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Gaurishanker Kedia Vs. Commissioner of Income-tax, Bombay City Ii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 58 of 1961
Judge
Reported in[1963]49ITR655(Bom)
ActsIncome Tax Act, 1922 - Sections 22(2), 23(4), 27, 30, 30(1) and 34(I)
AppellantGaurishanker Kedia
RespondentCommissioner of Income-tax, Bombay City Ii
Appellant AdvocateS.G. Bajaj, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
.....commissioner under section 30, and in this appeal, he questioned the validity of the income-tax officer's assessment. it was held that the assessee was not entitled to challenge the validity of the assessment order inasmuch as he had failed to avail himself of the remedy afforded to him by the act, of making an application under section 27 getting the order of assessment made under section 23(4) set aside, or in the event of refusal of the income-tax officer to allow his application under section 27, to file an appeal against that order of the income-tax officer. the ratio of this case in well summarised in the placitum in the following terms :when a case falls under section 27, then any grievance of the assessee as against the income-tax officer for not making the requisite order..........commissioner under section 30, and in this appeal, he questioned the validity of the income-tax officer's assessment. it was held that the assessee was not entitled to challenge the validity of the assessment order inasmuch as he had failed to avail himself of the remedy afforded to him by the act, of making an application under section 27 getting the order of assessment made under section 23(4) set aside, or in the event of refusal of the income-tax officer to allow his application under section 27, to file an appeal against that order of the income-tax officer. the ratio of this case in well summarised in the placitum in the following terms : 'when a case falls under section 27, then any grievance of the assessee as against the income-tax officer for not making the requisite order.....
Judgment:

Tambe, AG. C.J.

1. This is a reference under sub-section (1) of section 66 of the Income-tax Act. We are here concerned with the assessment year 1946-47, the relevant previous year being one ended with 31st March, 1946. The 4th Income-tax Officer, C III-Ward, Bombay, came to know that the assessee received a remittance of Rs. 1,50,000 by telegraphic transfer on October 29, 1945. The said amount was dispatched from Bombay and was credited in the assessee's account in the Bank of Jaipur Limited in its Jaipur branch. On further inquiries, the Income-tax Officer came to know that the assessee was carrying on business at Kalbadevi Road, Bombay. He, therefore, after obtaining the necessary sanction, took action under section 34(1) (a) of the Income-tax Act. A notice under section 34(1) (a) read with section 22(2) was served on the assessee by affixing it at the premises, 232-234, Kalbadevi Road, Bombay, where, according to the information received by the Income-tax Officer, the assessee was carrying on business in Bombay. This notice was pasted on the premises on March 29, 1955. The assessee did not furnish any return of his income in response to the aforesaid notice. During the inquiries, the Income-tax Officer further came to know that there were also other remittances from Bombay to the assessee's account and the extent of such transactions was quite a large one. In an assessment under section 23(4), the Income-tax Officer held that the amounts credited in the bank accounts represented the profits of the assessee in the business of speculation. This finding was based on the fact that the address of the assessee in Bombay was Marwari Chambers, which was in occupation of speculators. The Income-tax Officer estimated the income of the assessee at Rs. 3,00,000 and completed the assessment under section 23(4) on 24th March, 1956, treating the assessee as a resident. Consequent on the assessment under section 23(4), a notice of demand was issued, and was served at the same address, i.e., 232-234, Kalbadevi Road, Bombay. On April 21, 1956, the assessee made an application praying that the assessment made under section 23(4) (b) be cancelled and the Income-tax Officer should proceed to make a fresh assessment after taking into consideration the objections raised by him in his application under section 27. In this application, the assessee contended that in the relevant assessment year, the assessee was residing in Jaipur only and, therefore, was a non-resident in the taxable territories; in that year, he had never come to Bombay, and it was also not correct that he was carrying on any business in Bombay, or that he had any taxable income accruing or arising to him in Bombay. He further stated in the application that it was not correct that he had any address in British India, much less at the address at 232-234, Kalbadevi Road, Bombay-2. The assessee further stated in the application that as there was no taxable income, he did not file any return; section 34, therefore, had no application to his case. Lastly, he complained that as he was not residing at Bombay, and as he had no address in Bombay, no notice either under section 22(4) or section 23(2) or any other notice was received by him, and, therefore, he had no opportunity to comply with the notice. On these grounds, the aforesaid prayer was made by the assessee.

