C.S.P. Singh, J.
1. This is a reference under Section 66(2) of the Indian Income-tax Act, 1922, at the instance of the Commissioner of Income-tax, U.P., Lucknow, and relates to the assessment year 1953-54. The assessee, Daya Chand Jain, started a private limited company styled as 'Navjiwan and Co. Ltd.' The shareholders of the said company were the assessee, his wife, two major sons and two minor sons. On 31st December, 1952, i e., on the last date of the accounting year relevant to the assessment year under consideration, fresh shares of the face value of Rs. 90,000 were issued and allotted to the assessee, his wife, his major and minor sons.
2. In the books of the company, the share money was entered as having been received from the respective shareholders. The Income-tax Officer in course of assessment of the assessee doubted the payments made by the wife, the two major and the two minor sons of the assessee as having been in fact paid by them. The assessee submitted an explanation to the effect that the shares allotted to him and his two minor sons were not against payment, but were in consideration of stocks of medicines, furniture and other stores transferred by the assessee to the company. In respect of the shares purchased by the wife and the two major sons, it was alleged that the assessee's wife had received money from her father as also from the assessee's father and the share money was paid from those amounts. The Income-tax Officer accepted the explanation of the assessee in respect of the shares allotted to him and his two minor sons, but rejected the explanation in so far as the wife and the two major sons were concerned, and treated the amount of Rs. 40,500 to be income from undisclosed source, and assessed him on that amount.
3. An appeal taken out by the assessee before the Appellate Assistant Commissioner failed. Thereafter, the assessee went up in appeal before the Tribunal, The Tribunal took the view that inasmuch as the amounts aforesaid were shown in the books of 'Navjiwan & Co. Ltd.', it was the responsibility of the Navjiwan & Co, Ltd. to explain the deposits and it was not the duty of the assesses to offer any explanation. The mere fact that the Income-tax Officer had found the explanation to be false in respect of shares purchased by the wife and the two major sons was not by itself sufficient to make the assessee liable for tax in respect of this amount. It also took the view that unless the department proved that the money deposited in the names of the wife and the major sons was in reality the money of the assessee, the amount aforesaid could not be brought to tax in his hands, and inasmuch as there was no material on the record to this effect, the addition was unjustified.
4. The question now referred to us by the Tribunal is whether the Tribunal misdirected itself in not upholding the addition of Rs. 40,500 as income from an undisclosed source. Counsel for the department has urged that inasmuch as the explanation given by the assessee of the source from which his wife and his major sons had acquired the necessary funds for purchase of the shares had been found to be false, the amount had been rightly brought to tax. In respect of this proposition, he has drawn our attention to the following cases :
Gavindarajulu Mudaliar v. Commissioner of Income-tax : 34ITR807(SC) . Kale Khan Mohammad Hanif v. Commissioner of Income-tax : 50ITR1(SC) and Commissioner of Income-tax v. Ganapathi Mudaliar : 53ITR623(Bom) . None of these cases, however, touch the point in issue in this reference. The cases cited by the revenue are ones in which the amount in question was entered in the account books of the assessee, and it was in those circumstances that it was held in these cases, that once the explanation given by the assessee in respect of such deposits was found to be incorrect, the Income-tax Officer could properly treat them as the income of the assessee from an undisclosed source. In the present case, the amounts in question are shown credited to the wife and the major sons in the books of the company, and as such the principle laid down in these cases cannot apply.
5. Counsel for the department, has then urged that, it is permissible for a court to look into the substance and reality of the transaction and inasmuch us all the shareholders in the company belonged to the family of the assessee, the assessee being the karta of the family, the amounts in question belonged to the assessee, and should be treated as such. He has sought to draw support. for this proposition from a decision of the Supreme Court in Juggilal Kamlapat v. Commissioner of Income-tax : 73ITR702(SC) . The principle laid down in that case can have no application In that case, it was found that the company was adopting a particular device in order to evade tax and, In such circumstances, it was permissible for a court to 'pierce the veil of corporate entity and pay regard to the; economic realities behind the legal facade '. In the present case, there is no finding that the company or the assessee was making any attempt to circumvent tax obligations or perpetrate fraud, and us such the question of application of that principle does not arise. The revenue, in the circumstances of this case, could only succeed in case they had brought on record material from which it could be concluded that the deposit made by the wife and. the two major sons were in fact made by the assessee. This has not been done, and as such the amount in question could not be added. We are of the view that the Tribunal was justified in deleting the addition of Rs. 40,500 as income from an undisclosed source,
6. We, therefore, answer the question in the negative and in favour of the assessee. The assessee is entitled to the costs of this reference which we assess at Rs. 200. Counsel's fee is assessed at the same figure.