John Beaumont, Kt., C.J.
1. This is a reference by the Commissioner of Income-tax under Section 66(2) of the Indian Income-tax Act raising the question whether there was any material on which the Assistant Commissioner could find that there was not sufficient cause preventing the Bombay Company from producing the account books of the Hongkong Company as required under the notice issued by the Income-tax Officer under Section 22(4) of the Act.
2. Shortly the facts which give rise to the question are these : The Bombay Company which is referred to in the question is a company carrying on business in Bombay. The Hongkong Company is carrying on business in Hongkong, In respect of the year 1926-27 the Bombay Company was assessed to tax as the statutory agent of the Hongkong Company. The matter was in dispute, and was carried to the Privy Council who held that there was-a business connection between the two companies and that the Bombay Company was properly assessed as the agent of the Hongkong Company. Commissioner of Income-tax, Bombay v. Bombay Trust Corporation (1929) 32 Bom. L. R. 361 : L. R. 57 IndAp 49 Thereafter the Hongkong Company purported to terminate any business connection with the Bombay Company. In respect of the year of assessment 1928-29 the Commissioner of Income-tax again assessed the Bombay Company as the statutory agent of the Hongkong Company refusing to believe the evidence as to the severance of connection between the two companies, and in April, 1932, the Commissioner on this basis recovered payment of over three lacs of rupees in respect of the assessment of the Bombay Company. A reference was then made to this Court, and in August, 1933, this Court held that there was no evidence to justify the Assistant Commissioner in holding that the Bombay Company was the statutory agent of the Hongkong Company. From this decision there was an appeal to the Privy Council, but the decision of this Court was upheld Commissioner of Income-tax, Bombay v. Bombay Trust Corporation, Limited (1936) 39 Bom. L. R. 18 : L. R. 63 IndAp 408. It is therefore established that at the time of the original assessment of the Bombay Company there was no evidence to justify such assessment. After that order-had been made by the High Court, the Commissioner directed the Assistant Commissioner to take the appeal back on his file and to make a fresh assessment. The Commissioner however refused to refund the tax which he had received on the alleged assessment, unless a third party guaranteed the payment of any fresh assessment. The Assistant Commissioner in January, 1934, set aside the assessment and directed the Income-tax Officer to make a fresh assessment. On January 30, 1934, the Income-tax Officer issued the-notice which is referred to in the question raised in this reference. The notice requires the Bombay Company to produce or cause to be produced at the Income-tax Officer's office in Bombay on February 15, 1934, books of account of the Hongkong Trust Corporation, Ltd., Hongkong, for the year ending December 31, 1927. fie also gave notice under Section 23, Sub-section (2),. requiring the attendance of the assessees on February 15, 1934. On February 15, 1934, the Income-tax Officer held that as the books had not been produced, the assessees were in default and he thereupon made an order of assessment purporting to be to the best of his judgment under Section 23 (4). In that assessment he assessed the Bombay Company at precisely the same figure as that at which they had been assessed in the assessment which this Court had held was not supported by any evidence. The assessees made an application for revision under Section 27 of that order which was stayed pending an appeal to the Privy Council. Later, in September, 1934, the assessees applied to this Court for an order under the Specific Relief Act directing the Commissioner of Income-tax to repay the sum of over three lacs of rupees which he had received as tax and that order was made. There was then, an appeal to the Privy Council from that order and that appeal together with the appeal from the order of August 29, 1933, were heard together. As a result of the two appeals the Privy Council held that there was no evidence to justify the original assessment on the ground that the Bombay Company was the statutory agent of the Hongkong Company, but that this Court had no jurisdiction under the Specific Relief Act to order the repayment of the tax. In November, 1936, the appeal to the Assistant Commissioner from the Income-tax Officer's order was rejected. This reference is now made raising the question whether there was any evidence to justify the Income-tax Officer in holding that the books of the Hongkong Company ought to have been produced.
