1. This is a reference under Section 66 (2) of the Indian Income-tax Act at the instance of. Messrs. Fatechand & Sons who have been assessed as a Hindu undivided family for the assessment year 1946-47, the accounting year ending on 31st March 1946. A business styled as Sushil Chandra Jain & Co., was started at Berhampur on 3rd September, 1945. The assessee's case was that this was a partnership business in which Fatechand's family had only ten annas share and one Laduram owned the balance of six annas. While scrutinising the accounts for the assessment year 1947-48 the Income-tax Officer held that the business did not belong to a partnership firm but was the business of the Hindu undivided family of Fatechand & Sons; the family had their original residence at Ramgarh, an Indian State; but for sometime past they are residing in British India and are carrying on business at Berhampur in the name of the Firm Sushil Chandra Jain & Co., even though the real owners of the business are the Hindu undivided family of Fatechand & Sons.
2. In passing the order of assessment for the assessment year 1947-48 the Income-tax Officer assessed the income of the year from 1st April 1946 to 31st March 1947 and further ordered that the period from 3rd September 1945 to 31st March 1946 was assessable only for the assessment year 1946-47. The order was made final, there being no appeal. Accordingly notices under Section 22 of the Act were served upon Fatechand & sons for submitting the return for the year in question.
It is important to note here that the asses-see filed a blank return for the assessment year 1946-47 and showed his previous year to have ended on 3rd September 1945. In forwarding a memo attached to the return for the assessment year 1946-47, the assessee also noted that they had no independent business for that year.
The Income-tax Officer however held that the business belonged to the joint family of Fatechand and Sons and made an assessment for the financial year ending on 31st March 1946.
The assessee's claim for protection under the provisions of Clause (c) of Sub-section (11) of Section 2 of the Income-tax Act that there was no 'previous year' in the particular case was negatived. This has been coniirmed by the Appellate Assistant Commissioner and the Tribunal.
3. There is another aspect of the case which requires mention. The Income-tax Officer, while scrutinising the accounts of the business of the Hindu undivided family, which, according to the assessee, was closed only on 3rd September 1945, that is, the starting day of the business of Sushil Chandra Jain & Co., found a credit entry to the extent of Rs. 71,000-The assessee was called upon to explain the undisclosed source of this entry of Rs. 71,000/-. The assessee had given three explanations at different stages of the case and each one of them was rejected. I will narrate what exactly were the explanations later; but it is sufficient to mention for the time being that having rejected the explanations offered by the assessee regarding the undisclosed source of the entry of Rs. 71,000/- the departmental authorities passed the order of assessment on the basis that it was a secreted income of the year in question of the Hindu Undivided Family, that is, of the assessee.
4. This Court by its order dated 14th February 1955 called upon the Income-tax Tribunal to state a case on the following questions :
'1. Whether in the facts and circumstances of the case the assessee is entitled to contend that he was entitled to the benefits of the proviso to Clause (c) of Sub-section (11) of Section 2 and contend that there was no previous year for the purpose of the assessment year 1946-47, and, as such, the entire assessment for that year is illegal and void, and
2. Wehther in the facts and circumstances of the case the Income-tax Authorities were justified in treating the sum of Rs. 71,000/-which was shown as a credit entry on the third of September, 1945, as secreted profits of the assessee for the relevant assessment year.' In pursuance of this order of the Court a statement of case was submitted by the Income-tax Tribunal on 16th June 1955.
5. We will take the first question now. The answer to this question seems to be extremely simple which arises from a plain reading of the relevant provisions of the section itself. The word 'previous year' has been defined in Section 2 (11). The assessee lays claim that the instant case comes within the language of Clause (c) of Sub-section (11) of Section 2. Clause (c) should be quoted in extenso :
'Where a business, profession or vocation has been newly set up in the financial year preceding the year for which assessment is to be made, the period from the date of the setting up of the business, profession or vocation to 31st day of March next following or to the last day of the period determined under Sub-clause (b), or, if the accounts of the assessee are-made up to some other date than 31st day of. March and the case is not one for which a period has been determined by the Central Board of Revenue under Sub-clause (b), then at the option of the assessee the period from the date of the setting up of the business, profession or vocation to such other date :
'provided that when such other date does not fail between the setting up of the business, profession or vocation and the next following. 31st day of March, it shall be deemed that there is no previous year; and
When the assessee is a partner in a firm, previous year in respect of his share of the income, profits and gains of the firm means the previous year as determined for the assessment of the income, profits and gains of the firm.'
