TaxTMI 
TaxTMI 
1962 (8) TMI 69
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....year 1944-45 belonged to the assessee as held by the Tribunal ? " 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the said income of Rs. 2,50,000 (Rupees two lakhs and fifty thousand) accrued or arose in the taxable territories ? " For the assessment year 1945-46 : " 1. Whether, on the facts and in the circumstances of the case, there was any material before the Tribunal to hold that the sum of Rs. 2,520 (Rupees two thousand five hundred and twenty) standing in the books of the assessee to the credit of Rampratap Agarwal as interest in the previous year relevant to the assessment year 1945-46 belonged to the assessee and should be assessed to income-tax as income of the assessee from undisclosed sources ? 2. Whether, on the facts and in the circumstances of the case the Tribunal was justified in holding that the said income of Rs. 2,520 (Rupees two thousand five hundred and twenty) accrued or arose in the taxable te....
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....har Lake, for the purposes of the Income-tax Act, it has always been held to be resident and ordinarily resident in the then British India (new taxable territories) in the appropriate account years including the account years ended July 31, 1943, July 31, 1944, and July 31, 1948. This has been done in accordance with the provisions of section 4A(c) read with section 4B(c). At the material time, section 4A(c) provided two tests for holding a company to be resident in the then British India, viz., (a) if the control and management of its affairs is situated wholly in British India in that year, or (b) if its income arising in British India in that year exceeds its income arising without British India in that year. There was no dispute before the Tribunal in regard to such determination of status in the matter of the residence. Without disputing this statement of fact, Mr. Tricumdas now points out that the company's status in the matter of residence would depend on where the sum of Rs. 2.5 lakhs, if treated as income, is held to arise. 3. In the course of assessment proceedings for the assessment year 1944-45, the Income-tax Officer found that a sum of Rs. 2,50,000 was credited....
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...., therefore, completed the assessment by including the sum of Rs. 2,50,000 in the total income as income from undisclosed sources. Since he held that the amount was not borrowed and belonged to the assessee company itself, he disallowed the claim of interest of Rs. 2,020 debited to the interest account and claimed as deduction under section 10(2)(iii) on capital borrowed. 5. Being aggrieved, the matter was taken in appeal to the Appellate Assistant Commissioner and the assessee challenged the inclusion of the said sum of Rs. 2,50,000 in the total income and also disputed the disallowance of the claim for deduction of interest of Rs. 2,020. Once more, it was repeated before the Appellate Assistant Commissioner that the account of Rampratap Agarwal was a benami account of M/s. Surajmal Nagarmal. But no evidence was produced before him to support that allegation. It is instructive to reproduce what the Appellate Assistant Commissioner had to say on this point : " The explanation given at the time of the hearing of the appeal is also that Mr. Rampratap Agarwal was a benamidar of M/s. Surajm....
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....nt of M/s. Surajmal Nagarmal and the income from interest on this account has been treated as the income of M/s. Surajmal Nagarmal and included in their assessment. " In view of the proceedings before the Appellate Assistant Commissioner, the Tribunal did not find any substance in paragraphs (a) and (b) of the above contentions. As regards the allegation contained in paragraph 3(c), this is the position. It was alleged before the Tribunal that the Income-tax Investigation Commission had accepted Rampratap to be a benami of Surajmal on the ground that the amount of Rs. 5,56,200 (vide annexure " A ") standing to the credit of this account in the books of the assessee as on August 1, 1950, was transferred to the account of Surajmal Nagarmal and that interest on this account had been treated as income of Surajmal Nagarmal. Dealing with the submission, the Tribunal observed as follows in paragraph 5 of its order made on June 18, 1958, in I. T. A. No. 433 of 1957-58, a copy of which is marked annexure " B " and forms part of the case : " It is by no means established before us that the Income-tax Investigation Commission ....
