1982 (7) TMI 65 - HC - Income Tax

Court Rules Unproved Hundi Credits Cannot Be Added to Estate Without Evidence

The High Court held that unproved hundi credits settled under section 271(4A) of the Income-tax Act, 1961, could not be added to the deceased's estate for ... Cash Credits, Estate Duty, Income Tax Proceedings, Undisclosed Income Issues Involved:1. Whether the unproved hundi credits offered for assessment under section 271(4A) of the Income-tax Act, 1961, could be added to the principal value of the estate of the deceased for estate duty purposes.Issue-wise Detailed Analysis:1. Whether the unproved hundi credits offered for assessment under section 271(4A) of the Income-tax Act, 1961, could be added to the principal value of the estate of the deceased for estate duty purposes:The case arose from the assessment under the Estate Duty (E.D.) Act, 1953, concerning the estate of the deceased who passed away on November 30, 1968. The Assistant Controller determined that the deceased had undisclosed income amounting to Rs. 3,60,773, which was spread over several years and settled under section 271(4A) of the Income-tax (I.T.) Act, 1961. The Assistant Controller concluded that this amount represented suppressed profits and should be included in the principal value of the estate, either as cash or investments passed on to the heirs. The accountable persons argued that the settlement was made to purchase peace and that the amount represented genuine loans returned by the deceased, hence no portion of it passed on the death of the deceased.The Assistant Controller rejected this argument, asserting that the amount was concealed profits and a reasonable sum of Rs. 3,00,000 should be considered as having passed to the heirs. On appeal, the Appellate Controller reduced this amount to Rs. 2,00,000, acknowledging that some of the funds might have been spent by the deceased.The Income-tax Appellate Tribunal, however, accepted the contention of the accountable persons that the actual existence of the asset at the time of the deceased's death needed to be established. The Tribunal held that the mere settlement under section 271(4A) did not imply that the amount existed as cash or investment at the time of the deceased's death. The Tribunal relied on precedents from the Kerala High Court in Annamma Paul v. CWT and the Mysore High Court in Veerabhadrappa Chigateri v. CED, which emphasized the need for the Revenue to prove the existence of the asset at the time of death.The Revenue argued that once non-disclosure was conceded in I.T. proceedings, it could be presumed that the asset existed at the time of death unless the accountable persons proved otherwise. The Tribunal, however, distinguished this case from the precedent cited by the Revenue (Smt. R. V. Kamalam v. CWT), which was based on its specific facts.The High Court referred to several cases supporting the Tribunal's view, including Smt. Shantabai Jadhav v. CED, where it was held that wealth statements given during the deceased's lifetime could not solely establish the existence of assets at the time of death. Similarly, in Veerabhadrappa Chigateri v. CED and Annamma Paul v. CWT, the courts held that the burden was on the Department to prove the existence of assets at the time of death. The Allahabad High Court in CWT v. J. K. Jute Mills Co. Ltd. also held that secreted income from earlier years could not be presumed to exist as assets in subsequent years without evidence.In conclusion, the High Court agreed with the Tribunal that there was no material to support the addition of Rs. 2,00,000 to the estate's principal value based merely on the settlement under section 271(4A). The existence of the assets at the time of the deceased's death was not established, and thus, the addition could not be sustained. The reference was answered in the affirmative and against the Revenue, with costs awarded to the assessee.