I.T.Act of 1922 passed.
Central Board of Revenue Act passed and CBR created.
Taxation Enquiry Committee Known as Todhunter Committee
submits its report.
A new authority-Board of Referees created under the Act
Income-tax Enquiry Committee (popularly known as Ayers
Committee) submits its report.
: Rs. 18.14 crores.
: Rs. 20.00 crores.
The Second World War(1922-1939)
Period 1922-1939 )
period of 1922-1939 was by far the most important period for the
I.T. Department. It marked not only the laying down of an Act which
till today has survived in its outlines, it marked as well the birth
of the Income-tax Department in the sense that for the first time,
a definite administrative structure was given to it and a proper
nomenclature given to its officers. During this period, the Board
of Revenue (Central Board of Revenue) came into existence and the
I.T. Department was placed under its control and supervision.
1922-1939, three Committees whose deliberations and recommendations
affected the legislative and administrative functioning of the Department
were (i) All India Committee presided over by Mr. G.C. Sim (ii)
Taxation Enquiry Committee 1924-25 known as Todhunter Committee
and (iii) Income-tax Enquiry Committee known as Ayers Committee.
of July, 1921, the All India Committee on Income-tax formed for
recommending amendments to the Income-tax Act signed its Report.
The Committee was presided over by Mr. G.C. Sim, C.I.E., I.C.S.
It was attended by Collector of Income-tax, Karachi, Mr. C. Birch,
Collector of Madras, Mr. A.R. Loftus Tottenham, Mr. H.B. Spry I.C.S.,
Mr. W.S. Watkins, I.T. Adviser to the Govt. Of India, Assistant
to the Collector of Income-tax, Calcutta Mr. Kirkwood, the Income-tax
Commissioner, Uttar Pradesh, Mr. Gaskell and eminent persons like
Mr. Narayandas Girdhardas, Rai Bahadur Sir Ganga Ram, Dewan Tek
Chand, Mr. Monmohandas Ramji, M.L.A. and Mr. F. Maccarthy, M.L.A.
The Committee recommended large scale amendments to the Income-tax
Act, as it stood then. It virtually laid down the lines on which,
in coming years, the growth of Income-tax Department would take
place. Towards administration, their observations were as follows
non-official members of the Committee desire to record their opinion
that a matter of greater importance than the amendment of the Act
is an increase in the number and efficiency of the staff, which
should consist of officers of the highest training and integrity.
They would emphasis that the Income-tax Department should include
experts of high standing, trained in accountancy whose remuneration
should be such as to reflect the market value of their professional
experience and attainments. Accountancy should be one of the foundations
of training for the whole service. The scale of pay should be such
as to attract the best material available and all posts in the department
including the highest should be open to any officer of proved experience
while recommending amendments to Section 2(4) they observed :
‘We agree to the proposal that the definition of Chief
Revenue Authority should be amended so as to permit a person other
than the Financial Commissioner of the Board of Revenue, being appointed
as Head of the Income-tax Department in provinces, where these authorities
exist. We also agree to the proposal of the Madras Committee that
the designations of the Chief Revenue Authority, Collector and Commissioner
should be abolished as they are likely to cause confusion and that
the Income-tax authorities should be given a distinct nomenclature
distinguishing between the assessor, the appellate authority and
the Head of the Department. We also agree with the view of the Madras
Committee that the Income-tax Commissioner should not be appointed
as a matter of routine but should be an officer, experienced in
Income-tax work in India who is himself prepared to keep the post
for a sufficient time to preserve consistency and continuity’.
the close of their report, they observed that in order to achieve
uniformity in the interpretation of the Act and details regarding
assessment, it was essential "That the Government of India should
have atleast the nucleus of a department with functions similar
to those of Board of Revenue, in England".
observations became one of the guiding factors for the legislators
who enacted the I.T. Act, 1922. For the first time, proper nomenclature
was given to the officers of the Department and a hierarchy was
fixed. Section 5 of this Act specified four categories of I.T. authorities.
- The Board of Inland Revenue.
- Commissioners of Income-tax
- Assistant commissioners of Income-tax.
