A brief anaylysis
In the Supreme Court of India. CIT west Bengal filed appeal before SC against the order of High Court and SC delivered judgement on 27.8.1971. The name of the assessee was Sh. Durga Parshad More. This is with 82 ITR 540. The Hon’ble judges were J. A Grover and J. K Hegde. The complete judgement was written by Justice KHegde.
This case relates to Income Tax Act, 1922. Party raised question to the High court u/s 66(2) of the Act, 1922 after the judgement of the Tribunal was not in favour of the assessee. These are called income tax references to the High Court. These were No. 78 and 79 of 1964.
What were the questions that the assessee asked the High court of Calcullta.
Whether in the facts and circumstances of the case and on a proper interpretation of Deed of Convenance and Deed of Settlement the Tribunal is right in deciding that the House Property No. 46A and 46B , Wellesley street , Calcutta is not a trust property.
And also the income from these properties is income of the Trust and not income of assesseein his individual capacity.
The assessee tried to convince the Income tax authorities by producing deed of conveyance and deed of settlement that these two properties belonged to the trust and not to the assessee.
Some facts of the case are as under :-
The relevant AYs are 1958-59 and 1959-60. During the course of assessment proceedings the assessee claimed that the income from these two properties is not income of the assessee but income of the Trust , And he also claimed that the property also belongs to the trust of his wife. He purchased this property on behalf of the oral trust of his wife as she contributed Rs. 200000.00 for purchase of the properties.The Income tax officer rejected the claim of the assessee and taxed the income from properties in his hands not in the hands of the trust.
The Appellate Asstt. Commissioner and ITAT decided the case in favour of the department. Assessee applied to the tribunal u/s 66(1) of the then act for a question to be asked to the High Court whether income belonged to the assessee or the trust. But ITAT rejcted the application as there was no question of law arose out of the order of ITAT. Assessee applied to the High Court u/s 66(2) of the Act directly.
High court heard the entire case and decided in favour of the assessee.
Now Department filed an appeal to the Hon’ble SC and Commissioner of the department appeared before the SC.
The SC noted the following facts.
That both the houses were purchased by the assessee on 30.09.1940. Assessee tried to convince the tax authorities that both of the houses were purchased as a trustee of the Trust of his wife. The assessee told that both house were purchased for a sum of Rs. 185000.00 out of the money of the Trust of his wife who formed an oral trust for the welfare of her and her children and Assessee was trustee of the trust. SC also noted that that the income from these both houses were assessed in the hand of the assessee not in the hands of the trust.
SC noted the earlier records of the assessee.what happened in the earlier year assessment of the assessee.
This was AY 1942-43
During the course of assessment proceedings the assessee kept on saying that income from properties is not his income but income of the trust as conveyance deed executed in his name dt. 13.09.1940 but settlement deed executed by his wife on 19.09.1941. After complete one year settlement deed was executed. The plea of the assessee was that his wife created oral trust for the welfare of her and her children and assessee was trustee in the trust. Here assessee explained that conveyance deed is in his name but the payment for purchase of property was given by his wife for Rs. 180000.00
Here the Income tax officer asked the assessee what is source of this fund of Rs. 180000.00 with your wife.
Assessee replied simply that this is her Stridhan. No independent source of income of wife could be told to the ITO.
Income tax officer asked the assessee where this amount of Rs. 180000.00 had been kept meaning thereby mode of Stridhan.
Assessee told that this was in the form of cash and his wife kept the sum with his father in law.
The assessee told the ITO that his wife created an oral trust for the benefit of herself and her children and gave assesseeRs. 200000.00 and out of these Rs. 200000.00 he invested Rs. 180000.00 for purchase of these two properties though in his name but as a trustee of the oral trust.
ITO was not satisfied with the explanation of the assessee and confirmed that the properties were purchased by the assessee himself and also income from these properties were added to the income of the assessee.
ACIT ( Appeals ) confirmed the order of the ITO.
Now assessee went to the ITAT and said he had not met with proper opportunities to explain his case with the lower authorities. ITAT rejected the plea of the assessee and said in subsequent years assessee could have established his plea. After that for many years the income from these properties were assessed in the hand of the assessee. Assessee never raised objection.
