Case: Parimisetti Seetharamamma Vs. Commissioner Of Income-Tax, Hyderabad

1. The appellant carried on business at Nuzvid as a moneylender and conducted a cinematograph theatre. In respect of income from property and business she submitted a return of her income for the assessment year 1947-48 and disclosed in a statement dated August 26, 1949 that Sita Devi Maharani of Baroda-had between November 10, 1045 and February 11, 1948 "out of natural love and affection given to her some jewellery and four amounts of money , which aggregated to Rs. 5,20,000. The Income-tax Officer, Special Circle, Vijayawada accepted the appellants statement and did not treat the money and jewellery received by her as, taxable income. In the course of assessment proceedings for the year 1951-52 the Income-tax Officer was inclined to treat the money and jewellery given to the appellant as remuneration for services rendered to Sita Devi as a maid-servant. He accordingly issued a notice under S. 34 of the Income-tax Act and called upon the appellant to submit an explanation adducing all documentary and other evidence in her possession relating to the receipt of assets admitted by her in her statement" dated August 26, 1949 and relating to other cash amounts and cheques received by her between August 25, 1948 and October 28, 1952 and to other assets possessed by the appellant and disclosed by her in her "wealth statement". By her statement dated November 27, 1953 the appellant submitted a detailed explanation about the items referred to in the letter of the Income-tax Officer and claimed that income received by her was earned with the aid of property which Devi and the Yuvarani of Pithapuram had given to her out of love and affection from time to time. On December 26, 1954 the appellant was examined on oath before the Income-tax Officer. She statedcredits in my accounts are all out of gifts....As to correspondence I have very few letters but such of them as I have contain matters relating to others. I shall produce them if you are prepared to exclude those portions. What other record I have I gave to my auditors. I have no objection to their producing all those records before you. In fact I desire that they should do so. . . . . .A complete. inventory of records with my auditor will be given to you on Monday and you may look into them. . . . . . I can give full particulars for all deposits in my accounts. I have not purchased any jewellery worth mentioning. I have filed a statement for that. All my jewels are gifted by, Shrimati Seetha Devi.The Income-tax Officer by his order dated March 31, 1956 held that the "gifts made by Sita Devi were remuneration for services rendered by the appellant as a maid-servant or Secretary to the Princess and were accordingly taxable as income in her hands". For the year 1946-47 he determined the escaped income of the appellant at Rs. 4,70,000 (Rs. 4,00,000 being the value of jewellery, and Rs. 70,000 cash). He determined the escaped income for the year 1947-48 at Rs. 2,50,000, for the year 1950-51 at Rs. 96,000 and for the year 1951-52 at Rs. 30,000.3. In appeal the Appellate Assistant Commissioner agreed with the Income-tax Officer that the receipts were income taxable under the Income-tax Act, but he valued the jewellery received by the appellant in the account year corresponding to the assessment year 1946-47 at Rs. 20,000 and directed consequential modifications in that order. The Income-tax Appellate Tribunal held that the Income-tax Officer was justified in reopening the assessment under S. 34 and that cash, cheques and jewellery received by the appellant from Sita Devi in the previous year corresponding to the assessment years 1946-47, 1947-48, 1950-51. and 1951-52 being remuneration for services rendered, were taxable.

