1965 PLP 178 (PTD)

Assessment

Notice-Provision for notice to produce accounts and documents-Amendment empowering officer to require assessee to furnish information and particulars-Effect and scope-Whether discriminatory-Indian Income-tax Act, 1922, S. 22 (4) (before and after amendment in 1953)-Constitution of India, Art.

14. Section 22 (4) of the Indian Income-tax Act, 1922, empowered the Income-tax Officer only to require production of accounts and documents. That section was amended by the Amending Act of 1953 with retrospective effect from April 1, 1952, and the amendment gave power to the Income-tax Officer to require the assessee to furnish particulars and information in addition to producing accounts and documents: Held, (i) that section 22 (4) was a machinery section and purely procedural; (ii) that the effect of making the amended section 22 (4) retrospective from April 1, 1952, was that notices issued under that section would be good and in order if they were issued after April 1, 1952, even though the notices called for production of particulars and information besides accounts and documents: its application was not restricted to assessments of periods subsequent to April 1, 1952; (iii) that as the amended section 22 (4) applied uniformly to all cases which were pending before the Income-tax Officer at the time it came into force, it was not discriminatory and, therefore, did not offend Article 14 of the Constitution of India. There was no discrimination if the procedure, when it became applicable, applied equally to all persons to whom it was capable of being applied. Even a procedural law has to conform to constitutional limitations, and if a procedural provision treats persons similarly situated differently, it will be regarded as violative of Article 14 of the Constitution. [Cases referred to.] By this application the assessee requires the Appellate Tribunal to state a case to the High Court on as many as nine questions of law which are said to arise out of the Tribunal s order in I. T. A. No. 883 of 1957-58. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order of the Tribunal, we hereby draw up a statement of the case agreed to by the parties and refer it to the High Court of Judicature at Bombay under section 66 (1) of the Indian Income-tax Act.

2. The material facts are as follows: (1) The assessment year is 1949-50, the accounting year being Maru year 2004-2005. (2) The assessment was made under section 23 (4) of the Act on January 28, 1954, for non-compliance with notices issued on October 12, 1953 and December 21, 1953. (3) The Income-tax Officer issued a notice under section 22 (4) on October 12, 1953, which required the production of all documents required as per letter accompanying . The covering letter was dated October 10, 1953. The notice and the covering letter are annexed hereto as Annexures A and A-1 and form part of the case. (4) The said notice had to be complied with on October 15, 1953. On that date Mr. Mistry representing the assessee attended and asked for time for furnishing the necessary particulars. He raised no objection as to the validity of the notice. Time was granted till October 21, 1953, and it was specifically recorded in the order-sheet that no further time will be given. (5) Again there was no compliance on October 21, 1953. Thereafter, on November 3, 1953, the Income-tax Officer wrote to the assessee: Let me know within 3 days why a notice under section 28 (3) should not be issued for failure on your part to furnish the information called for in my letter dated October 10, 1952, and notice dated October 12, 1953. (6) There was again no compliance within the time stipulated; but Mr. Mistry attended on November 11, 1953. The order-sheet of that date records: Mr. Mistry attends with Mr. Puranmal Bansidhar. In spite of the warning given that no further time beyond October 21, 1953, would be given for furnishing the particulars called for in my letter dated October 10, 1953, the assessee has not still chosen to furnish the said particulars. As a special case, a final chance be given to the assessee to furnish the particulars on November 14, 1953. No further time will be given. In the margin of the order-sheet Mr. Mistry for the assessee duly acknowledged notice of this order. (7) On this date also no objection was taken as to the validity of the notice issued under section 22 (4) of the Act. (8) Again there was default, but on December 16, 1953, a letter was written by the assessee s representative enclosing the details regarding the share account and copies of two letters by G. Raghunathmal Bank Ltd., Hyderabad. The letter concluded by saying Further particulars when ready will be sent to you. (9) As the assessee had failed to comply with the notice dated October 12, 1953, the Income-tax Officer issued another notice under section 22 (4) on December 21, 1953, accompanied by a covering letter of even date (annexed hereto as Annexures B and B-1 and forming part of the case) setting out the various items regarding which information had been called for by the notice dated October 12, 1953, but which had remained uncomplied with. She was directed to comply with the notice on December 23, 1953. This second notice was also ignored except for a letter from Puranmal Bansidhar, share and stock brokers, dated