M. C. DESAI C.J. - Under this court direction the Income-tax Appellate Tribunal, Allahabad Bench, has referred the statement of case for answering the question of law arising, viz :
'Whether, on the facts and in the circumstances of the case, there was any material to hold that the sum of Rs. 20,000 was income of the assessee from some other source and was not income included in the assessed income on the rejection of the books of account ?'
The assessee is registered firm dealing in handloom cloth, Kashi silk, etc., with its head office in Benares. For the assessment year 1946-47, for which the accounting period was September 27, 1944, to October 15, 1945, the assessee submitted a return showing loss. The income-tax authorities rejected the accounts produced by it and made an assessment by estimating income under the proviso to section 13, at the rate of 10% profit. In the account books there was an entry of cash deposit of Rs. 20,000 standing in the name of one Banshidhar Rawatmal. The income-tax authorities called upon the assessee to prove the nature and source of the deposit. They disbelieved the explanation offered by it and held that the sum of Rs. 20,000 was its income from some undisclosed source, i.e., ' from sources within their knowledge and not disclosed to the department'. They added this sum of Rs. 20,000 to the estimated amount of profit and assessed it on an income of Rs. 35,883. The assessment was maintained by the Tribunal on appeal, which rejected both the contentions advanced before it, namely, (1) the income-tax authorities were not justified in treating the cash deposit of Rs. 20,000, as the assessees income from an undisclosed source and (2) that they were not justified in rejecting the books of account and in making an assessment by estimate. The assessee did not at all contend before the Tribunal that, if the sum of Rs. 20,000 was to be treated as its income, it could be treated as its income from its business and not from an undisclosed source and that it should have been held to have been included in the estimated income of the business and should not have been added to it. The appeal before the Tribunal had proceeded on the footing that, if it was an income, from an undisclosed source and not from the business and was, therefore, in addition to the estimated income from the business. It, however, referred the question whether there was any material to justify the finding that the income was from a source other than the business under the express directions from this court.
The assessee is known to carry on only one business, namely, that of sale of handloom cloth and Kashi silk, etc.; there is no material whatever to suggest that it carries on any other business. The income-tax authorities and the Tribunal treated the income of Rs. 20,000 as an income from an undisclosed source without expressly stating that, and without even discussing whether it is from a source other than the business. They held that it is an income from an undisclosed source just because the source was not known to them; this fact was made clear by the Income-tax Officer. The source was undisclosed; this means that it could not be said that the income was not from the business. It might have been from this business, or it might have been from another business, or another source; the income-tax authorities and the Tribunal knew nothing whatsoever about it. This absence of knowledge on their part does not mean that the income was necessarily from a source other than the business; in the face of their professed ignorance of the source, they could not say that it was from another source and not the business any more than they could say that it was from the business. 'Undisclosed' means undisclosed and not 'partially disclosed and partially undisclosed'. To say that 'undisclosed source' is a source known to be other than the disclosed business but not known to be of a particular nature is to indulge in self contradiction. The income-tax authorities had estimated the income from the business under section 23(3); the income that they had estimated was the total income from the business and there could not be any scope for their adding to it anything as income from the same business. The very idea that they had estimated the total income excluded the possibility of there being anything to add as income from the business. Therefore, they could not add the sum of Rs. 20,000 to the estimated income from the business, unless they could say that it was income not from the business but from some other source. This they could not say in view of their professed ignorance. As far as they were concerned, the income might have been from this business or might not have been. If it might have been from the business, it could not be added. When they did not know the facts regarding the source at all, they could not proceed as if they knew them; when they were in doubt, their duty was to resolve it in the assessees favour and not against it, i.e., treat it as forming part of the estimated income, if it could be, i.e., it was less than it. They had absolutely no material to justify the finding that it was from some other source, and, without such material, they could not treat it as such and add it to the estimated income from the business.
