1. In this case an Income-tax assessee made a return of his income when required to do so under Section 22 (2) of the Indian Income-tax Act, 1922. Not being satisfied with the return the Income-tax Officer required the assessee under Section 23 (2) of the Act to produce evidence in support of his return. The assessee produced some evidence; but the Income-tax Officer found it insufficient to show the amount of the assessee's income and then issued a notice to him under Section 22 (4) of the Act to produce complete accounts of a branch business at a place in the Federated Malay States for the account year in question. Those accounts the assessee did not produce, and the Income-tax Officer, therefore, proceeded to make his assessment under Section 23 (4) of the Act--that is an assessment not made upon evidence but "to the best of his judgment," an assessment from which under the Act the assessee had no right of appeal. The question referred to us is "the applicant having made a return of his income and having complied with the terms of the notice issued by him under Section 23 (2), was there any jurisdiction in the Income-tax Officer to revert to Section 22 (4) and make an assessment under Section 23 (4) for non-compliance with the notice under Section 22 (4)"? The assessee contends that in those circumstances the Income-tax Officer had no power to make an arbitrary assessment under Section 23 (4), from which there was no right of appeal.

2. This question has been before four of the Indian High Courts. It has been answered against the assessee by a unanimous Full Bench of three Judges of the Calcutta High Court in In the matter of Messrs. Harmukhrai Putichand (1928) 32 C.W.N. 710 (F.B.),by a unanimous Full Bench of five judges of the Patna High Court in Ram Khelazvan Ugam Lal v. Commissioner of Income-tax, Bihar and Orissa A.I.R. 1928 Pat. 529 (F.B),overruling Brij Raj Rang Lal v. Commissioner of Income-tax, Bihar and Orissa A.I.R. 1927 Pat. 390,a decision of two Judges, and by a Division Bench of the Allahabad High Court in In the matter of Chandra Sen Jaini (1928) I.L.R. 50 A. 589. Now that the earlier decision of the Division Bench of the Patna High Court has been overruled, there remains in the assessee's favour of the cases quoted before us only a decision of a Division Bench of the Lahore High Court in Khushi Ram Karam Chand v. Commissioner of Income-tax, Punjab A.I.R. 1928 Lah. 219. At one stage of the arguments before us it was suggested that the decision of a Full Bench of this Court in Ramaswamiah v. Commissioner of Income-tax, Madras (1925) I.L.R. 49 M. 831 (F.B.) was by implication in favour of the assessee in this matter; but on examination it will be seen that it was found in that case that the assessment was in fact made, not under Section 23 (4) but under Section 23 (3). The weight of authority on the question before us is therefore overwhelmingly against the assessee.