December 23, 1953, which was forwarded to the Income-tax Officer. (10) The assessee thereafter went over the head of the Income-tax Officer and approached the Commissioner of Income-tax sometime in January 1954, and on promising to comply with the notice on or before 4th January 1954, further time was given. Even before the Commissioner, no objection to the validity of the notice under section 22 (4) was raised. (11) Thereafter, the Income-tax Officer waited till the promised date but in vain and on the 5th January 1954, he recorded the following order in the order-sheet: Particulars called for in this case have not yet been furnished though Mr. Mistry made a promise before the Commissioner of Income-tax last week that they would be furnished by January 4, 1954. (12) The Income-tax Officer then waited till January 28, 1954, in the hope that the assessee would fulfil the promise made to the Commissioner and comply with the notice under section 22 (4). In the absence of any compliance or further time having been asked for, the officer completed the assessment under section 23 (4) on January 28, 1954. (13) On March 1, 1954, the assessee filed an application under section 27, which is annexed hereto as Annexure C and forming part of the case, praying for the cancellation of the assessment made under section 23 (4). No reference was made to the legality or validity of the two notices issued under section 22(4) of the Act. The only submission was that the assessee has duly complied with requisition of the notice. (14) The Income-tax Officer rejected the application on the ground that the assessee did not mention how the notices had been complied with. A mere statement of the assessee that the notices under section 22 (4) had been complied with was obviously not enough. In spite of repeated opportunities given the notices were not complied with and the required particulars were not furnished. Even before the Income-tax Officer Mr. Mistry, who appeared in support of the application under section 27, could not say why on several points raised by the Income-tax Officer in the order of assessment with regard to default were considered under misconception and why the Income-tax Officer s decision was considered to be contrary to the evidence on record. Even before the Income-tax Officer the validity of the notice issued under section 22 (4) was not challenged. (15) On appeal to the Appellate Assistant Commissioner the material ground of appeal taken was: Your petitioner was prevented by sufficient cause from complying with the terms of the notice under subsection (4) of section 22 or subsection (2) of section 23, as more particularly specified in the statement attached. Paragraph 3 thereof reads as under: The one material point which the Income-tax Officer has failed to appreciate is this. The Income-tax Officer is only competent in law to make the best judgment assessment under subsection (4) of section 23 on the ground that the assessee wilfully failed to produce the accounts. This is not so in the present case. The Income-tax Officer, as is evidenced from the assessment order, has made inquiries which were fully answered. It may be that on some of the points he is not satisfied. Because he is not satisfied is no ground for making the best judgment assessment. If the Income-tax Officer is not satisfied with the explanations given by the assessee on any of the items inquired by him, the law gives him full authority to add back such items in computing the total income of the assessee . . . . . (16) Even in the grounds of appeal before the Appellate Assistant Commissioner the legality or validity of the notice was not challenged. At the time of the arguments, however, before the Appellate Assistant Commissioner for the first time a contention was raised that the notices issued under section 22 (4) were invalid on the ground that the assessment year under consideration was 1949-50 and section 22 (4) as it stood prior to its amendment in 1953 applied to the case and it was not competent to the Income-tax Officer to issue a notice under section 22 (4) as amended requiring the assessee to furnish particulars in respect of certain items mentioned by him in the letters accompanying the notices and that the Income-tax Officer was only competent to issue a notice under section 22 (4) requiring the assessee to produce or cause to be produced such accounts or documents as the Income-tax Officer may require under the section as it stood prior to its amendment. (17) The Appellate Assistant Commissioner repelled this contention for the reason, inter alia: The amendment effected by section 14 of the Indian Income-tax (Amendment) Act, 1953, is a purely procedural amendment and, therefore, it is applicable to all assessments which were then pending. No substantive right can be said to have been involved in view of the amendment to section 22 (4) referred to by the appellant s representatives. It was further held that the notices issued were absolutely in order even from the point of view of section 22 (4) as it stood prior to its amendment in 1953. These notices being perfectly valid, it was incumbent on the appellant to have complied with them. The order of the Appellate Assistant Commissioner is annexed hereto as Annexure D and forms part of the case. (18) On appeal before the Tribunal