Pre 1922 set-up
of I.T. Dept. Creation of Central Board of Revenue
1922, there were not many whole time Income-tax Officers. Except
for a few places, I.T. work was largely done by Land Revenue Officers
as a subsidiary duty. The 1922 legislation had, for the first time,
effectively centralised administration of the Department. A Board
of Revenue was created. The Central Board of Revenue took its place
in 1924 and in due course, a regular hierarchy of officers acting
under the Control of the Board and the Provincial Commissioners
was constituted. Powers and functions of the Commissioners were
prescribed with reference to defined local areas. The I.T. Act which,
till then, was administered through provincial machinery came under
a separate administration. Even prior to 1922, in some provinces
notably in Bombay City and in Calcutta, I.T. was administered through
distinct departments under a Collector of I.T. but it functioned,
however, as a branch of and under the control of the local revenue
of I.T. Officers and Senior officials under him
I.T. Administration grew out of the provincial revenue machinery,
recruitment of officers became a very important task. The first
recruitment under the 1922 Act was mainly from such revenue personnel
as had been associated with the assessment / collection of I.T.
in each province. Their pay and conditions of service were also
initially on the pattern of local revenue administration in each
province. Therefore, the scales of pay received by the I.T.Os in
different provinces were not uniform. The system of recruitment
also varied from province to province. In some provinces, the first
batch of I.T.Os’ was drawn from the provincial Deputy Collectors.
In places like Bombay where a nucleus of I.T. Staff existed, it
was strengthened in various grades, such as Examiners, Inspectors,
etc. By promoting revenue officials eligible for appointment to
those grades on the strength of their experience and service. Except
the I.T. Officers, the rest were non-gazetted officers who helped
the I.T.O. either in examining accounts produced by the assessees
or in making outside enquiries about the sources of income and amounts
earned by taxpayers. In the mofussil areas, the scales of pay of
the non-gazetted executive subordinates were similar to those of
Provincial Tahsildars or Nambardars but in the cities of Bombay
and Calcutta, pay of the post was higher. Direct recruitment in
the two major provinces of Bombay and Bengal was first made to the
grades of Examiners, Inspectors o Assistant Income tax Officers
but not as I.T.Officers presumably because the assessment work in
the two cities of Bombay and Calcutta being of a specially complicated
nature, previous long experience was considered essential. The pay
of these Examiners and Inspectors was fairly high being Rs. 225-500.
The Commissioners were, therefore, able to get men with high Academic
qualifications such as Bar-at-Law and Commerce Graduates of both
Indian and British Universities to fill these posts in these provinces.
In other provinces, particularly in U.P recruitment was made by
the Commissioner of Income tax from among young men with high academic
qualifications direct to the cadre of Income tax Officers and Assistant
Income tax Officers. For this purpose, the Commissioner used to
visit Universities & interview young men of calibre. In one
such search for talent, the first officer of the I.T.Department
who rose to be Chairman of the C.B.D.T., Shri Jamuna Prasad Singh,
was interviewed and recruited. It is said that he had accompanied
a friend who had been called for interview & he attracted the
eye of the Commissioner who was looking for suitable persons to
be recruited. The Commissioner was so impressed by his personality
that he recruited him in preference to several others.
difference in recruitment according to which persons with similar
qualifications started in one province in non-gazetted grade while
in another province, they directly entered the gazetted ranks, introduced
Ayers Committee (1936) took note of it and recommended a uniform
scale of pay and the introduction of three grades of I.T. Officers,(a)
Assistant I.T.Officers, (b) I.T.Officers and (c) Senior I.T.Officers.
The division of the I.T.Officer's grade into two would, according
to the Committee, prevent an officer of mediocre ability from going
almost automatically to the maximum of the undivided grade and would
afford earlier opportunity for selecting the best men for promotion.
of Assistant Commissioners
under the Act of 1922, the I.T. Department came under the direct
control of Central Board of Revenue, from 1924, not only the recruitment
of the I.T.Officers but also appointments of Assistant Commissioners
continued to be made on provincial basis. These appointments were
made by the Commissioners of Income-tax whose powers in respect
of such recruitment were unrestricted except for the nominal approval
of the local Government, which acted in the matter as an agent of
the Central Government. Consequently, there was no interchange of
officers from one province to another, whether, in the grade of
Income-tax officers or as Assistant Commissioners.
