JAGADISAN J. - These cases relate to assessments made by the Income-tax Officer under section 23 (4) of the Indian Income-tax Act subsequent to the failure of the assessee to comply with the terms of a notice issued under section 23 (2) of the Act. In Tax Case No. 145 of 1960 the question that has been referred to us is :
'Whether on the facts and in the circumstances of the case the Appellate Tribunal was justified in sustaining the estimate of the share income of the assessee from the partnership firm of Messrs. M. S. Pictures at Rs. 20,000 even though the share income of the partnership firm was eventually ascertained at Rs. 15,09 ?'
In T. C. No. 146 of 1960 the question is as follows :
'Whether on the facts and in the circumstances of the case there was no material before the Appellate Tribunal to justify the decision that Rs. 30,000 should be added to the assessees disclosed income on the basis of an estimate under section 23 (4) of the Income-tax Act ?'
The assessee is carrying on business in the distribution of cinematograph films. Between February 12, 1951, and November 25, 1951, he was a partner in a firm styled M. S. Pictures along with one A. L. Srinivasa Chetti. He had a half share in the profits and gains of that firm. For the year of account ended March 31, 1952, the relevant previous year for the assessment year 1952-53, he returned on December 20, 1954, an income of Rs. 16,310 made up of Rs. 2,726 earned in his individual capacity by exploiting a film called Githa Gandhi and a sum of Rs. 13,584 alleged to be his share income from the partnership of M. S. Pictures. For the assessment year 1953-54, relevant to the account year ended 31st March, 1953, the assessee filed a return on December 31, 1954, showing a loss of Rs. 60,000. The Income-tax Officer issued notice under section 23 (2) of the Act. In respect of the return for 1952-53, the assessee was called upon to appear before him on January 20, 1955, with the evidence in support of his return. But he failed to appear. Section 23 (2) notice was issued for the next assessment year also and he was called upon to appear with the evidence on January 30, 1955. He failed to appear. The file was, thereafter, transferred from Vellore to Madras on information that the assessee was residing in Madras. The Income-tax Officer, City Circle-V, issued fresh notice under section 23 (2) and posted the case for hearing on December 26, 1955. The assessee failed to appear and the proceedings were adjourned to January 18, 1956. On that date, the assessee wanted an adjournment to enable him to produce the necessary evidence in support of his returns. But the Income-tax Officer, very properly, refused to adjourn the case. He, therefore, proceeded to complete the assessment under section 23 (4) to the best of his judgment. In respect of assessment year 1952-53 he accepted the assessees return of income from his individual business as Rs. 2,726 but estimated his share income from the partnership firm at Rs. 20,000. He also estimated that the assessee should have made an income of Rs. 10,000 by exploiting other pictures during the relevant year of account. The result was that the assessees total income for that year was fixed at Rs. 32,726. For the subsequent year 1953-54, the Income-tax Officer refused to accept the return of the assessee showing loss and took the view that the assessee must have earned income, during the year, which he estimated at Rs. 30,000.
The assessee took steps under section 27 of the Act to have the above assessments under section 23 (4) set aside, but failed. There is now no reference before us raising the question whether the order of the department refusing to cancel the ex parte assessment under section 23 (4) was warranted or not.
The assessee preferred appeals against the assessments under section 23 (4) to the Appellate Assistant Commissioner of Income-tax, Madras. Even before the appellate authority, the assessee merely wanted an adjournment on the date when the appeals were posted for hearing; but having regard to the dilatory conduct of the assessee, the appellate authority refused adjournment and decided the appeals on the merits. The appeals were dismissed. The assessee then took the matter before the Income-tax Appellate Tribunal. The Tribunal saw no reason to interfere with the best judgment assessments passed by the Income-tax Officer and confirmed by the Appellate Assistant Commissioner. The Tribunal refused to refer any question of law to this court under section 66 (1) but his court on applications by the assessee under section 66(2) has directed the above questions to be referred.
It seems to us that there is no substance in these reference applications. The assessee has been throughout persistently in default and he gave no option to the department except to pass assessment orders under section 23 (4) of the Act. The assessee had certainly no sufficient cause for non-appearance before the Income-tax Officer on the date when the case was posted for final determination. As stated already, his applications under section 27 of the Act were dismissed. Mr. K. Srinivasan, learned counsel for the assessee, however, strenuously contends that, in respect of assessment year 1952-53, there is no warrant or estimating the assessees income from the partnership of M. S. Pictures in the sum of Rs. 20,000 particularly because in the final assessment of the income of the firm such share income has been determined as Rs. 15,091. We are unable to say that the estimate of the Income-tax Officer regarding the assessees share income in M. S. Pictures was in any way erroneous on the date when he made the assessment under section 23 (4). Can it be that a best judgment assessment under section 23 (4) should be set aside by reason of the happening of subsequent events In our opinion it will not be open to an assessee, who by reason of his default inevitably attracted a best judgment assessment, to placed that there should be a reassessment by reason of subsequent events which have a bearing upon the original assessment. Mr. Srinivasan contends that there should be estimation of an individuals income from his share in a partnership firm, as that is a matter which can and must be determined in the assessment proceedings on the firm itself. This contention is hardly tenable. It is true that, in the assessment of an individual, his share income, if any, from a partnership business, of which he is partner, is also includible. If the individual fails to comply with a notice under section 23 (2) the Income-tax Officer is not bound to wait till the assessment of the firm is over; he can only proceed to pass a best judgment assessment under section 23 (4). The provisions of section 23 (4) are express, explicit and mandatory and the Income-tax Officer is bound to pass an assessment order in accordance with the said provisions, consequent on the default of the assessee either in not complying with the notice under section 22 (2) or section 22 (4) or section 23 (2). In Commissioner of Income-tax v. Laxminarain the Judicial Committee observed as follows :
'This does not appear to be a case of exercising a discretion. Under section 23 (4) the fact of failure to comply with the notice under section 22 (4) made it compulsory on the officer to make an assessment....'