against the order of the Appellate Assistant Commissioner refusing to cancel the assessment made by the Income-tax Officer under section 23 (4) of the Act, the main contention of the assessee was that when the Income-tax (Amendment) Act of 1953 in terms stated that it shall be deemed to be in force from April 1, 1952, the notice under section 22 (4) should have been issued in terms of section 22 (4) as it stood on April 1, 1949, which could only have required the assessee to produce accounts and documents and no requisition could have been made for particulars and information on any point . Further, though the order under section 33 (4) nor our notes show that an argument regarding the invalidity of the amended section 22 (4) on the ground of discriminatory legislation was put forward, we are however quite prepared to take Mr. Mistry s word that such an argument was advanced. But obviously it was only a subsidiary argument to buttress the main contention that section 22 (4) as amended in 1953 could not be invoked in respect of the 1949-50 assessment year and therefore it was not considered necessary to deal specifically with such a contention. This main contention, the Tribunal repelled for the reasons, inter alia: (1) That no sufficient cause bad been alleged and much less proved for the default and as such no question of cancelling the assessment on the merits can arise; (2) that the technical point, now raised, had not in fact operated, in any way, on the mind of the assessee in her failure to comply with the section 22 (4) notices issued by the Income-tax Officer; (3) that on October 12, 1953, the date on which the section 22 (4), notice was issued, there was only the amended section on the statute book and the notices issued were therefore perfectly valid; and (4) in any event section 22 (4) was a machinery section and, therefore, had retrospective effect. The order of the Tribunal is annexed hereto as Annexure E and forms part of the case.

3. From the facts stated above, the question that arises is: Whether on the facts and circumstances of the case the notices dated 12th October 1953 and 21st December 1953, issued under section 22 (4) are valid? R. J. Kolah for the Assessee. G. N. Joshi with R. J. Joshi for the Commissioner. JUDGMENT DESAI, J.-In the assessment of the assessee for the assessment year 1949-50, for which the account year was Maru year 2004-2005, notices were issued by the Income-tax Officer under section 22 (4) on the 12th October 1953, and on the 21st December 1953. By the said notices the Income-tax Officer had called upon the assessee to furnish accounts, documents and information in respect of the items specified by him in a letter accompanying each of the notices. The assessee failed to comply fully with the said notices and the Income-tax Officer made a best judgment assessment under section 23 (4) on the 28th January 1954. On the 1st March 1954, the assessee filed an application under section 27 for setting aside the best judgment assessment under section 23 (4). It was alleged in the said application by the assessee that he had complied with the requisition of the notices issued by the Income-tax Officer and the best judgment assessment, therefore, was not justified. The application was rejected by the Income-tax Officer. In the arguments before the Appellate Assistant Commissioner in the appeal, which the assessee preferred against the order of the Income-tax Officer, an additional ground was taken, viz., that the notices under section 22 (4) were invalid and, consequently, the Income-tax Officer had no right to make a best judgment assessment for non-compliance with the said notices. The argument advanced was that prior to the amendment of section 22 (4) by the Amending Act of 1953, the Income-tax Officer could under the said section ask only for the production of accounts and documents and not for any other information or particulars. The amendment made by the Amending Act of 1953 gave power to the Income-tax Officer to require the assessee to supply particulars and information in addition to the accounts and documents, but this amendment became operative only from the 1st April 1952, and, therefore, could not apply to assessments of a period prior to the said date. Since the assessment in the present case was for the assessment year 1949-50, the Income-tax Officer had no power to require the assessee to furnish particulars or information on a notice under section 22 (4). The argument was negatived by the Appellate Assistant Commissioner who took the view that the amendment of section 22 (4) effected by the Amendment Act was clearly a procedural amendment and was, therefore, applicable to all assessments, which were then pending. Since the notices issued under section 22 (4) were subsequent to the date since when the amendment had become effective, the notices issued were perfectly good and valid and the Income-tax Officer was, therefore, justified in proceeding to a best judgment assessment for non-compliance with the said notices by the assessee. In the appeal before the Income-tax Appellate Tribunal, the same contention was again raised by the assessee and it was further sought to be reinforced by an argument that if the amendment effected in section 22 (4) was made applicable to assessments of a date prior to its