1995 (3) TMI 3 - SC - Income Tax

Supreme Court rejects appellant's race winnings claim as income from undisclosed sources.

Sumati Dayal Versus Commissioner of Income-Tax

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 ... 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. 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.