1939, Assistant Commissioners charges mostly corresponded to the
Revenue Commissioners Divisions in the provinces. There were two
scales of pay for Assistant Commissioners, Rs.1000-100-1500 except
for Assistant Commissioners, Bombay and Calcutta where it was Rs.
1500-100-2000. In or about 1927, the number of Assistant Commissioners
for the cities of Bombay and Calcutta was increased from 1 to 2
and the grade of Rs. 1500-100-2000 was abolished but the Assistant
Commissioners in these cities were remunerated by a special pay
of Rs. 250/-. Another officer of the I.T. department who drew almost
this scale of pay was ITO Incharge of Non-Resident Refund Circle
in Bombay. His pay scale also was Rs.1500-50-2000.
to the year 1922, Commissioners were appointed by Governor General-in-Council.
They were the provincial Heads of Income-tax Administration. Upto
1939, they were either recruited from I.C.S. or were General pool
officers. Only sometimes, they were taken up from the cadre of Assistant
Commissioners of Income-tax. A member of I.C.S. when appointed as
Commissioner of Income-tax started on a pay of Rs.2250/- (whatever
his own pay might have been in his service). His pay rose to Rs.2750/-
by annual increments of Rs.100, but if posted to cities of Bombay
and Calcutta, the Commissioner received a special pay of Rs. 250/-.
Other Commissioners worked in the scale of Rs.2000-100-2500 with
special pay of Rs.250/- at Bombay and Calcutta. In 1938, as per
India Office list the following eight persons held posts of Commissioners
of Income-tax :
Madras - Mr. E.W. Clerks.
Bombay - Mr. K.B. Vacha.
Bengal - Mr. Surinder Nath Banerjee.
U.P. - Mr. R.B. Krishna Prasad Verma. (Agra & Audh)
Punjab - Mr. K.C. Basak. and NWFP
Bihar - Mr. W.R. Well.
C.P. - Mr. R.B. Krishna Prasad Verma.
Assam - Mr. Durgeshwar Sharma.
the number of Commissioners was raised to 13 for the whole of India
by the division of the grade of Commissioners into Grade I &
to understand how the assessment work was done, it is necessary
to re-iterate what the machinery for assessing & collecting
I.T. tax was, till 1922. Only in big cities like Calcutta, Bombay
and Madras, there were a few whole-time Income-tax Officers. The
Head of the Department corresponding to the present "Commissioner
of Income-tax was sometimes known as Collector and sometimes as
Commissioner of Income-tax. The work was done by Land Revenue Officers.
There was no obligation on the assessees to furnish return of income
nor consequently any penalty was levied for not doing so. Tax on
salaries of public servants and interest on securities was deducted
at source. Joint stock companies were compelled to send their returns
of profit but the Act did not lay down any rule as to how the profits
were to be calculated. These details were regulated by rules or
executive orders. In respect of "other income", the Collector assessed
summarily income below Rs.2,000/-. In other cases, the Collector
communicated merely what he assessed as tax. No assessee could petition
to Collector against the assessment ; assessees having to pay a
tax of Rs.250/- or over and companies, had a right to apply to the
Divisional Commissioner or the Board of Revenue in Madras for revision.
The Collector had the power to compound the assessments of an assessee
whether an individual or a company for a number of years. Upto 1916,
the income was assessed in separate compartments. In 1916, the war
had necessiated increased taxation. This called for a radical change
in the whole system of assessment. It became necessary to abandon
the system of assessing a person’s income in separate compartments.
Higher rates of taxation required a degree of precision in arriving
at tax, etc. It was, therefore, necessary to frame clear rules as
to the calculation of tax and what expenses were to be deducted
from profits and what not. The machinery of assessment also required
tightening up. These difficulties were remedied partly by the 1918
Act. For the first time, it was provided that a notice could be
issued and served on every person whom the Collector proposed to
assess, requiring him to furnish a return of income. Non-furnishing
of the return was made an offence punishable before a magistrate.