Court's reasoning:
9. In the view of the Income-tax Appellate Tribunal, in determining the question whether receipts by the appellants represented income liable to be brought to tax under the Income-tax Act, it could not be said that there were no materials justifying the Department in treating the assessee as being an employee of Sita Devi, for apart from the information the Department had collected from various sources, there were clear indications that the assesses was acting as the local agent of Sita Devi in Pittapuram for disbursing salary to various servants of Sita Devi, and that she was described as the Private Secretary to Sita Devi in a "bill" issued by the Bombay garage Ltd., and that in any event it was for the appellant to prove her case of gift. The Tribunal then observed that the word "income" is not precisely defined in the Act and the Act seeks to bring to tax all income, profits and gains from whatever source derived and inasmuch as receipt of amounts and jewellery in question had been admitted it was for the appellant to establish that it was not liable to be taxed under the Act. Observing then that the appellant had not placed "all the cards on the table which will go to show the real nature of the receipt of the amounts and the jewellery and had declined to produce the correspondence which passed between her and Sita Devi, but merely offered to produce the correspondence which passed between her and Sita Devi, but merely offered to produce certain extracts from the letters which the Income-tax Officer refused to admit, it was open to the Income-tax authorities to raise an inference that the receipts were income. when ample opportunity was given to the assessee to explain the nature of the receipts and since the appellant had not chosen to do so, she was not entitled to the exemption under S. 1(3) (vii).10. The conclusion of the Tribunal recorded on this process of reasoning was open to grave challenge in point of law. It does not appear that any serious attempt was made by the appellant to prove that the receipts under discussion were exempt from tax, because they were casual and of a non-recurring nature. The appellants case primarily was that the receipts were not taxable because they were not income chargeable to tax. The Tribunal rightly observed that the information collected by the Department from different sources which consisted of record of ex parte statements of certain persons about the relation between Sita Devi and the appellant, which they even declined to give in writing, could have not value in establishing the case of the Department. There remained two pieces of evidence on which the Tribunal relied - (i) admission made by the appellant that she acted as the local agent in Nuzvid for disbursing salary to servants of Sita Devi and (ii) in a "bill" issued by the Bombay Garage Ltd. the appellant was described as "Private Secretary to Princess Sita Devi." But these circumstances could not establish that what was given to her by Sita Devi was remuneration for services rendered or to be rendered. Realizing this infirmity, the Tribunal observed that the burden of proving that the receipts were not income lay upon the appellant. The Tribunal did not infer that as remuneration for disbursing salary to Sita Devis servants she was given large amounts of money and jewellery. Description of the appellant in the cash-memo issued by the Bombay Garage Ltd. as "Private Secretary to Princess Sita Devi" could have no evidentiary value. It is not claimed that there was evidence on the record that this was the general repute of the appellant. Description of the appellant as Private Secretary of Sita Devi in a stray cash-memo issued by a third party about the source of whose knowledge there is not an iota of evidence, could not evidence a relationship of master and servant: mush less could it prove that what was given by Sita Devi to the appellant was remuneration for service rendered. The conclusion of the Tribunal is therefore based on matters which may at the highest create some suspicion, and upon its view that the burden of proving that the receipts were not taxable lay upon the appellant. But a conclusion recorded by the Tribunal by wrongly throwing the burden of proof upon the assessee cannot be regarded as binding upon the High Court in a reference under S. 66 of the Income-tax Act.Counsel for the Commissioner contended that beside the two circumstance relied upon by the Tribunal there were other circumstances on which the conclusion of the Tribunal could be sustained. These circumstances, counsel submitted, are on the record and must have weighed with the Tribunal in arriving at its finding that the receipts by the appellant were of the nature of income. These were (a) that the appellant belonged to a family of Dasis who are generally employed in the ruling family of Pittapuram in a menial capacity (b) that the appellant was receiving a salary of Rs. 8 per month from the Maharaja of Pittapuram; (c) that the appellant was associted with Sita Devi for at least 8 years before the earliest year of account relevant in these appeals; (d) that large amounts in cash and also jewellery were given to the appellant from time to time after Sita Devi married the Gaekwad of Baroda, (e) that the gifts commenced immediately after Sita Devi married the Gaekwad of Baroda; (f) that the appellant assisted Sita Devi in securing divorce from the Yuvaraja of Vuyyur and in getting married to the Gaekwad of Baroad; (g) that the appellant lived with Sita Devi in London in the year 1949-50 and also at Baroda; and (h) that similar gifts were given to one Narsinghrao "associate of the appellant" and to the daughters of the appellants sisters. There is no evidence in support of (f), and the circumstances (a) to (c) and (g) cannot possibly lead to the conclusion that property of large value was given to the appellant by Sita Devi as remuneration for performance of service circumstance (h) is irrelevant.On the first part of the two questions it must be recorded that what the assessee received in the relevant years of account was not assessable to tax. It is unnecessary to record, as already obsered, a finding on the second branch of the question, viz. whether S. 34 of the Income-tax Act could properly be invoked in regard to those receipts.It is not necessary to consider whether theOfficer was competent to issue a notice under S. 34 of theAct for the years1, for in our view the property received by the appellant was not remuneration given to her by Sita Devi for services rendered or to be rendered by her.