UPADHYA, J. - The questions referred for the opinion of this court are :
'1. Whether there was any evidence to prove that the cash deposits of Rs. 3,200, Rs. 3,500 and Rs. 1,000 totalling Rs. 7,700 entered in the account books of the firm Bachhoolal Chotey Lal in the name of Kailash Chand, Mst. Ram Piari and Bachhoolals mother respectively were the revenue receipts of the assessee ?
2. Whether there was any evidence to prove that this amount could be treated as revenue receipts for the relevant accounting year ?' The assessee is a Hindu undivided family carrying on business in gold and silver. The pedigree of the family, as set out in the statement of the case, is as follows :
Ram Kishan Das Mst. Ram Piari (dead) (his wife) ___________________________________________________________ ___ | | | Munnoolal Radhey Shiam Lakshmi Narain | | Bachhoolal Triloki Nath | Kailash Chand
Bachhoolal, a member of the family as shown above, is a partner of the firm carrying on business in the name and style of Bachhoolal Chotey Lal. It has been held by the Income-tax authorities that Bachhoolal is a partner in that firm in his individual capacity and not as a representative of the assessee family.
In the account book of the firm, Bachhoolal Chotey Lal, the following deposits appear in the previous year relevant to the assessment for 1944-45 :
1. Rs. 3,500 credited in the name of Kailash Chand (son of Bachhoolal).
2. Rs. 3,500 credited in the name of Mst. Ram Piari.
3. Rs. 1,000 credited in the name of Bachhoolals mother.
It appears that during the assessment proceedings of the assessee family the Income-tax Officer issued a notice under section 23 (3) of the Income-tax Act calling upon the assessee to explain the deposits and to show cause why these amounts should not be treated as revenue receipts of the family. Radhey Shiam, father of Bachhoolal, appeared and made a statement on oath giving some explanation as to how the persons in whose name the deposits stand came to have the money. He did not admit that the amounts represented revenue receipts of the family. The explanation given by Radhey Shiam was not believed by the Income-tax Officer and he treated the aggregate of these amounts to be the income of the family and included it in the total income assessed. On appeal the Appellate Assistant Commissioner affirmed the decision.
It appears that in proceedings in respect of the assessment year 1939-40 of the assessee family a statement of total wealth was filed. The assessment order, annexure B, is a part of the statement of the case. In it the Income-tax Officer says that a statement of wealth was filed. The assessee contended before the Appellate Assistant Commissioner that in that statement of total wealth a sum of Rs. 5,000 was said to be lying in cash with Smt. Ram Piari, and another sum of Rs. 3,000 was said to be lying with Bachhoolals mother, and these amounts could be available for the deposits in dispute. The Appellate Assistant Commissioner called for the statement of total wealth from the Income-tax Officer, and annexure 'C' is the letter sent by the Income-tax Officer, Lucknow. It appears that the statement of total wealth was not available to the Appellate Assistant Commissioner and he did not accept the accuseds contention.
On appeal before the Appellate Tribunal the authorised representative of the Central Board of Revenue attached to the Income-tax Appellate Tribunal, Allahabad, called for the statement of total wealth again and annexure 'C' appended to the statement of the case is a copy of the letter sent by the Income-tax Officer to the authorised representative, saying that the miscellaneous file for 1939-40 was not traceable and that the statement of total wealth filed by the assessee as mentioned in the assessment order was also not traceable. The assessees explanation, therefore, was not accepted and the decision of the Income-tax Officer was affirmed by the Appellate Tribunal in appeal.
