Case: Lakshmichand Baijnath Vs. Commissioner of Income Tax, West Bengal

1. The appellant was a Hindu undivided family carrying on business as piece goods merchants in the city of Calcutta. The present proceedings relate to the assessment of its income for the yearthe previous year thereto being June 12, 1944 to April 24, 1945. In the course of the assessment, the appellant filed a petition under S. 25A of theAct, 1922, claiming that there had been a partition in the family on April 24, 1945. On May 27, 1945 theOfficer enquired into both these matters, the factum of partition and the quantum of income chargeable to tax, and pronounced orders thereon on June 30, 1945. On the petition under S. 25A, he held that the partition was true, and that the family had become divided into five groups. As regards the income assessable under S. 23, the dispute related to six sums aggregating to Rs. 2,30,346 shown in the accounts as the sale proceeds of ornaments. The case of the appellant with reference to these sums was that at the partition the jewels of the family were sold in six lots, that the price realised therefrom was invested in the business, and that the credits in question related thereto. TheOfficer declined to accept this explanation. He observed that while the books of the appellant showed that what was sold was ornaments, the accounts of Chunilal Damani to whom they were stated to have been sold, showed sale of gold. He also pointed out that while the weight of the ornaments according to the partition agreement Ex. A was 3422 tolas, the weight of gold which was actually sold to the purchaser was 3133 tolas. The explanation given by the appellant for this discrepancy was that the jewels in question had come down to the family through several generations, and were not pure. TheOfficer rejected this explanation, because he held that the weight which was actually deducted for impurities in the accounts of the purchaser was almost negligible, and that what was sold was thus pure gold and not gold in old family jewels. He also remarked that the sales were in round figures of 500 tolas, and that "if the assessee had been taking old ornaments broken or unbroken for sale it is inconceivable that on three occasions out of six he took gold weighing 500 tolas in round figure." He also referred to the fact that there was no list of the family jewels, and that there was nothing in the family accounts to show what jewels were held by the family. He accordingly held that the story of sale of family jewels was not true, and that the sum of Rs. 2,30,346 represented concealed profits of the business, and he included the said amount in the taxable income. He also followed it up by an order imposing tax on the appellant under the Excess Profits Tax Act.2. The appellant took both these orders in appeal to the Appellate Assistant Commissioner who again went into the matter fully, and observed that the appellant had been changing his version as to the true character of the sales from time to time. Dealing with the discrepancy of 289 tolas between the weight shown in the partition agreement Ex. A and that appearing in the accounts books of Chunilal Damani, he remarked that while the explanation of the appellant before theOfficer was that it was due to alloy and brass in the jewels, before him the position taken up was that it was due to pearls and stones which had been removed from the jewels, and that the gold contained in the jewels was pure gold. He did not accept this explanation as, in his opinion, the jewels which were stated to have been in existence for three or four generations should have contained much more of alloy than was shown in the accounts of the purchaser. He also considered that the sale of gold in round figures of 250 or 500 tolas was a circumstance which threw considerable doubt as to the truth of the appellants version. In the result, he confirmed the findings of theOfficer, and dismissed the appeals.3. Against these orders, the appellant appealed to the Appellate Tribunal. There, he sought to rely on a certain proceedings book as showing that the family jewels were really broken up, and that what was sold to Chunilal Damani was the gold thus separated. As this proceedings book forms the real sheetanchor of the appellants contention before us, it is necessary to refer to the facts relating thereto in some detail. On February 20, 1945, the members of the family entered into an agreement, Ex. A, to divide their joint properties among the five branches, of which it was constituted. In Sch. B to this document are set out the jewels to be divided, and their total weight is, in round figure, 3422 tolas. Then we have the proceedings book, and that purports to be a record of the decisions taken by the members of the family from time to time for implementing Ex. A. The minutes of the meeting held on February 23, 1945, show that the pearls and stones imbedded in the jewels were to be removed and divided among the members, and that a goldsmith called Inderban was engaged for the purpose of breaking up the jewels. Then we have the minutes of a meeting held on February 28, 1945, and therein, it is recited that the weight of the pearls, stones and copper removed was, again in round figure, 289 tolas, and deducting this out of 3422 tolas being the weight of the jewels set out in Ex. A, the gold which was available for partition was 3133 tolas. It is