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V. Ramaswami Naidu Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 37 of 1967 (Reference No. 14 of 1967)
Judge
Reported in[1974]93ITR341(Mad)
ActsIncome Tax Act, 1922 - Sections 66(1) and 66(2)
AppellantV. Ramaswami Naidu
RespondentCommissioner of Income-tax
Appellant AdvocateS. Swaminathan and ;K. Ramagopal, Advs.
Respondent AdvocateV. Balasubrahmanyam and J. Jayaraman, Advs.
Excerpt:
direct taxation - assessee's income - section 66 of income tax act, 1922 - whether real owner of property was assessee and deposit belongs to assessee - burden of proof lies on revenue department - no material to show purchase in favour of minor was benami for assessee or deposit belongs to assessee - mother of minor in position of trustee in relation to income received from property - income therefrom not liable to be included in assessee's income - reference answered in favour of assessee against revenue. - - 8,000 was added towards personal expenses for 1953*54. 3. the assessee having failed in the appeal before the appellate assistant commissioner on this point, preferred an appeal to the appellate tribunal......for the assessment years 1950-51 to 1957-58, it was found that in the account in the name of laxmi ammal, wife of the assessee, there were two credits of rs. 20,000 and rs. 5,000 on 7th and 16th november, 1948, respectively, making a total of rs. 25,000. on december 31, 1948, this sum of rs. 25,000 was transferred to another account, leaving a balance of rs. 275 to the credit of laxmi ammal. the account of laxmi ammal also contained cash credits and credits for sale of jaggery. there were also debits for purchase of shares and lands. on november 16, 1948, there was a credit entry for rs. 26,035-9-10 with a narration 'kadri mills deposit and interests'. interest on the deposits was credited to the account of laxmi ammal as the income of the assessee and the same was upheld by the.....
Judgment:

Ramaswami, J.

1. The following thirteen questions have been referred in pursuance of an order of this court under Section 66(2) of the Indian Income-tax Act, 1922:

1'(1) Whether, on the facts and in the circumstances of the case, the addition to the income returned to the extent of Rs. 5,000 was justified on the materials ?

(2) Whether, on the facts and in the circumstances of the case, the addition of Rs. 1,719 to the income returned is justified ?

(3) Whether, on the facts and in the circumstances of the case, the addition to the income returned to the extent of Rs. 5,000 was justified on the materials ?

(4) Whether, on the facts and in the circumstances of the case, the addition of Rs. 2,264 to the income returned is justified ?

(5) Whether, on the facts and in the circumstances of the case, the addition of Rs. 479 to the income returned by the assessee is justified ?

(6) Whether, on the facts and in the circumstances of the case, the addition to the income returned to the extent of Rs. 3,000 was justified on the materials ?

(7) Whether, on the facts and in the circumstances of the case, the addition of Rs. 2,713 to the income returned if, justified ?

(8) Whether, on the facts and in the circumstances of the case, the addition of Rs. 4,060 to the income returned by the assessee is justified ?

(9) Whether, on the facts and in the circumstances of the case, the addition of Rs. 2,644 to the income returned by the assessee is justified ?

(10) Whether, on the facts and in the circumstances of the case, the addition of Rs. 2,890 to the income returned is justified ?

(11) Whether, on the facts and in the circumstances of the case, the addition of Rs. 5,189 to the income returned by the assessee is justified ?

(12) Whether, on the facts and in the circumstances of the case, the addition of Rs. 6,253 to the income returned by the assessee is justified ?

(13) Whether, on the facts and in the circumstances of the case, the addition of Rs, 7,924 to the income returned by the assessee is justified ?'

