D.K. Kapur, J.
1. The Income-tax Appellate Tribunal has stated a case on the following question for the assessment year 1963-64 in compliance with the directions of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the penalty under section 271(1)(c) was not livable in this case ?'
2. The assessed (respondent) is a firm of seven partners carrying on a trade in sale and purchase of paper. Another firm, M/s. Jai and Co., has four partners who are all ladies; the husbands of these ladies are partners in the assessed-firm. When this firm, M/s. Jai and Co., applied for registration under section 185 of the Income-tax Act, 1961, the Income-tax Officer came to the conclusion that the said firm was a benamidar of the assessed-firm and so registration was refused. The income of M/s. Jai and Co. was included in the income of the assessed-firm. Appeals filed by M/s. Jai and Co. failed up to the Tribunal. On account of alleged concealment of income for not including the income of M/s. Jai and Co. in its disclosed income, the Income-tax Officer initiated penalty proceedings, which were referred to the Inspecting Assistant Commissioner on account of the minimum penalty being more than Rs. 1,000. The Inspecting Assistant Commissioner turned down the contention that M/s. Jai and Co. was a genuine firm and imposed a penalty of Rs. 35,000.
3. On appeal to the Tribunal, the penalty was struck down on the footing that the income of M/s. Jai and Co. had been included in the assessed's income on the basis of circumstantial evidence but this did not lead to a positive conclusion that there was concealment on the part of the assessed. The Tribunal was of the view that positive proof was necessary to show that the income belonged to the assessed and it was not enough to show that circumstantially the income belonged to the assessed.
4. We thus have a somewhat contradictory position in the present reference. On the one hand, the income was included on a circumstantial basis but when it comes to penalty, there is lack of proof as to whether there has been actual concealment. We have been taken through the various orders in considerable detail and we think a fuller analysis of the facts is necessary to indicate the difference between the result in the assessment proceedings and that in the penalty proceedings.
5. There are seven partners in the assessed-firm. They are : Amar Nath, Jagan Nath and Magan Nath, who are three brothers, the remaining four partners are two sons of Amar Nath and two sons of Magan Nath. The wives of these four are the partners in M/s. Jai and Co. The circumstances for including the income of M/s. Jai & Co. in the income of the assessed-company can now be summarised. (1) Both firms were operating at the same business place. (2) M/s. Jai & Co. had only lady partners who apparently knew nothing of the business which was really run and controlled by Ajit Prasad. (3) The finance and skill was provided by the assessed-firm and particularly Ajit Prasad, one of its partners. (4) It was through Ajit Prasad that an agency had been procured from M/s. Straw Products Ltd., which gave M/s. Jai & Co. its main source of income. (5) The finances invested in M/s. Jai & Co. were the result of some cross-gifts to the ladies in question from other members of the family.
6. It was on the sum total of the above facts that the income-tax authorities came to the conclusion that the income of M/s. Jai & Co. should be included in the income of the assessed as a benamidar. Now, the question is whether this establishes that there is concealment of income by the assessed-firm.
7. When we were taken through the facts of the case, we began to doubt whether even the finding regarding benami was a sound one. As admittedly, the income generated by M/s. Jai & Co. came from the agency business of M/s. Straw Products Ltd. and the assessed was the sole agent of another firm, M/s. Rohtas Industries, it appears that the business of M/s. Jai & Co. could never be done by the assessed because as stated in the order of the Appellate Assistant Commissioner in the case of M/s. Jai & Co., the assessed-firm was debarred under the terms of its agreement with M/s. Rohtas Industries Ltd. from taking any other agency. The Inspecting Assistant Commissioner, however, treated this new firm as a mere device to avoid the effect of the agreement with M/s. Rohtas Industries which debarred the assessed-firm from taking the agency of M/s. Straw Products Ltd.
8. Then, the circumstance that the gifts were cross-gifts to the various ladies by their close relations i.e., husband's brother or husband's uncle (father's brother), etc., would not invalidate the gifts. In the case of certain types of gifts like that of a father to minor children or husband to wife, etc., the income is included in the hands of the donor, but that is not so in the case of the present set of gifts. Similarly, the fact that Ajit Prasad looked after the business run by his wife along with other ladies does not necessarily lead to the inference that it is benami. Of course, clubbed together, all the facts may lead to an inference that there is benami income. We are not to decide that question in this case, but we only indicate that the facts show that this was a borderline case even for coming to the conclusion that the income of M/s. Jai & Co. was the benami income of the assessed-firm.