recorded that this quantity should be sold in the market and the sale proceeds credited in the capital accounts of the business. And then we have the last of the proceedings dated April 21, 1945, which record that gold weighing 3133 tolas was sold and the price credited in the accounts: Now, if these minutes are genuine and give a correct picture as to what really took place, they would go a long way to support the version given by the appellant as to how he came by the making up a total Rs. 2,30,346. Quite naturally, therefore, the appellant applied to the Tribunal to receive the proceedings book in evidence, and the ground given in support of the application was that it had been filed before theOfficer but had not been considered by him.4. Then the question was raised as to whether the proceeding book was, in fact, produced before theOfficer. The argument of the appellant was that the decision taken at the meeting dated April 21, 1945, which forms the concluding portion of the book had been translated into English at the instance of theOfficer, the original being in Hindi, that the said translation was marked Ex. B and contained the endorsement of the, Officer "Original produced", and that accordingly the book must have been produced before the Officer. But the Tribunal was not impressed by this argument. It observed that the book itself had not been initialled by the Officer, and that though the minutes of the meeting dated 21st April 1945, were genuine, there was no certainty that when it was shown to theofficer it was contained in the book now produced, that such minutes could have found a place in another book as well, and that, therefore, the book which was sought to be admitted before it in evidence was not proved to be the book which was produced before the Officer. It was also of the opinion that the minutes of the previous meetings could not have been shown to the Officer. It accordingly refused to receive the book in evidence, and relying on the other circumstances mentioned in the order of theOfficer and the Appellate Assistant Commissioner, it held that the sum of Rs. 2,30,346 was not the proceeds of the family jewels sold but secret profits made by the appellant in business.5. Another contention raised by the appellant before the Tribunal was that in the proceedings under S. 25A, theOfficer had held, after making enquiry, that the partition set up by it was true and that as according to the appellant, the partition consisted in the division, inter alia, of family jewels weighing 3422 tolas, theOfficer must be held to have decided that the family was in possession of the jewels mentioned in Ex. A and had divided them in the manner set out in Ex. B, and that as that order had become final it must conclude the present question in favour of the appellant. The Tribunal repelled this contention on the ground that the order under S. 25A only decided that there was partition in the family and that it had no bearing on the issues which arose for decision in the assessment proceedings. In the result, both the appeals were dismissed.6. Pursuant to an order of the High Court of Calcutta dated 7th December 1950, passed under S. 66 (2) of the Act, the Tribunal referred the following questions for its opiniontax Appellate Tribunal was bound by the findings of fact of theOfficer relating to the nature and division of the assets at the joint family in question which he arrived at in his enquiry under Section 25A (1) of the IndianAct ?(2) Whether there was any material or evidence upon which the taxing authorities could legally hold that the amount of Rs. 2,30,346 (Rupees two lakhs thirty thousand three hundred and forty six) represented undisclosed profits of the accounting year in questionreference was heard by Chakravarti, C. J. and Lahiri J. who by their judgment dated 19th Jane 1953, answered the first question in the negative and the second in the affirmative. The appellant then filed an application under S. 66A(2) for leave to appeal to this Court and that having been dismissed, has preferred the present appeals on leave granted by this Court under Art. 136.

Reasoning: 10. The position may thus be summed up : In the business accounts of the appellant we find certain sums credited. The explanation given by the appellant as to how the amounts came to be received is rejected by all theauthorities as untenable. The credits are accordingly treated as business receipts which are chargeable to tax.In V. Govindarajulu Mudaliar v. Commissioner ofHyderabad, Civil Appeals Nos. 41 to 43 of 1957 D/: (AIR 1959 S C 248) this Court observedis ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, theOfficer is entitled to draw the inference that the receipts are of an assessableis precisely what theauthorities have done in the present case, and we do not find any grounds for holding that their finding is open to attack as erroneous in law.11. (3) Lastly, the question was sought to be raised that even if the credits aggregating to Rs. 2,30,346 are held to be concealed income, no levy of excess profits tax can be made on them without a further finding that they represented business income, and that there is no such finding. When an amount is credited in business books, it is not an unreasonable inference to draw that it is a receipt from business. It is unnecessary to pursue this matter further, as this is not one of the questions referred under S. 66 (2).