Income from the six sources enumerated in section 6 is taxable : they include '(iv) profits and gains of business, profession or vocation' and '(v) income from other sources'. That 'income from other sources' means income, profits and gains of every kind, if not included under nay of the preceding heads, is made clear in section 12. Thus income from business cannot be treated as income from other sources. If an assessee carried on two or more businesses, professions or vocations, the incomes from all are to be added together as income under head (iv). An income cannot be included under head (v) unless it is found to be income not from business, profession or vocation, and without any material it cannot be found to be not income from business, profession or vocation.
The only material that can be pointed out by the Tribunal as material justifying the finding that the disputed income of Rs. 20,000 was income from other sources, or even another business, is the mere fact that the explanation given by the assessee for the entry has been found to be unacceptable or even false. I may concede that when an explanation offered by an assessee for a certain entry in his books has been found to be false, not only may it be ignored but also it may be presumed that the receipt evidenced by the entry was assessable income. The limit to which the falsehood of the entry may lead to a presumption ends there; one cannot go further and presume that the come was from a particular source. The fact that the money was received on a certain date, as shown in the entry may be accepted as correct and it may be said that the income was received on that day, but that finding results from the mention of the date of the receipt. When the entry is to the effect that the money was received on a particular date, though the nature of the receipt as stated in the entry is disbelieved and it may be presumed to be income, the fact that it was received on the particular date may be accepted and the result would be a finding that the income was received on that day. Assumption of the source of the income stands on a different footing. An assessee makes an entry about an assessable income in order to evade its being taxed; he disguises an income as a capital receipt to prevent taxation. Therefore, when an entry about a capital receipt is found to be false, it will be presumed that it was an income disguised as capital receipt, but the question of the source still remains.
There are a number of cases dealing with the question whether the amount of a cash credit or deposit entry in the account books, which have been rejected, and the explanation for which entry has been found to be false or unacceptable, is to be treated as income from an undisclosed source and capable of being added to the estimated income or undisclosed income form the business and to be deemed to have been included in the estimated income. One of the earliest cases dealing with the question is Srinivas Ramkumar v. commissioner of Income-tax. Agarwal C.J. and Meredith J. of the Patna High Court repelled the assessees contention that the amount of the deposit was undisclosed income form the business and was included in the estimated income from it and that to add to it the estimated income would amount to double taxation. The learned Chief Justice, who delivered the judgment, conceded that, if the amount had been income from the business, the assessees contention would have to be upheld, but went on to observe that it was not his case at any time that it was his income from the business, that this case always was that it was money deposited by a third person and that after rejecting his explanation for the entry the income-tax authorities could rely on circumstantial evidence that he had been indulging in extensive speculation business and that the amount was income from that business and not from the admitted disclosed business. It is to be noted that in that case there was evidence to the effect that the assessee carried on undisclosed business in speculations, and this evidence, coupled with the fact that his explanation for the deposit was found to be false, could justify the finding that the income was not from the admitted business but from the undisclosed speculation business. The estimate was only of the income of the admitted business and the amount of the deposit could certainly be added to it, because it was income from another business and the assessees total income from all businesses carried on by him was assessable.
The next is Ramcharitar Ram Harihar Prasad v. Commissioner of Income-tax, another case from the Patna High Court, decided by Ramaswami and Rai JJ. The material facts in that case were that the income-tax authorities estimated the assessees income by adding Rs. 15,644 to the income disclosed in the return and further added to it the sum of Rs. 85,370 on account of entries of cash credits in the accounts and the learned judges observed that this resulted in double taxation of the amount of Rs. 15,644. It was founded by the income-tax authorities that the assessee did not carry on any business other than the business for which the return was filed and that the income of Rs. 85,000 and odd was an undisclosed income from the business. Ramaswami J. pointed out at page 307 that an amount of a cash credit can be added to the estimated income from the business 'only when there is material to show that the assessee carries on an independent business apart from the business for which assessment is made. That would be a case of an exceptional nature.' The argument on behalf of the Commissioner of Income-tax that there was a possibility that the amount of Rs. 85,000 and odd was income from an undisclosed sources other than the business of which the return was filed was rejected with the remarks :
'There is no material whatever in the statement of the case to support the argument' (page 307),
and that :
'... it is important to notice that there is no material to show that the assessee carries on any independent business other than the business of dealing in sugar, salt, kirana, etc.' (page 308).
