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Commissioner of Income-tax Vs. Smt. P.K. Noorjehan - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 137 and 138 of 1977
Judge
Reported in(1980)15CTR(Ker)138; [1980]123ITR3(Ker)
ActsIncome-tax Act, 1961 - Sections 69 and 254; Code of Civil Procedure (CPC) , 1908 - Sections 100
AppellantCommissioner of Income-tax
RespondentSmt. P.K. Noorjehan
Appellant Advocate P.K.R. Menon, Adv.
Respondent Advocate V. Rama Shenoi and; R. Raya Shenoi, Advs.
Excerpt:
- .....:' 69. unexplained investments.--where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the income-tax officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.'3. as the tribunal rightly pointed out, the unsatisfactoriness of the explanation does not, and need not, automatically result in deeming the value of the investment to be the income of the assessee. that is still a matter within the discretion of the officer and, therefore,.....
Judgment:

1. These two references are at the instance of the revenue and are compelled under Section 256(2) of the I.T. Act, 1961, by this court. The assessee is a Muslim lady aged approximately about 20 years during the previous year relevant to the assessment year 1968-69. The two assessment years with which we are concerned are 1968-69 and 1969-70. The assessee's husband is a piece-goods merchant in Broadway, Ernakulam. The assessee by herself has no business, profession or vocation, which earns her any income nor has she any heads of income such as what is mentioned in Section 14 of the I.T. Act, except a small property income. She was not at any time an income-tax assessee. On notices issued by the ITO, returns were filed for the two years in question. On November 15, 1967, that is in the accounting year relevant to the assessment year 1968-69, a property having an extent of about 16 cents situated in Ernakulam was purchased by the assessee. Inclusive of stamp and registration charges the investment came to Rs. 34,628. On November 27, 1968, relevant to the assessment year 1969-70, another property of about 12 cents in Ernakulam village was purchased. The total investment for this purchase was Rs. 25,902. The assessee's explanation as to the source for the purchase money for this investment was that the purchases were financed from out of the accumulated savings from the income of the properties which consisted of nearly one and a half acres of cocoanut plantation at Kaloor, Ernakulam, left by the assessee's mother who died in the year 1941, and out of the rent of the line building and income from a small cocoanut garden in Tirur. In support of the explanation, affidavits of her mother's first husband and brothers and a report of the income estimated from the Ernakulam property prepared by a retired Tahsildar were produced. The ITO also obtained a report of the probable yield from the property through his inspector. The ITO rejected the assessee's explanation except to the extent of Rs. 2,000. Giving credit to this amount, he made an addition of Rs. 32,628 as income from other sources for the year 1968-69 and a similar addition of Rs. 25,902 for the year 1969-70. On appeal, the AAC concurred and dismissed the appeal. There was a further appeal to the Income-tax Appellate Tribunal by the assessee. The Tribunal found the explanation about the nature and the source of the purchase money unsatisfactory. But it was of the opinion that the assessee being a Muslim lady aged 20 or 21 years, had no other source of income, that it was impossible for the assessee to have earned the amounts invested in the properties, that these amounts should necessarily be one given to her by somebody else, and that by no stretch of imagination could the assessee be credited with having earned this income in the course of the assessment year, or even be in a position to earn it, for a decade and more. The Tribunal took the view that although the explanation of the assessee was liable to be rejected, Section 69 of the I.T. Act conferred only a discretion on the ITO to deal with the investment as income of the assessee, and that it did not make it mandatory on his part to deal with the investment as income of the assessee as soon as the latter's explanation happened to be rejected. On this line of reasoning, the Tribunal allowed the two appeals and cancelled the assessment of the ITO. The following question of law has been referred for our opinion :

' Whether, on the facts and in the circumstances of the case and on a true interpretation of section 69 of the Income-tax Act, 1961, the Income-tax Appellate Tribunal is right in law in holding that section 69 of the Act cannot be invoked in respect of the investments of the assessee and that, therefore, the addition made for the assessment year 1968-69, or as the case may be 1969-70, should be deleted '

2. Section 69 of the I.T. Act is as follows :

' 69. Unexplained investments.--Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.'

3. As the Tribunal rightly pointed out, the unsatisfactoriness of the explanation does not, and need not, automatically result in deeming the value of the investment to be the income of the assessee. That is still a matter within the discretion of the officer and, therefore, of the Tribunal. All the authorities, namely, the ITO, the AAC and the Tribunal having agreed in treating the assessee's explanation as unsatisfactory, the question for determination would be whether the Tribunal was right in interfering with the discretion of the ITO and the AAC in having treated the value of the investment as the income of the assessee. The right of appeal to the Tribunal and the powers of the Appellate Tribunal are to be found in Section 254 of the Act. Under Section 254, the Tribunal is to pass 'such orders on the appeal as it thinks fit '. This is a wide power that is conferred upon the Tribunal. Unlike the case of a second appeal to this court under Section 100 of the C.P.C., the power of interference by the Tribunal is not in any way limited to consideration of questions of law or otherwise, so that it is open to the Tribunal to interfere with the judicial discretion exercised by the lower authorities and substitute the same by its own discretion. In the instant case, therefore, it cannot be said that the Tribunal was wrong in having differed from the ITO and the AAC in the matter of exercising judicial discretion as to whether, even after rejecting the explanation of the assessee, the value of the investments were to be treated as the income of the assessee. We are not prepared to hold that in so differing from the two authorities below and exercising its own judicial discretion, the Tribunal acted arbitrarily or capriciously. It took into account the complete absence of resources of the assessee and also the fact that having regard to her age and the circumstances in which she was placed, she could not be credited with having earned any income of her own. It was in these circumstances that, despite the rejection of the explanation as to undisclosed source of income, the Tribunal refused to make an addition of the value of the investment to the income of the assessee. We think, in the circumstances, the Tribunal was right. We answer the question referred in the affirmative, i.e., in favour of the assessee and against the revenue. There will be no order as to costs.

4. A copy of this judgment, under the signature of the Registrar and the seal of the court, will be communicated to the Tribunal, as required by law.


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