Mody, Actg. C.J.
1. This is a common judgment in respect of two income-tax references, being No. 47 of 1963 and No. 7 of 1964. The former relates to the assessment year 1946-47 and the latter relates to the assessment year 1947-48, the relevant corresponding accounting years being 1st April, 1945, to 31st March, 1946, and 1st April, 1946, to 31st March, 1947. In both the references the assessee is the same, Common points arise and, as a matter of fact, even the Income-tax Appellate Tribunal has, when disposing of the second reference, disposed of the main point arising therein on the basis that the points has been dealt with and decided in the first reference.
2. In the first and second references the department sought to bring to tax Rs. 99,769 and Rs. 1,20,563, respectively, as being remittances from Iran, being a non-taxable territory, into India, being a taxable territory, under the provisions of section The question arising is : Whether the amount of those references or any part or parts thereof were liable to the so taxed.
3. The assessee is an Iranian. His father died in Iran in 1925, when the assessee was about fifteen years old. The assessee came to India, for the first time, in 1934. The assessee took up service with Messrs. Zarthosti and Sons, Bombay, on a salary of Rs. 100 per month, which was from time to time increased till it reached Rs. 200 per month. In the summer of 1941 the assessee went to Iron and returned to India towards the end of 1943. In 1944 the assessee started his own business of export and import and in exchange of currency between Iran and India. For that purpose he established an office in Bombay and branch office at Yezd in Iran.
4. So far as these two references are concerned, it will suffice to state that the remittances sought to be taxed have been credited by the assessee in his capital account, being account No. III in his books of account maintained at Bombay. It is, therefore, unnecessary to refer to the position as regards the assessee's other accounts. The aggregate of these remittances for the assessment year 1945-46 is Rs. 30,000, for 1946-47, Rs. 99,769 and for 1947-48, Rs. 1,20,563. The three amounts aggregate to Rs. 2,50,372. Stated is a nut-shell, the assessee's case a as regard these remittances was that the assessee, who was the only son of his father, inherited large properties from his father, that the properties included a sum of Rs. 4,00,000 in cash and that this sum of Rs. 4,00,000 in cash, amongst others, was available to him for these remittances which were made by him to India. Shortly stated the Tribunal has not accepted this part of the assessee's case and has, therefore, brought to tax the above amount in the assessment years relevant to these two references.
5. The questions referred to in the first references, which is a reference under section 66(2), are as follows :
'1. Whether the Tribunal erred in law or acted without evidence is arriving at the finding that the sum of 99,769 (rupees ninety-nine thousand seven hundred and sixty-nine) represented the assessee's income assessable under section 4(1)(b)(iii) of the Income-tax Act
2. Whether the Tribunal misdirected itself in law in completely ignoring or overlooking the material evidence on record and whether decision is thereby vitiated ?'
6. The questions referred to in the second reference, which is a reference under section 66(1), are as follows :
'1. Whether, on the facts and in the circumstance of the case, the refusal of the Tribunal to allow the assessee to challenge for the first time before it the validity of notice and assessment under section 34 while considering the appeal filled by the department against the order of the Appellate Assistant Commissioner for the assessment year 1947-48 was in accordance with law
2. Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,20,563 represented the assessee's income assessable under section 4(1)(b)(iii) of the Income-tax Act ?'
7. We will now set out the facts relating to these two references :
There are certain documents on which reliance was sought to be placed by the assessee. There is a certificate of the Chamber of Commerce, Yezd, dated some time in 1954-55, which is exhibit I-3 to the statement of the case herein, which certifies that the assessee's office at Yezd was established in the year 1943-44. As there is no dispute that the assessee commenced doing business for the first time from about the end of 1943 or the beginning of 1944, it is unnecessary to refer to the contents of other documents on this subject.
8. The documents having a bearing on the assessee's case about Rs. 4,00,000 may now be referred to.
9. It is the assessee's case that his father did not do any business at all in Iran, but that he was the owner of vast immovable properties and some jewellery and that his father during his lifetime realised a sum of Rs. 4,00,000 by the sale of immovable properties. It is his further case that he alone inherited all the wealth of his father, that at that time there were no banking facilities in Iran in the part in which they were living, that the amount of cash was kept by the assessee with a friend of his father named Rustom M. Merwani and that the amount remained buried underground. It is his further case that even when the assessee came to India, the amount continued to remain with Merwani and Merwani continued to look after the immovable properties of the assessee. Annexed to the statement of the case in the first reference as annexure 'B' is a copy of the statement of Merwani made on oath. He states that he knew the assessee he remitted to the assessee a sum of two hundred and fifty thousand tomans to India under the instructions of the assessee during the years 1944 to 1946. It may be stated that we have been told, and it is common ground between the parties, that the units of currency prevalent in Iran at all times relevant to these references were toman and rial, toman being equivalent to our Indian rupee and rial being one-tenth of toman.