2. The assessee is an industrialist of Coimbatore. He also owns some agricultural lands. He is a partner in a firm called Krishna & Co., which is the managing agent of a textile mill called Kadiri Mills Ltd. The assessee had drawn from his business accounts during the assessment years 1950-51, 1952-53 and 1953-54 Rs. 4,445, Rs. 1,991 and Rs. 1,769, respectively, towards his personal expenses. Of the drawing of Rs. 4,445 for the year 1950-51, a sum to the extent of Rs. 2,137 was towards specific items of purchase of jewellery, travelling expenses, etc. That left a balance of Rs. 2,308 only for family expenses during that year. The Income-tax Officer considered the above drawings as too low for the status of the assessee. The explanation offered by the assessee was that his wants were few and his style of living was simple. The Income-tax Officer did not accept this explanation. He considered that, having regard to the status of the assessee and the standard of living, the expenditure should have been not less than Rs. 12,000 a year. In that view he came to the conclusion that a sum of Rs. 10,000 should have been made out of the concealed income in the two assessment years 1950-51 and 1952-53, and that a sum of Rs. 8,000 should have been made from the concealed income in the assessment year 1953-54. Though the Income-tax Officer estimated undisclosed sources of income for 1953-54 also at Rs. 10,000, he apportioned a sum of Rs. 8.000 towards personal expenses and Rs. 2,000 as unaccounted investment in the name of his wife. That is how only a sum of Rs. 8,000 was added towards personal expenses for 1953*54.

3. The assessee having failed in the appeal before the Appellate Assistant Commissioner on this point, preferred an appeal to the Appellate Tribunal. Before the Tribunal the assessee contended that he was in receipt of agricultural income during the relevant period and that he met the additional expenditure from such income. He also produced evidence to show that during the assessment years 1949-50 and 1951-52 the Appellate Assistant Commissioner accepted the claim of the assessee that he was in receipt of a sum of Rs. 8,791 per year from his agricultural lands. In fact, the agricultural income for 1951-52 was estimated by the Appellate Assistant Commissioner at Rs. 32,500. The assessee also relied on the fact that for the assessment years 1954-55 to 1956-57 the household expenses of Rs. 5,000 per year was accepted by the department and n6 addition was made on this account. The Tribunal was of the view that though there were no means of verifying the actual amount of agricultural income saved from year to year the possibility of some savings therefrom and their utilisation to meet the household expenses could not be altogether ruled out. In that view, the Tribunal gave relief to the extent of Rs. 5,000 in the three years 1950-51, 1952-53 and 1953-54 and reduced the addition to Rs. 5,000, Rs. 5,000 and Rs. 3,000, respectively. Questions Nos. 1, 3 and 6 relate to this addition towards personal expenditure.

4. On an examination of the accounts for the assessment years 1950-51 to 1957-58, it was found that in the account in the name of Laxmi Ammal, wife of the assessee, there were two credits of Rs. 20,000 and Rs. 5,000 on 7th and 16th November, 1948, respectively, making a total of Rs. 25,000. On December 31, 1948, this sum of Rs. 25,000 was transferred to another account, leaving a balance of Rs. 275 to the credit of Laxmi Ammal. The account of Laxmi Ammal also contained cash credits and credits for sale of jaggery. There were also debits for purchase of shares and lands. On November 16, 1948, there was a credit entry for Rs. 26,035-9-10 with a narration 'Kadri Mills deposit and interests'. Interest on the deposits was credited to the account of Laxmi Ammal as the income of the assessee and the same was upheld by the Appellate Assistant Commissioner and the Tribunal. The dispute relating to this addition forms questions Nos. 4, 7, 9 and 10.

5. Dividends from shares were also credited in the accounts in the name of Laxmi Ammal. The Income-tax Officer treated these dividends as the income of the assessee. This finding of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner and the Tribunal. The justification for inclusion of the dividends credited to Laxmi Animal with the income of the assessee forms questions Nos. 5, 8, 11, 12 and 13.

6. It is seen from the facts and the stated case that question No. 2 relating to the sum of Rs. 1,719 was not included in the reference under Section 66(1) or under Section 66(2) of the Indian Income-tax Act, 1922, and, therefore, that: question does not arise for consideration in this reference.

