1955 (2) TMI 12 - HC - Income Tax

High Court rules Rs. 8,500 not undisclosed income. Tribunal's rejection criticized. Source established. Costs awarded to assessee.

The High Court ruled against the Department, determining that the sum of Rs. 8,500 was not the assessee's income from undisclosed sources. The Court ... - Issues Involved:1. Whether the sum of Rs. 8,500 was income from undisclosed sources.2. Whether the Appellate Tribunal could reasonably reject the assessee's explanation regarding the source of Rs. 8,500.Issue-wise Detailed Analysis:1. Whether the sum of Rs. 8,500 was income from undisclosed sources:The Income-tax Officer (ITO) identified two credits in the assessee's wife's bank account: Rs. 10,000 on 30th April 1945 and Rs. 8,500 on 1st May 1945. The explanation for the Rs. 10,000 credit was accepted as it was a repayment from Mrs. Choubey. However, the ITO rejected the explanation for the Rs. 8,500 credit, stating, 'It is difficult to believe that the assessee was withdrawing funds for construction of his 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.' The ITO concluded that the explanation was 'not at all convincing and cannot be accepted.'The Appellate Assistant Commissioner (AAC) disagreed with the ITO, noting that the assessee had a substantial income and had withdrawn significant amounts annually for personal expenses. The AAC stated, 'It may be a fact that the petitioner's 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.' Consequently, the AAC deleted the Rs. 8,500 addition.The Appellate Tribunal reversed the AAC's decision, asserting, '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 an assessee to explain satisfactorily the source of a credit to his own account.' The Tribunal rejected the explanation, reasoning that if such a large amount was lying at home, the assessee would not be borrowing capital on interest for his business.2. Whether the Appellate Tribunal could reasonably reject the assessee's explanation regarding the source of Rs. 8,500:The Tribunal had to determine whether the assessee's explanation, unsupported by other material or evidence, should be accepted. The Tribunal considered factors such as the status of the person, place of residence, banking facilities, and business habits. The Tribunal concluded that the rejection of the explanation was a question of fact.The High Court noted that the rejection of the explanation by the Tribunal was arbitrary. The Court emphasized that the explanation was 'Prima facie reasonable' and could not be rejected on capricious or arbitrary grounds. The Court cited several precedents, including Ganga Ram Balmokand v. Commissioner of Income-tax, Punjab, which held that the Income-tax Authorities are not bound to prove by 'positive evidence' that the accounts are unreliable unless the finding is 'altogether capricious and injudicial.'The High Court observed that the Tribunal's reasoning was based on an incorrect assumption that the total amount was always available at home to the knowledge of the assessee. The Court stated, '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.'The Court also criticized the ITO for assuming a rigid business-like relationship between the assessee and his wife, stating, 'In our opinion there was no basis for him to assume such a rigid businesslike dealing between persons who do not stand in the relationship of a master and servant or principal and agent.'The Court concluded that the rejection of the explanation by the Tribunal was arbitrary and not based on reasonable grounds. The Court held that the source of the receipt should be deemed to be established, and consequently, the money was not liable to be treated as the assessee's 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.Conclusion:The High Court answered the reference in the negative, stating that the Tribunal could not reasonably come to a finding that the sum of Rs. 8,500 was the assessee's income from undisclosed sources. The Court ordered costs on the Department with a hearing fee of Rs. 100.