10. Then there are two letters written by Mohmood Farsad; the first written some time in 1954 and the second dated the 29th December, 1955. Mohmood Farsad was the head of the official registration office at Yezd under the Ministry of Justice of Iran. By the first letter, Farsad stated that he was acquired with the father of the assessee and that before the establishment of the official registration office in Iran most of the transactions that the assessee's father had during the letter's lifetime were transacted in his presence and in his registration office. It further states that according to his own knowledge and as per the declaration of a number of responsible citizens, the share of inheritances of the assessee from the properties and assets of his father approximated rials 4,000,000 comprising of movable as well as immovable property. By his second letter, Farsad states that the assessee was the sole heir of his father and that prior to the establishment of the official registration office most of the assessee's father's transactions took place in his office and in his presence and that the price of the properties and estates sold exceeded four million rials and comprised of certain lands and house more particularly mentioned in the letter and that the assessee's father was considered one of the most wealthy and celebrated men of Yezd. The Tribunal; has pointed out - and quite rightly - that there is an inconsistency between the two letters in so far as in the first letter, the assessee has been referred to as having 'a share of inheritance' of his father, whereas in the second letter he states that he assessee was the sole heir of his father. The Tribunal has further pointed out that in the first letter it is stated that the share of inheritance of the assessee was approximately rials 4,000,000 which comprised movable as well as immovable properties, whereas in the second letter it is stated that the price realised by the assessee's father by the sale of his immovable properties exceeded rials 4,000,000. The Tribunal has further pointed out that the details of the immovable properties has not been given. In spite of these discrepancies, the Tribunal has stated that at best the statement of Farsad can taken as his oral testimony uncorroborated by any positive evidence whatsoever.
11. The assessee also filed two affidavits, on of Khan Saheb Sarose K. Irani and the other of S. R. Ahrestani. Irani states that his father the assessee's father were great friends and closely connected with each other in Iran till Irani left Iran for India and that even thereafter his father carried on correspondence with the assessee's father, that the assessee's father was a wealthy resident of Iran and possessed of movable and immovable properties which a few years prior to this death he sold off and that the assessee, being the only son and the only heir of his father, inherited the estate of his father. According to Irani's affidavit, the assessee's father during his lifetime sold off all his movable and immovable properties, which it should be noted, is not even the case of the assessee. Irani does not mention, even approximately, what was realised by the assessee's father by the sale of his properties. Annexed to the statement of the case as annexure 'I-1' is a copy of affidavit of Irani. In his affidavit Ahrestani states that the assessee's father was his personal friend and that he knew him very well and that, amongst other estate, he had vast urban and agriculture estates at Yezd in Iran and its surroundings. He further states that the assessee's father, a few years prior to his death, sold off his lands and others estates which were worth at least about tomans 3,50,000. He further states that there were at that time no records of landed estates and hence title in the case of immovable properties could pass as in the case of movables by handing over possession. According to Ahrestani, all the properties were sold by the assessee's father during his lifetime, which is not, as stated earlier, even the case of the assessee. He further states that the sales realised tomans 3,50,00, whereas, according to the assessee, the amount was Rs. 4,00,000.
12. It is commented on behalf of the assessee before us that both Irani and Ahrestani were at all material times residing in Bombay and that the department should have called them and put further questions to them to elicit more information. In view of the infirmities in the affidavits of these two person, we do not think that it was necessary for the department to call them for cross-examination, because their affidavits, which can be treated as examination-in-chief, suffered from the above infirmities and it was not necessary for the department to call them to give oral evidence merely to explain away, if it was possible, the infirmities contained in their affidavits. It was pointed out by Mr. Dasture, the learned counsel for the assessee, that the Tribunal has not referred to either of the two affidavits at all. The assessee's case was that he had inherited from his father Rs. 4,00,000 in cash and that part of the assessee's case is not supported by either Irani or Ahrestani. It would have been better if the Tribunal had referred to these two affidavits and offered its comments and appreciation of their contents, but, in our opinion, the omission of the Tribunal to refer to them refer to them has caused no harm to the assessee because neither of the two affidavits supports this part of the assessee's case about his father having sold the properties during his lifetime and collected Rs. 4,00,000 in cash which the assessee inherited.