7. The learned counsel for the assessee submitted that, since the department itself has accepted that the assessee was in receipt of agricultural income to the tune of Rs, 8,791 during the assessment year 1949-50 and estimated the agricultural income at Rs. 32,500 during the assessment year 1951-52, there was no justification for including any amount as having been received and made from undisclosed sources for meeting the personal expenses of the assessee. But there is no evidence available as to the amount of income during the assessment years 1950-51, 1952-53 and 1953-54. The assessee himself has shown his household expenses at Rs. 5,000 for the assessment years 1954-55 to 1956-57. It cannot be disputed that the assessee is an industrialist and the expenses for the family must have been much more than the amount shown in the accounts as personal drawings. The Tribunal was also aware of the possibility of some savings from the agricultural income during the relevant years. Having regard to all these facts found, the Tribunal estimated and gave relief to the extent of only Rs. 5,000 per year. We are of opinion that the addition to the income returned on the basis of a finding that the assessee must have made some amount towards his personal expenses from undisclosed income was justified on the materials.

8. In the books of Krishna & Co., there was an account in the name of Laxmi Ammal, the wife of the assessee. There were two deposits for Rs. 20,000 and Rs. 5,000 on November 7 and November 16, 1948, respectively, in her account. It is now not in dispute that this sum of Rs. 25,000 formed the source for purchase of shares and deposits of money subsequently in the name of Laxmi Ammal and the dividends and interest in dispute were received on account of those shares and deposits. It was the case of the assessee that the sum of Rs. 25,000 belonged to Laxmi Ammal and those deposits did not belong to the assessee. In support of the contention the assessee produced a sale deed dated September 22, 1941, a mortgage deed dated July 16, 1938, and some affidavits from third parties who claimed to have had some money dealings with the mother of Laxmi Ammal. It is the claim of the assessee that from the income from these properties Laxmi Ammal saved a sum of Rs. 25,000 and that formed the deposit above referred to. The sale deed dated September 22, 1941, was executed in favour of one Venkatasami Naidu and minor, Balasubramanian, son of the assessee, represented by his guardian and mother, Laxmi Ammal. The consideration for the sale was a sum of Rs. 9,000 out of which only a sum of Rs. 1,660 was paid in cash and the balance was to be paid to some of the creditors of the vendors. An extent of 18'74 acres with two wells and a tiled shed were purchased under the same. Under this sale deed, the minor son of the assessee was entitled to a half share and one Venkatasami Naidu, the other purchaser, was entitled to the other half. Venkatasami Naidu sold his share to one Kuppusami and from him the assessee purchased the same under a sale deed dated September 24, 1943. Thus the assessee became entitled to a half share of the property by purchase and the other half stood in the name of his minor son represented by the guardian and mother, Laxmi Ammal. The mortgage deed dated July 16, 1938, in favour of Pappammal, the mother of Laxmi Ammal, for a sum of Rs. 1,000 and some affidavits from third parties were produced to show that the assessee's mother-in-law was in possession of funds and lending monies to others and that she had advanced monies to her daughter, Laxmi Ammal, for the purchase under the sale deed dated September 22, 1941, in the name of her minor grandson. Laxmi Ammal is stated to have saved the sum of Rs. 25,000 during the years 1941-48 and it is those savings that had been deposited by her in Krishna & Company in 1948. The Tribunal and the Appellate Assistant Commissioner held that it was the assessee who had purchased the lands in the name of his minor son and that the entire deposit of Rs. 25,000 belonged to the assessee. In support of this finding they relied on the following facts : The land consisted of 2 plots--one measuring 12.76 acres and the other 5.98 acres. The plot measuring 12'76 acres was sold to Kadri Mills Ltd. on July 10, 1946, for a sum of Rs. 38,250. According to the resolution of Kadri Mills Ltd., the land belonged to the assessee and that he had agreed to sell it to the mills. The sale proceeds were originally credited to the assessee's account, though, in 1951, he transferred half of the total consideration to the credit of Laxmi Animal's account in his books. There was no direct evidence to prove that it was Pappammal who gave money for the purchase of the land and that the land was purchased in the name of the minor for the benefit of Laxmi Ammal. The Appellate Assistant Commissioner was also of the view that it was not possible for Laxmi Ammal to have saved a sum of Rs. 25,000 from 1941--48 and that the income from the lands could not have been more than Rs. 750 per year.