introduction, such an interpretation of the said provision would make it discriminatory and, therefore, violative of the fundamental rights under Article 14 of the Constitution, The Tribunal did not accept the contentions raised by the assessee before it, and confirmed the orders passed by the Income-tax Authorities. Thereafter, at the instance of the assessee, it drew up a statement of the case and referred to this Court the following question under section 66 (1) of the Indian Income-tax Act: Whether on the facts and circumstances of the case the notices dated 12th October 1953 and 21st December 1953, issued under section 22 (4) are valid? Mr. Kolah, the learned counsel appearing for the assessee, has argued that the provision of section 22 (4) of the Indian Income-tax Act is not merely a procedural provision and, therefore, the rule that a procedural provision is ordinarily retrospective cannot apply to the said provision. Secondly, he has argued that the Legislature at the time of enacting the said provision, having made the Act retrospective only from a specified date, viz., 1st April 1952, no greater retrospective effect could be given to the said provision. Mr. Kolah argues that even though in the absence of the Legislature having expressed its intention it may have been possible to say that the rule that a procedural amendment is retrospective could have applied to the present provision. In view of the specific intention declared by the Legislature, no greater retrospective effect then making it operative only from 1st April 1952, can be given to the said provision. Mr. Kolah s further argument is that even if it is assumed that the amendment is only in the procedural law, the procedural law is also subject to constitutional limitations and, consequently, even the procedural law, which is discriminatory will be effected by Article 14 of the Constitution and thus rendered ineffective. Mr. Kolah s argument in this connection is that by giving retrospective effect to the provision of section 22 (4) assessees, similarly situated will be effected differently. According to him, all assessees, who are liable to pay income-tax for a given assessment year, are persons similarly situated. Thus all assessees who are liable to pay income-tax for the assessment year 1949-50 form a class of persons similarly situated. Now, in the case of some persons of this class their assessments might have been completed before the amendment of section 22 (4) was brought in by the Amending Act of 1953. In the assessment proceedings of these persons, the Income-tax Officer could have no authority to require them by a notice under section 22(4) to furnish particulars and information. In the case of persons, however, whose assessments for the year 1949-50 were not completed until the amendment came on the statute book, the Income-tax Officer would have the right to give a notice under section 22 (4) requiring them not only to produce accounts and documents but also to produce particulars and information, and if they failed to comply with the notice requiring particulars and information to be supplied, he could make a best judgment assessment under section 23 (4) against them although for the same failure on the part of the others, whose assessments were completed, he could not have done so. Mr. Kolah, therefore, argues that the mere fortuitous circumstance that the assessment of one assessee was completed before a particular date while that of another similarly situated assessee was not completed, the Income-tax Officer would be in a position to treat the other man in a manner different from that in which he treated the first one. Since such a result is likely to follow by interpreting the provisions of section 22 (4) as being retrospective, Mr. Kolah s argument is that no such interpretation could be given to it. Mr. Kolah has referred us to State of West Bengal v. Anwar Ali Sarkar ((1952) S C R 284) and Dhirendra Kumar Mandal v. Superintendent and Remembrancer of Legal Affairs to the Government of West Bengal ((1955) 1 S C R 224) for his submission that a procedural law comes as much within the purview of Article 14 of the Constitution as any other law. For his argument that the provision of section 22 (4) is not purely procedural but affects the liability of the assessee and therefore, would be violative of Article 14 of the Constitution, if retrospective effect is given to it, he has referred us to certain observations in Shree Meenakshi Mills Ltd. v. A. V. Visvanatha Sastri ((1954) 26 I T R 713) and M. Ct. Muthiah v. Commissioner of Income-tax ((1956) 29 I T R 390). In our opinion none of the arguments, which the learned counsel has advanced before us, has any substance. There can be no doubt whatsoever that the provisions of sections 22 (4) and 23 of the Indian Income-tax Act are provisions of the machinery sections enacted for the purposes of computation of the tax liability of the assessee, which is fixed and charged by the charging sections of the Act. As has been often said, there are three stages in the imposition of a tax. There is the declaration of the liability, then there is the assessment and finally the recovery and collection. As was observed by the Federal Court in Chatturam v. Commissioner of Income-tax ((1947) 15 I T R 302 (F C)): The liability to pay the tax is