Report No. 12
Procedure for Assessment
Notes to clause 143
The provisions relating to procedure for assessment have been arranged in this Chapter in proper sequence. The proceedings for assessment begin with the notice under section 22 calling for a return, which may be followed by the provisional assessment, enquiry by the Income-tax Officer and the regular assessment. Reopening of the assessment at the instance of the assessee, or reassessment at the instance of the Income-tax Officer under existing section 34, are subsequent proceedings.
The sections relating to assessment have been placed in this order in the Chapter. Amendment by way of rectification of mistakes is dealt with next, followed by the notice of demand under existing section 29.
The procedure for assessment proper having been dealt with in the earlier half of the Chapter, the latter half of the Chapter goes on to embody provisions regarding incidental matters, or matters which are of minor importance (e.g., miscellaneous information and certificates).
Sub-clause (1)- The following changes have been made to improve the language of the section in precision and clarity:-
An important departure has been made from the existing Act by providing for an automatic submission of return of income by all persons who are assessable under the Act. Existing section 22 (1) requires the Income-tax Officer to issue a general notice calling for the submission of such returns. This provision entails a lot of expense and labour to the department, since a notice has to be issued in identical terms by each Income-tax Officer. Further, the provision has no parallel in the taxation statutes of other countries which provide for the primary obligation of the taxpayer to send a return of income by the prescribed date.
Lastly, recent taxation statutes in India, for example, the Estate Duty Act, the Wealth Tax Act and the Expenditure Tax Act, contemplate the submission of a return for the purposes of those Acts without notice by the Income-tax Officer. It seems, therefore, desirable to make the provision more rational on the lines of the other taxation statutes just now referred to.
Apart from this important change, the following changes have also been made for precision and clarity-
(i) it has been made clear that the return of income is to be submitted in the financial year;
(ii) at present it is doubtful whether a person is liable to make a voluntary return of the income of any other person in respect of which he is assessable. There are several provisions in the Act, such as sections 40, 41, 42 etc., which make one person assessable in respect of the income of another. This lacuna has been removed by the addition of suitable words;
(iii) the notice under existing section 22(1) usually provides that the return should be furnished before the expiry of 65 days from the date of publication of the notice. This leaves the date indefinite until the date of publication of the notice is ascertained. It has been provided, therefore, in the draft, that the return should be furnished on or before the 30th day of June;
(iv) a proviso has been added to the effect that a person who has already submitted a return in response to an individual notice under sub-section (2) need not furnish a return under sub-section (1);
(v) the existing requirement that the return should be a return of "total income" and "total world income" etc., has been replaced by the simple requirement that it be a return of income in the prescribed form.
Incidentally, it is suggested that it would be appropriate to prescribe a separate form of return in the case of persons who have incurred losses in business which they would be entitled to carry forward.
Paragraph (b) of the sub-clause makes it clear that where a return is sent to the wrong Income-tax Officer, he should forward it to the Income-tax Officer having jurisdiction.
Sub-clause (2).- The existing section 22(2) says that the notice will require the assessee to furnish the return "within such period, not being less than 30 days, as may be specified in the notice". The words "not being less than" create a controversy as to whether a direction to furnish the return "within 30 days" would meet the requirement laid down in the section. To prevent all confusion, the draft sub-clause provides that the return is to be furnished within 30 days from the date of service of the notice.
A proviso has been added to the effect that the notice should be issued before the end of the relevant assessment year. This interpretation of the section is well-accepted even now.
Other drafting changes are on the same lines as those made in sub-section (1).
Sub-clause (3).- The date on or before which the return of loss should be filed has been specifically mentioned in the draft sub-clause, on the lines of the draft for sub-section (1).
The return is meant for losses sustained in the previous year, and hence the word "previous" has been inserted before the word "year" in the beginning of this sub-clause.
The requirement that if the return is not filed, the loss cannot be carried forward, contained in the middle of the existing section 22(2A), has already been incorporated in the Chapter on aggregation of income and set-off of losses.
Sub-clause (4).- This does not require any comments.
Some difficulty has been caused by existing 22(3) in cases where the assessee files a return on the last day of the period within which the assessment could be completed. It as been held1 that if the department takes no action at all for the issue of a notice under section 22, and allows time to pass and permits the assessee to make a voluntary return under section 22(3), the income of the assessee must be assessed as laid down in section 23 and it is not open to the department to proceed under section 34.
This would lead to the complication that even if the return of income under section 22(3) is filed on the last day on which the assessment could be completed, the department must complete the assessment without further investigation. To remove this difficulty, an amendment is proposed in the draft clause corresponding to existing section 34(3), main para, whereby the department will be allowed at least one year from the date on which a return under section 22(3) is filed by the assessee. This will meet the difficulty brought to light by the case cited above1.
1. Ramchhod Das v. C.I.T., (1954) 26 ITR 105 (Bom).
Existing section 22(4) has been removed and placed later as a separate section; its present place in the middle of the provision relating to return interrupts the description of the substantive provisions dealing with the various classes of returns.
Sub-clause (5).- Does not need any comments.
Notes to clause 144
This is new. The existing Act is silent as regards the person who should sign a return of income The draft clause is intended to state the position comprehensively in respect of the various kinds of assessees.
Notes to clause 145
Sub-clause (1).- Does not need any comments.
Sub-clause (2).- The provision that due effect should be given to certain allowances and losses has been removed in separate sub-section, for the sake of clarity.
Sub-clause (3).- Does not need any comments.
Sub-clause (4).- Existing section 23B, sub-section (3), provides for the assessment of a firm as an unregistered firm unless the firm fulfils the conditions notified by the Central Government. In order to make the provision self-contained, the conditions imposed by the notification have been incorporated in the section. The words "as if it were an unregistered firm" in the existing provision are not happy, since they would not apparently cover a case where the firm is in fact unregistered. The simple phrase "as an unregistered firm" has, therefore, been substituted in their place.
Sub-sections (5) and (6).- of existing section 23B have "been transferred to the Chapter on Collection of tax.
Sub-clauses (5), (6) and (7).- These do not need any comments.
Notes to clause 146
Existing section 22(4), dealing with the enquiry which the Income-tax Officer may make before assessment, has been embodied in this clause.
Sub-clause (1).- The words "for the purpose of making an assessment under this Act" have been inserted in the beginning, to define the scope and object of the enquiry.
It has been made clear that after obtaining the previous approval of the Commissioner, the Income-tax Officer may call upon the assessee to furnish a statement of assets and liabilities. The requirement of approval will prevent undue hardship to assessees.
Sub-clause (2).- This is new, and enunciates a well established proposition. It is intended to make it clear that an Income-tax Officer may make such enquiries as he considers necessary. It will be particularly useful in cases where a "best judgment assessment" is proposed to be made.
Sub-clause (3).- This is new. It has been held by the Supreme Court1 that before any material is used against any assessee, he should have an opportunity to rebut the same. This principle has been codified in this draft sub-clause. An exception has been made for cases where an assessment is to be made under existing section, 23(4), since it is an exparte assessment.
1. Dhakeswari Cotton Mills v. C.I.T., (1954) 26 ITR 775 (SC).