Compounding of taxes for a series of years was given up. The assessee
was assessed provisionally for the income of the previous year and
the assessment was finally adjusted at the end of the year with
reference to the income of the year : necessary refund or supplementary
demands being made. Schedule to the Act fixed the rates varying
from four pies in the rupees on the lower income ranges to twelve
pies in the rupee in the higher income ranges. The chief Revenue
Authority was vested with the discretion to refer doubtful questions
of law to the High Court suo moto or at the instance of the assessee.
1921 Sim Committee made various recommendations towards streamlining
assessment procedure which were by & large accepted. The following
are a few of those
the Act should be amended in order to make total income determine
the liability to tax as well as the rate at which the tax should
be assessed on every portion of that income and also in order
to make the deduction on account of insurance premia permissible
in the case of all income from whatever source derived. (Para
power should be taken to fix by rule the ‘previous year’ for any
commercial community when the year adopted by the Community does
not conform with the definition of the Act. There are two cases
to be provided for (1) the case where a commercial year may be
slightly over or slightly under twelve months (2) the case where
the commercial year ends shortly after the 31st March.
Act should be amended in order to require all employers to deduct
income-tax from all payments to their employees under "Salaries".
the Collector should have the power to call for the production
of Accounts where a return has or has not been filed. But that,
through executive instructions, care must be taken to ensure that
accounts are not unduly delayed by an assessor. (Para 34.)
an assessee should be supplied by the Collector, a copy of the
order of assessment free of charge if he applies for it. (Para
provision should be made to enable a Collector to require information
to be given regarding specific payments where there is reason
to believe that such payments should become liable to income-tax
in the hands of recipients. (Para 43).
it should be made clear in the Act that where income-tax is deducted
at source, it is the gross amount of the income before the income-tax
is deducted that is to be taken into consideration in determining
the rate at which an assessee shall be liable to income-tax on
the rest of his income and also in determining his liability to
super-tax. Act should be amended in order to make it clear that
it is the amount of the profits to which a partner is entitled
and not the profits which he has actually received which determines
his personal liability to income-tax and his claim to a refund.
losses under one head of income should be charged against profits
under another. Under the wording of Section 14, it is the aggregate
amount chargeable under each head that determines taxable income,
so that where a person has carried on a trade or profession and
also has an income from house property, if he has incurred an
actual loss in the trade, the figure adopted under that head in
arriving at the aggregate amount of income chargeable to income-tax
is nil and not a minus. (The majority of the Committee-8 against
6 – were opposed to the proposal made by the Bengal Committee
that business losses should be carried forward for 3 years). (Para
Committee had thus rejected the suggestion that business loss should
be carried forward for three years. This suggestion however became
law, a few years later.
very important recommendations which were turned down by the Committee
also need mention :
The majority of the Committee opposed the Bengal Committee’s proposal
that provision should be made in the Act for making persons who
are liable to income-tax liable to submit a return to the Collector
of Income-tax whether called upon to do so or not. (Para 56).
not accept the recommendation of the Bombay Committee that accountants
who claim to have examined accounts of a taxpayer should be called
upon to take a declaration on oath that the accounts are correct
for income-tax purposes and that a penalty should be imposed where
certified accounts are found to be incorrect from this point of
view. (Para 57).
Income-tax Act, 1922 was framed against the above background. It
laid down, in detail, the expenses which were allowable under each
head of income. For the purpose of framing assessment, the I.T.O.
could call for the books of accounts of previous three years. Losses
under one head of income could be set off against profits under
another head. This act fixed responsibility on a successor of a
business as though he himself had carried on the business throughout
the previous year. It also granted relief in respect of discontinued
business. The 1922 Act provided that a copy of the assessment order
and notice of demand be served on the assessee. A mistake in the
assessment could be rectified and if the income was under assessed
or escaped assessment, before the expiry of one year from the last
date of the year, the assessment proceedings could be re-opened
or taken up. Penalty could be levied for concealment of income and
for non-payment of taxes. Prosecution proceedings before the Magistrate
could be filed only in five circumstances. (a) Non-deduction of
tax under the Act as provided by the Act or for non-payment of it,
after deduction, (b) Failure to furnish a certificate of deduction
from salaries and interest on securities, (c) For not furnishing
the return of income called for, (d) For not producing accounts
called for, (e) For refusing to grant inspection or allow copies
to be taken of any register of members, debenture holders or mortgages
of any company under section 52 of the Act. Besides the above, application
before a Magistrate could be filed against a person for making a
Commissioner was given power of suo moto revision of assessment
both in favour of revenue and in favour of assessee. An important
deviation from the previous procedure was that the 1922 Act established
the change in the year of assessment. Henceforth the income of the
previous year would be assessed, instead of adopting previous years’
income merely as a measure of the income of the year of assessment.