After this order of the tribunal for the AY 1942-43 the assessee first time is again with the ITAT. Since the year 1942 till 1957 the income of the properties were assessed in the hands of the assessee.
Now after so many years all of sudden during the AY 1958-59 and AY 1959-60 assessee returned to his old plea.
ITO, ACIT and ITAT all rejected the plea of the assessee on being checked that this income of the properties were remained income of the assessee and not of the trust.
Now the High Court asked ITAT to explain the case of the assessee and what was the question asked by the assesseeon being approached by the assessee u/s 66(2) of the 1922 ACT.
Now we look at the documents.
(a) Conveyance deed which is in favour of the assessee. This has been written in the conveyance deed that this property is being purchased by the assessee on behalf of the trust being created by his wife and as a trustee he has purchased the property of the turst..
(b) Trust deed executed by wife of the assessee. It has been written in this trust deed that trustee who had purchased the properties had been purchased on behalf of the trust through conveyance deed executed in favour of the assessee.
ITO, ACIT , ITAT all three rejected the recitals written in these documents. They said all these recital are not genuine and it bears no truth about and all are on the papers only.
All three taxing authorities relied on the following facts and circumstances
(a) Wife of the assessee was not having any source of Income out of which she could have deposits of Rs. 200000.00 in cash with her.
(b) When assessee was specifically asked to tell the independent source of income of his wife he could not tell to the tax authorities.
(c) Sale deed was executed in favour of the assessee evenerlier to the trust deed and trust did not exist at the time of conveyance deed. When assessee purchased the properties at that time trust was not existing.
(d) When ITAT did not accept the plea of the assessee for the AY 1942-43 that time ITAT asked assessee that this issue can be raised during the course of assessment proceedings coming in future. The assessee kept on showing in his income from the properties for many years and raised no question about the income of the assessee or of the trust.
Now we find observations of the Supreme Court
SC said that tribunal is the final fact finding body. If the ITAT had said that the trust did not exist at the time of purchase of property then certainly there would have been a base with the ITAT.
High court delivered its judgement in favour of the assessee and reported that the ITAT before denying the existence of the trust would have checked both the documents in detail.
SC said that conclusion of the High Court is wrong.
Tribunal had not accepted the recital of the documents. They checked the documents. Documents were apparent but apparent is not always real. ITAT had the complete jurisdiction to accept the recital of the documents or not. High Court had no jurisdiction not to accept the finding of the ITAT without any base. High court has no jurisdiction to interfere with the finding of the Tribunal.
Now we see how HC interpreted the findings of the Tribunal.
Justice Mukerjee of the Calcutta High Court.
High court had delivered its judgement in favour of the assessee.
There was one Justice Sen of the Calcutta High Court. He said.
What has been written in the deed has to be accepted unless some contrary is established.
If Department says that income from the properties should be taxed in the hands of the assessee not in the hands of the trust then onus was on the department to establish it which the department had not discharged.
The Income tax officer failed to examine the wife of the assessee and also father in law of the assessee. Department failed to discharge its onus.
Justice sen also said if assessee had been showing income from the properties in his individual returns then it shall not be a ground for the department to reject the plea of the assessee as Rule of Resjudicatta and Rule of Estoppel is not applicable to the assessment proceedings.
What is rule of Estoppel : Estoppel is that rule which prohibits a person from contradicting what was earlier said by him in a court of law.
What is rule of Resjudicatta : Resjudicatta is that principal which prohibits the other courts from deciding on the same matter , between the same parties which has already been decided by a competent court.
Now Justice Mukerjee made his interpretations as under.
There is no proof and no charge against the assessee that assessee has concealed his income.
That the assessee has given his income to the wife.
That he advanced the income to his wife and concealed his income.
That the assessee had maintained his own account and account of the trust separately and separate returns were filed and no income had been concealed in these returns.
That whenever assessee was asked he produced both the documents before the taxing authorities i.e conveyance deed and settlement deed that could prove that both the properties belonged to the trust not to the assessee.
