RAM LABHAYA, J. - This is reference under Section 66(1) of the Income-tax Act from the Income-tax Appellate Tribunal, Calcutta Bench. Two questions of law have been referred to this Court by this reference.
These question arose under the following circumstances. The assessee is a Hindu undivided family firm known as Mangalchand Gobardhandas, Tinsukia. The firm was a dealer in vegetable ghee, ground-nut oil, coconut oil, spices, iron, pans, etc. In its return the firm disclosed a total turnover of Rs. 3,01,053. On this turnover a loss of Rs. 36,803 was shown. The year of assessment was 1946-47. It was conceded that the account books of the firm were defective and it was not possible to ascertain profits or losses of the firm accurately therefrom. The assessment had to be made on estimate. In consequence the turnover was estimated at Rs. 4 lakhs and by applying a flat rate of 6 1/4 per cent, profits were assessed at Rs. 61,803. This finding of the Income-tax Officer was upheld at the appellate stages and is not now in dispute.
To the income of Rs. 61,803 as ascertained above, another sum of Rs. 90,000 was added. This sum is composed of moneys received by the encashment of high denomination notes of Rs. 1,000 each. The total sum received by encashment on 21st January, 1946, in different names was larger. Out of a total of 143 notes 97 were encashed by Gobardhandas Agarwalla, the karta of the undivided Hindu family, 40 notes of Rs. 1,000 each were encashed by Sreemati Narbadi Agarwalla, wife of Gobardhandas Agarwalla, and 6 notes were encashed by his driver Sorju Singh.
In the view of the Tribunal the assessee could give reasonable explanation for about 47 notes encashed by him. The balance of Rs. 50,000 for which no reasonable explanation was offered was added to his estimated income of Rs. 61,803 as income from undisclosed sources. The assessee is not questioning this finding of the Tribunal also.
The sum of Rs. 40,000 which was received by encashment of 40 notes of Rs. 1,000 each in the name of Sreemati Narbadi Agarwalla was according to the assessee property belonging to Sreemati Narbadi Agarwalla exclusively. The assessee had no interest in these notes. The sum received by her represented her stridhan. This contention of the assessee did not prevail with the taxing authorities. The Income-tax Officer when dealing with this contention of the assessee observed as follows :
"It has been stated in a written statement before me that the money was received by the assessees wife from her parents. Assessee is an old man and I am not inclined to believe this cock and bull story that the money was given to the assessees wife by her parents. If that was proved then this should have been brought into the business, because, from the accounts I find that there is a running account in the name of Babu Gobardhandass wife, balance of which at the end of 2002 S. stands at Rs. 708-8-9. In the absence of any evidence in support of the contention that this money was received by the assessees wife from her parents, I take it to be the income of the firm not disclosed".
The Assistant Commissioner agreed with this finding. It was contended before him that a further opportunity be given to the assessee to prove the source from which the wife of the assessee got the sum of Rs. 40,000 which was in dispute. He declined to give this opportunity, observing that there was no point in giving any further chance to the assessee to produce evidence as he himself admitted that the family including Sreemati Narbadi Agarwalla had no further evidence to produce. He also referred to the amount of Sreemati Narbadi from which it was inferred that the sum of Rs. 40,000 received by encashment of 40 notes in the name of Sreemati Narbadi Agarwalla could not have been her property.
The Tribunal also concurred in the above view observing that the story of the assessee that his wife received the sum of Rs. 40,000 from her parents had been rightly disbelieved by the Department.
The contention of the assessee is that the mere fact of assessees failure to prove that his wife received the amount from her parents could not be regarded as sufficient material for a finding that the sum of Rs. 40,000 belonged to the assessee and that it was his income from undisclosed sources. The contention has given rise to the following question :
"Whether there was any material before the Tribunal on which the Tribunal could have come to the conclusion that the sum of Rs. 40,000 being the proceeds of 40 high denomination notes encashed by the assessees wife really belonged to the assessee and is therefore income of the assessee from undisclosed sources and taxable under the Indian Income-tax Act ?"
