In pursuance of the direction of this Court under Section 66(2), Indian Income-tax Act, 1922, in Miscellaneous Civil Case No. 143 of 1950, the Income-tax Appellate Tribunal, Bombay, has submitted the statement of case on the following question of law :
“Whether on the material on record the Appellate Tribunal could reasonably come to a finding that the sum of Rs. 8,500 was an income undisclosed sources ?”
In the opinion of the Tribunal the question which arises is :
“Whether there was material on which the Appellate Tribunal could have rejected the assesses explanation ?”
The question as framed by the Tribunal dies not, however, cover the entire controversy.
2. The subject mater of the controversy is the finding of the Tribunal that the sum of Rs. 8,500 represents the assesses income from undisclosed sources. The question that arises for our judgment, therefore, is the following :
“Whether there was material on which the Appellate Tribunal could come to a finding that the sum of Rs. 8,500 was the assesses income from disclosed sources ?”
This question arises from the same facts which the Tribunal has stated. It is not, therefore, necessary to refer the case back to the Tribunal under Section 66(4) of the Indian Income-tax Act.
3. The assessee runs the business of exhibiting pictures at various cinema houses in Nagpur. During the assessment year 1946-47 there were two credits, one of Rs. 10,000 on April 30, 1945, and the other of Rs. 8,500 on May 1, 1945, in his wifes account with the Bank of India Ltd., Nagpur. We are not concerned with the amount of Rs. 10,000 in respect of which the explanation of the assessee was accepted by the Income-tax authorities. As regards the amount of Rs. 8,500 he submitted the following explanation :
“As regards the sum of Rs. 8,500, I may point out for the last so many years I drew from the company various sums of money from time to time and paid the same to my wife to enable her to defray the household and other expenses of the family. My withdrawals for years ending March 31, 1943, March 31, 1944, March 31, 1945, and March 31, 1946, were Rs. 26,147-15-9, Rs. 20,100-2-9, Rs. 31,036-12-9, and Rs. 47,106-4-6 (this ought to be Rs. 37,106-4-6) respectively. My wife made some savings out of the said amounts and when savings amounted to the above, she asked me to credit the said amount to her account in the Bank of India Ltd., Nagpur, on May 1, 1945.”
4. The above explanation was not accepted by the Income-tax Officer who observed :
“It is difficult to believe that the assessee was withdrawing funds for construction of this bungalow and household expenses indiscriminately without ascertaining from his wife as to whether the money previously drawn and handed over to her was fully spent or not. Besides the savings of Rs. 8,500 could not have been effected on one day. The assessee has not proved as to where the amount was lying all these days when Mrs. Naidu had a regular bank account. In short the explanation offered is not at all convincing and cannot be accepted.”
The explanation was, however, accepted by the Appellate Commissioner on these grounds :
“It is clear that the petitioner derives substantial income from business and he was withdrawn about Rs. 26,000 every year for personal expenses. The petitioner is not carrying on any other business and the receipts from the picture houses have been properly shown. It is also clear that the petitioner has withdrawn substantial amounts every year. It may be a fact that the petitioners wife was able to save the amount and that she was in possession of funds for crediting the same in her account from funds given to her by her husband. Apparently there is no reason to disbelieve the explanation offered and there are no materials on file to hold that he petitioner carried on some other business or that the income from the cinema business was not properly returned. Records do not go to show that the petitioner did not credit the receipts properly or that he had any other business activity not disclosed by him. The addition of Rs. 8,500 was not warranted and it shall be deleted.”
5. The Department went up in appeal to the Tribunal mainly for reason that in its opinion the Appellate Assistant Commissioner had wrongly thrown on it the burden of finding out the source of income. The appeal was allowed by the Tribunal which observed :
“It is not for the Income-tax Department to find out what other business the assessee was doing. It may be that he was carrying on some business unknown to the Income-tax Department. It is for the assessee to explain satisfactorily the source of a credit to his own account.”
The explanation of the assessee was rejected by the Tribunal on the following short ground :
“If such a large amount was lying at home it is obvious that the assessee would not be borrowing capital interest for the purpose of his business.”