9. Turning now to the question of penalty, it has been urged before us that once the income is treated as the benami income of the assessed-firm, the same conclusion should follow in the penalty proceedings. On the other hand, reference has been made to several decisions which show that a different standard of proof is required for maintaining a penalty. For instance, in CIT v. Anwar Ali : 76ITR696(SC) , the Supreme Court pointed out that the rejection of an Explanationn given by the assessed does not lead to an inference that a penalty must be imposed. The court observed (p. 701) :
'Another point is whether a finding given in the assessment proceedings that a particular receipt is income after rejecting the Explanationn given by the assessed as false would, prima facie, be sufficient for establishing, in proceedings under section 28, that the disputed amount was the assessed's income. It must be remembered that the proceedings under section 28 are of a penal nature and the burden is on the Department to prove that a particular amount is a revenue receipt. It would be perfectly legitimate to say that the mere fact that the Explanationn of the assessed is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence.'
10. In the present case, if we consider the Explanationn as being the set of facts before the Income-tax Officer in the case of M/s. Jai & Co., we could not treat it as positive evidence that there had been a concealment. On the other hand, as explained above, the same set of facts could easily lead to the opposite conclusion, i.e., that the income was not that of the assessed-firm but was of M/s. Jai & Co., a separate firm.
11. To the same effect is another Supreme Court's judgment, namely, Anantharam Veerasinghaiah & Co. v. CIT : 123ITR457(SC) . In that case, Anwar Ali's case : 76ITR696(SC) was adopted to a different set of facts and it was reiterated that the burden in a penalty case lies on the Revenue to establish that the amount in question does disclose the income of the assessed.
12. In another judgment of the Supreme Court CIT v. Khoday Eswarsa and Sons : 83ITR369(SC) , the same position was reiterated. In that case, the Tribunal had stated that there might be justification for making additions in the original assessment order to the amount shown in the return, but those additions by themselves could not lead to the inference that the assessed had concealed its income or had deliberately furnished incorrect particulars. The Supreme Court held that the conclusions of the Appellate Tribunal were findings of fact and no question of law arose. It was furthermore stated that cogent material or evidence is necessary before penalty can be levied.
13. Another judgment cited at the bar was CIT v. Koduri Papa Rao : 102ITR834(AP) , a decision of the Andhra Pradesh High Court to the same effect.
14. Although an inference can be drawn on the basis of the three Supreme Court judgments stating that the conclusions of the Tribunal regarding concealment are findings of fact, it is useful to reiterate the factual position on the material before us. The assessed was an agent of M/s. Rohtas Industries debarred under its agency terms from becoming the agent of another manufacturer of paper. A firm was set up in which four lady members were the partners. They happen to be the wives of four of the seven partners in the assessed-firm. It also happens that this business was run in the same premises as that of the assessed and the affairs of this firm were looked after by a partner of this firm, namely Ajit Prasad. The funds of this firm were provided by gifts made by members of the assessed-firm and so an inference could be raised that the source of the income were the partners of the present firm. However, even if this was so, there seems very little possibility of holding that the income is the benami income of the firm. Even if the four partners who are husbands of these four ladies had formed the firm, it could not be treated as the benami income of the assessed-firm. At best, it could be treated as a benami firm of those four husbands. A partnership is a relationship between individuals which is treated as an entity for income-tax purposes. But the income is to be apportioned to the relevant partners. We fail to understand how the income of M/s. Jai & Co. can be treated as the benami income of the assessed-firm. At best, the partners can be treated benami for their husbands. This is one aspect of the matter.
15. However, the most important aspect is that after the gifts were made to the ladies, they would legally be the owners of those gifts and any income generated from the same would be their income. There is, thereforee, considerable scope for doubt as to who is benami for whom, and whether those gifts made to those ladies can be relied on in penalty proceedings. As already analysed in detail in this judgment, there is considerable doubt as to whether there is a benami transaction and, secondly, there is a doubt whether a benami partnership can be a benami partnership of a whole firm or, whether it is to be treated as a benami partnership of four other persons as opposed to the seven other persons. It is, thereforee, clear that any number of possible inferences can be raised from these facts. It can be held that the circumstances show that the income is of the assessed-firm; it can be held that it is the income of the four ladies who form M/s. Jai & Co. It can also be held that it is the income of the four husbands of those four ladies. The partnership, M/s. Jai & Co., can be assessed as being the partnership of the persons who had made the gifts to those four ladies which would include their husbands' uncles and so on.
16. At the penalty stage, it has to be positively established that this income is of the assessed-firm. Inasmuch as there is a positive bar in the agreement with M/s. Rohtas Industries against the assessed-firm taking any other agency, it is difficult to come to the conclusion that this can be established. We do not think it has been established as a positive fact in this case and, thereforee, following the aforementioned Supreme Court judgments, we think there is no positive evidence to establish that there has been concealment of income or furnishing of deliberately false particulars.
17. We accordingly answer the question referred to us in the affirmative holding that the penalty is not livable in the circumstances of this case. We, however, leave the parties to bear their own costs.