The assessee's case is that in fact the new business at Berhampur was set up on 3rd September 1945. It is clear from a mere perusal of the above quotation that ordinarily the period from the date of the setting up of the business, profession or vocation to 31st day of March next following would be the accounting period of the previous year as defined in Sub-section (11), but if the accounts of the assesses are made up to some other date than 31st day of March, and the case is not one for which a period has been determined by the Central Board of Revenue under Sub-clause (b). -- the instant case admittedly does not come under Sub-clause (b) -- then at the option of the assessee the period from the date of setting up of the business, profession or vocation to such other date.
The proviso makes the position clear that when such other date which according to the option of the assessee the accounts are to be made up, and if that date does not fall between the setting up of the business, profession or vocation and the next following 31st day of March, it shall be deemed that there is no previous year. What is essential, therefore, is that the assessee must in the first instance exercise his option to fix up a date upto which he makes up the account.
If on the very case of the assessee it is to be taken that the assessee has not exercised this option allowed to him under the provisions of Sub-clause (c) of Sub-section (11), he is not en-titled to come within the language of Sub-clause (c). As I have already indicated in the statement of facts, notices having been served upon the assessee Fatechand and Sons, they submitted a blank return; their only case was that they have only ten annas share in the business of Sushil Chandra Jain & Co. and the other six annas of the partnership belonged to one Laduram; there was no independent business for the year in question.
In the face of this clear case set up by the assessee, we are definitely of the view that no question of exercising option as provided for under Sub-clause (c) would arise; the assessee therefore will not be entitled to submit the contention that as under the proviso the accounts were made up on a date beyond 31st March 1946, there was no previous year on which the assessment can be made on this notice.
In this view of the matter the answer to the first question is clear and is in the negative, that is to say, the assessee is not entitled to the benefits of the proviso to Clause (c) of Sub-section (11) of Section 2 and the assessee is not entitled to contend that there was no previous year for the assessment year 1946-47; and the assessment, in question, is valid and legal.
6. We will now take up the second question regarding the secreted profits of a sum of Rs. 71,000/- for the relevant assessment year. Before proceeding to state the explanation submitted by the assessee at the material times before the departmental authorities who passed orders of assessment on the aforesaid sum as the secreted income for the assessment year, we will notice a few decisions on the subject.
The important Allahabad decision, which has been quoted before us on many previous, occasions and on this occasion too, is the judg-ment of Malik, C.J. and Bhargava, J. reported in Mithoo Lal Tek Chand v. Commr. of Income-Tax, U. P. Lucknow : 23ITR494(All) (A). In paragraph 16 of the report appearing at page 704, their Lordships after a review of several decisions on the point 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 assessee's 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 will 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.'
The telling lines are
'when the assessee furnishes an explanation and if that explanation is unsatisfactory that may in itself be a circumstance which the Income-tax Officer may take into consideration, but it need not necessarily, in every case, lead to the conclusion that the receipt is a revenue receipt taxable on income received in a particular year.'
But nevertheless their Lordships also pronounced that the question must always remain a question of fact which has to be decided on the materials available. The rejection of the several inconsistent explanations at different stages put forth by the assessee may, in itself in a particular case, be said to serve as a piece of circumstance against the assessee and may justify the authorities to pass order of assessment on the basis that it is a secreted income of the year of assessment.
7. But we feel compelled to take notice of recent decisions of the Supreme Court laying down certain guiding principles in cases coming under Section 66 (2) of tne Income-tax Act. The first case that we should refer to is the judgment of Bhagawati J. of the Supreme Court to which S.R. Das C. J. concurred. It is reported in Mehta Parikh and Co. v. Commr. of Income-tax, Bombay : 30ITR181b(SC) (B).