6. There is no doubt, that the Department is not bound to prove by direct evidence the source of income before an assesses explanation is rejected. Nevertheless if the explanation is prima facie reasonable, it cannot be rejected on capricious or arbitrary grounds. In Ganga Ram Balmokand v. Commissioner of Income-tax, Punjab, it was held that the Income-tax Authorities are not bound to prove by “positive evidence” that the accounts are unreliable and their finding cannot be disturbed unless it is altogether capricious and injudicial. What applies to accounts also applies to all other evidence tendered by an assessee including his explanation on the source of income. Therefore, while it is true that the rejection of the assesses explanation cannot be disturbed if it is based on reasonable grounds, it can be challenged if it is capricious, arbitrary or injudicial.
7. The facts of the instant of the instant case are that he assessee has maintained his accounts properly and made a correct return of the income of his cinema business. That he withdrew from time to time from his business the amounts stated by him and gave them to his wife for household expenses is also not in dispute. Presumably, therefore, the amount in dispute credited to her account with the bank has its source in the funds which she used to receive from her husband, as no other source is indicated.
8. The Tribunal rejected the assesses explanation on the ground that he would not be borrowing capital on interest for the purpose of business if the amount in dispute was lying at home. This reasoning is based on the assumption that the total amount was always available at home to the knowledge of the assessee. This assumption ignores that the amount was likely to be made up gradually out of the small savings made from time to time, of which the assessee was not aware until it was deposited in the bank. It is common knowledge that the ladies of the house do manage to make small savings, which are not deposited in a bank until they accumulate emergency. We are, therefore, of the opinion that the rejection of the assesses explanation by the Tribunal, which was prima facie reasonable, was arbitrary and cannot be accepted as final.
9. In this connection we may also notice the reason adduced by the Income-tax Officer for rejecting the assesses explanation. He seems to have discarded the existence of the savings on the ground that the assessee was not likely to have advanced any sums to his wife until he was satisfied that the money previously given to her was fully expended. In our opinion there was no basis for him to assume such a rigid business-like dealing between persons who do not stand in the relationship of a master and servant or principal and agent.
10. It cannot be postulated as an axiom that no burden ever less on the Department in cases arising under the Indian Income-tax Act. For Instance, where an assessee should deny that he is in receipt of income from a particular source, it is for the Income-tax Officer to prove that he made the income, for the assessee cannot prove the negative : In re Bishnu Priya Choudhurani. So also where an assessee prima facie establishes a partnership, the burden is on the taxing authorities to prove that it is fictitious : Seth Chhogalal v. Commissioner of Income-tax, C.P. and Berar. In Sovaram Jokhiram v. Commissioner of Income-tax, Bihar and Orissa, it was held that where property stands in the name of the assessees wife, it is for the Income-tax Officer to prove that she is only the benamidar and not the real owner. Where, therefore, an assessee makes out a prima facie case, the burden rests on the Department to do prove or avoid it. It is obviously for this reason that Section 23(3) of the Income-tax Act requires the Income-tax Officer to hold an enquiry before making an assessment and under proviso to Section 13 he has to determine the basis and the manner of computing the assessment.
11. In case where the explanation of the assessee regarding the source of a disputed amount is not accepted, the question still remains whether it is a revenue income. It is not in all cases that by mere rejection of the explanation the character of the disputed item as revenue income can be deemed to be established. Each case has to be judged on its own merits for this purpose. In Mahabir Prasad Munna Lal v. Commissioner of Income-tax there was a credit entry in the assessees account books in the name of Hari Kishan who was found to be a fictitious person. The question arose whether there was anything in law to prevent the Income-tax Officer or the appellate authority from presuming or infering that the receipt evidenced by the credit entry was a revenue receipt. This question was answered by their Lordships as below :
“If an assessee gives an explanation which is false or unbelievable, there is nothing in law to prevent the Income-tax Officer or the appellate authority from inferring that the receipt evidenced by a credit entry is a revenue receipt. In each case it would be a question of fact and the answer must, in every case, depend on the finding whether the inference is a reasonable inference from the assessees failure to prove his case. There is nothing in law to prevent an inference that a particular receipt is a revenue receipt, provided that that is as reasonable inference and the assessee fails to satisfy the Income-tax Officer or the appellate authority the source from which the money came.”
