TMI Blog1962 (8) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, the Tribunal was justified in holding that the said income of ₹ 2,50,000 (Rupees two lakhs and fifty thousand) accrued or arose in the taxable territories ? For the assessment year 1945-46 : 1. Whether, on the facts and in the circumstances of the case, there was any material before the Tribunal to hold that the sum of ₹ 2,520 (Rupees two thousand five hundred and twenty) standing in the books of the assessee to the credit of Rampratap Agarwal as interest in the previous year relevant to the assessment year 1945-46 belonged to the assessee and should be assessed to income-tax as income of the assessee from undisclosed sources ? 2. Whether, on the facts and in the circumstances of the case the Tribunal was justified in holding that the said income of ₹ 2,520 (Rupees two thousand five hundred and twenty) accrued or arose in the taxable territories ? For the assessment year 1949-50 : 1. Whether, on the facts and in the circumstances of the case, there was any material before the Tribunal to hold that the sum of ₹ 1,00,000 (rupees one lakh) and ₹ 40,000 (Rupees forty thousand) standing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A(c) read with section 4B(c). At the material time, section 4A(c) provided two tests for holding a company to be resident in the then British India, viz., (a) if the control and management of its affairs is situated wholly in British India in that year, or (b) if its income arising in British India in that year exceeds its income arising without British India in that year. There was no dispute before the Tribunal in regard to such determination of status in the matter of the residence. Without disputing this statement of fact, Mr. Tricumdas now points out that the company's status in the matter of residence would depend on where the sum of ₹ 2.5 lakhs, if treated as income, is held to arise. 3. In the course of assessment proceedings for the assessment year 1944-45, the Income-tax Officer found that a sum of ₹ 2,50,000 was credited in the books of the assessee company to the account standing in the name of one Rampratap Agarwal. The credit appears in cash on 10th October, 1942, a date that falls in the account year ended July 31, 1943. Since many other entries in this account are referred to in several questions that are now being referred to the High Court, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and claimed as deduction under section 10(2)(iii) on capital borrowed. 5. Being aggrieved, the matter was taken in appeal to the Appellate Assistant Commissioner and the assessee challenged the inclusion of the said sum of ₹ 2,50,000 in the total income and also disputed the disallowance of the claim for deduction of interest of ₹ 2,020. Once more, it was repeated before the Appellate Assistant Commissioner that the account of Rampratap Agarwal was a benami account of M/s. Surajmal Nagarmal. But no evidence was produced before him to support that allegation. It is instructive to reproduce what the Appellate Assistant Commissioner had to say on this point : The explanation given at the time of the hearing of the appeal is also that Mr. Rampratap Agarwal was a benamidar of M/s. Surajmal Nagarmal. It was stated that the credit in this account was considered by the Income-tax Investigation Commission in the settlement of M/s. Surajmal Nagarmal's case. The appellant's representatives requested me to write to the Income-tax Officer assessing M/s. Surajmal Nagarmal and ascertain whether the credits in this account of M/s. Rampratap Agarwal wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraph 3(c), this is the position. It was alleged before the Tribunal that the Income-tax Investigation Commission had accepted Rampratap to be a benami of Surajmal on the ground that the amount of ₹ 5,56,200 (vide annexure A ) standing to the credit of this account in the books of the assessee as on August 1, 1950, was transferred to the account of Surajmal Nagarmal and that interest on this account had been treated as income of Surajmal Nagarmal. Dealing with the submission, the Tribunal observed as follows in paragraph 5 of its order made on June 18, 1958, in I. T. A. No. 433 of 1957-58, a copy of which is marked annexure B and forms part of the case : It is by no means established before us that the Income-tax Investigation Commission accepted the position that Rampratap was a benami of Surajmal Nagarmal. The fact that the balance of the credit in this account as at August 1, 1950, is transferred to the account of Surajmal Nagarmal is certainly not conclusive of the issue before us. If Surajmal Nagarmal, for reasons best known to them, offer certain income as their own there is no reason why the income-tax department should accept such act on the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) that the assessee company was held to be resident and ordinarily resident in the then British India for the purpose of its income-tax assessment by the test laid down in section 4A(c) read with section 4B(c) and admittedly it had large income accruing or arising in the then British India ; (iii) that since the assessee company was claiming the benefit of the exemption contained in section 14(2)(c) in regard to the income item of ₹ 2.5 lakhs, it was for it to establish that the said income accrued or arose outside British India or as claimed by the assessee in the Indian State of Rajasthan and that no evidence whatsoever was placed before the Tribunal to support this contention. The Tribunal also observed in paragraph 8 of its order (annexure B ) made on June 18, 1958, that certainly it is not inconceivable that a company incorporated in an erstwhile Indian State can pursue some profitable ventures outside the Indian State. 