Unexplained capital credits: documentary proof saved one part of the amount, while inconsistent explanations supported taxation of the balance.

A capital credit of Rs. 25,000 was examined for whether it represented income from undisclosed sources under the Indian Income-tax Act, 1922. Documentary evidence satisfactorily explained Rs. 15,000 as having a proved source, and the department could not demand proof of the origin of that money after many years; that part was not taxable as undisclosed income. The remaining Rs. 10,000 was supported only by inconsistent and uncorroborated explanations, so the Tribunal was justified in treating that portion as income from undisclosed sources.

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Issues: Whether the sum of Rs. 25,000 credited to the assessee's capital account was income from undisclosed sources for assessment year 1948-49, and if so, whether the entire amount or only part of it could be sustained as such.

Analysis: The reference arose under section 66(2) of the Indian Income-tax Act, 1922, in proceedings initiated under section 34 of that Act. The assessee explained the credit as a borrowal used partly to obtain a bank loan of Rs. 15,000 on the strength of a Jodhpur deposit and partly to support a further sum of Rs. 10,000. The Court held that the assessee had produced documentary evidence showing a satisfactory source for Rs. 15,000, and that the department could not insist on proof of the origin of the origin of that money after the lapse of many years. As to the remaining Rs. 10,000, the explanations given were inconsistent and unsupported, and the Tribunal was justified in rejecting that part of the claim.

Conclusion: The Tribunal had no material to treat Rs. 15,000 as income from undisclosed sources, but it had material to treat Rs. 10,000 as income from undisclosed sources. The reference was answered partly in favour of the assessee and partly against him.

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