On the facts found by the Tribunal the amount of Rs. 15,644 could not be said to be unconnected with the amount of Rs. 85.000 and odd and, therefore, it was held by the learned judges that the former amount was included in the latter amount and could not be added to it. This case is on all fours with the case at hand. There is no evidence in the instant case also about the assessees carrying on any business other than that of handloom cloth, Kashi silk, ect.
Next we come to a Calcutta case in D. C. Auddy and Bros. v. Commissioner of Income-tax. Chakravartti C.J., with whom Lahiri J. concurred, approved of the addition of an amount of a cash credit to the estimated income. He agreed with Ramcharitar Ram Harihar Prasad, but distinguished it on the ground that the income disguised as a cash credit was income from an undisclosed source. The statement of the assessee that the amount was received from third parties was held to be an admission that it was not an income from the business. The learned Chief Justice observed at page 723 :
'If their explanation as to the particular source fails, they can hardly complain that their contention that the amounts came from outside is accepted and the sums concerned are brought under assessment as undisclosed profits from other sources.'
With great respect I find myself unable to agree to this proposition, the question is not whether an assessee has just cause for treating the income as income not from the business, but from a source other than it. Even income-tax authorities cannot approbate and reprobate; they cannot reject a part of a statement and accept the other part; they must accept the whole statement or reject the whole statement. It is certainly open to them to reject a part of a statement and act upon the other part if there is independent evidence which itself would be sufficient to justify their action. It would really be a case of their acting on the independent evidence and treating the second part of the statement as supporting or corroborating it. Without independent evidence leading to the same conclusion they cannot act upon the second after rejecting the earlier part. An entry of a cash credit or deposit only means that the money belonged to, and was received from, a their party; if it is found to be unacceptable, you say that the money is of the assessee and that he brought it into the accounts. The question will then arise - from where did he get it Since he has no explanation, you may say, 'it is his undisclosed income', but y o u cannot fall back upon the rejected entry and say further that it is income from a source other than the business. You cannot distort his statement 'the money is of a third party' and treat it is an admission that it is of another source. Therefore, it is illogical to treat the entry as a statement that the money was an income (of the assessee) from a source other than the business. The entry is quite consisted with the money coming either from the business or from another source, and it is not open to the income-tax authorities arbitrarily to select one possibility in preference to the other. Omnia praesumuntur contra spoliatorem, but there are limits to the presumptions to be drawn even against a dishonest person. A fact can be presumed to exist only if the non-existence of it is reasonably inconsistent with the circumstances. If the existence of a fact and its non-existence are both consistent with the circumstances, neither the existence not the non-existence can be presumed. Therefore, the income-tax authorities could presume that the amount was an undisclosed income and also that it was an undisclosed income and also that it was an undisclosed income of the year in which the entry was made, but could not go further to assume that it was income not from the business but from another source. The learned Chief Justice said at page 723 :
'If the finds good reason to take the view that the cash credits really represent a part or the whole of the suppressed profits of the known source of income, he will assess it as a part of the income from that source..... If, on the other hand, the Income-tax Officer thinks that the deposits cannot be properly related to the known source to which the accounts relate, he will be quite entitled to treat them as they are, namely, merely as undisclosed profits from some source which is not known to him or, in other words, as concealed profits from undisclosed other sources.'