13. The assessee had made a statement of his total wealth and filed it before the Iranian authorities and the assessee produced as copy of it before the income-tax authorities, being annexure 'F' to the statement of the case. The statement is a statement of wealth of the assessee at the time of the establishment of his Yezd office in 1944. The important thing to bear in mind in that the statement in dated some time in 1954-55 which means that it was filed during the later year but as of 1944. It shows, inter alia, that his wealth included, inter alia, 'cash capital' of '4,00,000' without mentioning the unit of the currency. It thereafter mentions gold ornament and jewelleries and ancestral immovable properties. The immovable properties have been serially noted and they numbered eleven. This statement was actually made by one Mehraben Goshtasbpoor on behalf of the assessee and is not signed by the assessee himself. Mr. Dastur pointed out that the Tribunal, has, in its judgment, erroneously interpreted the amount of cash capital stated to be '4,00,000' to be rials, whereas it ought to have read as tomans because the assessee's case all throughout was that it was tomans 4,00,000, which is equivalent to Rs. 4,00,000. This particular criticism of Mr. Dasture is correct; but, in our opinion, it would have made no difference to the appreciation of this statement made by the Tribunal. The Tribunal has observed - and in our opinion rightly that this statement having been made in 1954-55, that is, after the assessment proceedings has started, had not much evidentiary value. It may be stated that before the Income-tax Officer this statement was sought to be relied upon as having been made in 1944, although it was made in 1954-55 but as of 1944. Here, again the Tribunal has rightly criticised the attempt made on behalf of the assessee. The assessee had also filed a statement of his total wealth dated 11th May, 1953, before the Income-tax Officer in Bombay, being annexure 'G' to the statement of the case. The contents of this statement are practically the same as those of the statement, annexure 'F'.
14. The assessee made an oral statement before the Income-tax Officer which was recorded and its copy is annexure 'A' to the statement of the case. The assessee in his statement states, inter alia, that he was present at the time of his father's death, that the cash and jewellery had been taken possession of by him and were handed over to Merwani before he came to India for the first time and that those monies were being kept underground and were not kept in banks as banks were not in existence nor was it the practice to loaned monies and that the amount was about 4,00,000 tomans. He further stated that Merwani was his second cousin and trustworthy, that he was his nearest relation and that he want landlord.
15. Now this is all the evidence produced by the assessee in support of his contention that after his father death he obtained and at all relevant times continued to have in Iran tomans 4,00,000 in cash. The Tribunal has observed that the contention of the assessee was not supported by any credible evidence. The Tribunal has observed : 'The assertion that he was possessed of 4 lakhs of rupees in 1944 is also not supported by any credible evidence.' In our opinion, the Tribunal was right in rejecting this contention. It must, however, be noticed that Farsad was a high Government officer. There is no reason who his evidence should be totally discarded. He says of his own knowledge that the assessee's father had during his lifetime sold at least some at least some of his immovable properties. Irani's statement also suggests that the assessee's father must have sold of what value. Ahrestani's statement is practically to the same effect, but he states that the sale fetched tomans 3,50,000 in the aggregate. We have agreed with the Tribunal in so far as it holds that it has not been proved that the sale fetched a sum of Rs. 4,00,000 in cash. But although the assessee's claim that the immovable properties sold by his father fetched Rs. 4,00,000 in cash cannot be accepted, in out opinion, the fact that the assessee's father did sell some of his immovable properties and realised some substantial amount in cash cannot be totally rejected. Of course, the evidence is not at all sufficient to establish what was the amount, even approximately, which was realised by the assessee's father by the sale of some of his immovable properties. In this connection it has to be borne in taken place some time prior thereto, whereas the statement made by Farsad, Irani and Ahrestani are more them thirty years thereafter. After the lapse of such a long time it is quite natural that these three person may not remember what were the properties sold and what they fetched between all the them. It can be because of that reason that their statement as to the fact that the assessee's father sold some of his properties cannot be totally ignored for all purposes.
16. There are three documents which related to the assessee's income and the income-tax assessed and paid by him in Iran. The first document is a copy of the certificate issued by the Ministry of Finance showing the total income and the tax assessed for the eleven years 1943-44 to 1953-54. We set out the relevant figures for the first four years which are as follows :
'Taxable year Total income Tax assessedRials Rials1943-44 30,000 1,1001944-45 49,000 2,069.501945-46 48,000 1,7001946-47 45,000 1,940'
17. The other two document are copies of certificates, one issued by the Ministry of Justice, Yezd, and the other by the Ministry of National Economy, Yezd. Copies of these two certificates ar annexed to the statement of the as 'I-4' and 'I-5'. Both these certificates certify that the assessee had paid income-tax assessed in Iran for the accounting years 1943-44 to 1953-54.