8. It remains to add that though in the grounds of appeal to the Tribunal a contention in regard to disallowance of ₹ 2,020 credited as interest to the said account was taken before the Tribunal, that point does not appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t account represented certain income of the assessee company itself from some undisclosed sources. In other words, it was not a case of any money or capital borrowed by the assessee for the purposes of section 10(2)(iii). Consequently, any interest claimed as deduction under section 10(2)(iii) would not be an admissible deduction in computing the profits under section 10. What we have explained so far would be clear from the following sentence appearing in paragraph 6 of the Tribunal's order dated June 18, 1958 (annexure B ) : The only contention that was pressed in the appeal relating to the assessment year 1945-46 is that the interest of ₹ 2,520 credited to the account of Rampratap should be allowed as a deduction. Thus it will be clear that the two sums of ₹ 2,520 and ₹ 6,558 were not allowed as a deduction in computing the business income of the assessee for the two years. There was no question before the Tribunal of the said two sums being included in the total income of the assessee as being income from any undisclosed source. Indeed the source of ₹ 2,520 or ₹ 6,558 was obvious to the assessee as well as to the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nagarmal. Since certain entries in this account are the subject-matter of the questions referred to in the present reference, it may be necessary to state briefly the position of this account in several years. In the year ending with 31st July, 1943, the interest of ₹ 2,020 was credited to this account and the amount of the principal and interest was taken to the next year's account. Interest for the next year was again credited in the sum of ₹ 2,520. During the subsequent year, i.e., the year ending with 31st July, 1945, the amount of interest for the first two years appears to have been paid out and the principal of ₹ 2,50,000 carried forward to the next year. No interest appears to have been credited for this year, and the case of the assessee was that it was paid out in cash without being entered in the account. In the next year, there were further deposits of ₹ 2 lakhs and ₹ 1 lakh, on 8th October, 1945, and 24th November, 1945, respectively, thus increasing the total credit balance at the end of the year to ₹ 5,50,000. No interest was credited in the account during this year, and the assessee's explanation with regard to it was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee took the order of the Income-tax Officer in appeal before the Appellate Assistant Commissioner, who agreed with the view which the Income-tax Officer had taken, and dismissed the assessee's appeal. In the said appeal, the assessee requested the Appellate Assistant Commissioner to satisfy himself by inquiring with the Income-tax Officer who was concerned with the assessment of Messrs. Surajmal Nagarmal, as to whether the credits in the account of Rampratap Agarwal in the assessee's account books were or were not considered by the Income-tax Investigation Commission in the case of Messrs. Surajmal Nagarmal. The Appellate Assistant Commissioner accordingly made inquiries with the Income-tax Officer, Central Circle X , Calcutta, who was assessing Messrs. Surajmal Nagarmal. The reply received by the Appellate Assistant Commissioner, according to him, was not sufficient to support the explanation which the assessee was offering with regard to the said credit entries. The assessee then went in appeal before the Tribunal and contended that the explanation which he had given before the lower authorities should have been accepted, on the facts and in the circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee and should be assessed to income-tax as income of the assessee from undisclosed sources ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the said income of ₹ 2,520 (Rupees two thousand five hundred and twenty) accrued or arose in the taxable territories ? The remaining two questions relate to the assessment year 1949-50, the relevant previous year for which was the year ending on 31st July, 1948. During this year there were deposits of ₹ 40,000 and ₹ 1 lakh in this account on 16th March, 1948, and 19th July, 1948, respectively. There was also an entry of ₹ 6,558 crediting interest to this account. The incometax authorities have treated these credit entries as well as the aforesaid interest amount as income of the assessee from an undisclosed source and brought it to tax. The Tribunal also has upheld the view of the incometax authorities. The questions arising from this assessment order are as follows : 1. Whether, on the facts and in the circumstances of the case, there was any material before the Tribunal to hold that the sum of ₹ 1,00,000 (Rupees one lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh credits stood in the assessee's name the burden of proof was upon him to show that the receipts were not of an income nature, the position was different in regard to sums which were shown in the assessee's books in the names of third parties. In the latter kind of cases the onus of proof was not upon the assessee to show the sources or nature of the amount of the cash credit, but the onus shifted on to the department to