1995 (3) TMI 3 - SC - Income Tax

Appeals dismissed: credited capital account amounts are undisclosed income, not genuine race winnings, based on human probabilities

Sumati Dayal Versus Commissioner of Income-Tax

SC dismissed the appeals with costs, holding that amounts credited to the appellant's capital account were income from undisclosed sources rather than ... Classification of Race Winnings as Income from Undisclosed Sources - reasons to believe that the apparent is real - burden to prove - test of human probabilities - Amount is credited in the capital account in the books of the appellant - appellant offered explanation about the said receipts being her winnings from races - said explanation has been considered in the light of the sworn statement of the appellant dated January 6, 1973, and other material on record - HELD THAT:- The Chairman of the Settlement Commission has emphasised that the appellant did possess the winning ticket which was surrendered to the Race Club and in return a crossed cheque was obtained. It is, in our view, a neutral circumstance, because if the appellant had purchased the winning ticket after the event she would be having the winning ticket with her which she could surrender to the Race Club. The observation by the Chairman of the Settlement Commission that 'fraudulent sale of winning tickets is not an usual practice but is very much of an unusual practice' ignores the prevalent malpractice that was noticed by the Direct Taxes Enquiry Committee and the recommendations made by the said Committee which led to the amendment of the Act by the Finance Act of 1972, whereby the exemption from tax that was available in respect of winnings from lotteries, crossword puzzles, races, etc., was withdrawn. Similarly, the observation by the Chairman that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleged to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering the surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winnings from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence. No case is made out for interference with the order passed by the Settlement Commission. The appeals, therefore, fail and are accordingly dismissed with costs. Issues Involved:1. Classification of race winnings as income from undisclosed sources.2. Adequacy of the appellant's explanation regarding the source of income.3. Application of human probabilities and statistical theories.4. Reopening of assessment for the year 1970-71.5. Burden of proof and evidentiary standards.Detailed Analysis:1. Classification of Race Winnings as Income from Undisclosed Sources:The appellant, a dealer in art pieces, antiques, and curios, reported race winnings of Rs. 3,11,831 and Rs. 93,500 for the assessment years 1971-72 and 1972-73, respectively. These amounts were credited in the capital account. The Income-tax Officer, however, treated these receipts as income from undisclosed sources, a view upheld by the Appellate Assistant Commissioner and the majority of the Settlement Commission. The appellant's claim that these were genuine race winnings was not accepted due to a lack of satisfactory explanation and supporting evidence.2. Adequacy of the Appellant's Explanation Regarding the Source of Income:The appellant provided certificates from various race clubs to substantiate the claim that the amounts were race winnings. However, the majority of the Settlement Commission found this explanation unsatisfactory. The appellant's sworn statement indicated limited knowledge of racing, and the books of account did not show corresponding drawings for the purchase of jackpot tickets or expenses related to the races. The majority concluded that the appellant's claim was contrived and not genuine.3. Application of Human Probabilities and Statistical Theories:The majority opinion highlighted that the appellant's claim of winning multiple jackpots across different racing centers was statistically improbable and contrary to human probabilities. The appellant's cessation of race activities after the winnings became taxable in 1972 further raised doubts about the genuineness of the claims. The majority inferred that the appellant had likely purchased winning tickets after the events with unaccounted funds.4. Reopening of Assessment for the Year 1970-71:The Commissioner of Income-tax requested the reopening of the assessment for the year 1970-71, where the appellant had won Rs. 74,681, which was not taxed. The majority of the Settlement Commission did not find it necessary to reopen this assessment, as it was not sufficiently connected to the pending cases for 1971-72 and 1972-73. The Chairman of the Settlement Commission dissented on this point.5. Burden of Proof and Evidentiary Standards:The appellant argued that the burden of proof lay on the Department to show that the amounts were not race winnings but income from other sources. The court acknowledged that while the burden initially lies on the Department, section 68 of the Income-tax Act allows the Assessing Officer to charge any unexplained credits as income. The appellant's failure to provide a satisfactory explanation led to the conclusion that the amounts were income from undisclosed sources. The majority opinion, supported by the principles laid down in previous judgments, found the appellant's explanation unreasonable and based on mere suspicion and surmises.Conclusion:The Supreme Court upheld the majority view of the Settlement Commission, concluding that the appellant's claim of race winnings was not genuine and the amounts were rightly assessed as income from other sources. The appeals were dismissed with costs, affirming the decisions of the lower authorities.