3. It was first contended by Mr. Krishnaswami Aiyangar for the assessee that the Income-tax Officer's power to call for accounts under Section 22 (4) can be exercised only before the assessee has submitted a return of his income. There is nothing whatever in the wording of the sub-section to suggest that. On the contrary the only limitations on the power of the Income-tax Officer to call for accounts in that sub-section are that, if the assessee is not a company, a notice requiring him to make a return of his income must have been served on him and that accounts for a period more than three years prior to the previous year cannot be called for. The fact that those restrictions are mentioned explicitly makes it the more improbable that any other restriction is implied. It is urged that the fact that the subsection occurs in Section 22, which deals with the procedure for getting in a return, makes it probable that all its provisions apply to the stage before the return comes in. That would be a very unsafe reason for limiting the plain effect of the words of the sub-section; and it may be remarked that Sub-section (3) of Section 22 enables the assessee to do something after he has submitted his return. If Section 22 (4) is to be construed as in this part of his argument Mr. Krishnaswami Aiyangar would have us construe it, we must read into it a very important restriction which only a very careless Legislature could have omitted to express if it were intended. And, as has been pointed out by Mr. Patanjali Sastri for the Commissioner of Income-tax, in the great majority of cases it must be after the return has come in, not before, that the Income-tax Officer has any need to see the assessee's accounts. If the provision for calling for accounts were restricted to the period before the return is submitted, it would be of comparatively little use. Until he knows whether a company is going to submit its return by the 15th June or any other assessee is going to submit its return by the date specified in the notice to him under Section 22 (2), the Income-tax Officer need not trouble about accounts at all, as, if no return is submitted in time, he can, as is unquestioned, make this arbitrary assessment under Section 23 (4) without referring to any accounts or evidence. It is very highly improbable that the only specific provision made by the Legislature for calling for accounts would apply only to the period when accounts are least required. But it has been argued--and the argument was adopted in Khushi Ram Karam Chand v. Commissioner of Income-tax, Punjab A.I.R. 1928 Lah. 219 and in the overruled case in the Patna High Court--that this surprising restriction of the effect of Section 22 (4) has been introduced by the Legislature in a cryptic and backhanded way by the wording used in Section 23 (4). What the exact meaning of that wording is I will discuss later; but pushed to its farthest grammatical extreme, as contended by the assessee, it comes to no more than this--that the penalty provided by Section 23 (4) for failure to produce accounts when required to do so by a notice under Section 22 (4) applies only if the notice is issued before the return is submitted. Even if that interpretation were correct, it would in my opinion be a clearly insufficient reason for refusing to read Section 22 (4) according to its plain meaning and for reading into it a remarkable and very important restriction which those who framed it could hardly have forgotten to express. The prevailing judgments of the Calcutta High Court, Allahabad and Patna High Courts, which I have mentioned, agree that there is no such restriction.

4. But Mr. Krishnaswami Aiyangar has tried to get at the same result by another road. In a later stage of his arguments he has admitted that the Income-tax Officer must have the right to call for the assessee's accounts even after he has submitted his return, but has suggested that calling for accounts at that stage is provided for in Section 23 (3). The admission that the Income-tax Officer can call for accounts under Section 23 (3) in the course of an inquiry under that sub-section Mr. Krishnaswami Aiyangar can make without reluctance because failure to comply with a demand of the Income-tax Officer made under that sub-section does not expose the assessee to the penalty of arbitrary assessment provided by Section 23 (4). If the Act provided explicitly for calling for accounts during the inquiry under Section 23 (3), which is to be made after a return has been submitted, there might be some reason for supposing that the provision for calling for accounts under Section 22 (4) applied only to an earlier stage. But the power given to the Income-tax Officer by Section 23 (3) is to require the production of evidence "on specified points." If it were intended by those words to give power to call for accounts for several years, the language would in my opinion be ill-chosen and misleading. If it were intended to give power to call for accounts, what object could there be in failing to say so explicitly, what object could there be in using language in such contrast with the language of Section 22 (4)? The accounts of a series of years may provide evidence on a specified point; but to describe them as "evidence on a specified point is obviously inappropriate." To my mind the language of Section 23 (3) adds force to the Commissioner's contention. If accounts can be called for at any stage, before or after the return is submitted, then in the inquiry under Section 23 (3) power to call for further evidence on specified points is enough and the language of that sub-section need not be strained in any way.

5. And, though Mr. Krishnaswami Aiyangar has called Section 23 (3) to his aid as showing an implied restriction of Section 22 (4), on examination it throws light on the question of immediate importance in this case--whether failure to produce accounts when called for after a return has been submitted entails the penalty of arbitrary assessment under Section 23 (4). Failure to comply with a direction under Section 23 (3) does not entail that penalty. If the power of the Income-tax Officer under Section 23 (3) is confined to the plain meaning of that sub-section, viz., to call for evidence on specified points, it is reasonable that failure to comply with such a direction should not entail the very severe penalty of arbitrary assessment without right of appeal. If it did entail that penalty, it could obviously be used in a very oppressive way. For instance, the Income-tax Officer might call for some evidence of doubtful relevance and difficult or impossible to produce, and, if it were not produced, enforce the penalty of arbitrary assessment. That would be clearly unjust, and the Legislature has rightly made the penalty of arbitrary assessment inapplicable to such a case. But, if an assessee fails to produce at any stage when required his accounts--the most important of all evidence in such a matter, the very evidence on which, if he is honest, he will himself wish to reply--why should he be treated more leniently when his improper and obstructive refusal comes after instead of before he submits his return?

