1. The following three questions of law have been referred to this court for its opinion by the Income-tax Appellate Tribunal :
'(1) Whether the Appellate Tribunal's conclusion that the Department had not proved that the assessee was the owner of the contraband gold is a reasonable view to take on the facts found and is legally valid
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the sum of Rs. 29,200 from the assessment for 1964-65 and
(3) Whether, under the circumstances of the case, the Appellate Tribunal was right in holding that there is further burden of proof on the Department to apply section 69A and bring to tax the value of the gold bars seized from the assessee ?'
2. The assessee and one M. S. Ameen were found in possession of 500 tolas of gold at Egmore Railway Station by the Customs and Central Excise authorities, on April 8, 1963. They were arrested and the gold was seized and confiscated by Government. Both the assessee and the said Ameen were convicted by the Chief Presidency Magistrate, Madras, and fined Rs. 1,000 under s. 135(b)(ii) of the Customs Act, 1962, for being found in possession of the contraband gold. The assessee, when examined by the ITO, disowned ownership of the gold. He, however, did not disclosed the name of the true owner of the gold which was in his possession. The assessee owns a house and an oilman stores. For the assessment year 1964-65 a sum of Rs. 7,822 was disclosed by the assessee as income in the returns filed by him for that year. The ITO felt that Rs. 5,000 out of the sum returned has to be taken as income for 1967-68. The ITO, however, came to the conclusion that the value of the seized gold amounts to Rs. 29,200 and should be taken as the income of the assessee for the assessment year 1964-65 and assessed the same under the head 'Other sources' along with the other admitted income of Rs. 2,8/2.
3. The said assessment was question before the AAC, who held that as the assessee had not been shown to be the owner of the seized gold, its value cannot be taken as the income of the assessee. In that view, he deleted the sum of Rs. 29,200 added by the ITO as income under the head 'Other sources'.
4. The Revenue took the matter in appeal to the Income-tax Appellate Tribunal, contending that it is for the assessee who was found in possession of the contending gold to prove that he is not the owner of the gold, or the sources from which he got the contraband gold, that even otherwise, under s. 110 of the Evidence Act, the assessee who is found in possession of the smuggled gold has to discharge the burden of proving that he is not the owner of the gold and that, therefore, so long as the assessee has not shown that he is not the owner of the gold the ITO is entitled to proceed on the basis that the assessee is the owner of the gold seized from him. The Tribunal, however, did not accept the contention put forward on behalf of the Revenue. It held that the Revenue must establish that the assessee is the owner of the gold and that it constituted a taxable receipt in his hands. According to the Tribunal, the judgment of the Chief Presidency Magistrate convicting the assessee under s. 135(b)(ii) of the Customs Act, indicated that the assessee was a carrier and not the owner and the further fact that the assessee was only running a small business in oilman stores would indicate that the assessee could not have been the owner of the gold seized from him. In that view, the Tribunal held that an addition of Rs. 29,200, being the value of the gold, as the income of the assessee under 'Other sources' cannot be sustained in law. Aggrieved by the said order of the Tribunal, the Revenue sought and obtained a reference on the question set out above.
5. As already stated, both the assessee and the said Ameen who were found in possession of the gold weighing 500 toals at the Egmore Railway Station, were convicted under s. 135(b)(ii) of the Customs Act, for being found in possession of the contraband gold and fined Rs. 1,000. The judgment of the Chief Presidency Magistrate contains the following observation :
'I wish to add that most of the cases coming before this court under the Customs Act relate to only carriers of contraband. The actual financial magnates who are underground do not see light of day'.
6. The above observation and the conviction of the assessee under s. 135(b)(ii) read with s. 123(1) of the Customs Act, clearly indicate that the assessee was convicted only for possession of contraband gold and not as an owner thereof. It has also been found by the Tribunal that the assessee is running a petty oilman stores at Madurai and that he is not a dealer is gold. These two factors have been taken into account by the Tribunal as indicating that the assessee could not have been the owner of the gold seized from him. The Tribunal then proceeded to state that before an assessment could be made under s. 69A of the I.T. Act, the Revenue has to positively prove that the seized gold was owned by the assessee and, in this case, the Revenue, except relying on the judgment of the criminal court, has not adduced any material to show that the gold seized was owned by the assessee.
