MCNAIR, J. - Two references have been made to this Court under Section 66 of the Income-tax Act. In reference No. 7 of 1942 the questions formulated are as follows :
(1) When the assessee, required to explain the credit entry of Rs. 50,000 in this case, offers an explanation which is false or unbelievable, whether there is anything in law which casts the burden of proof on the Income-tax Officer or the appellate authority to prove by positive evidence that they are items of revenue assessable to tax.
(2) Whether in the circumstances of this case there was any material to hold that the sum of Rs. 50,000 credits appearing in the personal accounts of the proprietors of the business constitute assessable income.
In Reference No. 8 of 1942 the same two questions are referred and the following further question which arose by reason of the penalty imposed on the assessee under Section 28(1) (c) of the Act is also referred, 'whether in the facts and circumstances there is any material for the finding that the assessee had deliberately furnished inaccurate particulars of income of Rs. 50,000.' The two references may be dealt with in one judgment.
The assessee are a Hindu undivided family who carry on business in ganji and than cloth. The assessment was made on March 2, 1938, in respect of the financial year 1937-38. The assessees in their return showed a sum of Rs. 50,000 as capital which was said to have been obtained from the sale of gold ornaments. The Income-tax Officer accepted this item as capital pending enquiry and the assessment was made. On May 3, 1938, the Income-tax Officer issued a notice under Section 34 of the Act and called for a further return. A return was made in the same form as previously.
Section 34 provides : 'If for any reason income, profits or gains chargeable income tax has escaped assessment in any year or has been assessed at too low a rate, the Income-tax Officer may, at any time within one year of the end of that year serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22, and may proceed to assess or re-assess such income, profit or gains and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section'.
I have quoted Section 34 which was applicable to this assessment as that section stood prior to amendment.
On September 20, 1938, the Income-tax Officer issued a notice under Section 23 of the Act which by sub-section (2) provides that if the Income-tax Officer has reason to believe that the return made under Section 22 is incorrect or incomplete he shall serve on the person who made the return a notice requiring him on a date to be therein specified either to attend at the Income-tax Officers office or to produce or cause to be there produced any evidence on which such person may rely in support of the return.
Sub-section (3) provides in effect that the Income-tax Officer after hearing such evidence and such other evidence as he may require shall by an order in writing assessee the total income of the assessee and determine the sum payable by him on the basis of such assessment. The Income-tax Officer heard the appellants and their representatives, and after hearing them held that the whole sum of Rs. 50,000 represented profits or gains from undisclosed sources. Accordingly that sum of Rs. 50,000 was added back and the assessment was raised, and a further sum of Rs. 8,108 as tax was demanded.
On October 14, 1938, there was an order for payment of the enhanced sum, and on the same day the Income-tax Officer passed an order for the payment a penalty under the provisions of Section 28, which provides in effect that if the Income-tax authorities are satisfied that an assessee has concealed the particulars of his income or has deliberately furnished inaccurate particulars of such income and has therefore returned it below its real amount, he may direct that the assessee shall in addition to the income-tax payable by him pay by way of penalty a sum not exceeding the amount of the income-tax which would have been avoided if the income as returned by the assessee had been accepted as the correct income. The Income-tax authorities have in this instance directed that the maximum penalty should be imposed.
The assessees appealed to the Appellate Assistant Commissioner of Income-tax Dacca Range, who on February 21, 1941, confirmed the orders of the Income-tax Officer. This order of February 21, 1941, was confirmed by the Appellate Tribunal on September 9, 1941.