He equates 'source which is not known to him' with 'undisclosed other source', for which I can find no justification.' Undisclosed source' means, 'source, the nature of which is now known'; it does not mean a source other than the disclosed source, namely, the business. A source, the nature of which is now know, may include the business. If an income is form the business, but the fact is now known to the Income-tax Officer, it is a case of an income from an undisclosed source. The above observation emphasizes that an Income-tax Officer must have material in support of the view that the income disguised as a cash credit or deposit is really an income from the business; the words 'If, on the other hand, the Income-tax Officer thinks' show that he must equally have good reason for the view that the income is not related to the business. He cannot think that it is not related to the business, unless he has some reason to justify his thinking so; I do not think the learned Chief Justice meant that he can arbitrarily think that it is not related to the business. Then the learned Chief Justice said at page 724 :
'Indeed, unless there be strong reasons to connect unexplained cash credits with the undisclosed profits derived from a known source of income, it is not possible to see how the taxing authorities can follow any course other than bringing them under assessment as income from other undisclosed sources........... If it (explanation) is properly rejected and the Income-tax Officer is left with an amount by which the assessees wealth increased during the accounting year, he is entitled, in law, to treat it as income and not knowing from what source the amount had come can only assess it as income from an unknown and undisclosed source. It is unrealistic to demand that he should find out that some source other than the disclosed ones, in fact, existed and should indicate what that source is before he can permit himself to bring the amounts under assessment as undisclosed profits.'
I respectfully do not agree that he has no option but to presume that the income is from a source other than the business. If it is unrealistic to demand that the Income-tax Officer should find out that some other source existed, it is more unrealistic to demand that the assessee should show that the income was from the business and not from another source. When he denies that it is an income at all, it would be illogical to require him to show that it is an income from the business
L. R. Brothers v. Commissioner of Income-tax is a case of this court decided by Bhargava and Upadhya JJ. The first proposition laid down by the learned judges was that when the assessee failed to give an adequate explanation for the deposit it could be assumed by the income-tax authorities that it was a concealed income from business. Coming to the next question of what year it could be presumed to be the income of the year in which the deposit entry was made. There was no suggestion on the part of the income-tax authorities that during the year in which the deposit entry was made, and which was the previous year in relation to the assessment year, the assessee carried on any business other than the disclosed business (that is, for which he had filed the return and the accounts). The learned judge held that the amount of the deposit could be treated as a concealed income of the previous year from the business. They stated at page 825 that 'double taxation of the same income is not permissible', and that the amount of the deposit should be added to the estimated income after deducting from the former the amount already added by the income-tax authorities in estimating the income. This decision also supports the view that I am taking.
Now I come to the Andhra Pradesh case, G. M. Chenna Basappa v. Commissioner of Income-tax. Chandra Reddy C.J. and Srinivasachari J. distinguished the case of Ramcharitar Ram Harihar Prasad and observed at page 580 :
'The correct legal position seems to be that if the two additions are treaceable to two district heads, namely, one attributable to the business activities of the assessee and is thus an undisclosed profit from the known source, and the other to profits from an undisclosed source, i.e., some profit earning activity of the assessee which is altogether unknown, they are legally sustainable. The position will be different if the cash credits also were treated as part of the undisclosed profits of the same business.'
They distinguished the case of Ramcharitar Ram because the amount of the cash was found to be an undisclosed profit of the assessees business. They have not explained how the Income-tax Officers are to decide whether the income disguised as a cash credit or deposit is an income from the disclosed business, or from a source other than it, or discussed the question of onus of proof. They have also not explained why income from undisclosed source means income from a source other than the known source, viz., the business of the assessee. They also referred to the case of D. C. Auddy and Bros., but thought that it does not help the assessee.