Now what SC said
Now let us check what were the grounds which appealed to the HC.
HC says what ever is before your eyes which is apparent should be accepted as real unless you have some satisfaction that the apparent is not real.
SC says assessee or any one has to establish the truth of those recitals which has been written in the documents otherwise it is open to write what ever you desire.
An assessee who wants to evade the tax can write recitals which suits him to conceal his income and evade tax.Little enquiry was sufficient to establish what had been written as recitals were not true. Tax authorities has no torch or blinker which gives intermittent light to know the truth and substance of the case and how this document has been prepared. But little probe makes him competent to know the truth of the recitals.
Taxing authorities were entitled to look into the surrounding circumstances to find out the reality of the recitals incorporated in the documents.
SC said further
As far as onus is concerned , there is no quantitative test enshrined with law of the land that assessee or department has discharged the onus or not discharged. This all depends on the case to case.
This was the story cooked by the assessee that his wife was having Stridhan of Rs. 200000.00 and she had kept this amount with his father. Not deposited with the bank. Not advanced to any one. Tribunal considered it a false story on the basis of human probabilities and surrounding circumstances and which seems to be a fantastic story.
A married lady having no source of income shall not be able to make savings to the tune of Rs. 200000.00 in cash( That time Rs. 200000.00 was a huge amount ). Never deposited with bank. Nor advanced to any one. A married lady kept the money with his father. Husband purchased the property with these Rs.200000.00 and made recitals in the deed that he purchased on behalf of the trust. Trust was not in existence at the time of purchase of property. After one year trust was created. Assessee had shown his income from the properties for so many years and he raised no objection. All of sudden he has started to take plea that the income from the properties is not his income but income of the trust.
This is prima facie a story that does not accord with human probabilities.
SC further said
High court had found fault with the ITAT that they had not accepted the story of the assessee.
If ITAT had not accepted the story of the assessee true then it is correct as the ITAT is the final fact finding body. In our own opinion the story of the assessee is cooked one and assessee had invested his own money for the purchase of the properties.
SC further said it was surprising and shocking that HC found fault with the ITO that he failed to examine the wife of the assessee and her father to prove the case of the department. High court had ignored the facts of the life that how liferuns. It is unfortunate that High Court had taken a superficial view of the onus that lay on the department.
View of the department noted by the SC
(a) Assessee had shown income from properties in his individual return for so many years.
(b) That after objecting to the inclusion of that income in the AY 1942-43 , in the absence of any satisfactory explanation of the assessee , undoubtedly a circumstance arise which the taxing authorities were entitled to take into consideration.
(c) Assessee had cooked a story that income from the properties is not his income but income of the trust which was created by his wife.
The proof of that charge depends on the correctness of the finding of the taxing authorities.
SC further said.
The finding of the HC is wrong on the footing that there is no proof that the sales consideration was given by the assessee himself out of his own income.
There is no dispute that the consideration for the sale was in fact paid by the assessee. HC says that he paid it on behalf of the trust orally created by his wife.
SC further says.
Science has not yet invented to test the reliability of any evidence placed before a Court or Tribunal.Therefore , Courts and Tribunals have to judge the evidence by applying the test of human probabilities. Human minds may differ.Realiability of a piece of evidence , but in that sphere the decision of the final fact finding authority is made conclusive by law.
SC further says past history of the assessee says that income from the house properties is income of the assessee not of the trust.
The assessee produced both the documents conveyance deed and settlement deed before tax officials bears no value. It is the ITAT final fact finding body who could not trust the recital of the documents and story of the assessee on the test of human probabilities and surrounding circumstances. The answer of the High court to the question is not sustainable. We answer in favour of the department.
Assessee kept the account of the trust separate bears no value.
Conclusion ;- All that glitters is not gold. All that is apparent is not real or it is real. Little probe is required by the taxing authorities. Plea of the assessee is to bebased on human probabilities and surrounding circumstances.Eyes may differ behind the specs and in front of the specs. ITAT is the final fact finding Authority. HC has no jurisdiction to interfere with the finding of the ITAT.