The only limitation on the officer is that he should act honestly and not vindictively or capriciously and that he should make a fair estimate of the probable income of the assessee.
We do not agree with the contention urged by the learned counsel for the assessee that, in every case of assessment under section 23 (4), if part of the income estimated represents the assessee share income of a partnership business, such assessment should automatically be modified in the light of subsequent assessment on the firm itself. We have been referred to section 16 (1) (b) and section 23 (5) as supporting this contention. There is nothing in these provisions to derogate from the power of the Income-tax Officer to estimate the share income of an assessee in his capacity as a partner of a firm in dealing with his individual assessment under section 23 (4). Section 16 (1) (b) lays down that the salary, interest, commission, or other remuneration payable to the partner shall be included in the computation of the income, along with the profit or loss. Section 23 (5) provides that in the case of a registered firm the total income of each partner shall be assessed and that in the case of an unregistered firm the officer may instead of determining the sum payable by the firm proceed to assess the total income of each partner of the firm, if it results in greater revenue to the department. The firm as a unit of assessment under the Act has a separate existence from the members of the partnership for purposes of assessment to tax. The assessment proceedings relating to the firm stand separate from the proceedings regarding the individual assessment of the partner. This should not be taken advantage of by the department to make conflicting assessments of the share income. While this is so, an estimate of the share income caused by the contumacious default of the assessee, fair and proper on its face, does not become improper and arbitrary, only because it does not accord with the final assessment on the firm.
In this connection, we may refer to the provisions of section 35 of the Act. This is a provision which enables rectification of mistakes in assessment orders. Section 35 (5) reads :
'Where in respect of any completed assessment of a partner in a firm it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm under section 31, section 33, section 33A, section 33B, section 66 or section 66A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section....'
The language of this provision does not appear to make a distinction between an assessment under section 23 (4) and an assessment by the officer by adjudication on the materials placed before him by the assessee. It is possible to contend that, even in a case of assessment under section 23 (4), it would be open to an assessee if he is aggrieved by inclusion in the assessment of more income than it is actually computed by the Income-tax Officer in the assessment of the firm to take steps to have the assessment rectified by an appropriate application under this provision. There is a period of limitation of 4 years computed from the date of final order of assessment, passed in respect of the firm within which the application for rectification has to be preferred. In the present case, the assessee failed to take any step in that direction.
There are no materials before us to enable us to hold that the assessment made by the Income-tax Officer under section 23 (4) of the Act in the manner in which he did in the present case was in any way improper in the sense that it was arbitrary or capricious. It would be difficult, even if permissible, for the appellate authorities, the Assistant Commissioner and the Tribunal to interfere with an assessment under section 23 (4) which is based only on the estimate of the assessing officer. The estimate by one may not fall in line with the estimate by another. But the appellate authorities cannot decline to accept the estimate of the officer, on the ground that it is at variance with their estimate. The statute has entrusted the duty of making the 'best judgment assessment' primarily to the Income-tax Officer, and the hierarchy of appellate authorities should be slow to substitute their judgments for that of the officer. It is settled law that in matters of discretion has a free scope to exercise it without interference or control by any appellate authority, except on grounds of mala fides, or abuse of power, or arbitrariness. A decision which upholds this principle is Singh Engineering Works v. Commissioner of Income-tax.
The assessee had only himself to thank for not having been present before the Income-tax Officer to guide him properly as to the approximate share income of the firm. It must be mentioned that the assessee, after dissolution of the partnership of M. S. Pictures, himself took over the entire business and presumably, he must have had the account books of the firm with him on the relevant date. Nothing was easier for him than to produce the account books of the firm itself to the Income-tax Officer, so that he might be in a position either to accept the return of the assessee or to make a proper computation of his share income from the firm. The provision of section 23 (4) is to some extent penal, and that is because of the default and laches on the part of the assessee concerned. It may be that the Tribunal might have caused the correct ascertained share income of the assessee substituted in the place of the estimated income adopted by the Income-tax Officer.
But that is a matter left solely to the discretion of the Tribunal, and we cannot say that there is any error of law in the Tribunal having accepted as proper the assessment made by the department.
In regard to the assessment year 1953-54, the assessees case is less substantial than his case in respect of 1952-53. An income of Rs. 20,000 has been estimated by the department and affirmed by the Tribunal. It is pointed out by learned counsel for the assessee that, while the Income-tax Officer and the Appellate Assistant Commissioner justified the estimate on the ground of local inquiries made by the Income-tax Inspector of the assessees financial position and affluence in the business, the Tribunal has justified it on a different ground, namely, that the estimate represented 10 per cent. on gross collections. In our opinion the real question is whether there are materials to support the estimated income of Rs. 30,000. The fact that the department and the Tribunal have not given identical reasons for making the estimate is not a ground which would avail the assessee in challenging the estimate itself as being unsupported by any material on record.
In the result the questions are answered against the assessee who will pay the costs of the department. Counsels fee in each case Rs. 250.
Questions answered against the assessee.