A case of the Madhya Pradesh High Court is Seth Kalekhan Mahomed Hanif v. Commissioner of Income-tax. Hidayatullah C.J. and Choudhuri J. observed at page 673 :
'The income-tax department can put the assessee to proof of his explanation, and if the assessee fails to tender evidence or burks an enquiry, then the Income-tax Office is justified in rejecting the explanation and holding that the income is from an undisclosed source. The Income-tax Officer is not required to specify or to prove what that source is, which from the nature of the case must be known only to the assessee... Where the assessee gives evidence in support of his contentions and that evidence is reasonable, the assessee must be deemed to have proved his case, unless the Income-tax Officer can show from some other material... that that evidence should not be believed. But where the assessee gives no evidence, ....the income-tax Officer is entitiled to reject his explanation and then hold that the income is from an undisclosed source..... The very term undisclosed sources shows that the disclosure which the assessee ought to have made has not been made.'
At page 675 they said :
'...... the department was not bound to show categorically what that source was.....
The very fact that there was some undisclosed source which was outside the normal business transactions of the assessee postulates that the income which was assessed on the normal working cannot be held to include the profits from undisclosed sources.... The cash credits do not show that the income which is in the hands of the assessee is from the self-same source. It may be from another source. If the assessee does not disclose that source and the existence of such hidden source is deducible from the proceedings and the account books, then the department is not required to deduct the amount from the income which has been deduced at an enhanced flat rate on the ordinary business of the assessee.'
There is no explanation in the judgement for the view that undisclosed source excludes the business. The department may not be bound to show categorically what the other business is, but is is different from saying that it can hold that the income was from another source, even though there is no material to suggest the existence of any source other than the business, i.e. even though there might be no other source at all. when it is said that the income is from an undisclosed source, it does not mean that it is from a source 'outside the normal business transactions'; it only means, as I pointed out earlier, that the source of it is not known. When the source is not known at all, it is difficult to predicate that it is other than the normal business. An entry of a cash credit or deposit may not show that the income is from the business, but it also does not show that it is from another source. If it can be either from the business or from another source, and it is not known whether it is from the one or the other, the income-tax authorities cannot act as if it were from another source. They cannot make an assumption against the assessee.
In the Supreme Court case, Govindarajulu Mudaliar v. Commissioner of Income-tax, the question was entirely different, being what years income, the income disguised as a cash credit or deposit is.
I now come to another case of this court, Chaturbhuj & Co. v. Commissioner of Income-tax, which was cited by Sri G. P. Bhargava, but it is of no assistance. The question discussed there was whether a receipt disguised as a cash credit is an assessable income or not. The distinction between its being income from the disclosed business and its being income from another source is not discussed at all. In the case of Maddi Sudarsanam Oil Mills Co. v. Commissioner of Income-tax, the Andhra Pradesh High Court observed at page 370 :
'Having thus computed the gross profit at 9.5%, the Appellate Assistant Commissioner further added a sum of Rs. 56,345 on account of unaccounted for profit on sale of permits rusticated to the unproved cash credits. This addition is obviously wrong when a flat rate of 9.5% on the total turnover is being adopted in computing the gross profits. The assessee had recourse to the several entries of cash credits only for the purposes of balancing the accounts with a view to reducing the rate of gross profits. If once the income-tax authorities have rejected the books, they cannot have it both ways, namely, adopting a flat rate to compute gross profit as well as rely on the books for the p purposes of adding unexplained cash credits which were part of the scheme of balancing the accounts.'
I respectfully agree with this observation of Jaganmohan Reddy J. made with the concurrence of Chandra Reddy C.J.
Ratanchand Dipchand v. Commissioner of Income-tax is another case of the Madhya Pradesh High Court. Bhutt C.J. and Srivastava J. followed the cases of srinivas Ramkumar, Seth Kalekhan Mahomed Hanif, D. C. Auddy & Bros. and Chenna Basappa and distinguished that of Ramcharitar Ram Harihar Prasad and held that the income-tax authorities are not bound to indicate what other resources the assessee has got, that the finding that a certain income is from undisclosed sources does not require a preliminary finding that he has got other sources and that if he was found to have other sources, there could be no finding that the income was from undisclosed sources. I respectfully disagree from their observation that a finding about a certain income being from undisclosed sources means that it is from sources not known to the income-tax authorities. The implication in the observation is that since the income-tax authorities knew only one source, namely, the particular business in respect of which the accounts and the return are furnished, the finding must mean that the income is from another source. The learned judges have not distinguished between an income, the source of which was not known at all, and an income from an unknown source other than the business, and have not explained why the finding means the latter and not the former. As I said earlier, there is no justification for restricting 'undisclosed source' to a source other than the business. If an income is in fact from the business, but this fact is concealed from the income-tax authorities and they do now know of it, it is as much an income from an undisclosed source as an income from a source other than the business. I am, therefore with great respect to the learned judges, not in agreement with this decision.