Under Section 23 of the I.T. Act 1922, three types of assessment
could be made :
where returned income may be accepted [section 23(1)].
examination of books etc. Was considered necessary by the ITO
before framing the assessment and so these were called for and
assessment was framed after examining these – [section 23(3)].
a best judgement assessment was made because either the return
was not filed or having filed the return, the assessee did not
co-operate by producing books of accounts, etc. called for [section
of income earned outside India was a very sensitive subject. The
1922 Act made the foreign business income of a resident taxable
on remittance basis. With effect from 1-4-33, the basis was widened
to apply to income from all sources. In 1939, as a result of the
recommendation of the Ayers Committee, the entire income of a resident
whether accruing in (British) India or outside, became chargeable
to tax. The remittance basis, thereafter, faded into the background
except for its applicability to resident but not ordinarily-resident.
1922 Act, incorporated in its provisions, the levy of super tax
which till then, was being assessed as a separate tax first by the
Super Tax Act, 1917, and later by the Super Tax Act of 1920. Super-tax
was defined to this end as an additional duty of Income-tax. The
act of 1922 also made a departure by abandoning the system of specifying
the rates which henceforth would be enunciated by the annual Finance
Acts, a feature which survives to the present day.
new Act laid down, thus, in fair details the procedure for computing
income. The concept of depreciation of assets which existed earlier
also, was made more sophisticated and provided in the Rules. The
straightline method of allowing depreciation was replaced by written
down value method of allowing it.
1939, there was no authority whose sole function was to hear and
decide appeals. The Inspecting Asstt. Commissioner used to hear
the appeals against I.T.O’s orders. The assessee could go in appeal
against Assistant Commissioner’s orders to the Commissioner. It
was only after Ayers Committee’s recommendation, that appellate
functions were separated from administrative functions and a new
authority, namely Appellate Assistant Commissioner was created.
to the High Court and the Privy Council, the observations/recommendations
made by the 1921 Sim Committee and later by Todhunder Committee
(1924-25) throw a lot of light on the Law and procedure as it existed
during early twenties of this century.
of Sim Committee
are of the opinion that a reference to the High Court should be
made only on a question of law and not on a question of fact. We
agree to the proposal that this section should be amended so that
the Chief Revenue Authority should no longer have power to withhold
a reference to the High Court on the ground that an application
is frivolous, or that reference is not necessary but should be required
to state a case to the High Court on the application of assessee.
Also in order to provide against frivolous and unnecessary applications,
the section should contain a provision that every application should
be accompanied by a fee of Rs.100/-. In order to safeguard the revenue,
the section must provide that the fact that case has been stated
to the High Court, shall not, in anyway, stop the collection of
the income-tax due from the assessee. The assessee must pay the
tax, but if owing to the judgment of the High Court, the amount
of assessment is reduced, the amount over-paid shall be refunded
with such interest, if any, as the High Court may allow. The Bengal
representatives and Mr. Birch are of the opinion that there should
not be an unrestricted right of appeal but that if the Chief Revenue
Authority does not state a case on an application, it should be
open to the petitioner to require him to reconsider his decision
sitting with two non-official assessors, the opinion of the majority
We unanimously agree to the proposal of the Madras Committee that
the section should be further amended in order to make it clear
that the application for reference need not be made before the final
order is passed by the Chief Revenue Authority but should be made
within one month after the passing of the order. In order to secure
the revenue, such a reference should only be made after the assessment
order has been passed.