18. Now it is necessary to first see the position about the immediately preceding assessment year 1945-46, corresponding to the accounting year of the assessee ending on 31st March, 1945. A copy of the Appellate Assistant Commissioner's order in respect of that year has been annexed as annexure 'L' to the statement of the case in the second reference. The Appellate Assistant Commissioner accepted the story of the assessee that the assessee had Rs. 4,00,000 in cash as stated by him. That conclusion is, however, incorrect, in view of the judgment of the Tribunal in respect thereof in the two subsequent assessment years 1946-47 and 1947-48. But, what is of importance is that the Appellate Assistant Commissioners, because of his said conclusion, proceeded to ascertain the amount of profits which had accumulated in the hands of the assessee for the eleven years from 1st April, 1933, to 31st March, 1944, because remittances from Iran out of the profits accumulated up to 31st March 1944, made during the accounting year 1st April, 1944, 31 March, 1945, would be relevant the assessment year 1945-46. The foreign business of the assessee commence only in about the beginning of 1944 and its income for the last about three or four months of the assessee's accounting year ended 31st March, 1944, was assessed at Rs. 3,000. The assessee did not have any other income from business in Iran. The assessee did not have any other income from business in Iran. The Appellate Assistance Commissioner has observed, as a fact, the assessee had not produced any accounts of his income at Yezd, whether the income be of the business or from the immovable properties, earned at any time up to 31st March, 1944. For the next year, being assessment year 1945-46, the Appellate Assistant Commissioner then took into account the Assessee's oral statement that his income from agricultural immovable properties at Yezd ranged from Rs. 3,000 to Rs. 4,000 per year; noted that the Income-tax Officer had estimated the total income of the assessee for the assessment year 1945-46 at Rs. 10,000 which must be business income and agricultural income; that the business income of the accounting year 1944-45 on which the assessee had been assessed in Iran was Rs. 4,900 and that the balance of Rs. 5,100 must, therefore, relate to the assessee's agricultural income. On that basis the Appellate Assistant Commissioner estimated his agricultural income at Iran at Rs. 5,000 per year and took the total agricultural income for the eleven years from 1st April, 1933, to 31st March, 1944 at Rs. 55,000, to which he added the said business income of Rs. 3,000 and determined that for the assessment year 1945-46 the accumulated profits of the assessee under section 4(1)(b)(iii) as at March, 1944, were Rs. 58,000. From that he deducted Rs. 30,000, being the remittances from Iran to India as being taxable under section 4(1)(b)(iii) in the assessment year 1945-46 which would leave available in Iran for the assessment year 1945-46 a balance of accumulated profits of Rs. 28,000 as at the end of the accounting year ended 31st March, 1945. It may be stated, as a matter of history, that neither the assessee nor the department filed any appeal against this order of the Appellate Assistant Commissioner which means that both accepted the same.
19. In respect of the assessment year 1946-47, the Appellate Assistant Commissioner had acted on the same basis as in respect of the prior assessment year 1945-46, and had held that the only available amounts of accumulated profits pertaining to that year were Rs. 28,000 and Rs. 9,800 aggregating to Rs. 37,800. Rs. 28,000 was the balance left out of the said sum of Rs. 58,000 after deducting therefrom Rs. 30,000. He held that the sum of Rs. 9,800 was the income in Iran during the accounting year ended 31st March, 1945, composed of Rs. 5,000 for agricultural income and Rs. 4,800 for business income on the basis of the assessment to income-tax actually made in Iran in respect of that year. He held that the amount of Rs. 37,800 being the aggregate of the said two amounts of Rs. 28,000 and Rs. 9,800 was the only amount of accumulated profits and as it was less than Rs. 99,769 being the amount of remittances in that year only Rs. 37,800 could be brought to tax under section 4(1)(b)(iii) in the assessment year 1946-47.
20. The order of the Appellate Assistant Commissioner in respect of the next assessment year 1947-48 proceeds on an identical basis. It should, however, be stated that the entire available income in Iran accumulated up to 31st March, 1945, had been exhausted in the assessment year 1946-47 and nothing out of it remained available for the assessment year 1947-48. Moreover, the assessee's income in Iran in the assessment year 1946-47 had actually been brought to tax in India as part of his taxable income and it did not therefore survive for consideration as being taxable under section 4(1)(b)(iii).
21. As regards the assessment year 1946-47 the Tribunal has, as seen earlier, rejected the assessee's contention that he had Rs. 4,00,000 in cash in Iran as his patrimony. Having reached that conclusion, what the Tribunal has held is that the actual source from which the remittances came to be made was within the assessee's special knowledge, that the assessee put forward a positive case which failed and that the departmental authorities would be justified in holding that the correct source was such as would, if disclosed, render the assessee liable to tax. It further rejected the assessee's contention about his actual income in Iran as disclosed by the certificate of assessment and payment of tax in Iran earlier referred to on the ground that in the case of almost all the eleven years the total income assessed was in round figures and that the assessee had not produced copies of the assessment orders, nor had the assessee produced and record of his income, although the assessee had, from the beginning, sources of income in Iran. It held that therefore in the absence of any satisfactory evidence as regards the assessee's income in Iran and as the contention about Rs. 4,00,000 had been rejected, but inasmuch as the assessee did have agricultural and non-agricultural income in Iran, the only inference that could be drawn was that the remittances had been made out of the income receipts of the assessee at Iran and must therefore be treated as having been made out of his income which had accrued to him after 1st April, 1933. Now, it has to be noted that the Tribunal has stated that the assessee had in Iran both agricultural and non-agricultural income. The Tribunal has failed to properly note that it was an undisputed fact that the assessee commenced having nonagricultural income only from his business at Iran, which he started only in about the beginning of 1944.