7. The question is whether the Tribunal's conclusion is legally tenable. Learned counsel for the Revenue contends that the Tribunal has thrown a very heavy burden on the Revenue to show that the gold seized from the assessee was really his property, that the onus should be cast on the assessee to show that he is not the owner of the gold as he is in full possession of the facts relating to the gold in his possession and that, therefore, the Revenue is entitled to proceed on the basis that the assessee is the owner of the gold so long as the assessee has not proved that he is not the owner of the gold as contemplated under s. 110 of the Evidence Act. Thus, the substantial contention put forward by the Revenue before us is that, once the person is found to be in possession of smuggled gold, straightaway an inference can be drawn that the gold belongs to him unless he establishes that the gold belongs to some third party. We are unable to accept the said contention of learned counsel for the Revenue. We do not see how, from mere possession of the gold, the ownership can be presumed in the person who possessed the gold at a particular point of time. For invoking s. 69A of the I.T. Act, the assessee should be shown to be the owner of the gold. It is not in dispute that in this case the assessment has been made under s. 69A. That section provides that where the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or other valuable article is not record in the books of account maintained by him for any sources of income, and the assessee offers no explanation about the nature and sources of the acquisition of the money, bullion, jewellery or other valuable article or the explanation offered by him is not, in the opinion of the ITO, satisfactory, then the money, bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. The said section will come into play only if the assessee is found to be the owner of the gold and the assessee offers no explanation about the source of its acquisition by him. If the ownership is not established, then the assessee is not bound to give an explanation as to the source of acquisition of the goods. The section contemplates an acquisition of the gold by the assessee and the same being owned by him, before that gold is taken into account as the income of the assessee from 'undisclosed sources'. As already stated, in this case, apart from the possession of the contraband gold, the Revenue has not produced any material to indicate that the assessee should be the owner of the gold. It is, no doubt, true that the assessee has not stated as to who is the owner of the seized gold. The Tribunal has proceeded on the basis that the assessee is only a carrier and that the owners of the gold are underground. From the mere fact that the assessee has not stated as to who is the owner of the gold, it cannot be assumed that the assessee is the owner of the gold. It may be that the assessee himself may not know as to who is the owner and he may be one of the carriers passing on the gold, without knowing as to who the true owner of the gold is. The Tribunal, apart from relying on the finding of the Chief Presidency Magistrate that the assessee is only a carrier and his conviction on the basis that he is in possession of the smuggled gold, also refers to the fact that the assessee has only a petty oilman stores at Madurai and that he is not a dealer in gold. The fact that the assessee is a small oilman stores the assessee could have acquired the gold for himself. Therefore, on the materials available, the Tribunal has come to the right conclusion that the materials produced in the case do not indicate that the gold belonged to the assessee.
8. Learned counsel for the Revenue placed strong reliance on s. 110 of the Evidence Act to show that the onus is on the assessee to show that he is not the owner and, so long as he has not discharged that onus, the authorities are entitled to proceed on the basis that the assessee is the owner. In support of the said submission, learned counsel refers to the decision in J. S. Parkar v. V. B. Palekar : 94ITR616(Bom) . In that case, the Revenue invoked s. 110 of the Evidence Act and assessed a person, from whose motor launch certain gold bars and gold biscuits were seized, on the ground that the person should be taken to be the owner of the gold bars and biscuits seized from his motor launch. It was contended for the assessee in that case that s. 110 of the Evidence Act which provides that where a person is found in possession of anything, the burden of proof that he is not the owner is on the person who affirms that he is not the owner, could not be used to hold that the assessee was the owner as he was in possession thereof, because the provisions of the Evidence Act were not applicable to taxation proceedings. Overruling the said contention, the Evidence Act is not applicable, it cannot be said that the provisions of the Evidence Act cannot be looked into by the authorities and that as s. 110 of the Evidence Act embodies a salutary principle of common law of jurisprudence which could be attracted to a set of circumstances that satisfy its conditions, the Revenue was entitled to invoke that section and call upon the assessee to prove that he is not the owner of the gold and if he fails to establish the same, an inference can be drawn