Learned counsel for the assessee contended that the deposits in question could not be treated as the income of the assessee family because there was no evidence to justify such treatment. The amounts had been found credited in the account books of the firm. It is the firm, therefore, which had actually received these amounts on the dates on which they were credited in its account books. If any knowledge of the exact source of these amounts could be attributed to anybody, it could be attributed certainly to the firm itself which was in a position to know as it who deposited these amounts. Learned counsel for the Department states that these amounts were not treated as items of income of the firm itself. It was, therefore, evident that these deposits did represent amounts belonging to the persons in whose names they stood. We have not been referred to any piece of evidence on the record persons in whose names they stood but belonged actually to the family. Learned counsel for the Department at one stage contended that an inference could be drawn against an assessee if an explanation offered relating to a cash deposit was disbelieved by the Income-tax Officer. A Bench of this court considered in some detail the question as to when an inference may be drawn by an Income-tax Officer against an assessee in such matters. In Mithoo Lal Tek Chand v. Commissioner of Income-tax, Malik, C. J., after an examination of the case cited, observed as follows :
'An examination of these cases would, therefore, go to show that, if from the books of account of the assessee it appears that during the relevant account period he had received certain sums of money, it is for him to explain from where he got the same, and if his explanation is accepted there is an end of the matter. The question then might arise, which would be in most cases a question of law, whether the assessees claim that the receipt - its true source being known - is not taxable income is justified or not. Where, however, his explanation is rejected, the Tribunal has to record a finding on such materials as may be available, whether the money represents revenue receipt taxable as income of the relevant account period. The burden, in the first instance, must be on the assessee to show the true nature of the receipt and why he claims that it is not taxable income. When the assessee furnishes an explanation, if that explanation is unsatisfactory, that may in itself be a circumstance which the Income-tax Officer may be entitled to take into consideration but it need not necessarily, in every case, lead to the conclusion that the receipt is a revenue receipt taxable as income received in a particular year. The question must always remain a question of fact which has to be decided on the materials available. In each case the revenue authorities are entitled to take into consideration the fact that the explanation given by the assessee is either unreasonable or is false and then to consider whether that circumstance alone or the other materials available along with that circumstance would entitle them to hold that the amount so deposited represented the undisclosed income of the assessee in the year in question.'
In that case the assessee was a Hindu undivided family and certain deposits appeared in the account books of the assessee in the names of members of the family. On enquire the assessee offered an explanation that these deposits had been made out of money withdrawn in earlier years. The explanation was not accepted and the amounts were treated as receipts of income and subjected to tax. The question thus arose as to whether it was a reasonable inference that these sums represented the profits made during the relevant year. The High Court held that the cash deposit of Rs. 65,000 made on the very first day of the account year could not be the assessees income of that relevant year and not-withstanding the fact that the explanation offered had not been accepted there was no material to sustain the finding that this amount was income liable to income-tax in that year. The other item in dispute was a cash deposit of Rs. 5,000 appearing on a subsequent date and in respect of this the inference was considered to be not unreasonable. The inference that there was an income from some undisclosed source was not considered to be unreasonable. This was a case where the items in dispute appeared as deposits in the assessees account books. The assessee family, therefore, was rightly considered to have had knowledge of the source of the money credited in the account. The view taken in Mithoo Lal Tek Chands case was based on earlier cases where cash credits appearing in the assessees account books were considered to be items of income of the assessee. The circumstances in which the Income-tax Department had been justified in drawing an inference against the assessee relating to cash credits has varied from case to case.
In Ganga Prasad v. Commissioner of Income-tax this court took the view that the conclusion drawn by the income-tax authorities that a particular sum entered in the assessees account books represented profits of the assessee for the year was a conclusion of fact based on certain materials on the record. In that case the Assistant Commissioner had found that regular sums of money were being received by the assessee in earlier years also and were regarded suspicious by the assessing officers in those years. The regular inflow of money year after year indicated the existence of some secret business which yielded income. The assessees explanation that he had received the amount as a gift from his aunt was not supported by any evidence at all, and, in fact, the assessee had stated that he could not produce any evidence in support of his explanation. The court, therefore, took the view that the conclusion was properly based on the material on the record in the circumstances of that case. In Lal Mohan Krishna Lal Paul v. Commissioner of Income-tax the assessee was a Hindu undivided family carrying on business and in the account books a sum of Rs. 50,000 was introduced as capital. The Income-tax Officer called for an explanation relating to this amount. It was explained that this sum of Rs. 50,000 was obtained by the sale of gold ornaments. In support of this explanation vouchers were filed as issued by some Poddars. The Poddars denied the transaction but when they were shown the vouchers they admitted that the vouchers appeared to be of their firm. An examination of the vouchers, however, revealed that entries made in them had been made after other entries, which originally existed on them, had been deleted. There was no mention in the assessees books about the Poddars. The explanation offered was found to be false. The court held that the Income-tax Officer had disclosed to the assessee the material which he had before him and even the source of the information and had invited the assessee to give any further information in support of his story that Rs. 50,000 was capital. The court referred to the principle embodied in section 106 of the Evidence Act and to an earlier decision of the Lahore High Court in Ganga Ram Balmokand v. Commissioner of Income-tax and took the view that in the circumstances where the explanation given by the assessee had been found to be false and he had gone the length of producing forged vouchers the inference drawn by the Income-tax Officer could not be said to be based on no material. MacNair, J., observed at page 448 :
'There is nothing in the Income-tax Act which prevents the Income-tax Officer from basing his conclusions on circumstantial evidence.'