The question as framed by the Tribunal assumes that, if there was material for the finding that the sum of Rs. 40,000, the proceeds of the 40 high denomination notes, to which it refers, belonged to the assessee, it represented his income from undisclosed sources. No objection was raised by the Department to the question as framed. The Tribunal has stated in para. 14 of the statement of the case that the Department had no suggestions to make in regard to the draft statement of the case that was sent to it. It follows therefore that if it is found that the finding that the sum of Rs. 40,000 belonged to the assessee is based on some material, it will be his income from undisclosed sources. All that has to be seen therefore is whether there was any material before the Tribunal for the finding that the sum of Rs. 40,000 belonged to the assessee.
The sum of Rs. 40,000 was encashed by the wife. She signed the necessary papers for encashing the notes. The Department claims that the encashment was a colourable transaction of a benami character and that this sum also belonged to the assessee. There must be some material before the taxing authorities before they could treat the item as income of the assessee. The onus rests on the taxing authorities. The Tribunal certainly was fully conscious of the legal position. When dealing with another item of Rs. 6,000, about which there is no dispute at this state, it observed in the order that the burden of proving that the amount belonged to the assessee was on the Department and in the absence of any material the amount could not be added to the income of the assessee. The position was the same in respect of the item of Rs. 40,000. There is therefore no dispute in this case as to the allocation of onus. The Tribunal proceeded on the basis that the onus was on the taxing authorities and the question is therefore narrowed down to whether there is any material on which the finding could be based. That question is easily answered.
The assessee maintained account books though these were incomplete. The proceeds of 50 high denomination notes admittedly encashed by him were not shown in the accounts. It was treated as income from undisclosed sources. The assessee is not questioning this finding. This circumstance lays the foundation for the view that has prevailed with the taxing authorities. The assessee had high denomination notes which represented concealed income from undisclosed sources and this circumstance has a very important bearing on the question whether the notes of the value of Rs. 40,000 encashed by his wife really belonged to her.
Sreemati Narbadi Agarwalla no doubt signed the necessary papers for encashing 40 high denomination notes. It may have been a convenient mode of keeping accumulated money belonging to her. But it was certainly uneconomic and risky. If the sum of Rs. 40,000 was not income of the assessee but property accumulated during the course of years by his wife it would not have been subject to any income-tax. It could have been deposited in a bank and could be a source of substantial recurring income. The assessment year was 1946. Huge profits could be made by utilizing this money in the accounting period that preceded it. It could have been put in the firms business. Sreemati Narbadi Agarwalla the wife of the assessee admittedly had accounts with the firm. The books disclosed a sum of Rs. 708-8-9 to her credit. She had no reasons for keeping high denomination notes as the husband had; for in her hands it would not be concealed income of the accounting period or of any one year if the assessees story is believed. He undoubtedly was concealing income. The wife would have no such motive. If the same mode of keeping the money was adopted by her, the possibility that this money also belonged to the husband is very strongly suggested.
Before the Assistant Commissioner of Income-tax the assessee conceded that he and his wife had no evidence to give in support of the contention raised by him. As such a large sum was alleged to have been received by his wife even though on different occasions, it should have been possible for the assessee to produce some evidence on the point. He as it were abandoned the attempt by stating that the family had no evidence to produce on the point. This circumstance assumes importance by reason of the fact that the wife of the assessee has no ostensible source of income. The source suggested is improbable and the assessee admitted that there was no evidence on the point. the assessee could have produced his wife in support of the claim. An affidavit from the assessee or from his wife was another available alternative. Even this was not adopted.
During the war commodities were scarce. The prices were controlled. Huge profits were made by businessmen generally by sales in the black market. The common device employed in concealing profits so made was to keep the same in the form of high denomination notes either in houses or in safe deposit vaults. It was in view of all these circumstances that the assessees version was rejected by the taxing authorities.
It cannot be said for a moment that in the circumstances of this case there was no material for the finding arrived at. The circumstances related above constitute evidence on which this finding could be based. Whether this material is sufficient or not is not the question before us. We are not concerned with that aspect of the matter. We have no appellate or revisional jurisdiction. But the finding is not such that it may be said that there is no evidence to support it. In fact it seems to us that the circumstances brought to light during the investigation constitute ample material on which it could have been founded. For, material or evidence on which taxing authorities may rely under the Income-tax Act is not confined to direct testimony in the shape of statements made by witnesses. All relevant circumstances which have a bearing on the issue which are revealed during the course of the assessment, would be covered by the expression "material or evidence on which the Income-tax Officer could rely" : vide Paras Dass Munna Lal v. Commissioner of Income-tax Punjab.