that the assessee is the owner of the gold. In that case, there were other positive materials before the Tribunal to indicate that the assessee could be the owner of the gold. Firstly, the Tribunal, in that case, specifically rejected the claim of the assessee that he was only a carrier. Secondly, it was found that the assessee had the lead, initiative, drive and overall control of the entire operations of smuggling. Thirdly, it was found that the gold seized was found in the motor launch belonging to the assessee. Fourthly, it was found, that the assessee offered a bribe of Rs. 5 lakhs to the concerned Inspector with a further request to him either to throw away the gold into the sea or retain the same for himself and save the assessee from disgrace. Fifthly, the assessee had the power of disposition over the said gold. There was one other clinching circumstances in that case and it was that the Magistrate before whom the assessee was tried, found him guilty under s. 120B, IPC, and s. 167(81) of the Sea Customs Act and s. 23 of the Foreign Exchange Regulation Act of 1947 and convicted and sentenced him to two years' imprisonment. All these materials established a presumption that the gold belonged to the assessee. It was, in those circumstance the Revenue was held entitled to invoke s. 110 of the Evidence Act. Even though the Revenue has not discharged its onus that the gold was owned by the assessee as required in s. 69A of the I.T. Act, the other materials available in that case led to an inference that the gold should belong to the assessee. Hence, the principle of that decision will not apply to the facts of this case.
9. In this case, except relying on s. 110 of the Evidence Act, the Revenue has not produced any other material to indicate that the gold should belong to the assessee. In this case, the assessee has been convicted only as a carrier by the Chief Presidency Magistrate and not as the owner of the gold. The Chief Presidency Magistrate has specifically observed that the actual owners of the goods or financial magnates are underground. Therefore, merely on the basis of s. 110 of the Evidence Act, the value of the gold cannot be taken to be his income. Merely because the assessee has kept silent and has not disclosed the name of the owners of the gold, he cannot be assessed under s. 69A of the I.T. Act. Liability to be taxed under s. 69A can arise only if he is shown to be the owner of the goods. We are, therefore, of the view that the assessment in this case cannot be sustained on the basis of s. 110 of the Evidence Act. The assessee also contends that even assuming that the value of the gold seized from the assessee can be taken to be his income and assessed as coming under 'Other sources', the fact that the gold has been seized and confiscated by the Government cannot be ignored. If the value of the gold which the assessee is said of the confiscation of the gold by the Government should be taken to be a business loss. Reliance is placed on the decision of the Supreme Court in CIT v. Piara Singh : 124ITR40(SC) . In that case, the assessee who was carrying on a smuggling activity was apprehended and a sum of Rs. 65,000 in currency notes was recovered from his person. On interrogation, he stated that he was taking the currency notes to Pakistan to purchase gold and then smuggle it to India. The customs authorities confiscated the currency notes. The income-tax authorities treated the said amount of Rs. 65,000 as the assessee's income and assessed it to tax. The assessee then claimed deduction of the said sum under s. 10 of the Indian I.T. Act, 1922, on the ground that as a result of the confiscation, a loss of Rs. 65,000 had arisen, and this claim was rejected. When the matter ultimately went before the Supreme Court, the Supreme Court held that the carriage of currency notes across the border was an essential part of the smuggling operations, that the detection and confiscation by the customs authorities constituted a normal feature of such operations and that confiscation of the currency was a loss occasioned in the business of smuggling, that it was a loss which sprang directly from the carrying on of the business and was a loss which sprang directly from the carrying on of the business and was incidental to it and its deduction has to be allowed under s. 10 of the 1922 Act. However, the said decision of the Supreme court may not apply to the facts of this case. There, the value of the currency seized from the assessee was taken to be an income arising out of smuggling operation and confiscation of the same by the customs authorities was held to be an incidental feature of such operations. If the value of the currency seized can be taken as business income of the assessee, then the loss arising out of confiscation of the same should be taken as a deduction under s. 10 as the confiscation has arisen as an incident of his business operations which involved smuggling. Here, the value of the gold has been assessed, not as business income, but as income from other sources. The assessee is not entitled to claim deduction of the value of the gold confiscated by Government as business loss. In the view expressed by us, all the question are answered in the affirmative and against the Revenue. The assessee will have the costs from the Revenue. Counsel's fee Rs. 500.