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.... are brought into British India in the previous year by or on behalf of the assessee . . . " In rejecting this contention, the Tribunal was influenced by the following : " (i) that it was common ground that the said sum of Rs. 2.5 lakhs represented some concealed and taxable income, the only dispute before it being whose income it was-whether the assessee's or of Surajmal Nagarmal ; (ii) that the assessee company was held to be resident and ordinarily resident in the then British India for the purpose of its income-tax assessment by the test laid down in section 4A(c) read with section 4B(c) and admittedly it had large income accruing or arising in the then British India ; (iii) that since the assessee company was claiming the benefit of the exemption contained in section 14(2)(c) in regard to the income item of Rs. 2.5 lakhs, it was for it to establish that the said income accrued or arose outside British India or as claimed by the assessee in the Indian State of Rajasthan and that no evidence whatsoever was placed....
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....s account was credited with appropriate amount of interest payable to him and an equal amount was debited to the interest account and as such claimed as deduction under section 10(2)(iii) in computing the assessee's business income under section 10. The income-tax authorities as well as the Tribunal took the view that the account standing in the name of Rampratap, though alleged to be benami account of Surajmal Nagarmal, was really that of the assessee company and the amounts credited to that account represented certain income of the assessee company itself from some undisclosed sources. In other words, it was not a case of any money or capital borrowed by the assessee for the purposes of section 10(2)(iii). Consequently, any interest claimed as deduction under section 10(2)(iii) would not be an admissible deduction in computing the profits under section 10. What we have explained so far would be clear from the following sentence appearing in paragraph 6 of the Tribunal's order dated June 18, 1958 (annexure " B ") : " The only contention that was pressed in the appeal relating to the assessmen....
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....s credited in the books of the assessee company to the account standing in the name of one Rampratap Agarwal. The credit entry of Rs. 2,50,000 appearing in this account was of the date 10th October, 1942, a date which fell in the previous year ended with 31st July, 1943, for the assessment year 1944-45. This account of Rampratap Agarwal was continued in the assessee's account books and was finally closed on the 1st of August, 1950, by transferring the amount of the outstanding credit balance to the account of M/s. Surajmal Nagarmal. Since certain entries in this account are the subject-matter of the questions referred to in the present reference, it may be necessary to state briefly the position of this account in several years. In the year ending with 31st July, 1943, the interest of Rs. 2,020 was credited to this account and the amount of the principal and interest was taken to the next year's account. Interest for the next year was again credited in the sum of Rs. 2,520. During the subsequent year, i.e., the year ending with 31st July, 1945, the amount of interest for the first two years appears to have been paid out and the principal of Rs. 2,50,000 carried forward to t....
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....entral Government. The explanation was not accepted by the Income-tax Officer, and he treated the credit entry of Rs. 2,50,000 in the account of Rampratap Agarwal in the assessee's account books as the assessee's income from an undisclosed source. In the view that he took of the said cash credit entry, he also disallowed the item of interest of Rs. 2,020 credited in the account as not deductible under section 10(2)(iii) of the Income-tax Act. The assessee took the order of the Income-tax Officer in appeal before the Appellate Assistant Commissioner, who agreed with the view which the Income-tax Officer had taken, and dismissed the assessee's appeal. In the said appeal, the assessee requested the Appellate Assistant Commissioner to satisfy himself by inquiring with the Income-tax Officer who was concerned with the assessment of Messrs. Surajmal Nagarmal, as to whether the credits in the account of Rampratap Agarwal in the assessee's account books were or were not considered by the Income-tax Investigation Commission in the case of Messrs. Surajmal Nagarmal. The Appellate Assistant Commissioner accordingly made inquiries with the Income-tax Officer, Central Circle " X....
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....ns framed with regard to the order of the Tribunal relating to the assessment year 1945-46 are : " 1. Whether, on the facts and in the circumstances of the case there was any material before the Tribunal to hold that the sum of Rs. 2,520 (Rupees two thousand five hundred and twenty) standing in the books of the assessee to the credit of Rampratap Agarwal as interest in the previous year relevant to the assessment year 1945-46 belonged to the assessee and should be assessed to income-tax as income of the assessee from undisclosed sources ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the said income of Rs. 2,520 (Rupees two thousand five hundred and twenty) accrued or arose in the taxable territories ? " The remaining two questions relate to the assessment year 1949-50, the relevant previous year for which was the year ending on 31st July, 1948. During this year there were deposits of Rs. 40,000 and Rs. 1 lakh in this account on 16th March, 1948, and 19th July, 1948, respectively. There was also an entry of Rs. 6,558 crediting interest to this account. The incometax authorities have treated these credit entr....
