal is imposed, those whose duty it is to decide it must act judicially. They must deal with the question referred to them without bias, and they must give to each of the parties the opportunity of adequately presenting the case made. The decision must be come to in the spirit and with the sense of responsibility of a tribunal whose duty it is to mete out justice. But it does not follow that the procedure of every such tribunal must be the same. In the case of a Court of law tradition in this country has prescribed certain principles to which in the main the procedure must conform. But what that procedure is to be in detail must depend on the nature of the tribunal … When, therefore, Parliament entrusts it with judicial duties, Parliament must be taken, in the absence of any declaration to the contrary, to have intended it to follow the procedure which is its own, and is necessary if it is to be capable of doing its work efficiently.”

Lord Shaw observed:

“The words ‘natural justice’ occur in arguments and sometimes in judicial pronouncements in such cases. My Lords, when a central administrative board deals with an appeal from a local authority it must do its best to act justly, and to reach just ends by just means. If a statute prescribes the means it must employ them. If it is left without express guidance it must still act honestly and by honest means. In regard to these certain ways and methods of judicial procedure may very likely be imitated; and lawyer-like methods may find especial favour from lawyers. But that the judiciary should presume to impose its own methods on administrative or executive officers is a usurpation. And the assumption that the methods of natural justice are ex necessitate those of Courts of Justice is wholly unfounded. This is expressly applicable to steps of procedure or forms of pleading. In so far as the term ‘natural justice’ means that a result or process should be just, it is a harmless though it may be a high-sounding expression.”

There can be little doubt that Income-tax Officers in conducting enquiries have to act judicially and to exercise their discretion not capriciously but on recognised judicial principles but that would not constitute the Officer making the enquiry a Court.

Reference has been made to Hill v. Clifford. In this case, the General Medical Council acting under the powers of the Dentists Act, 1878, made an order directing that the name of one Clifford should be struck off the Register of Dentists on the ground that he had been guilty of professional misconduct. Thereupon his partner gave notice determining the partnership. Suits were filed to determine the validity of the notice and the order of the Medical Council was tendered in evidence. Warrington, J., rejected it and decreed the action of the plaintiff. It was held by Cozens-Hardy, M.R, and Buckley, L.J, that the order was admissible as prima facie evidence of the fact that Clifford was guilty of acts unfamous or disgraceful in a professional sense. The President, Sir Gorell Barnes, was of opinion that the order was admissible as evidence and conclusive evidence of the fact that the defendant's name had been erased from the register by order of the Council against the defendant for some purposes other than the truth of the fact of misconduct to show the grounds upon which it was made. All that this case decides is that the order of the Medical Council is relevant evidence. It does not support the contention that the Council was a Court. As regards statutory bodies exercising quasi-judicial function, the law is thus stated in Halsbury's Laws of England, Vol. 13, paragraph 504, page 362:

“The doctrine of estopped by record has been extended by analogy to the decisions of all tribunals which have jurisdiction, whether by the law of this country, or by the consent of parties, or by the law of the country to whose tribunals the parties have, or may be presumed from their conduct to have, submitted themselves.”

In paragraph 507 it is observed:

“The principle of conclusiveness has been applied to decisions not of record in numerous cases, of which the following are examples:—A sentence of expulsion passed by a college; of deprivation by a college visitor; of trustees dismissing a schoolmaster; an order of the General Medical Council; the award of an arbitrator. So orders of commissioners of sewers (not made between the parties litigant) have been held admissible as evidence of reputation, on the express ground that they were adjudications of a Court of competent jurisdiction over the subject-matter.”

We are of opinion that an Income-tax Officer proceeding to assess an assessee after making an enquiry as contemplated by the Income-tax Act is not a Court and that it cannot be said that the doctrine of res judicata applicable to the decisions of Civil Courts applies.

In this connection we may refer to two cases, one cited on behalf of the petitioners and the other on behalf of the respondent.