The facts appear to be that this sum of Rs. 50,000 was credited in the accounts of the business as capital. The assessee stated that it was the sale and in the accounts of the business each of the five members of the family is shown to have contributed a sum of Rs. 10,000. In support of this story five vouchers were filed. Those vouchers were received by the Income-tax Officer, who then started making enquiries. On scrutinizing the vouchers it appeared that the entries on those vouchers were entries which had been made after other entries had been deleted. The story of the assessees was that this business and this transaction for sale of gold ornaments had been conducted by Sudharam Pal, son of Krishan Lal Pal, the senior member of the family and, as we are informed, a very old gentleman. They stated that Sudharam Pal had and that they were unable to obtain further information for that reason. The ornaments were said to have been purchased by the Poddars. The Income-tax Officer made enquiries from Nagar Poddar, who denied that the transaction had taken place. On being shown the vouchers he admitted that they appeared to be vouchers from his firm, but he stated quite definitely that the writing on those vouchers was not the writing of the any person in his firm and that the ink was not the ink which his firm used. There was no information as to whether the promotes or cash or otherwise. In the assessees books there was no ledger account in the name of Nagar Poddar and in the enquiry, it was further stated by the assessees that this money had been subscribed because new capital was required to start a business. It appears that business had already been started some nine months previously. It is further commented upon that although in the accounts each members of the family has been shown as subscribing a sum of Rs. 10,000 no personal accounts of the members of the family have been produced, and of course the Income-tax Officer is unable to say whether such personal accounts are or are not in existence. It was after enquiry and on the facts which I have narrated that the Income-tax Officer came to the conclusion that the sum of Rs. 50,000 was in fact income from undisclosed sources.
On behalf of the assessees it is urged that the burden of proof is on the Income-tax authorities and that before they can arrive at the conclusion that a particular sum represents income they must establish that fact by positive evidence. Section 6 of the Act, it is said, defines taxable income. One of the heads of income, namely, No. 6 is 'other sources'. It is argued that if an item is included by the Income-tax Officer as income from other sources he must establish affirmatively what are those sources. This is a proposition which I am unable to accept. There is nothing in the Income-tax Act which prevents the Income-tax Officer from basing his conclusions on circumstantial evidence.
In the original assessment based on the return which is furnished under the provisions of Section 22 the Income-tax Officer is given a certain amount of latitude in arriving at the proper figure of assessment. This is the case both under Section 22 and Section 34. There was in this case originally a notice under Section 22, then under Section 34, and under Section 23, (to which I have already referred), sub-section (2), the assessee in called upon to produce or cause to be produced any evidence on which he may rely in support of his return. Section 23(3) empowers the Income-tax Officer after hearing such evidence to determine the sum payable by the assessee on the basis of such assessment. In the case, Commissioner of Income-tax v. Kameshwar Singh, the Board in considering the question whether the assessing officer was right in making a certain estimate referred to the judgment of the Chief Justice of the Patna High Court where Sir Courtney Terrell said : 'Learned counsel for the assessee has argued with that contention. But in this case the state of affairs in the previous years coupled with the fact that the assessee had a large mortgage loan business and must have enforced mortgages by the sale on many occasions, afford ample material for the assessment made. I would answer the question in the affirmative.' The judgment of the Board continues : 'The other judges concurred and their Lordships also agree, adding only that if the assessee wished to displace the taxing officers estimate, it was open to him to adduce evidence of all his purchase transactions during the year and of the financial results thereof, which he apparently made no attempt to do.' Naturally the facts are somewhat different and learned counsel on behalf of the assessee has referred to the fact that in the case reported there was evidence of previous transactions. But the point which is stressed is first that there was ample material, and I stress the word 'material' as being distinguishable from the word 'evidence' for the assessment made, and secondly, that the board drew attention to the fact that the assessee, if he wishes ton displace the Taxing Officers estimate can produce evidence in order to enable him to reconsider his decision.
In Gunda Subbayya v. Commissioner of Income-tax, Madras, reported in 1939, 7 Income-tax Reports, Sir Lionel Leach, C.J., in delivering judgment says at page 27 of the Reports, 'When he (i.e. the Income-tax Officer) has material on which he can assess, he must consider it and make an assessment to the best of his judgment. I use the word material advisedly because the Income-tax Officer is not confined to what would be evidence in a Court of law'.