22. In its judgment in the second reference relating to the assessment year 1947-48, the Tribunal has relied upon the Tribunal's judgment in the first reference, has accepted the same and has held that as the assessee's story about Rs. 4,00,000 had to be rejected, the amounts of the remittances as found credited in the assessee's capital account were liable to be included in the assessment under section 4(1)(b)(iii). The Tribunal's judgment in the second reference also deals with another contention urged by the assessee, but we will separately deal with it later on.
23. Now section 4(1)(b)(iii) is as follows :
'4. (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which -....
(b) if such person is resident in the taxable territories during such year -....
(iii) having accrued or arisen to him without the taxable territories before the beginning of such year and after the 1st day of April, 1933, are brought into or received in the taxable territories by him during such year, or......'
24. The decision of the Tribunal has been reached on the basis that the burden of proof was on the assessee and that it was the assessee who had affirmatively to prove that the remittances were out of amounts other than accumulated profits and also to prove what was the exact amount of his accumulated profits at the relevant time. It is necessary to examine the position as regards the burden of proof in respect of the provisions section 4(1)(b)(iii).
25. In this connection a reference may be made to a judgment of a Division Bench of the East Punjab High Court in Commissioner of Income-tax v. Jankidas Kaluram Rewari. The question of presumption has been dealt with in the following passage occurring in the judgment of Achhru Ram J. appearing at page 412 of the report :
'Where an assessee having business connections abroad which may result in profit has received remittances from out of the funds of the business carried on by him or on his behalf in the foreign country and he is unable to show or explain that the remittance was not out of his share of the profits, a presumption may well be made that it represented wholly or in part such share. Section 106 of the Indian Evidence Act provides that the onus of proving a fact which is especially within the knowledge of any party lies on such party. Where an assessee has been receiving remittances from out of the assets of a business carried on by him or on his behalf abroad, it is he and he alone who can explain the nature of these remittances and it is quite reasonable that, as against the income-tax department which is entitled to charge income-tax on profit received by him in this country, he should be called upon to show that the remittance received by him does not represent the profit earned by him abroad. It will be quite unreasonable to expect the department to prove affirmatively that a remittance actually represented the profit earned by the assessee. It is in the circumstances understandable that the fact of a remittance being received by an assessee from abroad should be taken as presumptive proof of his having received the profit of his foreign business in the country. The strength of the presumption must, however, vary according to the circumstances of each case. There may be cases in which in view of the surrounding circumstances the presumption may be very particularly strong so that it would require evidence of a specially cogent nature to rebut it. There may, on the other hand, be cases in which the presumption may be exceedingly weak and may be rebutted by a very small amount of evidence and even without any extraneous evidence and by the attendant circumstances alone.'
26. The judgment therefore states that where the assessee has a source of income in a foreign country, there would be a presumption that these remittances are from his accumulated profits in the foreign country, that that presumption would be not a presumption of law but only of fact such as is contemplated by section 114 of the Evidence Act, that it would be a rebuttable presumption and that if the assessee is unable to show or explain that the remittance was not out of his profit, a presumption may be made that it represented wholly or in part such profit. It should further be observed that the burden is cast on the assessee in view of the provisions of section 106 of the Indian Evidence Act as the fact which is to be proved would be especially within the knowledge of the assessee.
27. In the case of Commissioner of Income-tax v. R. M. Raja, Chief Justice Chagla, in delivering the judgment on behalf of a Division Bench of this court, has considered the judgment in Commissioner of Income-tax v. Jankidas and followed that judgment and stated that if remittances are made from a non-taxable territory into the taxable territories and if it is established that profits were available in the non-taxable territory, then a presumption would readily arise that the remittances were out of the profits and it would be for the assessee to rebut the presumption.
