JAGADISAN J. - The question referred under section 66 of the Indian Income-tax Act is :
'Whether the Tribunal was right in law and had material to hold that the sum of Rs. 25,000 was income from undisclosed sources in the year of assessment 1948-49 and assessable under the Act ?'
The assessee was a partner of the firm of Messrs. Hastimal Jayantilal and Co., Coonoor. The firm was dissolved in 1952 and the assessee thereafter carried on business in his individual capacity. In the course of assessment proceedings of the firm it was noticed that the assessee had invested therein a capital of Rs. 63,000 during the period July, 1947, to November 1947. The assessee represented that he contributed the capital by borrowing from third parties. The Income-tax Officer was satisfied that to the extent of a major portion of the amount the assessees version was true. He, however, did not accept the case of the assessee in respect of a borrowal of Rs. 25,000 from one Vijayaram Ganeshdas of Bikaner. He initiated proceedings under section 34 of the Act in regard to the assessment year 1948-49. The explanation of the assessee that Rs. 25,000 was obtained as a loan from Vijayaram Ganeshdas was not accepted. The Income-tax officer held that the assessee failed to prove 'beyond doubt' the origin of the credit of Rs. 25,000. The said amount was treated as income of the assessee from undisclosed sources for the year 1948-49.
The assessee preferred an appeal to the Appellate Assistant Commissioner, who, however, disagreed with the Income-tax Officer. In his opinion the Income-tax Officer was not justified in suspecting the assessee that he must have earned the money from an undisclosed source. He therefore deleted the addition of Rs. 25,000. The department preferred an appeal to the Income-tax Appellate Tribunal, which agreed with the Income-tax Officer and set aside the decision of the Appellate Assistant Commissioner. This court directed the Tribunal to draw up a statement of the case and to refer the question set out above.
It must be noted that the proceedings under section 34 were started in the year 1957 calling upon the assessee to explain a capital credit in his favour in the books of account for Hastimal Jayantilal and Co. made in the year 1947. The difficulty on the part of any assessee to explain a transaction which is a decade old has to be borne in mind by the department and should under no circumstances be under-estimated or taken advantage of by them. Now the question is whether the assessee had explained, as reasonably as can be expected of any honest assessee, the source of the whole or part of this sum of Rs. 25,000, which admittedly came to be contributed by him between July and November 1947, to the firm of Hastimal. The assessees version is this. He borrowed Rs. 25,000 from one Vijayaram Ganeshdas of Bikaner and obtained the money by a bank draft in his favour on the Punjab National Bank, Jodhpur. He cashed this draft and deposited Rs. 16,000 to his credit in that very bank. Against the security for this deposit he obtained a loan Rs. 15,000 from the Punjab National Bank at Coimbatore, and paid that money to his credit to the firm. It this transaction is true the assessee has substantially explained his contribution to the firm to the extent of Rs. 15,000.
In regard to the balance of Rs. 10,000, the assessee had no consistent case. His first submission was that the sum of Rs. 9,000 which was left in his hands after depositing Rs. 16,000 in the bank at Jodhpur together with an addition of Rs. 1,000, which he had, totalling Rs. 10,000, was deposited with a banker, Sagarchand Sujanmull of Phalodi, and on the security of this deposit he withdrew Rs. 10,000 from Sagarchand Sujanmull at Madras. Before the Appellate Assistant Commissioner he stated that he made a mistake in trying to connect his capital contribution to the Coonoor firm with the money that he obtained from Sagarchand at Madras. According to him the truth was that out of Rs. 9,000 which remained with him from the borrowing of Vijayaram Ganeshdas he retained a sum of Rs. 8,000 by means of a bank draft to one Poonamchand Gulabchand of Bombay. This Poonamchand was a creditor of the Coonoor firm. The amount of Rs. 8,000 was adjusted by Poonamchand towards the amount due to him from the Coonoor firm. The assessee, therefor, obtained a credit in the firms accounts for this sum of Rs. 8,000.
This is the version of the assessee regarding the origin and source of his capital contribution to the firm of Hastimal. The question is whether there are materials to support the finding of the Tribunal that Rs. 25,000 or any part thereof should be deemed to be income of the assessee from undisclosed sources.