founded on sections 3 and 4 of the Income-tax Act, which are the charging sections. Section 22, etc., are the machinery sections to determine the amount of tax. It is in the procedure prescribed for the determination of the amount of tax liability of the assessee that section 22 (4) provides that the Income-tax Officer may require the assessee to furnish him with certain accounts or documents or certain other particulars and information. Before the amendment in 1953, the provision of this section had only provided for accounts and documents to be called for. It has now by the amendment also provided that further particulars and information may also be called. But these, it must be remembered, are matters which are relevant and which would help the Income-tax Officer in correctly determining the tax liability of the assessee which, it is the duty and obligation of the assessee, to discharge. The provision of section 22 (4) by itself is, no doubt, purely procedural and simply because there has been a change in this procedural provision, which perhaps is a little more inconvenient to the assessee, that would not make the usual rule inapplicable to this provision, viz., that a procedural provision will have application to all pending proceedings subsequent to its introduction. Mr. Kolah s argument, however, is that, although the provision of section 22 (4) appears to be procedural in its nature, it affects the liability of the assessee in view of the provision of section 23 (4) and, consequently, the provision cannot be regarded as purely procedural. Mr. Kolah says that a failure to comply with the requisition under section 22 (4) subjects the assessee to a best judgment assessment at the hands of the Income-tax Officer and, therefore, affects his liability. Since the consequence of a best judgment follows on a non-compliance with the notice under section 22 (4), the content of section 22 (4) is directly linked with the liability of the assessee and, therefore, it would not be correct to look upon the provision as being a mere procedural provision. Now, it is true that under section 23 (4), if a notice under section 22 (4) has not been complied with an Income-tax Officer would be entitled to make a best judgment assessment, but that would not make the provision of section 22 (4) anything different from a mere procedural provision. As we have already stated earlier, the purpose of the provision of section 22 (4) is to enable the Income-tax Officer to obtain certain material from the assessee relevant for the purpose of assessment. If the assessee fails to comply with the requisition of the Income-tax Officer, and fails to supply such material, the Income-tax Officer makes the assessment according to his best judgment. The best judgment assessment is one of the methods provided to the Income-tax Officer to determine and quantify the amount of the tax liability of the assessee and this method, under the law, he is entitled to follow, if the assessee does not put before him all the relevant material which he requires for the proper determination of the tax liability of the assessee. Now, before the amendment of section 22 (4) the material, which he could call upon the assessee to supply, was accounts and documents. Subsequent to the amendment he is also empowered to call for other particulars and information, but all this is for the purpose of the proper determination of the tax liability, which it is the duty of the Income-tax Officer to determine and of the assessee to discharge. If, for the purpose of the proper determination of this liability, a few things more than what were formerly regarded as sufficient were required to be called for from the assessee, that would not, in our opinion, change either the basic content of the provision or subject the assessee to any hardship or prejudicial treatment. It could not be said that the assessee has any right not to divulge any information or particulars which are not convenient to him. Up to the time of the amendment of section 22 (4) the Legislature had not empowered the Income-tax Officer to require them to be furnished by the assessee. But that, in our opinion, is nothing more than a mere change in the procedure. The power under section 22(4) to make a best judgment assessment remains the same as before, viz., for non-compliance with the notice under section 22 (4). The circumstance that the failure to comply with the procedural provision involves a certain consequence will not make the provision any the less a procedural provision. Coming to the next contention of the learned counsel, viz., that the Amending Act of 1953, having specified in terms that, unless otherwise expressly provided therein, its provisions would come into operation from the 1st April 1952, no amendments effected by the said Act can be given a greater retrospective operation, it appears to us that the meaning of the provision in the Act of 1953 making it operative from 1st April 1952, has not been properly appreciated by the learned counsel. In so far as the amendment made in the present provision of section 22 is concerned, what is meant by saying that the amendment will be operative from 1st April 1952, is that notices issued under section 22 (4) which conform to the requirements of the amended provision will be good and in order from the