The Madras High Court in G. M. Madappa v. Commissioner of Income-tax stated the rule perhaps a little too broadly when it laid down that when the source and nature of cash receipts shown in the accounting year have not been proved, the Income-tax Officer cannot draw any other inference except that these amounts are income receipts but in that case also the deposits appeared in the assessees account books and not in the account books of a third party, and the decision of the court was based on the particular facts of that case. This court had occasion to consider the question of a credit entry of Rs. 14,000 which appeared in the account books of a Hindu undivided family. In Mahabir Prasad Munna Lal. Commissioner of Income-tax the deposit appeared in the personal account of one L. Hari Kishan. The Income-tax Officer called upon the assessee under section 23 (3) of the Income-tax Act to prove 'the identity of Hari Kishan and the nature and source of the deposit in his account.' L. Hari Kishan was not produced in evidence and a Munim was examined to prove that Hari Kishan was the real person who had deposited the money. This evidence was disbelieved and the Income-tax Officer found that the amount represented income of the assessee. Some features of the accounts, such as the absence of a regular stock account, were taken into consideration. The court took the view that it could not be said that there were no grounds for the Income-tax Officer to suspect the genuineness of the credit entry in the circumstances of the case and that if the assessee gave an explanation which was unbelievable there was nothing in law to prevent the Income-tax Officer from inferring that the receipt evidenced by the credit entry is a revenue receipt. This case also was one in which the credit entries appeared in the assessees account books.
The Nagpur High Court in R. B. N. J. Naidu v. Commissioner of Income-tax felt that the view expressed in Madappas case by the Madras High Court appeared to be 'much widely stated' and chose to agree with the view taken by this court in Mahabir Prasad Munnalals case. The case before the Nagpur High Court was one where the assessee carried on the business of exhibiting pictures at various cinema houses in Nagpur. He had withdrawn from his accounts considerable sums of money for his expenses. A sum of Rs. 8,500 was credited in the bank account in the name of the assessees wife. When the Income-tax Officer called for an explanation the assessee stated that he had withdrawn about Rs. 26,000 annually for domestic expenses and the amount represented savings effected by his wife in several years. The Income-tax Officer rejected the explanation and treated the amount as the assessees money. The Nagpur High Court observed that while the rejection of the assessees explanation may not be disturbed if it is based on reasonable grounds, 'it can be challenged if it is capricious, arbitrary or injudicial.' The court further observed at page 203 :
'It cannot be postulated as an axiom that no burden ever lies on the Department in cases arising under the Indian Income-tax Act......... In cases where the explanation of the assessee regarding the source of a disputed amount is not accepted, the question still remains whether it is a revenue income. It is not in all cases that by mere rejection of the explanation the character of the disputed item as revenue income can be deemed to be established. Each case has to be judged on its own merits....'
In A. Govindarajulu Mudaliar v. Commissioner of Income-tax the Supreme Court laid down as follows :
'Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case.... There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature.'
The rule as laid down by the Supreme Court is applicable only to a case where the receipt is admitted. If the assessee admits or is found to have received a certain amount of money it is for him to explain from whom he got the money and the nature of the receipt. The law places this burden on him because he is the best person to know these facts. If he gives an explanation which is found to be false it can be properly said that the false explanation is intended to cover the true state of affairs which if disclosed might be prejudicial to the assessees interest. It is, therefore, that courts have laid down repeatedly that the Income-tax Officer can infer that the true state of affairs were such as the assessee wanted to conceal because revealing them would create a liability to tax. In the instant case it cannot be said that the assessee family received the amount. The deposits in question appear in the account books of a firm of which the assessee family is not a partner. It is that firm which received the amounts in dispute. The income-tax authorities have not treated these amounts as the income of the firm. The rule, therefore, enunciated by the Supreme Court which is also the basis of the decisions of the various High Courts mentioned above is not available to guide the decision of the court in this case.
In Narayan Das Kedar Nath v. Commissioner of Income-tax the Bombay High Court had to consider a case where certain deposits appearing in the name of the partners of a firm had been taxed as the undisclosed income of the firm. It had been found by the Tribunal that these amounts were actually brought in by means of bank drafts by the partners of that firm. The partners could not give a satisfactory explanation as to how they came by the large amounts introduced by them in the capital of the firm. Chagla, C. J., observed :
'Now it seems to me that the assessee firm has discharged the burden which was upon it to explain these credit entire and it has discharged the burden by satisfying the Department that these entries represent genuine remittances received from Jaipur which have gone into the coffers of the firm. When that burden is discharged, it would be for the Department to find that notwithstanding the fact that these moneys were actually brought in they do not represent the moneys of the partners but they represent the undisclosed profits of the firm which left the firm earlier and returned through the intermediary of the partners.'