There is no proof that Rs. 8,000 credited to the assessee in the firms accounts really came out of the borrowal of Rs. 25,000 from Vijayaram Ganeshdas. The cheque in favour of Poonamchand was dated 8th August 1947, but the debit in favour of Poonamchand in the firms accounts is dated 13rd November, 1947. There is an interval of about three months between the date on which it is alleged that Poonamchand was paid by the assessee and the date on which the assessee obtained the credit at Coonoor. Nor is there anything to show apart from the assessees own statement that this Rs. 8,000 formed part of his borrowing from Vijayaram. As stated already, the assessees first version explaining the Rs. 10,000 contributed to the firm was totally different from the second version. We are not prepared to say that the Tribunal had no materials to disbelieve this part of the assessees explanation.
But the case of assessee in regard to the contribution of Rs. 15,000 stands on a firm basis. It is not disputed that he borrowed this money from the Punjab National Bank, Coimbatore, on the strength of the deposit receipt in his favour of the sum of Rs. 16,000 with the Punjab National Bank at Jodhpur. It is true that the bank draft which the assessee cashed at Jodhpur was given to him not by Vijayaram himself but by one Gowri Shankar Badgy. The assessee claimed that Gowri Shanker bagdy was only the agent of Vijayaram. The letter obtained from the Punjab National Bank, Jodhpur, to authenticate the cashing of the draft for Rs. 25,000 is in these terms :
'..... We beg to inform you that draft for Rs. 25,000 was purchased by Messrs. Gowri Shankar Bagdy, c/o Gowri Chand Gowri Shankar Bagdy, Cofer Gate, Bikaner, from our bank at Bikaner on 26th July, 1947. The purchaser of draft had current account in our Bikaner office and the amount of the draft had been debited in their account which please note.'
On 30th November 1953, itself the assessee had furnished to the Income-tax Officer details of his borrowings from various persons at Phalodi. The list contained six items of borrowals, five Phalodi and one from Bikaner. It appears that an Income-tax Inspector was asked to investigate the matter at Phalodi. The following extract from the order of the Income-tax Officer shows this :
'The appellant (assessee) says that he got the amount by way of draft from Vijayaram Ganeshdas. He has shown that the draft has been purchased by one Gowri Shankar Bagdy. I am not able to contact either of them. The latter is dead and the farmers existence cannot be located. The family of Gowri Shankar are now poor and they do not know Vijayaram. Therefore I hold that the amount represents appellantss income from undisclosed sources.'
The assessee had stated that Vijayaram was ill and had gone to Bombay for treatment. The question is not who advanced the money, Vijayaram or Gowri Shankar. Even assuming that Gowri Shankar had not been shown to be the agent of Vijayaram the fact remains that the assessee had obtained a draft in his favour for Rs. 25,000 in July, 1947, and had that amount with him at Jodhpur on that date. The Indian Income-tax Act was applied to Rajasthan only from 1st April, 1950. It is now admitted that the business of the firm at Coonoor was started on 7th May, 1947. The draft was purchased at Jodhpur on 26th July, 1947. The assessee could not have earned from the Coonoor business Rs. 25,000 between 7th May, 1947, and 26th July, 1947, and remitted the money to Bikaner for purchase of the draft. The assessees version that he borrowed money at Bikaner or Jodhpur and it was only out of such borrowing that he contributed Rs. 15,000 having got it from the Punjab National Bank at Coimbatore seems to be true supported as it is by documentary evidence.
The Tribunal however has not chosen to accept the assessees case on grounds which we are unable to appreciate. The Tribunal commenting upon the fact that the books of account of the assessee were kept only at Phalodi, that pakka and katcha roker of the assessee at Phalodi had not been produced, and that the necessary link between the borrowing of Vijayaram and the money brought to Coonoor had not been established. As stated already, with regard to the sum of Rs. 15,000 the assessee produced indisputable documentary evidence to show that the amount came out of his borrowing at Jodhpur whether it was from Vijayaram Ganeshdas or from Gowri Shankar Bagdy. The assessee has been able to point out a source for this sum of Rs. 15,000 and this cannot be refuted by a mere steady disability on the part of the department or the Tribunal. After the lapse of ten years the assessee should not be placed upon the rack and called upon to explain not merely the origin and source of his capital contribution but the origin of origin and the source of source as well.
In our opinion the Tribunal and the department had no material to hold that the sum of Rs. 15,000 credited to the capital account of the assessee with the Coonoor firm represented income from undisclosed sources.
The question is therefore answered as follows : There are no materials to hold that the sum of Rs. 15,000 was income from undisclosed sources in the year of assessment 1948-49 but there were materials to hold that the sum of Rs. 10,000 was income from undisclosed sources. There will be no order as to costs.
Question answered accordingly.