ORIENT TRADING COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX
LAWS(BOM)-1962-8-25
HIGH COURT OF BOMBAY
Decided on August 29,1962

Orient Trading Company Limited Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents


Cited Judgements :-

COMMISSIONER OF INCOME TAX VS. J J H INDUSTRIES P LTD [LAWS(CAL)-1981-11-26] [REFERRED TO]
PRAKASH TEXTILE AGENCY VS. COMMISSIONER OF INCOME TAX [LAWS(CAL)-1978-7-53] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. PRAFULLA KUMAR MALLIK [LAWS(ORI)-1974-1-19] [REFERRED TO]
DIALUST VS. DEPUTY COMMISSIONER OF INCOME TAX [LAWS(BOM)-2002-1-66] [REFERRED TO]
INCOME TAX OFFICER VS. APEX THERM PACKAGING PVT. LTD. [LAWS(IT)-2014-5-77] [REFERRED TO]
SHANKAR INDUSTRIES VS. COMMISSIONER OF INCOME TAX CENTRAL [LAWS(CAL)-1978-3-52] [REFERRED TO]
SAROGI CREDIT CORPORATION VS. COMMISSIONER OF INCOME TAX [LAWS(PAT)-1974-12-5] [REFERRED TO]
D.SIVA SANKARA RAO VS. INCOME TAX OFFICER [LAWS(APH)-2012-11-34] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. NEVENDRAM AHUJA [LAWS(MPH)-2005-2-11] [REFERRED TO]
AGRAWAL R G AND COMPANY VS. COMMISSIONER OF INCOME TAX [LAWS(MPH)-1996-2-77] [REFERRED TO]
PAVAN PRAKASH VS. COMMISSIONER OF INCOME-TAX (CENTRAL) [LAWS(PAT)-2016-1-138] [REFERRED TO]
NORTHERN BENGAL JUTE TRADING CO LTD VS. COMMISSIONER OF INCOME TAX [LAWS(CAL)-1967-1-16] [REFERRED TO]
HEMANT KUMAR GHOSH VS. ASSISTANT COMMISSIONER OF INCOME TAX AND ORS. [LAWS(PAT)-2015-2-92] [REFERRED TO]
ASHOKPAL DAGA HUF VS. COMMISSIONER OF INCOME TAX [LAWS(MPH)-1996-1-82] [REFERRED TO]
HARDWARMAL ONKARMAL VS. COMMISSIONER OF INCOME TAX [LAWS(PAT)-1973-8-24] [REFERRED TO]
BASDEO AGARWALLA VS. COMMISSIONER OF INCOME TAX [LAWS(CAL)-1975-5-22] [REFERRED TO]
PRINCIPAL COMMISSIONER OF INCOME TAX VS. OJAS TARMAKE PVT. LTD. [LAWS(GJH)-2023-8-797] [REFERRED TO]
SUMERCHAND JAIN VS. COMMISSIONER OF INCOME-TAX [LAWS(MPH)-2007-2-101] [REFERRED TO]
ACIT VS. SHASHI PURI [LAWS(IT)-2015-1-148] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. VARINDER RAWLLEY [LAWS(P&H)-2014-1-324] [REFERRED TO]
SHIV RICE & GENERAL MILLS VS. COMMISSIONER OF INCOME TAX [LAWS(P&H)-2006-10-539] [REFERRED TO]