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....to prove satisfactorily the nature and source of these entries and to show that they do not constitute a part of his business income liable to tax. When, however, entries stand not in the assessee's own name, but in the name of third parties, there has been some divergence of opinion expressed as to the question of the burden of proof. In Radhakrishna Behari Lal v. Commissioner of Income-tax ([1954] 26 I. T. R. 344), the Patna High Court held that though when the cash credits stood in the assessee's name the burden of proof was upon him to show that the receipts were not of an income nature, the position was different in regard to sums which were shown in the assessee's books in the names of third parties. In the latter kind of cases the onus of proof was not upon the assessee to show the sources or nature of the amount of the cash credit, but the onus shifted on to the department to show by some material that the amount standing in the name of the third party did not belong to him but belonged to the assessee. This view was not accepted by the Andhra Pradesh High Court, where a contrary view was taken. In M. M. A. K. Mohideen Thamby & Co. v. Commissioner of Income-tax ....
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....ntity of the third party and also supplies such other evidence which will show, prima facie, that the entry is not fictitious, the initial burden which lies on him can be said to have been discharged by him. It will not, thereafter, be for the assessee to explain further how or in what circumstances the third party obtained money and how or why he came to make a deposit of the same with the assessee. The burden will then shift on to the department to show why the assessee's case cannot be accepted and why it must be held that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source. In order to arrive at such a conclusion, however, the department has to be in possession of sufficient and adequate material. Now, in the present case, the facts and circumstances are as follows : The assessee company was a creature of Messrs. Surajmal Nagarmal and entirely controlled by them. The assessee's case was that the account of Rampratap Agarwal in its account books was a benami account of Messrs. Surajmal Nagarmal, that it was a continuous account which ran from the year 1942-43 and went on up to the beginn....
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....agarmal had prepared a memoranda which they called account No. 2, for the period subsequent to 31st March, 1947, on the basis of concealed assets and income discovered by the Income-tax Investigation Commission, and that memoranda showed the cash advanced by them to Messrs. Orient Trading Co. Ltd. as follows : " Rs. 2,00,000 on May 27, 1947, and Rs. 40,000 on March 19, 1948 ". According to the income-tax authorities this was not sufficient to establish the identity of these amounts appearing in the account books of the assessee as the amounts deposited with them by Messrs. Surajmal Nagarmal, because there was some discrepancy as to the dates occurring in the memorandum submitted by Messrs. Surajmal Nagarmal and in the account books of the assessee. Thus while the entry of Rs. 2 lakhs in the account books of the assessee was on the 24th May, 1947, that in the memorandum was three days later on the 27th May, 1947, and similarly the entry of Rs. 40,000 while it occurred in the assessee's account books on 16th March, 1948, occurred in the memorandum three days later on the 19th March, 1948. The circumstances that the dates in the memorandum of Messrs. Surajmal Nagarmal were later t....
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..... 2,00,000 which was the outstanding credit balance in that account on 31st March, 1947, was regarded as part of the concealed income of Messrs. Surajmal Nagarmal. He, however, pointed out that the item of Rs. 2,00,000 could not be necessarily connected with the initial deposit of Rs. 2,50,000 in that account on 10th October, 1942, because between that date and the 31st March, 1947, there were several other deposits and withdrawals in the said account. If that is the real position, then it seems to us impossible to take the view that the account of Rampratap Agarwal was not considered and treated as the account of Messrs. Surajmal Nagarmal by the Income-tax Investigation Commission in Messrs. Surajmal Nagarmal's case. If the whole of the account was considered as the account of Messrs. Surajmal Nagarmal, it was clearly not the assessee's own account. Since the investigation of Messrs. Surajmal Nagarmal's case by the Investigation Commission was on the basis of the increase in wealth of Messrs. Surajmal Nagarmal between certain dates, i.e., between 1939 and 1947, what could be taken as part of his wealth would undoubtedly be the outstanding balance in this account as on ....