It has also been argued on behalf of the assessees that the Income-tax authorities were not entitled to act upon enquiries made or information received, as it is alleged was done, behind the back of the assessee. This matter was also dealt with by Sir Lionel Leach in the same judgment at page 28 of the Reports. The learned Chief Justice says, 'There are two other questions which are bound up with the question under discussion, namely, whether the Income-tax Officer when making an assessment on material which he himself has gathered shall disclose it to the assessee before making his assessment and give him an opportunity to adduce material in rebuttal and whether in Income-tax Officer should in his order of assessment set out the facts which he has taken into consideration when estimating the assessees income for the year.' There is nothing says the learned Chief Justice, 'in the Act itself which requires the Income-tax Officer to disclose to the assessee the material on which he proposes to act or to refer to it in his order, but natural justice demands that he should drawn the assessees attention to it before making the order. Information which the Income-tax Officer has received may not always be accurate and it is only fair when he proposes to act on material which he has obtained from an outside source that he should give the assessee an opportunity of showing if he can, that the Income-tax Officer has been misinformed, but the Income-tax Officer is obviously not bound to disclosed the source of his information.'
In the present case the Income-tax Officer appears to me to have disclosed to the assessee the material which he had before him, and even the source of his information, and he has invited the assessee to give him any further information in support of his contention that this sum of Rs. 50,000 was capital and to explain how it is that the Poddars denied all knowledge of the transaction. His only reply appears to be that the gentleman who was dealing with this transaction is now dead.
The question as framed for the opinion of this Court is whether there is any thing in law which casts the burden of proof on the Income-tax Officer or the appellate authority to prove by positive evidence that they are items assessable to tax. This question was dealt with by a Bench of the Lahore High Court in case (Ganga Ram Balmokand v. Commissioner of Income-tax, Punjab) reported in 1937, 5 Income-tax Reports, 464 at page 475 : 'I am not, however, prepared to hold,' says Mr. Justice Din Mohammad, 'that any burden is imposed on the Income-tax authorities to prove by positive evidence that the accounts are unreliable or that the figure at which they assess is the correct figure. In the first place, the question of unreliability of accounts is a question of fact and primarily falls for the determination of the Income-tax authorities alone.... Secondary, the Income-tax Officer cannot be fixed with the knowledge of the state of the assessees accounts and cannot consequently be expected to lead evidence to prove the assessees transactions for the accounting year. Under Section 106 of the Evidence Act, the onus of proving a fact always lies on the person within whose knowledge especially that fact is an it cannot be denied that it is the assessee who is the person contemplated by this section.'
We have also been referred in the course argument to Section 114 of the Evidence Act which provides in illustration (g) that the Court may presume that evidence which could be, and is not, produced would, if produced, be unfavourable to the person who withholds it. The Income-tax Officer may similarly presume that if there is evidence which might have been produced, in support of the assessees case and that evidence has not been produced, the reason is that it would not assist the assessees contention.
From the facts which I have set out earlier it is clear that there was considerable material on which the Income-tax authorities could come to the conclusion that this sum of Rs. 50,000 was income. In my view the Income-tax authorities have throughout acted in a fair and reasonable manner and they have given the assessee every opportunity of establishing his contention that it was in fact not income. The first question must be answered in the negative, and the second question in the affirmative.
The learned Advocate on behalf of the assessee has said that if the Court is of opinion that there is material on which the Income-tax authorities can arrive at the finding that the sum of Rs. 50,000 is income, he cannot maintain that the Income-tax authorities have not a discretion to decide whether the particulars which have been furnished by the assessee are deliberately inaccurate or other wise I have no doubt that it is a matter which lies within the discretion of the Income-tax authorities.
The assessee must pay to the Commissioner of Income-tax his costs of the two references which we assess at Rs. 200 plus the costs of the papers books which we assessee at Rs. 50 for each reference.
GENTLE, J. - I agree.
Reference answered accordingly.