FULL TEXT OF THE SUPREME COURT JUDGEMENT
These appeals by certificate arise from the decision of the Calcutta High Court in Income-tax Reference Nos 78 and 79 of 1964 on its file. Those were References Under Section 66(2) of the Indian Income-tax Act, 1922 (which for the sake of brevity will hereinafter be referred to as ‘the Act’). The question referred to the High Court seeking its opinion is: Whether in the facts and circumstances of the case and on a proper interpretation of the Deed ot conveyance and the Deed of Settlement the Tribunal is right in holding that the house property being premises No. 46A and 46B, Wellesly Street, Calcutta is not Trust property?
2. The circumstances under which that question came to be referred may now be set out.
3. The assessment years with which we are concerned in these appeals are 1958-59 and 19596-0, the previous years being the Diwali Samv. 2013-2014 2014-15. In the course of the assessment proceedings relating to those years, the assessee claimed before the Income-tax Officer that the income of the property at premises Nos. 46 and 46B, Wellesley Street, Calcutta should not be taxed in his hands as it was Trust property in his hands The Income Tax officer rejected that claim and included that income in the total income of the assessee. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal affirmed the decision of the Income-tax Officer. An application Under Section 66(1) was rejected by the Tribunal on the ground that no question of law arose from its order. But the High Court on an application by the assessee Under Section 66(2) directed the Tribunal to state a case and submit the question mentioned earlier to it for obtaining its opinion. After hearing the parties, it answered the question in favour of the assessee. The Commissioner has appeared against the order of the High Court.
4. The premises in question were purchased by the assessee on September 30, 1940 purporting to Act as the Trustee of the Trust created by his wife, Sm. Benarsi Debi, for a consideration of Rs. 1,85,000/-. The income of those premises had been assessed as the income of the assessee ever since the purchase of those premises. We shall presently refer to the earlier proceedings.
5. During the assessment of the assessee for the assessment years 1942-43, the assessee put forward the claim that the income of the premises in question was not his income and therefore that income should not be brought to tax in his hands and in support of that claim he produced the conveyance executed in his favour on 13-9-1940 and the Deed of Settlement executed by his wife on 10-9-1941, early about a year after the conveyance. At that stage, it is seen from the records, the Income-tax Officer asked the assessee as to the source from which his wife got that amount. The assessee, apart from saying that it was her stridhan property appears to have been unable to disclose any source from which his wife could have got the amount from which the premises were purchased. The only Commissioner Of Income-Tax, West… vs Durga Prasad More on 26 August, 1971 Indian Kanoon – http://indiankanoon.org/doc/1088510/1 further fact he appears to have informed the Income-tax Officer was that two lakhs of rupees were all along lying in the hands of his father-in-law. It was not the assessee’s case that the said amount was either deposited in any Bank or the same was advanced to others. No material was placed before the Income-tax Officer to show that his wife had any independent source of income. The case of the assessee was that his wife had under an oral Trust created for the benefit of herself and here children left in his hands two lakhs of rupees. The Income-tax Officer rejected the version put forward by the assessee and consequently he came to the conclusion that the consideration for the sale was paid by the assessee. In the result he brought to tax the income from the premises purchased, in the hands of the assessee In appeal, the Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. Evidently before the Tribunal, it was urged on behalf of the assessee that the assesses had not been given enough opportunity to establish his case. The Tribunal while dismissing the appeal observed that it was open to the assessee to establish his case in subsequent assessment proceedings. Thereafter the income of those premises was being continuously assessed in the hands of the assessee for several years evidently without any objection. It appears from the records that the assessee took up in appeal to the Tribunal one of the orders of assessments made against him after the Tribunal’s order referred to earlier. Therein, he did not contest the validity of the inclusion of the income of the premises in question in his income though he took up other grounds. During the assessment years 1942-43 to 1957-58, the income of those premises was assessed in the hands of the assessee. Suddenly in the assessment proceedings for the assessment years 1958-59 and 1939 60, the assessee received his old plea. As mentioned earlier the same was rejected by the Income-tax Officer, Appellate Assistant Commissioner as well as by the Tribunal in a somewhat summary manner possibly because of the past history of the case.