In re L. Sheo Narain Lal is a case decided by this court. A house was purchased in the name of a lady and the husband was called upon to explain how the entire sale consideration had been found. The explanation given was that the assessee and his wife belonged to well-to-do families and the father and the father-in-law of the lady had been making gifts of cash and jewellery on ceremonial and other occasions and her father-in-law had left a sum of Rs. 15,000 under a will. The entire sale consideration of the house was Rs. 25,000. The Income-tax Officer considered the entire sale consideration to have come from the husband and included the amount in his total income. The Income-tax Appellate Tribunal, however, excluded the half of amount and when the case was referred to this court Malik, C. J., formulated thus the question arising in the case :
'The question resolved into this. Whether the mere fact that the Tribunal did not consider the statements of Anchi Bai and of her husband sufficient to prove that gifts were made to Anchi Bai by her father and father-in-law on ceremonial and other occasions was enough to come to the conclusion that the rest of the sale consideration must have been contributed by her husband.'
After discussing several cases relating to benami transactions and those in which an inference had been drawn by the income-tax authorities after rejecting an assessees explanation the learned Chief Justice took the view that the mere fact that the ladys statement was disbelieved by itself could not entitle the Tribunal to hold that the sum of Rs. 12,500 must have been contributed by her husband. This case is relied upon by learned counsel for the assessee as an authority for the contention that where a property or a deposit does not appear in the account books of the assessee at all, the mere fact that the persons in whose names the deposits appear are members of the assessee family would not justify an inference that the deposits belonged to the family even if the explanation offered by those persons in whose names the deposits appear are not accepted by the income-tax authorities.
In Chaturbhuj & Co. v. Commissioner of Income-tax a Bench of this court drew a distinction between cases where the explanation given by the assessee is found to be false or unreasonable and case where the explanation is rejected but is not found to be false or unreasonable or unsatisfactory. Bhargava, J., observed :
'In a case where the explanation is only rejected as not proved or for want of proof, no positive circumstance comes into existence which provides material for the Tribunal to draw an inference against the assessee and the inference has to be drawn on other materials available to the Income-tax Appellate Tribunal.'
In the instant case also the explanation given by the assessee family was not accepted by the income-tax authorities and by the Tribunal but that could not justify an inference that the deposits belonged not to the persons in whose names they appeared but to the belonged not to the persons in whose names they appeared but to the assessee family who admittedly had not received it.
Mr. Gopal Behari, learned counsel for the Income-tax Department, conceded that the cases on which he relied on behalf of the Department were distinguishable. But if the explanation of the assessee is rejected, it was open to the revenue authorities to treat the amount of the deposits as the income of the assessee and the material on which the Tribunal may be said to base its finding is the rejection of the explanation itself. Learned counsel, however, conceded that in the cases cited by him the receipt of the amount in question was either admitted or found because of an entry in the account books of the assessee. In the instant case learned counsel fairly conceded that there was no material other than the rejection of the explanation on which a finding could be legally based that amounts were the income of the family. The case before us is, therefore, clearly distinguishable from cases where cash credits appeared in the accounts of an assessee and he may be expected to have knowledge of the nature and source of the deposits. The rulings, therefore, which deal with cases of deposits appearing in the account books of an assessee would afford no guidance. The assessee family in this case cannot be said to have received the amounts in question at all. It was, however, possible for the income-tax authorities to find that the deposits did not belong to the persons in whose but they are credited in the accounts of the firm but they really belonged to the assessee. Such a finding could be arrived at on some material only. It is well settled that unless the contrary is proved the apparent is the real state of affairs. The finding could not possibly be recorded merely as an inference from the fact that the assessee family could not explain how the persons in whose names the deposits appeared came to have those amounts. Mere relationship of those persons to the assessee family is no reason for assuming that the deposits belonged to the family and not to those persons. The onus lay on the Department to establish as a fact that the persons in whose names the deposits were made were not the real owners of the money but that they belonged to the assessee family. Learned counsel for the Department has not been able to point out any material on which such a finding could be sustained.
We, therefore, answer the first question referred to us in the negative.
In view of our answer to the first question the second question does not arise and it is not necessary to answer it. The assessee will have its costs which we assess at Rs. 200. Fee of learned counsel for the Department is fixed at the same amount.
Reference answered in the negative.