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1937 Supreme(SC) 20
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD RUSSELL OF KILLOWEN, LORD MACMILLAN, AND SIR JOHN WALLIS.
COMMISSIONER OF INCOME-TAX, UNITED AND CENTRAL PROVINCES - Appellant
Versus
BADRIDAS RAMRAI SHOP, AKOLA, OWNER LAXMINARAYAN BADRIDAS SHRAWAGI OF AKOLA - Respondents
On appeal from the Court of the Judicial Commissioner, Central Provinces.
Decided On : Feb. 19. 1937.
Solicitor for the appellant: Solicitor, India Office.
An assessment "to the best of judgment" under the Income-tax Act does not require a formal local inquiry or a recorded note of results; it necessitates an honest, fair estimate based on available information, excluding caprice or dishonesty.
Headnote:(A) Indian Income-tax Act, 1922 - Sections 22(4), 23(4), and 27 - Assessment to the best of judgment - Failure to produce accounts - Scope of "best of judgment" - Whether a local inquiry and recording of results are mandatory prerequisites for a valid assessment under Section 23(4) - No such requirement in the statute - Assessment must be an honest, fair estimate and not based on caprice, dishonesty, or vindictiveness - Honest guesswork based on local knowledge and repute is permissible. (Paras 25-26)
(B) Section 27 - Sufficient cause for non-compliance - Illness of the assessee - If accounts could have been produced by a messenger, the personal inability of the assessee to attend the office does not constitute sufficient cause for failure to comply with a notice to produce documents. (Para 25)
(C) Section 23(4) - Nature of assessment - Where a taxpayer fails to comply with a notice to produce accounts, the officer is compelled to make an assessment to the best of his judgment; such assessment is subject to revision by the Commissioner under Section 33 but not to a direct appeal under Section 30. (Para 25)
Facts of the case:
A taxpayer filed an incomplete return claiming a loss. Despite notices to produce accounts and evidence, and the granting of one adjournment, the taxpayer failed to produce the required documents, citing illness. The tax officer proceeded to make a summary assessment based on local repute and inquiries, estimating the income at one lac. The taxpayer's application for cancellation of the assessment on the grounds of sufficient cause was rejected, and a subsequent appeal was dismissed. The lower court had held that for an assessment to be to the "best of judgment," a formal local inquiry must be held and a note of the details and results must be placed on record.
Findings of Court:
The court found that the tax officer strictly complied with the statutory provisions. The taxpayer's illness did not prevent the production of accounts, as they could have been sent via a messenger. The lower court erred in imposing requirements for formal local inquiries and recorded notes that are not found in the language of the Act.
Issues: Whether the assessment was made to the "best of judgment" under Section 23(4) and whether the failure to conduct a formal local inquiry and record its results invalidated the assessment.
Ratio Decidendi: An assessment "to the best of judgment" under Section 23(4) requires an honest and fair estimate. It does not legally mandate a formal local inquiry or a written record of such inquiry. The officer may rely on local knowledge and honest guesswork, provided the action is not capricious, dishonest, or vindictive. The officer is placed in a position where the decision is final and subject to no appeal, but may be revised by the Commissioner if it is shown to be arrived at without an honest exercise of judgment.
Result: Appeal allowed.
Legal Category Hierarchy
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tax law
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income tax
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assessment
- best judgment assessment
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procedure
- notice and compliance
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assessment
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income tax
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administrative law
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discretionary powers
- exercise of judgment
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discretionary powers
Judgement
Appeal (No. 43 of 1936) from a judgment of the Court of the Judicial Commissioner, Central Provinces (April 12, 1934), upon a reference under s. 66, sub-s. 2, of the Indian Income-tax Act, 1922.
This appeal related to an assessment made upon the respondent taxpayer by the Income-tax Officer of Akola " to the best of his judgment " under s. 23, sub-s. 4, of the Income-tax Act, 1922, consequent upon the alleged failure of the respondent to comply with all the terms of a notice, requiring him to produce accounts, issued by the officer under s. 22, sub-s. 4, of the Act. One of the questions raised in the appeal was whether the order of assessment passed by the Income-tax Officer was, in all the circumstances, made to the best of his judgment.
The facts, the seven points referred to the Court of the Judicial Commissioner, and the relevant provisions of the Indian Income-tax Act, 1922, appear from the judgment of the Judicial Committee.
The Judicial Commissioner and the Additional Judicial Commissioner before whom the reference came held (inter alia) that the notice was legal and that the officer had jurisdiction to make the summary assessments under s. 23, sub-s. 4, of the Act. They were of opinion, however, that no assessment would be an assessment by the officer "to the best of his judgment " within the meaning of
s. 23, sub-s. 4, unless, first, a local inquiry to ascertain the income for the previous year of the proposed assessee was first held, and secondly, the officer placed on the record a note of the details and results of his inquiry. They held that the present assessment rested merely on the caprice of the officer and was not made " to the best of his judgment " within the meaning of sub-s. 4 of s. 23.
1937- Jan-25-Wallach for the appellant. The Income-tax Officer was justified in thinking that there was no reason why the books should not have been produced, and in proceeding to make the assessment on the information available. The question for consideration under s. 27 is not whether the assessment was correct or not, but whether there was sufficient ground for the assessees non-compliance with the order to produce accounts. There is no appeal from an assessment made under s. 23, sub-s. 4, even if it is made arbitrarily by the Income-tax Officer. Under
s. 33 an unreasonable and arbitrary assessment can be reviewed by the Commissioner that is the only check on the Income-tax Officer if he fails to assess " to the best of his judgment." [Reference was made to Krishakumar and Mahendrakumar Ghosh, In re (( 1930) I. L. R. 58 C. 906.), and Krishna Kumar and Mahendra Kumar Ghose v. Commissioner of Income-tax, Bengal . (( 1931) 5 I. T. C. 295, 301.)] No question of law is raised in the questions submitted to the Court of the Judicial Commissioner. In the absence of proof to the contrary, it must be presumed that in estimating the income of the assessee respondent at Rs. 1,00,000, and in making an assessment in that amount, the Income-tax Officer acted according to the best of his judgment, and there is no evidence to the contrary. There was no evidence that the assessee had been prevented by any cause from complying with the terms of the notice issued to him under s. 22, sub-s. 4. The judgment of the Judicial Commissioners was erroneous, and should be reversed. [Reference was also made to Gopinath Naik
v. Commissioner of Income-tax. (( 1935) I. L. R. 58 A. 200, 206, 227.)]
Law. Rep. 64 Ind. App. 102 ( 1936- 1937) Commissioner of Income-Tax V. Badridas Ramrai Shop
20
The respondent did not appear.
Feb. 19. The judgment of their Lordships was delivered by
LORD RUSSELL OF KILLOWEN. In this case the Commissioner of Income-tax for the United and Central Provinces appeals from a judgment of the Court of the Judicial Commissioner, Central Provinces, on a reference under s. 66, sub-s. 2, of the Indian Income-tax Act
(XI. of 1922). The respondent taxpayer did not appear on the hearing of the appeal.
The case relates to an asses