Reference has been made by Mr. Krishnaswami Aiyangar for the petitioners to Hoystead v. Commissioner of Taxation. The question there was whether the beneficiaries were joint owners. The High Court in a previous assessment proceeding had held that six deductions of £5,000 should be made on that footing. In the subsequent year the Commissioner allowed only one deduction contending that the beneficiaries were not joint owners within the meaning of the Act. Upon a case stated the Court in Australia upheld the contention that only one deduction of £5,000 ought to be made. But their Lordships of the Privy Council reversed the decision on the ground that the previous proceedings estopped the Commissioner from contending that only one and not six deductions should be made. Reliance was placed on the following passage in the judgment of Lord Shaw:

“Very numerous authorities were referred to. In the opinion of their Lordships it is settled, first, that the admission of a fact fundamental to the decision arrived at cannot be withdrawn and a fresh litigation started, with a view of obtaining another judgment upon a different assumption of fact; secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the legal quality of that fact. Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or weight of certain circumstances …. Thirdly, the same principle—namely, that of setting at rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.”

For the Commissioner of Income-tax reference has been made to Broken Hill Proprietary Company v. Broken Hill Municipal Council where the question related to the valuation under the Local Government Act, 1919, of New South Wales. There was an adjudication as to valuation for a previous year and the question arose as to the valuation for the subsequent year. The point of res judicata was raised on the ground that the adjudication by the Court for the previous year would be conclusive as regards the subsequent years. Lord Carson in rejecting this contention stated:

“It was also contended before this Board on behalf of the respondents that having regard to the said decision of the High Court of Australia the question raised by this appeal is res judicata as between the appellants and the respondents, and the appellants are estopped from contending that such decision of the High Court of Australia is wrong. It has been pointed out that no such question was raised or pleaded either before the District Court or the Supreme Court in New South Wales, nor has there been any adjudication or finding upon it. There is, however, no substance in this contention. The decision of the High Court related to a valuation and a liability to a tax in a previous year, and no doubt as regards that year the decision could not be disputed. The present case relates to a new question—namely, the valuation for a different year and the liability for that year. It is not eadem questio, and therefore the principle of res judicata cannot apply.”

The principle to be deduced from these two cases is that where the question relating to assessment does not vary with the income every year, but depends on the nature of the property or any other question on which the rights of parties to be taxed are based, e.g, whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income, such question if decided by a Court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated. But if the question is decided by a Court on a reference which depends upon considerations which may vary from year to year, e.g, the case in Broken Hill Proprietary Company v. Broken Hill Municipal Council in which the average valuation had to be taken, there could be no question of res judicata.

The next question is whether even assuming that the matter is not res judicata, it would not create an estoppel by record against the Income-tax Officials.

In this connection the argument of Mr. Krishnaswami Aiyangar is that even treating the Income-tax Officials as a guasi-judicial body and not a Court, the principles of natural justice and expediency ought to prevent Income-tax Officers from going back on their previous decisions. Reference has been made to the passage in Halsbury's Laws of England I have already quoted.

It seems to us that where Income-tax Officials have after enquiry proceeded to assess the assessee on a certain basis, though they may be entitled to re-open the enquiry they cannot arbitrarily change the assessment simply on the ground that the succeeding Officer does not agree with the preceding Officer's finding. The position is just like the position of any two parties who have proceeded on a certain basis in their relations. It may be open to one party to re-open the matter. But if he wants to do so, there should be facts which would entitle him to do it. If fresh facts come to light which on an investigation would entitle the Income-tax Officer to come to a different conclusion from that of his predecessor we think he is entitled to re-open the question. But if there are no fresh facts, it is difficult to see how he can arbitrarily, go behind the finding of his predecessor. The same principles of natural justice or judicial dealing which Courts impose upon Income-tax Officers would prevent them capriciously setting aside the orders of their predecessors based on enquiry. In the present case if there were no fresh facts, we do not think the Income-tax Officer can simply say that he would not be bound by the order of his predecessor affecting a question like the present, namely, whether a certain sum is the capital of the firm or a loan. But if on investigation any additional facts come to his notice which he considers sufficient, he would be entitled to act upon that additional information and we do not think the Courts of justice can interfere. If there is evidence on which he could have acted it is not for the Court to constitute itself into a Court of Appeal and see whether that evidence is sufficient or insufficient.