date 1st April 1952, even though in respect of some of the matters required to be furnished by the assessee the unamended section made no provision. In other words, calling for particulars and information besides accounts and documents would be good and valid notice under the amended provisions of the section, even though at the time when the said notices were issued the amended part of the section was not there, if the notices were issued after the 1st April 1952. Mr. Kolah wants to contend that the reference to 1st April 1952, is to assessments of a period up to that date. According to him, it is only for assessments of periods subsequent to 1st April 1932, that the notices could be given in accordance with the amended provision of section 22 (4). But for all earlier assessments, notice could be given only under the unamended provision and not under the amended one. We are not inclined to agree with that view and the correct position is, according to us, as stated earlier, that the reference to April 1, 1952, is to regulate all notices which had asked for particulars and information in addition to accounts and documents subsequent to that date even though at the time when the said notices were given the amended part of the said section was not on the statute book. Coming to the last argument of Mr. Kolah that retrospective effect cannot be given to the provision of section 22 (4) because giving it such effect would involve violation of Article 14 of the Constitution, we are inclined to take the view that no violation of Article 14 is involved as is contended by Mr. Kolah. Article 14 would be violated if persons similarly situated are treated differently. It is true that even a procedural law has to conform to constitutional limitations and, therefore, if a procedural provision becomes discriminative because it treats persons similarly situated differently, it will have to be regarded as affected by Article 14 of the Constitution, but the procedural provision, which, when it is effected, treats all persons to whom it becomes applicable since its introduction in the same manner, can in no way be discriminatory and it cannot have the vice of being discriminatory simply because persons, whose proceedings had already been completed before the change has been introduced, are not affected by the change. Mr. Kolah s argument is that all persons, who are liable to pay tax for a given assessment year form a class of persons, who are similarly situated. If a change of procedure has been brought about at a time when it cannot uniformly be applied to all the persons belonging to this class, but will only affect such of them whose cases are pending and not closed, the procedural change would be discriminatory and, therefore, not capable of being effected. We are not inclined to agree with this argument of Mr. Kolah. Ws may point out that nobody has, in the first place, a vested right in procedure. Secondly, the procedure which has to be applied is the procedure exist at the time of the application. There is no discrimination if the procedure, it becomes applicable; applies equally to all persons to whom it is capable of being applied. In the present case it is impossible to say that the change effected in section 22 (4) by the amendment is capable of being applied differently to different persons from amongst those whose assessments were pending at the time when the change came on the statute. We are not inclined to agree with Mr. Kolah when he says that so far as the present provision with which we are concerned, the persons, who were liable to pay tax for a given assessment year, are a class of persons similarly situated. In our opinion, the class of persons, who are similarly situated so far as the operation of S. 22(4) is concerned, is of all those persons whose assessments had not been finished at the time when the amended provision came on the statute book and it is clear that the amended provision when applied to this class of persons is not ,capable of treating them differently. The decisions in Shree Meenakshi Mills Ltd. v. Visvanatha Sastri and M. Ct. Muthiah v. Commissioner of Income-tax, which have been referred to by Mr. Kolah, are clearly distinguishable. In Shree Meenakshi Mills Ltd. v. A. V. Visvanatha Sastri the provision of subsection (1) of section 5 of the Taxation on Income (Investigation Commission) Act (XXX of 1947), which was held by the Supreme Court as discriminatory under Article 14 of the Constitution, provided for a different treatment involving different consequences to some of the persons who belonged to the same class to which the provisions of section 34 of the Income-tax Act applied. The same was also the ratio of the decision in the other case, viz. M. Ct. Muthiah v. Commissioner of Income-tax. As we have already pointed out, in the present case before us, the provision being applicable to all cases, which are pending before the Income-tax Officer, will have no discriminatory effect in its application. In the result, therefore, the view taken by the Income-tax Authorities and the Income-tar Appellate Tribunal is correct and the question, which has been referred to us on this reference, must be answered in the affirmative. We answer it accordingly. The assessee will pay the costs of the Department. Question answered in the affirmative.