2. It appears from the order of the Income-tax Officer under section 27, which is annexure 'B' to the statement of the case, that he fixed the hearing on 3rd August, 1956. The advocated appearing for the assessee requested that the hearing may be adjourned by one month. The hearing was, therefore, adjourned to 3rd September, 1956. But, on that date, no one appeared before the Income-tax Officer. The Income-tax Officer, therefore, for the reasons given by him in his order, dismissed the application of the assessee on 3rd September, 1956. He has dealt with each one of the contentions raised by the assessee in his application, and rejected the same. No appeal was filed by the assessee against the order of the Income-tax Officer dismissing his application under section 27 of the Act. He, however, filed an appeal against the order of assessment made by the Income-tax Officer under section 23(4) of the Act. In this appeal, the assessee challenged the assessment order of the Income-tax Officer under section 23(4) on the following grounds :

'(1) That the proceedings under section 34(1) are bad in law;

(2) that the assessment was invalid because the Income-tax Officer had no jurisdiction to assess the applicant who is a non-resident;

(3) that the service of notice under section 34 was invalid;

(4) that the assessment was erroneously made under section 23(4); and

(5) that the estimate of income at Rs. 3 lakhs was excessive.'

3. The Appellate Assistant Commissioner rejected every one of these contentions and dismissed the appeal. The assessee took a further appeal to the Tribunal against the order of the Appellate Assistant Commissioner. One of the contentions raised in the grounds of appeal but the question of legality of assessment under section 23(4) was given up. The grounds which were pressed before the Tribunal were :

'(1) That section 34 was not properly invoked in the case as the Income-tax Officer had no jurisdiction to make assessment and as there could be no reasonable satisfaction about income having escaped assessment;

(2) that the assessee was not carrying on business at 232-234, Kalbadevi Road;

(3) that the applicant was not a resident; and

(4) that the estimate was excessive.'

4. The Tribunal took the view that the appeal before the Tribunal should be restricted to the quantum of assessment, and the question of jurisdiction of the Income-tax Officer to make assessment could not be challenged in an appeal against the best judgment assessment under section 23(4). It placed reliance in support of this conclusion on a decision of this court in Mauladin Ayub Firm v. Commissioner of Income-tax. In this view of the matter, the first contention was not dealt with. As regards the second contention, the Tribunal in paragraph 6 of its order, held that the Income-tax Officer was justified in holding that the appellant was carrying on business in that place, i.e., 232-234, Kalbadevi Road, Bombay, and proceeding to make assessment on that basis. As regards the assessee's third contention, the Tribunal in paragraph 7 of its order held that the office (Income-tax Officer) was justified in concluding that the appellant was a resident in the taxable territories. As regards the last contention of the assessee, the Tribunal reduced the quantum of the income from Rs. 3,00,000 to Rs. 2,00,000. Paragraph 10 of the order of the Tribunal shows that it did not allow the assessee to lead additional evidence which he wanted to place before the Tribunal in the form of certain affidavits. On an application made by the assessee under section 66(1), the Tribunal has drawn up the statement of the case referring the following question to us :

'Whether, on the facts and circumstances of this case, where an assessment is made under section 23(4) of the Income-tax Act, it is open to the assessee to raise in a quantum appeal filed to the Appellate Assistant Commissioner under section 30 any question other than the quantum of the best judgment assessment ?'

5. In our opinion, the question framed is wider in nature than that arising out of the order of the Tribunal. As already stated, on the view taken by the Tribunal, it has not dealt with only one contention raised by the assessee, namely, the first contention that section 34 was not properly invoked in the case as the Income-tax Officer had no jurisdiction in the case to make assessment and as there could be no reasonable satisfaction of any income having escaped assessment. In our view, therefore, it is necessary to reframe the question, and we reframe it as follows :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not considering the contention of the assessee as regards the validity of the proceedings taken under section 34(1) (a) read with section 22(2) of the Income-tax Act ?'