show by some material that the amount standing in the name of the third party did not belong to him but belonged to the assessee. This view was not accepted by the Andhra Pradesh High Court, where a contrary view was taken. In M. M. A. K. Mohideen Thamby Co. v. Commissioner of Income-tax ([1959] 36 I. T. R. 481), that court held, dissenting from the Patna view, that with regard to the credit entries in the names of partners as well as credit entries in the names of third parties appearing in the accounts of the partnership, the burden is on the assessee to explain the entries and show positively their nature and sources. In the absence of a satisfactory explanation, it is open to the department to infer that the moneys belonged to the assessee and repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source. In order to arrive at such a conclusion, however, the department has to be in possession of sufficient and adequate material. Now, in the present case, the facts and circumstances are as follows : The assessee company was a creature of Messrs. Surajmal Nagarmal and entirely controlled by them. The assessee's case was that the account of Rampratap Agarwal in its account books was a benami account of Messrs. Surajmal Nagarmal, that it was a continuous account which ran from the year 1942-43 and went on up to the beginning of the year 1951 when the account was closed and the balance transferred to the account of Messrs. Surajmal Nagarmal. The account was treated as the account of Messrs. Surajmal Nagarmal by the Income-tax Investigation Commission during the investigation of Messrs. Surajmal Nagarmal's case and the credits in this account subsequent to 1947, i.e., after the settlement by the Investigation Commission of Messrs. Surajmal Nagarmal, were treated as income of Messrs. Surajmal Nagarmal in its subsequent assessments. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee as the amounts deposited with them by Messrs. Surajmal Nagarmal, because there was some discrepancy as to the dates occurring in the memorandum submitted by Messrs. Surajmal Nagarmal and in the account books of the assessee. Thus while the entry of ₹ 2 lakhs in the account books of the assessee was on the 24th May, 1947, that in the memorandum was three days later on the 27th May, 1947, and similarly the entry of ₹ 40,000 while it occurred in the assessee's account books on 16th March, 1948, occurred in the memorandum three days later on the 19th March, 1948. The circumstances that the dates in the memorandum of Messrs. Surajmal Nagarmal were later than the dates in the assessee's account books, according to the income-tax authorities, was inconsistent with the assessee's case that the entries in the assessee's account books were entries of the amounts of Messrs. Surajmal Nagarmal. In our opinion, there can be no doubt on the examination of the replies sent by the Income-tax Officer, who was assessing Messrs. Surajmal Nagarmal that the entire account occurring in the name of Rampratap Agarwal in the assessee's account books was treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ems to us impossible to take the view that the account of Rampratap Agarwal was not considered and treated as the account of Messrs. Surajmal Nagarmal by the Income-tax Investigation Commission in Messrs. Surajmal Nagarmal's case. If the whole of the account was considered as the account of Messrs. Surajmal Nagarmal, it was clearly not the assessee's own account. Since the investigation of Messrs. Surajmal Nagarmal's case by the Investigation Commission was on the basis of the increase in wealth of Messrs. Surajmal Nagarmal between certain dates, i.e., between 1939 and 1947, what could be taken as part of his wealth would undoubtedly be the outstanding balance in this account as on the material date. In our opinion, therefore, the reply received by the Appellate Assistant Commissioner from the Income-tax Officer assessing Messrs. Surajmal Nagarmal supplied a very satisfactory support to the assessee's assertion that the account of Rampratap Agarwal in its account was a benami account of Messrs. Surajmal Nagarmal. The further circumstance that the entries in this account were treated as the income of Messrs. Surajmal Nagarmal and brought to tax during the subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts and this militates against any adverse inference which can be drawn against the case of the assessee. The explanation offered by Mr. Kolah cannot be accepted as the true explanation of the difference in the dates in the absence of any evidence relating to the method of transmission adopted by Messrs. Surajmal Nagarmal or with regard to any particular mode adopted by the parties in making entries in their accounts. It, however, supports our appreciation of the said solitary circumstance against the assessee that it is not of such a conclusive nature or tendency as to suffice to reject the assessee's case in the face of the other evidence on the record. According to us, therefore, it must be held that the amount of ₹ 2,50,000 standing in the books of the assessee to the credit of Rampratap Agarwal on the 10th October, 1942, and the further entries of Rs. one lakh and of ₹ 40,000 occurring in the said account on 16th March, 1948, and 19th July, 1948, did not belong to the assessee and did not constitute his undisclosed income. In view of our conclusions, the first of the two questions framed for each of the three years under consideration must be answered in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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