There the entries in the cash books disclosed that, taking the number of high denomination notes at 18 on 2nd January 1946, there came in the custody or possession of the appellants after 2nd January 1946 and up to 12th January 1946, 49 further notes of that high denomination, making 67 such notes in the aggregate, out of which 61 such notes could be encashed by the appellants on 18th January 1946 through the Eastern Bank. Their Lordships observed :
'A mere calculation of the nature indulged in by the Income-tax Officer or the Appellate Assistant Commissioner was not enough, without any further scrutiny, to dislodge the position taken up by the appellants, supported as it was, by the entries in the cash book and the affidavits put in by the appellants before the Appellate Assistant Commissioner.'
xx xx xx 'It, however, considered that it was impossible for the appellants to have had 61 such notes in the cash balance in their hands on 12-1-1946 and then it applied a rule of the thumb treating 31 out of such 61 notes as within the bounds of possibility excluding 30 such notes as not covered by the explanation of the appellants. This was pure surmise and had no basis in the evidence, which was on the record of the proceedings.'
We may observe in this connexion that it is very well recognised that if the finding is basedupon mere surmise and not on evidence, it is faulty in law. Their Lordships thereafter quoted some passages from the House of Lords cases in Bomford v. Osborne (1942) 10 ITR (Sup) 27 (C), and the latest pronouncement of the House of Lords in Edwards v. Bair-stow (1955) 28 ITR 579 (D), where Viscount Simonds observed as follows :
'For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarised by saying that the Court should take that course if it appears that the commissioners have acted without any evidence or upon a view of the facts which could not reasonably be entertained.'
The ultimate conclusion of their Lordships was:
'The Court would be entitled to intervene if it appears that the fact finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question.'
These propositions have been made very clear and summarised in a subsequent decision of the same Court reported in Sree Meenakshi Mills Ltd. v. Commr. of Income-tax, Madras : 1SCR691 (E). In paragraph 24 of the report Venkatarama Ayyar J. gave the following summary :
'We have discussed the authorities at great length, as some of the observations contained therein appear, at first sight, to render plausible the contention of the appellant, and it seems desirable that the true meaning of those observations should be clarified, lest error and misconception should embarrass and fog the administration of law. The position that emerges on the authorities may thus be summed up :
1. When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the Court under Section 66 (1).
2. When the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final its decision as to the legal effect of those findings is a question of law which can be reviewed by the Court.
3. A finding on a question of fact is open to attack under Section 66 (1) as erroneous in law when there is no evidence to support it or if it is perverse.
4. When the finding is one of fact', the fact that it is itself an inference from other basic facts will not alter its character as one of fact.' We are, in the instant case, more particularly interested in proposition No. (3), that is to say, on a careful consideration of the order itself of the department at different stages, can it be said that the orders or any of the ordersare perverse? We think it a part of our duty therefore to examine if the finding regarding this sum of Rs. 71,000/- can, by any stretch, be attacked as perverse.
8. The case of the assessee that the Firm Sushil Chandra Jain and Co. was merely a partnership firm in which the assessee owned a share omy was rejected, and it was definitely found that the so-called Firm of Sushil Chandra Jain and Co.. was nothing but a concern of the Hindu undivided family. But during the time of the examination of the books of accounts of the joint family it was found that a sum of Rs. 71,000/- was credited to the account of Mrs. Nani Bai, the wife of Fatechand, on 3rd September 1945.
Indeed it was for the assessee to explain the source of the entry of the cash credit. Mr. K.N. Patnaik, the senior counsel appearing on behalf of the assessee before the Income-tax Officer offered explanation to the effect that Fatechand having rendered very faithfully services for quite a number of years to one Dwaraka Prasad, a very rich and influential business-man of Calcutta, the latter made free gifts to Fatechand, but unfortunately Fatechand could not maintain his health and was having paralytic attacks from time to time for which reason Fatechand had to shift his residence from Ramagarh to Delhi.
Mr. Patnaik further stated that Fatechand having become a prey to the paralytic attacks, he made over all his money to his wife Nani Bai. Nani Bai finding that her sons were going to start a business at Berhampur on 3-9-15, made a gift of this sum of Rs. 71,000/- for starting the business. The money, therefore, can never be taken to be an income of the year in question to form the subject-matter of the assessment.
In support of this explanation the assessee had filed an affidavit which purported to have been sworn by Nani Bai to the effect that the entire money belonged to her own. The Income-tax Officer gave cogent reasons to discard this affidavit as it bore no seal of any Court and the identity of the lady swearing the affidavit was not proved.