6. Mr. Bajaj, appearing on behalf of the assessee, contends that the right of appeal conferred on an assessee under section 30(1) is a right which the assessee could exercise independently of section 27. It is not necessary for the assessee to take any proceedings under section 27. He could straight-away approach the appellate authority by filing an appeal under sub-section (1) of section 30 of the Act, challenging the validity of the assessment order under section 23(4) of the Act, on the ground that the provisions of the Indian Income-tax Act did not apply to the case. This exactly was the assessee's case. According to him, he was not a resident in the taxable territories. On the other hand, he was throughout the year residing at Jaipur. It was also the assessee's case that he did not carry on any business in the relevant assessment year in Bombay; the provisions of the Indian Income-tax Act, therefore, did not apply to him, and the Income-tax Officer had no jurisdiction to take proceedings under section 34(1) (a) of the Act.

7. We find it difficult to accept the contentions raised by Mr. Bajaj in view of the findings recorded by the Tribunal. The material part of section 30(1) is in the following terms :

'30. (1) Any assessee objecting to the amount of income assessed under section 23 or section 27, or the amount of...... tax determined under section 23 or section 27, or denying his liability to be assessed under this Act....... or to make a fresh assessment under section 27. ..... may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order'.

8. It would be seen that when the order of assessment is made under section 23, the right of appeal conferred by this section is confined to a challenge against the amount of income determined or the amount of tax determined. It is possible to say on the basis of the clause 'or denying his liability to be assessed under this Act' that such an assessee could as well urge by way of an appeal that the provisions of the Act were not applicable to him. These are the only grounds on which the assessee, against whom an order of assessment under section 23(4) has been made, has a right of appeal. Now, in the instant case, the grounds on which the assessee contends that the provisions of the Indian Income-tax Act were not applicable to him are that he was not residing in Bombay, but was residing at Jaipur throughout the year; and that he was not doing business in Bombay at all. But the Tribunal, as already stated, has found as a fact that the assessee was doing business in Bombay at the material time, and was also residing in Bombay at the material time. These being the facts found, the contention of the assessee that the provisions of the Act were not applicable to him has little merit. The appeal which the assessee, therefore, had preferred against the best judgment assessment under section 23(4) would get necessarily confined to the two questions, namely, as regards the correctness or otherwise of the amount of income determined by the Income-tax Officer and the correctness or otherwise of the amount of tax determined by the Income-tax Officer. The Tribunal was, therefore, justified in not dealing with the contention of the assessee as regards the validity of the proceedings under section 34 of the Indian Income-tax Act.

9. The scope and ambit of an appeal, where the assessee was amenable to the provisions of the Indian Income-tax Act, have been considered by this court in Mauladin Ayub Firm v. Commissioner of Income-tax. In that case, the Income-tax Officer believed that the assessee was maintaining a separate set of books which had not been produced before him. He, therefore, issued a notice to produce the second set of books. The assessee contended that he did not maintain two sets of books, and that whatever books he had, had been produced, and, therefore, he could not comply with the notice. As the assessee failed to comply with the notice, the Income-tax Officer assessed the assessee under section 23(4) of the Indian Income-tax Act to the best of his judgment. The assessee made no application under section 27 to have the best judgment assessment set aside, but appealed to the Appellate Assistant Commissioner under section 30, and in this appeal, he questioned the validity of the Income-tax Officer's assessment. It was held that the assessee was not entitled to challenge the validity of the assessment order inasmuch as he had failed to avail himself of the remedy afforded to him by the Act, of making an application under section 27 getting the order of assessment made under section 23(4) set aside, or in the event of refusal of the Income-tax Officer to allow his application under section 27, to file an appeal against that order of the Income-tax Officer. The ratio of this case in well summarised in the placitum in the following terms :

'When a case falls under section 27, then any grievance of the assessee as against the Income-tax Officer for not making the requisite order must be litigated in an appeal against an order under section 27. When section 27 has no application, then any question that might arise in appeal which has a bearing with regard to an order made by the Income-tax Officer under section 23(4) can be litigated in an appeal under section 30. But apart from cases of cancellation of registration of a firm which in terms do not fall under section 27, every other case of contumacious refusal of an assessee to comply with any notice issued by the Income-tax Officer must necessarily fall under section 27 and an order made by the Income-tax Officer under section 23(4) can only be challenged under section 27'.