JUDGEMENT

V.S.DESAI, J. - (1.)ON a requisition made by this court under section 66(2) of the Indian Income -tax Act, 1922, the Tribunal has drawn up the statement of the case and referred to this court the questions hereinafter stated which it was directed to refer. These questions relate to the assessment years 1944 -45, 1945 -46 and 1949 -50, the relevant previous years for which were the years ending on the 31st July, 1943, 31st July, 1944, and 31st July, 1948. The assessee is a limited company, incorporated in the former Indian State of Rajasthan, and having its registered office at Sambhar Lake. It was a concern promoted and controlled by a well -known business house of Calcutta, known as Messrs. Surajmal Nagarmal. The main sources of the income of the assessee company were interested on loans, dividends from investments, etc. Although the assessee company was incorporated in the State of Rajasthan and had its registered office at a place in the said State, it was always held to be a resident and ordinarily resident in the then British India, for the purpose of its assessment, in all years including the three assessment years with which we are concerned. In the course of the assessment proceedings of the assessee for the assessment year 1944 -45, the Income -tax Officer found that a sum of Rs. 2,50,000 was 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 question 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 the next year. No interest appears to have been credited for this year, and the case of the assessee was that it was paid out in cash without being entered in the account. In the next year, there were further deposits of Rs. 2 lakhs and Rs. 1 lakh, on 8th October, 1945, and 24th November, 1945, respectively, thus increasing the total credit balance at the end of the year to Rs. 5,50,000. No interest was credited in the account during this year, and the assessee's explanation with regard to it was the same as it was with regard to the previous years. In the next year, which was the year ending on 31st July, 1947, there were further deposits of Rs. 2 lakhs on 25th November, 1946, and Rs. 2 lakhs on 24th May, 1947. During this year there were also withdrawals to the extent of Rs. 7,50,000 on three different dates, leaving a balance of Rs. 2 lakhs in the account which was taken forward to the next year. No interest was credited to the account in this year also as in the previous two years. In the next year, two more deposits, one of Rs. 40,000 on 16th March, 1948, and another or Rs. 1 lakh on 19th July, 1948, were made in this account, and interest in the sum of Rs. 6,558 was credited. The credit balance at the end of the year in this account was Rs. 3,46,558 -5 -0 which was taken to the next year. There were certain deposits and withdrawals in the next two years which need not be stated in detail. At the end of the year ending on 31st July, 1950, the balance in the account was Rs. 5,56, 200 and the account was closed on the first day of the next year by transferring this balance of Rs. 5,56,200 to the account of Messrs. Surajmal Nagarmal. During the assessment proceedings for the year 1944 -45, the Income -tax Officer called upon the assessee company to establish the identity of Rampratap Agarwal and thus satisfy him with regard to the sources of the credit entry in that account to the extent of Rs. 2,50,000. The assessee's explanation was that Rampratap Agarwal was a benami for Messrs. Surajmal Nagarmal and the amount belonged to Messrs. Surajmal Nagarmal. The assessee stated that in the inquiry by the Investigation Commission under the Taxation on Income (Investigation Commission) Act, 1947, of the case of Messrs. Surajmal Nagarmal, this amount of Rs. 2,50,000 was accounted for an dealt with in the settlement reached by Messrs. Surajmal Nagarmal with the Central 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', Calcutta, who was assessing Messrs. Surajmal Nagarmal. The reply received by the Appellate Assistant Commissioner, according to him, was not sufficient to support the explanation which the assessee was offering with regard to the said credit entries. The assessee then went in appeal before the Tribunal and contended that the explanation which he had given before the lower authorities should have been accepted, on the facts and in the circumstances of the case, and the cash credits should be taken to have been properly explained by the assessee. It was also contended that even if the explanation of the assessee were not accepted, and the income were to be treated as the undisclosed income of the assessee, no tax was payable in respect of that income in view of the provisions of section 14(2) (c). Both these contentions were negatived by the Tribunal, and the assessee's appeal dismissed. The questions which arise out of the order of the Tribunal relating to the assessment year 1944 -45, and which are directed to be referred to us on the present requisition under section 66(2) are as follows :
'1. Whether, on the facts and in the circumstances of the case, there was any material before the Tribunal to hold that Rs. 2,50,000 (Rupees two lakhs and fifty thousand) standing in the books of the assessee to the credit of Rampratap Agarwal on October 10, 1942, in the previous year relevant to the assessment 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 ?'
2. As we have already stated, in narrating the position of this account in the subsequent years in the year ending on 31st July, 1944, which is the previous year for the assessment year 1945 -46, an amount of Rs. 2,520 -3 -3 was credited in the account of Rampratap Agarwal by way of interest. In the assessment for the assessment year 1945 -46, this item was disallowed by the Income -tax Officer because, according to the view which he had taken, the account of Rampratap Agarwal was an account of the assessee to conceal his undisclosed income. The view taken by the Income -tax Officer was confirmed both by the Appellate Assistant Commissioner and the Tribunal. The questions 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 question 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 income -tax authorities have treated these credit entries as well as the aforesaid interest amount as income of the assessee from an undisclosed source and brought it to tax. The Tribunal also has upheld the view of the income -tax authorities. The question arising from this assessment order are as follows :

'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. 1,00,000 (Rupees one lakh) and Rs. 40,000 (Rupees forty thousand) standing in the books of the assessee to the credit of Rampratap Agarwal on March 16, 1948, and July 18, 1949, in the previous year relevant to the assessment year 1949 -50 and Rs. 6,558 (rupees six thousand five hundred and fifty -eight) credited in the said account as interest 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. 1.4 (sic) lakhs (Rupees one lakh and twenty five thousand) and Rs. 6,558 (Rupees six thousand five hundred and fifty -eight) accrued or arose in the taxable territories ?'

(3.)NOW , the main question which requires to be decided in the present case is whether the cash credit of Rs. 2,50,000 of the date October 10, 1942, appearing in the account of Rampratap Agarwal in the assessee's account books, as also the credits of Rs. 40,000 and Rs. 1 lakh, on March 16, 1948, and July 19, 1948, respectively, in the said accounts represent the assessee's income from an undisclosed source. If the said question is answered in the negative, the further legal contention, namely, whether the said income, if held by the assessee, was or was not liable to tax in view of the provisions of section 14(2) (c), will not survive for consideration. When cash credits appear in the accounts of an assessee, whether in his own name or in the name of third parties, the Income -tax Officer is entitled to satisfy himself as to the true nature and source of the amounts entered therein, and if after investigation or inquiry he is satisfied that there is no satisfactory explanation as to the said entries, he would be entitled to regard them as representing the undisclosed income of the assessee. When these credit entries stand in the name of the assessee himself, the burden is undoubtedly on him 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, 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 and Co. v. Commissioner of Income -tax, that court held, dissenting from the Patna view, that with regard to the credit entries in the names of partners as well as credit entries in the names of third parties appearing in the accounts of the partnership, the burden is on the assessee to explain the entries and show positively their nature and sources. In the absence of a satisfactory explanation, it is open to the department to infer that the moneys belonged to the assessee and represented his suppressed income. The same view was also taken in another case of the same High Court in Raghava Reddi v. Commissioner of Income -tax. We are ourselves in agreement with the view taken by the Andhra Pradesh High Court in Raghava Reddi v. Commissioner of Income -tax and Mohideen Thamby and Co. v. Commissioner of Income -tax. We agree respectfully with the view expressed by Subba Rao C.J. (as he then was) in Raghava Reddi v. Commissioner of Income -tax, at page 948 of the report, which was as follows :
'We do not think that the question of burden of proof can be made to depend exclusively upon the fact of a credit entry in the name of the assessee or in the name of a third party. In either case, the burden lies upon the assessee to explain the credit entry, though the onus might shift to the Income -tax Officer under certain circumstances. Otherwise a clever assessee can always throw the burden of proof on the income -tax authorities by making a credit entry in the name of a third party either real or pseudonymous.'



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