6. As stated earlier after the Tribunal dismissed the appeal of the assessee, the assessee moved the Tribunal Under Section 66(1) for referring to the High Court the question set out earlier. The Tribunal refused to accede to his prayer. It held that no question of law arose from its order. Thereafter he moved the High Court Under Section 66(2) of the Act and the High Court was pleased to call upon the Tribunal to state as case and submit to it the question mentioned earlier.
7. Now turning to the documents referred to earlier, the first one is a conveyance in favour of the assessee. Therein it is mentioned that the assessee was purchasing the property as a trustee of the Trust created by his wife for the benefit of herself and her children. The second document is the trust Deed executed by the wife of the assessee. It recites that the purchase made under the first document was a purchase on behalf of the Trust created by her. The terms of the Trust are set out in the document. It is not necessary for our present purpose to refer to those terms. The Income-tax Officer, the Appellate Assistant Commissioner as well as the Tribunal have referred to these documents in the course of the assessment proceedings. But they were unable to rely on the recitable contained therein. Evidently they came to the conclusion that those recitals were make-believe statements and the alleged Trust does not exist. From the tenor of their orders, it is clear that they were of the opnion that the assessee was trying to evade tax by putting forward the Trust In coming to that conclusion, they relied on the following facts and circumstances: 1. The assessee’s wife is not shown to have had any source of income from which she could have built up a huge sum of two lakhs by 1940. Commissioner Of Income-Tax, West… vs Durga Prasad More on 26 August, 1971 Indian Kanoon – http://indiankanoon.org/doc/1088510/ 2 2. The assessee when he was called upon to explain the source of income of his wife was unable to do so; 3. The sale deed in favour of the assessee was executed even before the Trust Deed was executed, and 4. Even after the assessee’s contention that the income in question was not his income was rejected by the Tribunal, while dealing with his appeal relating to the assessment year 1942-43 and even though the Tribunal told him that he could take up that question again during the subsequent assessment years, the assessee allowed that income to be taxed in his hands for several years without any objection.
8. The Tribunal is the final fact finding body It cannot be said that its finding as to the unreality of the Trust put forward is not based on any evidence or the same is otherwise vitiated. Prima facie the said finding is a finding of fact The High Court as seen earlier, directed the Tribunal to state a case and submit to the High Court the question set out earlier. From that question, it appears that the High Court was of the opinion that for arriving at its finding the Tribunal had to interpret the two document* referred to in that question This conclusion of the High Court appears to us to be an erroneous one. The Tribunal did not interpret those documents. It merely found itself unable to accept the correctness of some of the recitable in those documents That does not mean that the Tribunal interpreted those documents. Whether to accept those recitals or not was within the province of the Tribunal. Unless its conclusion is held to be preverse or is not supported by any evidence or is based on irrelevant evidence, the High Court had no jurisdiction to interfere with its findings. We shall presently see what the High Court has to say about that finding.
9. The reference Under Section 66(2) was heard by a Division Bench of the Calcutta High Court consisting of Mukharji J. (as he then was) and Sen J. The learned Judges concurred in the decision though each one of them wrote a separate opinion. As seen earlier, they answered the question in favour of the assessee. The grounds on which Sen J based his conclusions are : (1) The apparent statements in the documents must be presumed to be real until the contrary is established; (2) The onus of showing that the income in question is taxable in the hands of the assessee was on the Department and the Department has not discharged that onus; (3) That as the Income-tax Officer failed to examine the wife and the father-in-1aw of the assessee,the Department must be held to have not discharged its onus and (4) The circumstance that the assessee had included the income of the premises in question during some years in his own income is an immaterial circumstance as neither the rule of res-judicata nor the rule of estoppel is applicable to an assessment proceeding.