28. The provisions of section 4(1)(b)(iii) were again considered by a Division Bench of this High Court in the case of Kalyanji Ukka & Co. v. Commissioner of Income-tax. Chief Justice Tambe, who delivered the judgment on behalf of the Division Bench, analysed the provisions of section 4(1)(b)(iii) and observed that there were six essential conditions which had to be established and enumerated these conditions and stated that the burden of establishing those conditions would be on the department when it is seeking to tax income, profits and gains which had accrued or arisen to the assessee without the taxable territories and had been brought or received by the assessee into the taxable territories. He then observed :
'For a thing to be brought from non-taxable territories to the taxable territories, the thing must, at the time of its bringing, exist outside the taxable territories, the thing must, at the time of its bringing, exist outside the taxable territories and the burden of proving this fact, in our opinion, would necessarily lie on the department. That burden however, is not heavy to discharge. There is a presumption that a things that exists continues to exist unless the contrary is shown. Now, when the department established that certain profits have arisen or accrued to the assessee outside the taxable territories. It is no doubt true that the assessee can show that though the profits have accrued or arisen to him outside the taxable territories, they were at a certain point of time not available to him to be brought into the taxable territories because he had in a certain manner dealt with them or expended them. But this could only be within his special knowledge and
29. the burden, therefore, of showing the manner in which he has dealt with the profits or proving that he has expended the accumulated profits would lie on him.'
31. These three judgments lay down the principle that it is the department which must establish that the assessee had accumulated profits in a non-taxable territory. They lay down a further principle that when accumulated profits are established by the department, there would be presumption that the remittances are out of the accumulated profits, i.e., not out of the assessee's monies other than accumulated profits and that therefore the burden is on the assessee to prove that the remittances are not from profits, but are from capital or loans or any source other than accumulated profits.
32. In all these three cases, however, the actual amount of the assessee's profits in the non-taxable territories was actually ascertained. In our case, material to ascertain the exact amount of the assessee's accumulated profits in Iran is not available. The Appellate Assistant Commissioner has, however, attempted to ascertain it on approximation. the Tribunal has, in the view which it took, not at all considered that aspect and held that the burden of establishing the assessee's case that he had Rs. 4,00,000 available in cash by way of this patrimony has not been proved and, as the burden lay on the assessee and the assessee did not discharge that burden, the presumption that the remittances were out of accumulated profits was not rebutted and, therefore, all the remittances must be held to be out of accumulated profits in Iran and, therefore, taxable under section 4(1)(b)(iii).
33. Mr. Joshi, the learned counsel for the department, contended that it is true that the burden of proving that the assessee had accumulated profits in a non-taxable territory is on the department, but that that burden would be discharged if the department proves that the assessee had at the relevant time a source of income in the non-taxable territory. He contended that once the department proves the existence of such a source, the burden would then be on the assessee to establish whether there were any accumulated profits, and, if the department proves that the assessee had at the relevant time a source of income in the non-taxable territory. He contended that once the department proves the existence of such a source, the burden would then be one the assessee to establish whether there were any accumulated profits, and, if there were, what was the amount thereof because these facts would be in the exclusive and special knowledge of the assessee. He contended that it was because of this position that the assessee attempted to show that he had available to him in Iran the said sum of Rs. 4,00,000 as an item of capital and as the assessee has failed to prove his case in this respect, all the remittances from Iran to India must be taken to have been made out of the assessee's accumulated profits.
34. Now, as stated earlier, this High Court has laid down in the said Kalyanji's case, that the burden of proving accumulated profits is on the department. The East Punjab High Court has in the said Jankidas case, first relied upon sections 106 and 114 of the Indian Evidence Act and then stated :
'Where an assessee has been receiving remittances from out of the assets of a business carried on by him or on his behalf abroad, it is he and he alone who can explain the nature of these remittances and it is quite reasonable that, as against the income-tax department, which is entitled in charge income-tax on profit received by him in this country, he should be called upon to show that the remittance received by him does not represent the profit earned by him aborad. It will be quite unreasonable to expect the department to prove affirmatively that a remittance actually represented the profit earned by the assessee.'
35. It is, therefore clear that if the department proves that a source existed in the non-taxable territory, the burden of proving whether there were accumulated profits and what was the amount thereof would lie on the assessee as it would be within his special knowledge. This would be based upon the presumption that, as the assessee did have such a source of income out of which he could have accumulated profits, he must establish that there were no accumulated profits or not sufficient accumulated profits by proving the actual amount of the accumulated profits. The strength, however, of such a presumption would vary from case to case. for example, if the department proves a source which would yield a very small amount of income at the relevant time, but the assessee fails to establish the exact amount of his accumulated profits and if there be remittances of very large amounts, it cannot be presumed that all these remittances, were out of the assessee's accumulated profits. Although the burden would be on the assessee, yet if for some reason he fails to establish the exact amount of accumulated profits, and although there would be a presumption that there were accumulated profits which that source would enable accumulation.