Abdul Khadar v. Commissioner of Income-tax, decided by Rajagopalan and Ramachandra Iyer JJ., simply laid down that the presence of unexplained cash credits in the accounts would justify the rejection of the accounts. It is to be noted that in that case the amount of the unexplained cash credit was not added to the amount of the income estimated under section 23(3)
The Kerala High Court (per Varadaraja Iyengar and Anna Chandy JJ.) in S. Kumaraswami Reddiar v. Commissioner of Income-tax allowed an amount of an unexplained cash credit to be added to the estimated income; the learned judges distinguished the case of Ramcharitar Ram Harihar Prasad and followed those of Srinivas Ramkumar, Auddy and Brothers, Chenna Basappa and Seth Kalekhan Mahomed Hanif. The principle laid down by them at page 598 is :
'.... where the assessee gives no satisfactory explanation of a cash credit or bank deposit it is open to the Income-tax Officer to hold that it represents an income from an undisclosed source.'
Nobody can quarrel with this proposition. There was in the case material suggesting that the assessee had a source other than the disclosed source and the income-tax authorities were held justified in treating the income as from it and, therefore, in addition to the income estimated from the business. At page 595, the learned judges remarked :
'We accordingly proceed on the footing that the amount of Rs. 17,402 did not represent part of the profits which had already been estimated.'
That was the amount of the cash credits and if it was income and income not from the business, it could not be contended that the estimated income of the business was exhaustive.
The last case that we have to consider is Homi Jehangir Gheesta v. Commissioner of Income-tax. It was a case of inclusion of the value of high denomination notes in the income. The following statement of law at page 142 is of importance in the instant case :
'... it is not in all cases that by mere rejection of the explanation of the assessee, the character of a particular receipt as income can be said to have been established; but where the circumstances of the rejection are such that the only proper inference is that the receipt must be treated as income in the hands of the assessee, there is no reason why the assessing authorities should not draw such an inference of fact and not of law.'
On a parity of reasoning it is not in every case that an income disguised as a cash credit or a deposit can be treated as an income from a source other than the disclosed source and it is only where the circumstances of the rejection of the explanation are such as to lead to the only proper inference that it is income from a source other than the disclosed source, that the inference can be drawn. No such circumstances exist in the instant case.
The result of the above discussion of the law is that the question must be answered in the negative. I would, therefore, answer it in the negative and against the Commissioner of Income-tax and direct the reference to be returned to the Tribunal under the seal of the court and the signature of the Registrar. The assessee should get its costs, assessed at Rs. 200, from the Commissioner of Income-tax.
BRIJ LAL GUPTA J. - I have had the advantage of reading the judgement prepared by my Lord the Chief Justice. I agree with the answer proposed. On the facts of this case there was no material to hold that the sum of Rs. 20,000 was the income of the assessee from some source other than the source, the income from which was included in the assessed income after the rejection of account books of the assessee. I also agree with the order about costs.
For myself, I was inclined to take the view that for the reasons given in our judgment in Income-tax Miscellaneous Case No. 197 of 1958 the question referred to is did not arise out of the appellate order of the Tribunal and should not be answered by us, but as the plea was not raised by Sri Gopal Behari, learned counsel for the department, and the matter was allowed to be argued on the merits, I need not say anything more about the same.