We unanimously agree that no authority other than the Chief Revenue
Authority should be required or allowed to state a case".
of Todhunter Committee
matter was considered again by Taxation Enquiry Committee known
as Todhunter Committee in its report (1924-25). This Committee observed
as follows :-
the matter of points of law, difficulties have arisen from the fact
that no appeal lies to the Privy Council against a decision u/s
66 of the I.T. Act because such a decision is merely advisory and
not in the proper legal sense of the term a final judgement. As
a result, differing judgements have been given by different High
Courts on important questions and there is no means available, short
of legislation, of securing a final settlement of the question in
issue. The Committee would, therefore, suggest that whatever steps
are necessary to secure an appeal to the Privy Council in such cases,
should be taken without delay."
perhaps be appropriate to mention the two instances in connection
with which such differences of opinion had arisen. The first was
that the assessment of agency and branch profits which had been
dealt with by the High Courts of Madras, Calcutta and Rangoon. The
judgment of the first Court tended to restrict the powers of I.T.Officers
U/s. 42. The tendency of the two latter, was more in favour of the
point of view of the Department. The Committee recommended an amendment
of the Section.
second instance mentioned by the Committee was that of miscellaneous
income of the holders of permanently settled land, such as the income
from the mining royalty, fisheries, markets and fees o various kinds.
This subject had been dealt with by the High Court of Madras, Calcutta
and Patna, the point at issue being whether the taxing provisions
of Income tax Act over-ride the provisions of Permanent Settlement
Regulations. The decision of the above mentioned three High Courts
on this point was different and the Committee had discussed in detail.
The chief points of differences in the judgments of the three High
66 and 66A of the I.T. Act 1922 (as it stood amended upto April,1926)
were a result of these recommendations, Section 66 gave the Commissioner
right to appeal to the High Court and 66A right to appeal to the
I.T. Amendment Act of 1930 (21 0f 1930) introduced a new authority
known as the Board of Referees. A new section 33A was introduced
which provided that the Commissioners, on receiving a petition against
an order, could refer the case to the Board of Referees. This Board
would consist of three to five persons of whom not less than one
half were to be bon-officials having business experience and one
was to be a judicial officer not below the rank of a subordinate
judge or judge of a small causes court of at least ten years experience.
The decision of the Board of Referees could not be appealed to any
authority. Even the Commissioner could not review it. This provision
did not last long. It was omitted by section 40 of Amendment Act
7 of 1939.
an Income tax Enquiry Committee known as Ayers Committee submitted
its report. ( The report was signed by Mr. C.W.Ayers, Mr. S.P.Chambers
and Mr. J.B. Vacha). This Committee strongly recommended that Assistant
Commissioners hearing appeals should be relieved of their administrative
functions. They also advised the appointment of an independent Tribunal
outside the department to hear the appeals. The Committee recommended
that orders U/s. 23(4) viz. Ex-parte assessments should be made
appealable. Like-wise. The Committee advised that orders U/s. 43
( treating a person as an agent of a non-resident) be made appealable.
The Committee further advised that there should be one Appellate
Tribunal only for all India and that appropriate centres should
be visited by Members of the Tribunal. The coming years saw the
introduction of a new cadre of I.T. Authority "Appellate Assistant
Commissioners". In 1941, Income tax Appellate Tribunal came into
stated above, the Assistant Commissioner of Income tax combined
in his functions, both Appellate and administrative functions. He
was expected to inspect the I.T.O’s work and guide him also. The
quality of inspection reports came in for severe criticism from
the Ayers Committee who found that one of the methods for improving
the quality of performance by Assistant Commissioners in the area
of inspection was to have full time Inspecting Officers with no
appellate jurisdiction. These Inspecting Officers would be responsible
to the Commissioner for seeing that the work in the Circles under
their control was efficiently performed and it would be their duty,
in addition to making thorough inspection of the Circles under their
control, to give the I.T.Os advice and instruction. The I.T.O, the
Committee suggested, should refer to the Inspecting Officer any
major points of doubt or difficulty before he made the assessment
in question. As a result of this recommendation, the cadre of Assistant
Commissioner was divided in to two separate authorities, Inspecting
Assistant Commissioners and Appellate Assistant Commissioners. Henceforth,
greater emphasis was placed on Inspections & proper importance
was attached to inspection reports.