36. Mr. Joshi relied upon the decision of the Supreme Court in Commissioner of Income-tax v. Kumbakonam Mutual Benefit Fund Ltd. In that case certain cash credits appearing in the books of account of the assessee were not accepted as having been borrowed by the assessee and were, therefore, treated as the income of the assessee. Mr. Joshi contended that similarly as the assessee's case that the remittances were out of the said sum of Rs. 4,00,000 has not been accepted, all the remittances must be deemed to have been made out of the accumulated profits of the assessee. In our opinion, this decision has no relevance to the point under consideration. In the case before the Supreme Court, once the assessee's story of a loan was not accepted, the only other possibility was to hold that it was his income which was credited as a cash credit. In our case even if the story of a remittance out of the said sum of Rs. 4,00,000 is not accepted, a consequence does not necessarily follow that the remittances were out of the accumulated profits.
37. As we have pointed out, although the department had proved that there was a source of income and although there would be a presumption that the assessee had accumulated profits, all the remittances cannot be presumed to be from accumulated profits unless the source was sufficient to enable the assessee to remit the large aggregate of the amounts of remittances. The Tribunal has put the burden on the assessee without remittances. The Tribunal has put the burden on the assessee without correlating or attempting to correlate the source of income and the possible amounts which could be treated as accumulated profits with the aggregate amount of the remittance. The Tribunal's approach is incorrect. The appellate Assistant Commissioner has, in respect of the year 1945-46, approached the problem in a correct manner. The appellate Assistant Commissioner accepted the case of the assessee that he did have the sum of Rs. 4,00,000 in Iran as contended by him. That finding, of course, cannot be accepted. But, nonetheless, because of his said finding the Appellate Assistant Commissioner proceeded to ascertain the income of the assessee in Iran after 1st April, 1933, being the date relevant for section 4(1)(b)(iii). He then took into account the income of the assessee in Iran as assessed to income-tax in Iran. He also took into account the business income of the assessee in Iran during the period relevant to the assessment year 1945-46 and in that manner ascertained what the assessee's income in Iran was and what would be the accumulated profits. The Appellate Assistant Commissioner in respect of the Two assessment years 1946-47 and 1947-48 has acted on a similar basis. In our opinion, that was the correct approach because, although the assessee did not produce sufficient evidence to prove what his income in Iran was during the relevant years after 1st April, 1933, and could not affirmatively establish the correct amount of accumulated profits, the Appellate Assistant Commissioner, in respect of all the three assessment years, ascertained in the best way he could the income and the accumulated profits of the assessee relevant for each of the said three assessment years. In this connection it is pertinent to note that the income of the assessee from his immovable properties in Iran as revealed by them statements of the Iranian income-tax officer never exceeded about Rs. 4,000 to Rs. 5,000 on an average, and in respect of the assessment year 1945-46 his business income in Iran has been assessed at Rs. 3,000 only. These amounts would not be sufficient to be the source of remittances which are of very large amounts aggregating to about Rs. 2,50,000 in the three years. It is true that the assessee has not produced his books of accounts. It must, however, be remembered that when the assessment proceedings were going on in about 1955 or so, the accounts required would be of a period as old as thirty to twenty years. Moreover, the assessee himself had not been in Iran during a major part of the period for which the accumulation of profits were to be ascertained. The Appellate Assistant Commissioner has adopted the correct approach of assessing the amount which would be available out of the assessee's income in Iran, what the accumulated profits would be and limiting the presumption that the amounts of the remittances were out of the accumulated profits to the amount of profits so ascertained. As a matter of fact, the amount of accumulated profits so ascertained for the assessment year 1945-46 has been taken as the basis and for the two relevant assessment years 1946-47 and 1947-48 only the additional accumulated profits arising by reason of one additional year having elapsed has been ascertained and calculations made on that basis which, in our opinion, would be the correct method.
38. In the second reference the Tribunal has decided one additional point. It is a point of law. As stated earlier, the assessee filed a voluntary return on the 28th March, 1952. Nonetheless, the Income-tax Officer issued a notice to the assessee under section 3(1)(a) on 9th of July, 1952, and then proceeded to assess the assessee under that section. The assessee raised before the Tribunal a contention that the notice under section 34(1)(a) having been issued in spite of the assessee having filed a return in proper time, it was invalid and that the appeal filed by the department before the Tribunal should be dismissed. In support of his contention that the notice was invalid in law the assessee relied upon the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas. The Tribunal, however, did not allow the assessee to raise that contention on the ground that it had been raided only at the time of the arguments in the appeal before the Tribunal as a fresh ground and that if the ground was allowed to be argued and it succeeded, the result would be that the entire assessment proceedings would have to be held invalid and even the assessment on the undisputed amount of the income against which the assessee had not appealed would thereupon go by the board. The assessee had contended before the Tribunal that he wanted to urge that ground only for having the appeal of the department dismissed and stated that he did not want to disturb the assessment as already made by the Appellate Assistant commissioner. The Tribunal, however, held that it could not permit a legal and an illegal order to stand side by side because once the plea was allowed to be raided and it was accepted the entire order of the Appellate Assistant commissioner would stand vitiated. The Tribunal Refused to allow the assessee to raise and argue that ground because of such difficulty which the Tribunal felt would arise.
