1. One Sri Balwant Singh had income from various sources including income from business, interest from securities, income from salary as managing director of a company and as a member of the U. P. Legislative Council. The Income-tax Officer did not accept the return and made huge additions in the business income and on account of income from undisclosed sources. He also included a sum of Rs. 2,400 on account of salary received from the Government. He also initiated proceedings under Section 271(1)(c) of the Income-tax Act. As the minimum penalty imposable exceeded Rs. 1,000, he referred the matter to the Inspecting Assistant Commissioner of Income-tax under Section 274(2) of the Act, The Inspect-ing Assistant Commissioner of Income-tax came to the conclusion that the Explanation to Section 271(1)(c) was attracted as the income returned by the assessee was less than 80 per cent. of the income assessed. He levied a penalty of Rs. 26,000. It may be mentioned here that Balwant Singh after filing the return died and the assessment proceedings as also the penalty proceedings were continued against his legal representative, S. Devendra Singh, who is the assessee in the present case.
2. It appears that although huge additions were made to the income by the Income-tax Officer yet most of them were knocked off on appeal, The Inspecting Assistant Commissioner of Income-tax had levied penalty with reference to the total income as computed by the Income-tax Officer but as the major additions had been knocked off on appeal the department confined its case for the purposes of penalty to the item of Rs. 2,400 received by the assessee as his salary from the U.P. Legislative Council. One of the questions that was raised before the Tribunal was as to whether the legal representative of a deceased person could be held liable for penalty for concealment when the return had been filed by the deceased during his lifetime. The Tribunal did not decide this question as in its opinion no case of concealment had been made out against the assessee in respect of salary of Rs. 2,400 which had not been included in the return. The Tribunal further found that the Explanation to Section 271(1)(c) was not applicable as theassessment year involved was 1962-63 and the Explanation was added after the expiry of the assessment year. The Tribunal, accordingly, cancelled the penalty. The Commissioner was aggrieved and applied for a reference under Section 256(1) of the Act. That application was rejected. Thereafter, the Commissioner approached this court under Section 256(2) of the Act and in pursuance of the directions of this court, the Tribunal has referred the following two questions for the opinion of this court :
'1. Whether, on the facts and in the circumstances of the case, the provisions of Section 271(1)(c) read with the Explanation thereto are attracted ?
2. Whether, on the facts and circumstances of the case, the Tribunal was legally correct in cancelling the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961 ?'
3. As regards the first question, the same, in our opinion, is not happily worded. Whether Section 271(1)(c) was attracted or not is the subject-matter of the second question. In the first question the Tribunal wanted only to refer the question whether the Explanation was applicable. The Tribunal held that the Explanation was not applicable because it was incorporated in the Act in the year 1964 while the assessment year involved was 1962-63 and in the opinion of the Tribunal the law applicable to the penalty proceedings would be the law as it stood on 1st April, 1962. This view of the Tribunal is not correct. In our opinion, the concealment is committed by an assessee when he files the return. That is the material date with reference to which the appropriate law should be applied. In the instant case, the assessee had filed the return on 20th January, 1965. By that date the Explanation had come on the statute book, and, therefore, the Explanation was attracted. We accordingly reframe the question No. 1 as below :
'Whether, on the facts and in the circumstances of the case, the Explanation to Section 271(1)(c) was attracted in the instant case ?'
and answer the same in the affirmative.
4. As regards the second question, the Tribunal has on facts found that the assessee could not be said to be guilty of concealment. For this conclusion that Tribunal has relied upon various circumstances. The Tribunal found that the assessee had substantial income which had been shown by him ; that only salary income of Rs. 2,400 as member of the U.P. Legislative Council had not been shown by the assessee and that nothing could be suggested that he did it for the purposes of evasion of tax. In the opinion of the Tribunal, the amount of salary was a paltry sum as compared to the total income of the assessee. The Tribunal also noticed the fact that the salary realised by a Member of Parliament or a member of the Legislative Council was not to be assessed as income from salary but asincome from vocation and the legitimate expenses incurred in carrying out that vocation had to be allowed as a deduction. In the instant case there was no material to show as to how much of this income the assessee had spent which could be allowed to him as deduction. In such circumstances, the Tribunal inferred that non-inclusion of the income from salary could not be said to be with a view to evading tax. It was merely an accidental omission.
5. Now the findings recorded by the Tribunal that the assessee was not guilty of concealment is a finding of fact and based as it is on relevant circumstances and material cannot be challenged in a reference. The fact that the Explanation was applicable also makes no difference. The Explanation merely provides that where the income returned by an assessee is less than 80 per cent. of the income assessed as reduced by the deductions bona fide claimed and disallowed by the Income-tax Officer, the assessee shall be deemed to have concealed the particulars of his income unless he proves that the omission was not due to any fraud or wilful neglect on his part. Now the learned counsel for the department concedes that the Explanation does not create a legal fiction so that in cases where the Explanation is applicable an assessee shall be deemed to be guilty of concealment. The Explanation raises merely a presumption which is rebuttable. It merely shifts the burden of proof from the department to the assessee. But when the question of concealment is decided on the evidence on record the question of burden of proof becomes immaterial. The Tribunal having come to the conclusion that the omission to include Rs. 2,400 in the return was accidental and was not due to any deliberate design, it could be safely presumed that the presumption raised by the Explanation stood rebutted. The presumption can be rebutted not only by direct evidence but also by circumstantial evidence. The result is that even though the Explanation was applicable the presumption raised by the Explanation stood rebutted by the circumstances of the case. This view finds full support from a decision of the Rajasthan High Court in Additional Commissioner of Income-tax v. Gem Palace . In the end we must hold that the second question is really concluded by a finding of fact recorded by the Tribunal and its finding is supported by ample material. In our opinion, the second question is not a question of law. However, since the question has been called for by this court, we might answer it by saying that, on the facts and in the circumstances of the case, the Tribunal was correct in cancelling the penalty.
6. As the assessee succeeds substantially, he is entitled to costs which we assess at Rs. 200.