10. Somewhat similar were the conclusions reached by P.B. Mukharji, J. The learned judge summarised the grounds on which he came to his conclusions at P. 31 of the printed paper book They are as follows: 1. There is no proof and no charge against the assesses that he had concealed any income of his own. Commissioner Of Income-Tax, West… vs Durga Prasad More on 26 August, 1971 Indian Kanoon – http://indiankanoon.org/doc/1088510/ 3 2. There is no evidence whatever that the assessee as husband advanced this money to his wife and thereby concealed his own income. 3. The assessee has throughout kept separate accounts of his own income and the income of the trust properties and has returned such income separately without any concealment or any evasion, and 4. The assessee when asked definitely produced before the taxing authorities both the sale deed as well as the trust to show that properties in question were trust properties.
11. Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.
12. Now coming to the question of onus, the law does not prescribe any quantitative test to find out whether the onus in a particular case has been discharged or not. It all depends on the facts and circumstances of each case. In some cases, the onus may be heavy whereas in others, it may be nominal. There is nothing rigid about it. Herein the assessee was receiving some income. He says that it is not his income but his wife’s income. His wife is supposed to have had two lakhs of rupees neither deposited in banks nor advanced to others but safely kept in father’s safe. Assessee is unable to say from what source she built up that amount. Two lakhs before the year 1940 was undoubtedly a big sum It was said that the said amount was just left in the hands of the father-in-1aw of the assessee. The Tribunal disbelieved the story, which is prima facie a fantastic story. It is a story that does not accord with human probabilities. It is strange that the High Court found fault with the Tribunal for not swallowing that story. If that story is found to unbelievable, as the Tribunal has found, and in our opinion rightly, then the position remains that the consideration for the sale proceeded from the assessee and therefore it must be assumed to be his money.
13. It is surprising that the High Court has found fault with the Income-tax Officer for not examining the wife and the father-in-1aw of the assessee for proving the Department’s case. All that we can say is that the High Court has ignored the facts of life. It is unfortunate that the High Court has taken a superficial view of the onus that lay on the Department.
14. It is true that neither the principle of res judicate nor the rule of estoppel is applicable to assessment proceedings. But the fact that the assessee included the income of the premises in his returns for several years, that after objecting, to the inclusion of that income in his total income in Commissioner Of Income-Tax, West… vs Durga Prasad More on 26 August, 1971 Indian Kanoon – http://indiankanoon.org/doc/1088510/ 4 the assessment year 1942-43, in the absence of any satisfactory explanation, is undoubtedly a circumstance which the taxing authorities were entitled to take into consideration.
15. Now coming to the grounds that commended themselves to Mukharji J. (the present Chief Justice of the High Court of Calcutta), we are unable to find out how the learned judge was able to come to the conclusion that there was no proof or charge that the assessee had concealed any income of his. The orders of the Income-tax Officer, Appellate assistant Commissioner and the Tribunal proceeded on the basis that the assessee was attempting to conceal a portion of his income by putting forward the story that the income from the premises is the income of the Trust created by his wife. The proof of that charge depends on the correctness of the finding of those authorities.
16. In stating that there is no proof that the consideration for the conveyance passed from the assessee the learned judge, in our opinion, looked at the case from a wrong angle. There is no dispute that the consideration for the sale was in fact paid by the assessee. He says that he paid it on behalf of the Trust orally created by his wife. Therefore the question is whether he has satisfactorily proved that case. If he has failed to prove that case, as we think, it to be so and in the absence of any other alternative case pleaded by him, it follows as a matter of course that the consideration for the sale passed from him. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal, Therefore the Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law.
17. The fact that the assessee kept a separate account in respect of the income and expenditure relating to the premises in question is of little evidentiary value if one takes into consideration the past history of the case. At any rate what value should be attached to that circumstance is for the final fact finding body.
18. The circumstance that the assessee had at the very outset produced the sale deed and the trust deed before the Income-tax Officer is of no significance. Those documents formed the sheet anchor of the assessee’s case. There was no particular virtue in the assessee’s producing those documents before the income-tax Officer.
19. In our opinion no question of law arise from the order of the Tribunal and therefore the High Court was not justified in directing the Tribunal to state a case and we are further of opinion that the answer given by the High Court to the question referred to it is unsustainable. We accordingly discharge that answer and answer that question in the affirmative and in favour of the Department. The assessee shall pay the costs of the Department both in this Court as well as in the High Court-hearing fee one set.