Control & Coordination
India I.T. Committee (Sim Committee) had recommended (para 62) that
"all the rules under the Act should be made by the Govt. of India
and that local governments should have no power to frame any rule."
Towards this they observed, "We have further, throughout our report,
recommended that numerous details regarding assessment and the interpretation
of the provisions can be settled and made uniform by issue of the
rules and instructions". This recommendation had heralded the creation
of Board of Revenue, which in 1924, was replaced by Central Board
of Revenue. In 1936, Ayers Committee reviewed the functioning of
the Board and found that the powers given to it were not adequate
to secure proper and uniform administration of the I.T. Act throughout
British India. This Committee recommended that the Board be given
more powers. They also recommended that in order that the Central
authority be put into position to take a more active part in the
organization and supervision of the department, a "Chief Commissioner
of Income-tax" may be appointed to serve as a technical advisor
to the Central Board of Revenue who would, subject to the general
control of that Board, supervise and coordinate the administration
of Income-tax throughout British India. To assist him, they suggested
that one Assistant Commissioner and one I.T.O. be given. This Chief
Commissioner, inter alia, would (a) consider copies of all inspection
reports (b) watch the methods of recruitment (c) draw up comprehensive
instructions on examination of accounts particularly regarding special
types of cases such as Banks, Life Insurance Companies, etc, (d)
give advice and instruction upon points of general importance (e)
supervise application of certain Sections of the Act and the Rules
made thereunder to secure consistent treatment in all areas (f)
carry out continuous revision of I.T. Manual (g) make periodical
review of registers and forms prescribed (h) obtain periodical reports
on the assessment work and refund claims to ensure that Commissioners
were taking proper steps to eliminate unreasonable delay. (i) take
responsibility for systematic training and the departmental examination
of Cadet Officers, to secure that before promotion, they have a
thorough knowledge of Income-tax Law and adequate knowledge of General
Principles of Accountancy (j) undertake periodical revision of statistical
requirements with a view to making published returns as informative
and intelligible as possible.
the Committee also said that arrangement for the appointment of
full time legal adviser to the Central Board of Revenue might be
considered. The above recommendation resulted in the creation of
the first Directorate of the Income-tax Department, i.e. Directorate
of Inspection (I.T.) in 1940
Department was becoming increasingly conscious of the need for proper
investigation of cases. In October, 1938, a Special Provincial Circle
was formed in Bombay to examine important and difficult cases. It
consisted of four I.T. Officers with a complement of ministerial
staff working under the supervision of Mr. J.B. Bird, ICS. In Bengal,
an Examiners pool was organised on 9th August, 1938,
with one chief examiner and 18 Examiners of accounts.
amending Act of 1939 gave the Central Govt. powers to appoint not
more than three Commissioners to discharge instant reference to
serve the duties of a Commissioner in respect of certain classes
of cases. Under this provision, the Bombay Circle was transformed
into a commissionership and a number of important cases were assigned
was an era when new lines were being laid in all sectors of the
working of the Department, The menace of ‘black money’ was still
a few years away. By 1939, as per Central Board of Revenue (All
India I.T. Report and Returns for 1938-39) the number of assessees
had risen to 441774 of which 129575 were in Bombay alone. The revenue
was Rs.20,00,91,597. In 1938-39, the demand raised by way of ‘Miscellaneous
& penalties’ was reported at Rs. 6,02,092. In 1061 cases, penalty
under Section 28 (concealment of income etc.) was levied and in
7964 cases, Penalty U/s 46(1) for non-payment of tax was levied.
Prosecution proceedings were sanctioned in 13 cases. A bill based
on the recommendation of Ayers Committee was introduced in April,
1939 & became law soon thereafter.
The revenue collected
during 1922-23 to 27-28 was as follows :-
it had come up to 20 crores.
"India office lists"
prepared of this period show that the Income-tax Department had
not acquired the status, it did a few years later. Its personnel
(Commissioners and Assistant Commissioners) appear in the Provincial
lists in "Miscellaneous" section except for Bombay list where Income-tax
Department makes a separate heading.