3. Now Section 22(4) which is a section dealing with returns for the purposes of income-tax provides that the Income-tax Officer may serve on any person upon whom a notice has been served under Sub-section (2) a notice requiring him, on a date to be therein specified, to produce, or cause to be produced, such accounts or documents as the Income-tax Officer may require. In my opinion it is clear that that section only relates to accounts and documents which are in the possession, or under the control of, the person making the return, I think, that must be so, because failure to produce the accounts or documents not only renders the tax-payer liable to assessment under Section 23(4) but it also renders him liable under Section 51 to a penalty by way of fine not exceeding ten rupees for every day during which the default continues. It is clear, in my opinion, that the legislature could not have intended to impose a penalty on a person for non-production of documents which he does not control. Now, in the present case, there is not a particle of evidence that the Bombay Company is in a position to produce or cause to be produced the books of the Hongkong Company. It has been held by this Court and the Privy Council that there is no evidence to show that there is any business connection between the two companies, and it is not suggested that any further evidence on the matter has been obtained by the Income-tax Officer. He says that he has got some confidential information, but as that is not in evidence, we do not know what it amounts to. There is no evidence which can justify him in saying that the Bombay Company is in a position to produce the books of the Hongkong Company, which is in law a separate entity, and that being so, in my opinion, the order under Section 22(4) was not justified and the consequential assessment under Section 23(4) was also not justified.
4. I understand that the sum of over three lacs of rupees recovered as tax as long ago as April, 1932, is still in the hands of the Commissioner and has not been repaid to the assessees. When this matter was before this Court in August, 1934, we passed certain strictures upon the Commissioner's conduct, and the matter was referred to by. their Lordships of the Privy. Council in the following passages (p. 29) :
The learned Chief Justice commented with some severity upon that part of the order of the Commissioner which imposed as a condition of refund that a guarantee should be given by E. D. Sassoon and Company: saying that the Commissioner must have known perfectly well that he was not justified in imposing as a condition of the refund that a guarantee should be given by some third party for the amount of any fresh assessment. He further observed with; reference to the order under Section 23(4) made by the Income-tax officer on February 20, 1934, that it was perfectly obvious, and the Income-tax Officer must have: known, that it would not be possible for the assessees to produce within fifteen days books of account of the corporation in Hongkong, a corporation which according to the finding of the Court had no business connection with the assessees.
After holding that the Court had no jurisdiction to make an order under the Specific Relief Act, their Lordships then go on to say (p. 30) :-
Their Lordships cannot but, agree, however, with the comments made by the learned Chief Justice upon the Commissioner's order of January 16, 1934, imposing as a condition of refund that Messrs. E. D. Sassoon and Company, Limited, should undertake to be responsible for paying back the amount in rase an assessment were levied again or the matter was taken on appeal to the Privy Council, So, too, in the case of the order of the Income-tax Officer dated February 20, 1934, making an assessment in default under Section 23(4) for failure to comply with the order of January 30, requiring the Bombay company to produce the Hongkong company's books of account on February 15, the strictures of the High Court are plainly justified. To this their Lordships will add that the action of the Income-tax Officer in refusing to deal with the application under Section 27 until the disposal of the appeal to His Majesty in Council was equally open to criticism. Whether it adds to or subtracts from the discredit of such proceedings, if it be supposed that the income-tax authorities considered themselves entitled to do what was necessary to retain the assessees' money until the decision of this Board could be obtained, is a question upon which no opinion need here be ventured. It should suffice now to observe that since August, 1934, the Income-tax authorities have been withholding from the Bombay company over three lacs of rupees extracted from them by an illegal assessment order, and that there is no pretence of justice or law in the. notion that the money can be withheld in case on some future date a valid assessment may come into existence.
Unfortunately that expression of opinion has not sufficed to induce the Commissioner of Income-tax to do what he ought to have done in August, 1933, viz., repay the money. I have made these observations, because it seems to me desirable at a time when proposals are being made to amend the Income-tax Act, that the legislature should consider the desirability of protecting the tax-payer from abuse of authority. As the law stands, there appears to be no means of compelling the Income-tax Commissioner to refund tax illegally levied.
5. The answer to the question raised by the Commissioner is in the negative, We direct the Commissioner to pay the costs of the assessees to be taxed on the original side scale.
6. I agree. The short point which requires consideration to answer the question raised in the reference is the construction of Section 22(4) of the Indian Income-tax Act. In my opinion that section does not entitle the income-tax authorities to demand the production of books which are neither the books of the assessees nor under their control. In the present case the Bombay Company, which is a limited company, was alleged to be the statutory agent of the Hongkong Company, which is another limited company. The Bombay Company is not proved, on evidence, to be the statutory agent of the Hongkong Company. In law, therefore, the two companies are different entities. I do not see any justification for the income-tax authorities calling upon the Bombay Company to produce the books of the Hongkong Company and in default to suffer the consequences provided in Section 23(4). The utmost which can be stated, on the allegations or statements found in the reference, is that the two companies may be friendly. There appears however no justification in law, on that assumption, to call upon one friend to produce the books of another and in default to make the party called upon liable under Section 23(4). On that ground I think the question must be answered as suggested by the learned Chief Justice.