As regards the question as to the power of the Income-tax Officer to demand the production of accounts beyond three preceding years the provisions of Sects. 22, 23 and 37 have to be considered. The contention for the petitioners is that in no case can accounts for over three years be called for whatever may be the nature of the enquiry. For the Commissioner of Income-tax it is contended that the limitation as to three years applies to cases where the Officer proceeds to assess under Sect. 23 (4) and that in other cases the Income-tax Officer is not precluded from calling for evidence.

Sects. 22 and 23 deal with the return of the income furnished by the assessee for the purpose of being assessed. Sub-sect. (2) empowers the Income-tax Officer to serve a notice upon the assessee requiring him to furnish within the period specified therein a return in the prescribed form of his total income during the previous year. Sub-sect. (4) enables the Officer to require the assessee to produce such accounts or documents as the Officer may require. So far as the accounts are concerned, the proviso says that the Income-tax Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year.

Sect. 23, Sub-sect. (4) deals with cases where the Income-tax Officer is empowered to make an assessment to the best of his judgment and it says that he can do so if the assessee fails to make his return under Sub-sect. (1) or Sub-sect. (2) of Sect. 22 as the case may be, or fails to comply with all the terms of the notice issued under Sub-sect. (4) of the same section, or having made a return fails to comply with all the terms of the notice issued under Sub-sect. (2) of Sect. 23 which refers to the appearance of the person submitting the return at the office of the Income-tax Officer and the production of any evidence on which such person may rely. Under Sub-sect. (2) of Sect. 23 it is the evidence which the assessee has to rely on that is required to be produced.

Sect. 37 refers to the power to take evidence and empowers the Officer to enforce the attendance of any person, and to examine him on oath or affirmation, to compel the production of documents and to issue commissions for the examination of witnesses.

Beading these sections together we think that the proviso to Sub-sect. (4) of Sect. 22 when read with Sect. 23, Sub-sect. (4) only limits the power to call for accounts for more than three years prior to the previous year when the Income-tax Officer has to make the assessment to the best of his judgment where the conditions mentioned in Sub-sect. (4) of Sect. 23 exist. Where, however, during the course of an enquiry the Income-tax Officer is not going to make the assessment to the best of his judgment owing to want of material but proceeds to make an enquiry as regards the truth or otherwise of the allegations made by the assessee in his return in order to determine whether the assessee has made out his allegations, there is nothing to prevent the Income-tax Officer from requiring the assessee to produce any evidence including accounts. It will be unreasonable to suppose that where, for example, an assessee claims certain deductions and the Income-tax Officer wants to make an enquiry into the truth or otherwise of the allegations it is open to the assessee to refuse to produce any accounts beyond the three years fixed in the proviso to Sub-sect. (4) of Sect. 22, and require the Income-tax Officer to come to a decision on the materials afforded by the three years' accounts.

As regards the presumption to be drawn from the non-production of the account books, we think the case will be governed by Sect. 114 of the Evidence Act. Illustrations (g) and (h) refer to cases of non-production of accounts and documents and refusal to answer questions.

Where an assessment is made under Sect. 23 (4) it is difficult to see how an Income-tax Officer can call for the production of books beyond the period specified in the proviso to Sect. 22 and then draw an adverse inference for the purpose of penal assessment. It will really be defeating the protection given by Sect. 22 (4). But where the accounts are called for otherwise than for that purpose there is no reason why the presumption should not be drawn as in any ordinary case.

In this case the accounts were called for during the course of the enquiry as to whether the deduction claimed by the assessee should be granted or not and we think that the Income-tax Officer was entitled to draw an adverse inference owing to the non-production of the account books. It is a question of fact whether the books were available or not. The assessee says they were lost or destroyed, but the Income-tax Officer does not believe it. It is not for us to say whether the Income-tax Officer was justified or not in his conclusion.

This disposes of all the points argued before us.

The petitioners will pay the respondent Rs. 250 for costs.

N. R. R. Reference answered.