It would thus appear that in order legally to draw an inference that a receipt is a revenue receipt, the circumstances of the rejection should be of the kind from which such an inference can reasonably be drawn. There is no doubt that in G. M. Madappa v. Commissioner of Income-tax, Madras, the law appears to be much widely stated, but the answer was obviously given by their Lordships in relation to the facts of that case, which pointed reasonably to the inference that the receipts wre income receipts.
12. The other cases that have come to our notice do not appear to lay down a law different from what has been stated in Mahabir Prasad Munna Lal v. Commissioner of Income-tax, In Lal Mohan Krishan Lal Paul v. Commissioner of Income-tax, Bengal, the question was whether the Income-tax Officer or the appellate authority was legally bound to prove by “positive evidence” that a sum credited in the assessees books as capital, in respect of which his explanation was found to be false and unreliable, represented income assessable to tax. Answering this question in the negative, their Lordships added that the Income-tax Officer was not prevented from basing his conclusions on circumstantial evidence. So far as the facts of the case were concerned, their Lordships found that there was considerable material on which the Income-tax Authorities could come to the conclusion that the sum in question was income. The facts also admitted the applicator of illustration (g) of section 114 of the Evidence Act, in that on account of the failure of the assessee to adduce evidence which could be produced the Income-tax Officer was competent to presume that the reason for his failure to offer the available evidence was that it would not assist his contention. This decision does not differ from Mahabir Prasad Munna Lal. v. Commissioner of Income-tax.
13. In J. A. Shellim v. Commissioner of Income-tax, Bengal, the assessees bank accounts showed considerable credits for a period of one year for which he did not give any information as to their source, and it was for reason that it was held that he question whether the assessment, which was made under the provisions of Section 13 of the Indian Income-tax Act, was proper or not was one of fact. That was, however, a decision which was peculiar to the facts of the case and did not answer the question whether when the explanation of the assessee is rejected, it inevitably follows that the receipt is income assessable to tax. In Udayram Jagannath, In re, their Lordships did not decide this question and only referred to the decision in Mahabir Prasad Munna Lal v. Commissioner Income-tax on the one hand and G. M. Madappa v. Commissioner of Income-tax, Madras, on the other. In Anraj Narain Dass v. Commissioner of Income-tax, Delhi, it was held that he initial onus of explaining cash credits in the accounts lies on the assessee. While this is true it does not answer the question whether, if the explanation is rejected, the credit should necessarily be liable to be treated as income. That will, in our opinion depend upon he facts of each case. We are, therefore, in respectful agreement with the decision in Mahabir Prasad Munna Lal v. Commissioner of Income-tax.
14. In the instant case, the rejection of the assessees explanation has been the sole basis for the inference that the amount was a revenue receipt from undisclosed sources. There are no circumstances in the case from which the receipt in question can reasonably be held to be in the nature of income. The amount was not credited in the assessees account books and was presumably advanced by his wife to be deposited in her own account with the bank. In these circumstances, even if the contention may be negatived that the amount came out of the savings as alleged it cannot ipso facto be traced to the assessee as him income. The broad fact, however, is that the assessee has prima facie made out a case which the taxing authorities have no material or information to rebut. In these circumstances, the source of the should be deemed to be established, and consequently the money was not liable to be treated as the assessees income merely because he could not explain satisfactorily how his wife made the saving and why she did not deposit it in the bank at any earlier date. In Narayandas Kedarnath v. Commissioner of Income-tax, Central, the assessee firm was held to have discharged its burden when it proved the source of the moneys even though it was unable to explain how the partners got them in their native place. The same reasoning is applicable to the instant case. Our answer to the question is, therefore, in the negative.
15. The reference is answered accordingly with costs on the Department. Hearing fee Rs. 100.
Reference answered accordingly.