He further discussed the absurdity of the alleged mode of transmission of the money from Delhi to Berhampur through a man of the local Firm Mrs. Dilsukhrai Ranglal who had to cover the distance from Berhampur to Delhi and bring the money back. The money could be sent to Berhampur by sending a draft or cheque in the name of his sons who were already at Berhampur and carrying on business in partnership as alleged by them. But the most curious feature that appeared before the Income-tax Officer was another memorandum from the Magistrate at Ramagarh, Sri Anandilal, dated 17th March 1947, which reads as follows:
'On the strength of the evidence adduced by Kantichandra this is to certify that the family of Fatechand Sarowgi is rich of Ramgarh, Jaipur State. They have got huge ancestral properties consisting of three houses. Fatechand is doing business in money lending to a very considerable extent. From the evidence it appears that the rolling capital is about a lakh of rupees. Some of the taorrowals made also have been attested before me today.
Under the circumstances, I have no hesitation in testifying that large sums of money have been taken from this place to Berhampur (Ganjam) where they started their business.' The fact transpiring from this memorandum is inconsistent with the explanation ottered by Mr. Patnaik that the money belonged absolutely to Nani Bai and that it was transmitted from Delhi to Berhampur. The memorandum indicates clearly that the money was received in Berhampur from outside British India. The assessee found himself in a tight corner on account of this memorandum; but nevertheless the Income-tax Officer gave him sufficient opportunities to explain the real position.
But no account papers of the money lending business at Ramgarh was produced and it was not explaine'd nor any other books were produced to show that a large sum of money was lying uninvested at Delhi or elsewhere. On a thorough discussion of the entire materials the Income-tax Officer came to the conclusion that the above sum came from Fatechand's family funds at Ramgarh and it amounted to remittance of income, profits and gains from an Indian State to British India.
Accordingly he held that in the absence of any evidence from the assessee that it represented anything other than income, profits or gains, it is income, profits or gains which are liable to income-tax, for the year in question. The appellate Assistant Commissioner also discussed this aspect of the case. One other interesting feature appeared before him when the assessee came forth with a third explanation giving a go-by to the other explanations offered before the Income-tax Officer. The Appellate Assistant Commissioner found in the following terms:
'On the whole, therefore, the appellants first explanation was that Rs. 71,000/- was brought from the money lending business carried on in Desh and when this explanation landed the appellant in a difficult position he took the plea that Rs. 71,000/- was lying on his hands at Delhi, taut when he could not prove this allegation also, a third plea on the basis of freshly manufactured evidence has been taken at the appellate stage.
It is obvious that a person, who changes his version of a particular incident more often than a chameleon changes its colour, is hardly entitled to be believed. It is also apparent that the latest version is the latest afterthought and least entitled to credence. In these circumstances, I am of the opinion that the appellant has failed to establish the source of Rs. 71,000/- and that it was properly added t' the total income.'
These findings were upheld by the Tribunal. In our opinion, the judgments of both the In-come-tax Officer and of the Appellate Assistant Commissioner are thorough, exhaustive and well reasoned. The judgment can never be attacked as being perverse and we feel no doubt to hold that they have taken a very reasonable view in coming to the conclusion that the sum of Rs. 71,000/- was the secreted income of the year in question.
It is to be noted further that the additional material before the departmental authorities was that this entry was in the account books of the Hindu undivided family on 3rd September 1945, that is to say, in the middle of the financial year under assessment. 3rd September, according to the assessee, was the closing day of the business of the Hindu undivided family and the commencing day of the business of the Firm Sushil Chandra Jain and Co. But on the finding that the entire business was that of the Hindu undivided family which was carrying on its business all along during the year in question, the entry on 3rd September 1945 can very well be taken to be in the middle.
9. Under the above circumstances, therefore, the answer to the second question is in the affirmative, that is to say, that the income-tax authorities were justified in treating the sum of Rs. 71,000/- which was shown as a credit entry on 3rd of Sept. 1945 as secreted profits of the assessee for the relevant assessment year.
10. In conclusion the first question having been answered in the negative and the second in the affirmative, the reference is rejected with costs. Hearing fee is assessed at Rs. 200/-(Rs. two hundred).
11. I agree.