6. No reason has been suggested for such a distinction. On the contrary, the man who refuses to produce his accounts when the Income-tax Officer has expressed under Section 23 (2) dissatisfaction with his return is clearly more blameworthy and obstructive than the' man who fails to produce them before he has made his return, when no one has yet expressed an opinion whether his return will be an honest one or not. When once it is admitted that the Income-tax Officer must have power to call for accounts in the course of the inquiry under section 23 (3)--and without it the inquiry might easily be reduced by the assessee to a farce--the omission to penalise failure to comply with the Officer's requisition under that sub-section by arbitrary assessment is strong evidence that the right for accounts even at that stage must be found elsewhere, that is in Section 22 (4).

7. There remains the actual wording of Section 23 (4) which sets out the failure on the part of the assessee which entail the penalty of arbitrary assessment without appeal. It is contended that, even if Section 22 (4) gives power to call for accounts after the assessee has submitted his return, the penalty of arbitrary assessment is restricted to a failure to produce accounts when called for before the return is submitted. As I have indicated, there is nothing in the object or nature of the proceedings and nothing in Section 22 or the rest of Section 23 to make it probable that the legislature would intend to treat more leniently a failure to produce accounts when required after the submission of a return than before it. But it is contended that the wording of Section 23 (4) has that surprising result. It is quite clear, that, if a company or other assessee fails to submit a return by the proper date, the penalty of arbitrary assessment is to be enforced. That is what the sub-section first provides. Then it goes on to provide the same penalty for failure to comply with all the terms of a notice issued under Sub-section (4) of Section 22. If the notice under Section 22 (4) can be issued at any time--and that I do not think can now be doubted--there is nothing so far to suggest that the penalty is attached only to failure to comply with a notice issued under Section 22 (4) before a return is submitted. But Section 23 (4) goes on to provide that, if a company or other assessee "having made a return" fails to comply with all the terms of a notice issued under Section 23 (2) the penalty shall apply. The contention of the assessee in this case rests upon the insertion of the words "having made a return." It is urged with truth that failure to comply with a notice under Section 23 (2) can occur only after making a return as that notice cannot be issued before a return is made. Therefore it is contended these otherwise useless words must have been introduced to show by contrast that the other two failures penalised must occur before a return is made. No such contrast could be of any use in regard to the first failure mentioned in the subsection, which is failure to make a return at all. Then this supposed contrast, if it indicates anything, must be understood to indicate that the failure to comply with a notice to produce accounts under Section 22 (4) is to be penalised only if the notice is issued before the return is submitted. But, if that was the intention, if the object was to express something of such importance, why try to indicate it in a clumsy and obscure way? We must all accept the principle adopted in Khusi Ram Karam Chand v. Commissioner of Income-tax, Punjab A.I.R. 1928 Lah. 219 that if two constructions of a fiscal enactment are equally possible and reasonable, the construction more favourable to the subject must be enforced. But the contention of the assessee in this case rests on too frail a foundation. The words "having made a return" in Section 23 (4) may be superfluous and add nothing necessary for the description of the third failure penalised, but they are applicable to that failure. Their use may be tantalogical and inartistic. But because they are unnecessary, we are not justified in jumping to the conclusion that they have been used to express something which it cannot be pretended they could express clearly, which a child could express clearly in other words, which no man of education and sense of responsibility would think of expressing in that way and of which there is no indication in Section 22 or other parts of Section 23. That to my mind would not be choosing between two equally possible and reasonable constructions, but adopting a strained construction, unreasonable in effect and out of tune with the policy of the Act that an assessee should make full disclosure of his income. In my opinion the power to call for accounts under Section 22 (4) may be exercised by the Income-tax Officer after the assessee has submitted a return, and failure of the assessee to produce his accounts when called for after he has submitted a return may be penalised by arbitrary assessment under Section 23 (4). The question referred to us must be answered in the affirmative, and the assessee should pay the costs of the reference Rs. 250.