The contention of the taxing authorities was that the encashment of notes in the name of the wife was a benami transaction. A benami transaction may be innocent or fraudulent. Here if the transaction of encashment was benami it had a fraudulent purpose. The transaction would be in its nature secret. Direct evidence of the intended fraud would not be possible for the taxing authorities to procure. Fraud is secret in its nature and therefore evidence bearing on the benami character of the transaction would in its nature be mostly circumstantial.
Mr. Lahiri has relied on two cases from the Patna High Court in support of his contention. In Ramkinkar Banerji v. Commissioner of Income-tax, Bihar and Orissa, it was held that there was no presumption that the property standing in the name of a married Hindu lady does in fact belong to her husband. This proposition is undisputed. As held above there is no dispute about onus in this case. The second case relied on by him is reported in S. N. Ganguly v. Commissioner of Income-tax, Bihar and Orissa. In that case found were however different. There was an affidavit in that case from the wife that she had an independent source of income which was a house property fetching a rent of Rs. 70 per month. The wife had also alleged that she had been receiving presents in cash from her relatives. There was nothing to show that the Income-tax Appellate Tribunal rejected that explanation. In view of these facts it was found that there was no material before the Income-tax authorities justifying the finding that the sum in question which represented the proceeds of high denomination notes encashed in the name of the assessees wife belonged to the assessee. This decision is of no assistance to the assessee before us.
Our answer to the question in para. 10 of the reference is in the affirmative. We find that there was material before the Tribunal on which it could come to the conclusion that the sum in question really belonged to the assessee.
The second question to be answered is : "Whether on the facts and in the circumstances of this case, the sum of Rs. 90,000 held to be assessees income from some undisclosed sources, is liable to excess profits tax assessment ?"
As pointed out above to objection has been taken by the Department to the question as framed. This question as also the question answered above assume that the sum of Rs. 90,000 which represented the proceeds of the encashment of high denomination notes in the names of the assessee and his wife was income of the assessee from undisclosed sources. The question thus is whether even if the sum represents income from undisclosed sources, it is liable to excess profits duty.
The finding of the Tribunal that the sum of Rs. 90,000 represents income from undisclosed sources is a finding on a question of fact. It cannot be disputed before us. It forms part of the statement of the case. The Department having agreed to this finding also is not entitled to question its correctness or propriety. Once it is held that the sum of Rs. 90,000 represented income from undisclosed sources, the Department cannot urge that it should be treated as income from the assessees business, the profits of which have been estimated at Rs. 61,803. To this estimated income the sum of Rs. 90,000 has been added as income from undisclosed sources. It could be added to that income only if it was income from undisclosed source and not from the assessees business, the profits of which have been estimated. For, if this sum also represented profits of that business, then it would be covered by that estimate.
The Department could not estimate the total income and then add to it items of income that come to its notice. The addition of Rs. 90,000 to the estimated income of Rs. 61,803 was possible only on the basis that the income of Rs. 90,000 was from undisclosed source. If in these circumstances it is urged it is the income of the business which the assessee is carrying on, it would be blowing hot and cold in the same breath, as for purposes of income-tax assessment the income is from undisclosed sources and for purposes of excess profits tax it is income from the business. The two finding are conflicting in nature. Besides there is absolutely no evidence for a finding that the sum of Rs. 90,000 represented the income of business that the assessee was carrying on. This could not be presumed.
Even here the onus would be on the Department to show that it was the income of the business. If that finding had been arrived at on any evidence, it would have resulted in a higher estimate of the income of the assessee. In any case as thing are, it is not possible to say on the facts and in the circumstances of the case that the sum of Rs. 90,000 which has been held to be assessees income from undisclosed sources is liable to excess profits tax. The answer to the question is in the negative. It is not necessary to consider the third question which has been included in the reference on a hypothetical basis. The answer to the question in para. 10 of the reference is in the affirmative while the answer to the question raised in 12 of the reference is in the negative. The reference is disposed of accordingly. Parties shall bear their own costs.
DEKA, J. - I agree.
Reference answered accordingly.