9. The question for consideration is whether this reference and finding of the Tribunal was justified in law, We are not here concerned with the question whether, as between Laxmi Ammal and her minor son, who was the true and real owner. We are concerned with the question whether the real owner of the property was the assessee and whether the deposit of Rs. 25,000 belonged to the assessee. There can be no doubt that the burden of proof was on the department to show that the real owner was the assessee and the amount belonged to the assessee. The amount is credited in the accounts of Krishna & Company in the name of Laxmi Ammal and the natural presumption is that it belonged to Laxmi Ammal. The Tribunal had nowhere found that the consideration or any portion thereof for the purchase of the land was advanced by the assessee. The document itself stands in the name of the minor son. No reason also has been given as to why the assessee should have purchased the land in the name of his minor son. The only thing which we find in the order of the Tribunal is that it did not accept the explanation given by the assessee that the consideration was provided by Pappammal, his mother-in-law. We are of opinion that this rejection of the evidence alone could not lead to the inference that the consideration was provided by the assessee. There is no material on which we could conclude that the purchase in the name of the minor was benami for the assessee or that the amount standing to the credit of Laxmi Ammal belonged to the assessee. The fact that the resolution of Kadri Mills, who purchased a portion of the land, treated the assessee as the owner or the fact that the entire consideration was paid to the assessee originally could not have been the basis for holding. that the purchase in 1941 was benami for the assessee. The assessee was the owner of half of the property and the other half belonged to his minor son or his wife. In those circumstances, the mention of the assessee as the owner of the land in the resolution the company is of no consequence. The receipt of the entire consideration by the assessee did not also evidence that he is the absolute owner of the entire property. The assessee was an undivided co-owner and as such was entitled to receive the entire money on behalf of all the owners. In fact, in 1951, though belatedly, he transferred and credited to his wife's account half of the sale consideration. We are of opinion that, on the facts and circumstances of this case, it cannot be stated that the department has discharged its onus of proving that the ostensible owner was not the real owner of the property.

10. The Appellate Assistant Commissioner was of the view that Laxmi Ammal could not have saved Rs, 25,000 from 1941 to 1948 and that the income from the lands could not have been more than Rs. 750 per year. Though this reasoning had not been adopted by the Appellate Tribunal, we are of opinion that that conclusion is not based on any evidence and it is really contrary to the other evidence available. The Tribunal in the appeal relating to the year 1951-52 had also noticed that the wife of the assessee was receiving large income from agricultural lands. Having regard to the fact that Laxmi Ammal, the wife of the assessee, was entitled to 9.37 acres and this extent she was in possession of till a portion of it was sold some time in 1946 to Kadri Mills, it will not be unreasonable to Infer that she would have saved the sum of Rs. 25,000. As we have already stated, we are not concerned with the question as to whether the land or the income thereof belonged to Laxmi Ammal or her minor son. If really the minor son was the owner, his mother would be in the position of a trustee so far as the receipt of the income is concerned. Suffice it for us to say that the evidence on record did not establish that either the purchase in the name of the minor of the lands or the deposit of Rs. 25,000 in the name of Laxmi Ammal was benami for the assessee. As this sum of Rs. 25,000 formed the source for the purchase of shares and the other deposit which yielded the dividends and interest, the income therefrom is not liable to be included in the assessee's income.

11. For the foregoing reasons, we answer questions Nos. 1, 3 and 6 in the affirmative and against the assessee and questions Nos. 4, 5, 7 to 13 in the negative and against the revenue. Question No. 2 does not arise for consideration as it had not been included in the reference under Section 66(1) or Section 66(2) of the Act. There will be no order as to costs.


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