10. It is clear from the aforesaid decision of this court that in cases to which section 27 has application, the order made under sub-section (4) of section 23 could only be challenged in an appeal in respect of the quantum of income or the quantum of tax as determined by the Income-tax Officer and not on the ground of validity of the assessment. A similar view is also taken by the Calcutta High Court in Naba Kumar Singh Dudhuria v. Commissioner of Income-tax, and by the Allahabad High Court in Chhotalal Gobardhan Das v. Commissioner of Income-tax. It has, therefore, to be seen whether to the case before us the provisions of section 27 would apply. The material part of section 27 is in the following terms :

'Where an assessee, within one month from the service of a notice of demand issued as hereinafter provided, satisfies the Income-tax Officer that he was prevented by sufficient cause from making the return required by section 22, or that he did not receive the notice issued under sub-section (4) of section 22, or sub-section (2) of section 23, or that he had not a reasonable opportunity to comply, or was prevented by sufficient cause from complying, with the terms of the last-mentioned notices, the Income-tax Officer shall cancel the assessment and proceed to make a fresh assessment in accordance with the provisions of section 23'.

11. It would be seen that if the assessee has a grievance that he was prevented by sufficient cause from making a return required by section 22; then, it is open to him to make an application under section 27, and get the ex part assessment made against him set aside. Now, in the instant case, the assessee was served with a notice under sub-section (2) of section 22 read with section 34(1) (a) of the Act. That notice required the assessee to furnish, within the period stated in the notice, a return, in the prescribed form and verified in the prescribed manner, of his total income. The assessee has not filed a return in response to this notice. The ground urged for not filing a return is that he did not receive the notice because he was not residing at the address at which the notice was served by affixing it to the premises. Now, this ground is a sufficient cause preventing the assessee within the meaning of the section for failure to file a return under section 22 of the Act. This case, therefore, in our view, falls within the purview of section 27 of Act. In fact, the assessee himself has made an application under section 27 of the Act. In these circumstances, in our view, the remedy available to the assessee was one under section 27, and when his application under section 27 was not allowed by the Income-tax Officer, then to proceed by way of an appeal against that order, raising the ground now sought to be raised before us. He has chosen not to follow that course. On the other hand, he remained absent on the dates fixed for hearing of the application under section 27, and has chosen to file an appeal under section 30(1). That appeal, as already stated, gets confined only to the quantum of income and quantum of tax determined. It was not open to the assessee to raise any other contention in that appeal as regards the validity of the order made under section 23(4) of the Act.

12. Mr. Bajaj argued before us that even though the assessee is debarred from contesting the propriety or validity of the assessment under section 23(4), the assessee is not debarred from challenging the validity of the general assessment. Here the assessee is not challenging the validity of the order made under section 23(4) of the Act, but is challenging the general validity of the assessment on the ground that the service of notice under section 22(2) read with section 34(1) (a) was not valid because it was made at a place other than the place the place where the assessee resides, and on the ground that the Act did not apply to him, because he was not a resident in the relevant assessment year in the taxable territories. This contention also has little force. We have already stated that the Tribunal has found as a fact that the assessee was residing in the taxable territories during the relevant assessment year, and also has found as a fact that the assessee was carrying on business at a place to which the notice under section 22(2) was addressed. The second contention also, therefore, should fail.

13. For the reasons stated above, our answer to the question reframed is in the affirmative. The assessee shall pay the costs of the Commissioner.

14. Question answered in the affirmative.


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