Report No. 12
Notes to clause 136
Existing section 37 has, in the draft, been split up into two. Portions relating to powers of a court that can be exercised by the authorities mentioned in the section have been dealt with in this clause, while powers of search and seizure have been dealt with in the next clause.
Sub-clause (1)- does not need any comments.
Sub-clause (2)- is new and has been added to indicate the procedure to be followed in exercising the powers.
Sub-clause (3)- needs no comments.
Sub-clause (4)- is new. The existing section does not contain a provision entitling a person producing a document to apply for return of the same. To make the matter clear, this sub-clause has been added. Compare Order 13, Rule 9 of the Code of Civil Procedure.
It may be noted that section 37(3), proviso (b) does not in so many words deal with the return of documents. Moreover, it is confined to Income-tax Officers. The sub-clause under discussion will cover all cases, including documents retained by an Income-tax Officer.
Notes to clause 137
Item (ii)- The words "have them removed to his office" have been added to deal with cases where the books are voluminous and the Income-tax Officer cannot examine them in the premises.
Item (iii)- The words "cause to be made" have been added to make it clear that the Income-tax Officer can entrust to an Inspector or ministerial staff the work of taking copies or extracts from the books and documents in question.
Item (iv)- The existing provision relates to a note or an inventory of any 'other' articles or things found in the course of search; this would exclude books and documents which are referred to in the earlier item. Since, however, occasion may arise for making a note of a book or document (without actually seizing it), the word "other" has been omitted in the draft.
Notes to clause 138
Sub-clauses (1) and (2)- Existing section 38(1) has been divided into two sub-clauses, to make the provisions clear.
What the "return" relates to is only names and addresses; Cf existing section 38(1) & (2). That has been made clear in the draft. In the case of partners, however, information regarding their shares may be useful, and that has been added in the draft.
The expression "Assistant Commissioner" has been substituted by "Appellate Assistant Commissioner or Inspecting Assistant Commissioner", since these are the expressions used in the Act.
In sub-clause (2), instead of "adult male member", the word "members" has been substituted for brevity.
Notes to clause 139
It has been made clear that the person authorised for the purpose of this section should be subordinate to the officer giving the authority. Private persons should not be authorised under this section.
Notes to clause 140
The latter part of section 5, sub-section (7B) has been reproduced here. Presumably, the "enquiries" referred to here are the enquiries under sections 37, 38, 39 etc.
Notes to clause 141
Sub-clause (1)- The existing section provides that the 'court shall not be entitled to require "any public servant" to produce the return, accounts, etc. to be treated as confidential under this section. There is a conflict of decisions as to whether these words are to be read literally as prohibiting any public servant whatsoever from making a disclosure, or whether the prohibition is confined to the public servants before whom the documents etc. are produced under the Act.
The Bombay High Court1 has taken the view that the section is confined to public servants of the Income-tax Department, while the Punjab High Court2 has taken the contrary view. Though the wide language of this section might justify the Punjab view, expediency demands that the narrow view taken by the Bombay High Court should be adopted. It does not appear to be desirable to prohibit other public servants from making such disclosures, and draft sub-clause (5) of the clause under discussion therefore gives a restricted definition of the expression "public servant".
1. Emperor v. Osman Chetani, (1942) 10 ITR 429; ITR 1942 Bom 767: AIR 1942 Bom 289.
2. I.T.O. Jullundur v. The State, (1950) 18 ITR 388: AIR 1950 East Punjab 306.
Sub-clause (2).- Existing section 54(2) imposes a penalty on a public servant making a disclosure of the particulars treated as confidential. What the sub-section achieves is-
(i) making such disclosure an offence, and
(ii) imposing penalty for the offence.
The earlier part of the sub-section really creates the offence, and has been reproduced in this sub-clause. The penalty "portion has been transferred to the Chapter on Offences and prosecutions".
Section 54(5) has also been transferred to the Chapter on "Offences and prosecutions".
Sub-clause (3)- The various paragraphs of this sub-clause embody existing provisions and do not need any comments, except the following:-
Paragraph (a)- The existing provision contains the words "prokcution under the Indian Penal Code". A "prosecution" is, really speaking, for an offence under a law and therefore the words "for any offence" have been added.
Paragraph (b)- Reference to the Taxation on Income (Investigation Commission) Act, 1947 has been omitted as obsolete.
Paragraph (c).- This is new. Where an Income-tax authority makes a best judgment assessment under section 23(4), he usually relies on the figures of profits made by other persons in a similar business, as giving the income-tax returns of those other persons. In fairness, the information contained in the returns of such other persons should be disclosed to the assessee before making a best judgment assessment1. This paragraph in question has, therefore, been added to authorise such disclosure. Suitable words have been used in order to ensure that the assessee to whom any information is disclosed under this paragraph is not thereby enabled to trace the other assessees whose figures are disclosed in such information.
1. Cf. Dhakeshwari Cotton Wills v. C.I.T., (1954) 26 ITR 775 SC.
Paragraph (f).- The privilege conferred by section 54 is sometimes abused by the assessee by claiming it against courts in which proceedings are pending for or against him. For example, when the assessee's accounts contain an entry adverse to his case in a civil suit, the assessee often refuses to produce the accounts before the court and takes shelter under this section, saying that the accounts are lying with the Income-tax Department. This cannot be supported by any notions of justice or fairness. Paragraph (f) has, therefore, been added to empower the court to enforce production of the accounts in such cases.
Registered documents of which copies can be obtained under the Registration Act, or certain documents prepared under the Companies Act (like balance sheet, audit report, etc.) have also been mentioned in this para. Such documents need not be treated as confidential, since their are virtually public documents.
Paragraph (j)- The word "lawyer" has been replaced by the words "legal practitioner" which are more appropriate.
Paragraph (k).- Existing section 54(3)(h) is obviously meant for cases where an officer of the Income-tax Department, detecting an unstamped document, desires to communicate that fact to the stamp. authorities. His power to "impound" the document "occasions" the further transmission of the document to the Collector under the Stamp Act. The "public servant" referred to in the provision is, therefore, the Income-tax authority impounding and transmitting document, not the stamp authority receiving it. (The stamp authority receiving the document, does not "disclose" any document). It is the Income-tax authority which makes this disclosure subsequent to the impounding of the document. Slight verbal changes have been made to bring out this intention.
Paragraph (1)- Existrng section 54(3)(i) refers to officers of the United Kingdom or any part of his Majesty's Dominion. But as section 49A authorises an agreement for a double taxation relief with any country outside India, the language of this provision has been brought into conformity with that position.
Paragraph (n).- This is new and is intended to authorise the disclosure of information required in connection with levy or realization of other central taxes, for example, estate duty, wealth tax, expenditure tax etc. Assistance has been taken, in drafting the provision, from existing section 54(3)(j).
To a certain extent, this added provision might overlap existing section 54(3)(k), dealing with customs and excise duties. But the language of the latter provision is slightly different in two respects:
(i) existing sub-clause (k) refers to "any authority-exercising powers" and not to any Government Officers.
(ii) existing sub-clause (k) authorises the disclosure for enabling the exercise of any powers under the Act (for example, confiscation of goods) and is not confined to levy or realization of tax.
For these reasons, clause (k) has been retained in the draft and reproduced in paragraph (o).
Paragraph (o)- See notes above under paragraph (n).
Sub-clause (4).- Does not need any comments.
Existing section 54(5) has, as already stated, been transferred to the Chapter on "Prosecutions".
Sub-clause (5)- See notes under sub-clause (1) above.
Notes to clause 142
This is new and is intended to make it clear that the privilege conferred by section 54 can be waived by the assessee.