39. Now there is no doubt that, as the assessee had already filed a voluntary return, the notice under section 34(1)(a) was wrongly issued and the proceedings of assessment which took place in pursuance of that notice are invalid. This is the ratio laid down by the Supreme Court in its said judgment in the case of Commissioner of Income-tax v. Ranchhoddas Karsondas. Mr. Joshi has not disputed this position. The only question is whether the Tribunal was entitled in law to refuse to allow the assessee to urge that ground in the appeal before it. Now a Division Bench of this High Court in Commissioner of Income-tax v. Hazarimal Nagji & Co., after considering the relevant sections of the Income-tax Act and the relevant Rules made thereunder, held that the powers of the Appellate Tribunal are similar to the powers of an appellate court under the Civil Procedure Code. It has further held that the respondent in an appeal is undoubtedly entitled to support the decree which is in his favour on any grounds which are available to him, even though the decision of the lower court in his favour may not have been based on those grounds. It has further held that if the appellant in his challenge to the decree of the lower court is entitled to take a new ground not agitated in the court below by leave of the court, there appears to be no reason why a respondent in support of the decree in his favour passed by the lower court should not be entitled to agitated a new ground and subject to the same limitation. A Division Bench of the Allahabad High Court has taken a similar view in Kanpur Industrial Works v. Commissioner of Income-tax. That judgment has considered the position of an appeal under section 33 of the Income-tax Act along with the relevant Rules and that of an appeal under the Code of Civil Procedure and the provisions of Order XLI, rule 22. The judgment holds that when the department files an appeal for an increase in the assessed income, the subject-matter of the appeal is the increase claimed by the department and the assessee can urge any ground of defence even though it might have been rejected by the Appellate Assistant Commissioner for showing that there should be no increase. It has further held that that the assessee is not liable to be assessed at all is a ground for showing that there should be no further assessment and the department's appeal can therefore be resisted on that ground and that there is no incongruity in maintaining the assessment order passed against the assessee and yet refusing to increase it on the ground that he was not liable to be assessed at all. The judgment points out however that if the Tribunal accepts the ground of defence that the assessee was not liable to be assessed, it can only refuse to increase the assessed income as only such an order would be within the scope of the appeal filed by the department and any other order such as annulling the assessment would be outside the scope of the appeal. That judgment holds that the position of an appeal under section 33 of the Income-tax Act and an appeal under the Code of Civil Procedure is identical. A Full Bench of the Madras High Court has in Venkata Rao v. Satyanarayanamurthy, held that it was open to a respondent in appeal who had not filed cross objection with regard to the portion of the decree which had gone against him to urge in opposition to the appeal of the plaintiff a contention which it accepted by the trial court would have necessitated the total dismissal of the suit, but the decree in so far as it was against him would stand. The judgment of the Tribunal in our case clearly shows that, although the assessee wanted to raise a new point as a ground of defence in the appeal, he specifically stated that he wanted to rely upon it only for the purpose of having the appeal by the department for enhancement in income-tax dismissed. But even if the assessee had not made such a statement, the above judgment shows that the assessee would be entitled to raise a new ground, provided it is a ground of law and does not necessitate any other evidence to be recorded, the nature of which would not only be a defence to the appeal itself, but may also affect the validity of the entire assessment proceedings. If the ground succeeds, the only result would be that the appeal would fail. The acceptance of the ground would show that the entire assessment proceedings were invalid, but yet the Tribunal which hears that appeal would have no power to disturb or to set aside the order in favour of the appellant against which the appeal has been filed. The ground would serve only as a weapon of defence against the appeal. If the respondent has not himself taken any proceedings to challenge the order in appeal, the Tribunal cannot set aside the order appealed against. That order would stand and would have full effect in so far as it is against the respondent. The Tribunal refused to allow the assessee to take up allowed to be urged and succeeded, the Tribunal would have not only to dismiss the appeal, but also to set aside the entire assessment. The point would have served as a weapon of defence against the appeal, but it could not be made into a weapon of attack against the order in so far as it was against the assessee.
40. As regards the first reference, our answers to the question are :-
Question No. 1 :
The tribunal erred in law in arriving at the finding that the sum of Rs. 99,769 represented the assessee's income assessable under section 4(1)(b)(iii) of the Income-tax Act. In view of this answer, as also on the facts of this case, the question whether the Tribunal's decision was arrived at without evidence does not arise.
Question No. 2 :
In the affirmative.
As regards the second reference, our answers to the question are :
Question No. 1 :
In the negative.
Question No. 2 :
In the negative.
41. The respondent to pay the costs of the assessee in both the references, including the costs reserved in the first reference.