SIKRI - (1.) JUDGMENT The judgment of the court was delivered by
(2.) THESE are two appeals by way of special leave against the judgment and order of the Madras High court, dated 23/10/1959) in a case referred to the High court relating to the assessment years 1947-48 and 1948-49. The respondent, M. Ganapathi Mudaliar, hereinafter referred to as the assessee, joined the cloth business started by Ayyaru in Singapore, in the name of Thyagesan and Company. The assessee had married Ayyaru's sister. By an agreement dated September 23, 1940 (annexure ''A") between Ayyaru and the assessee, the assessee was engaged as a manager for a period of three years from 23/09/1940. His remuneration was to be a fixed salary at the rate of $ 18 per month and a commission of 10% on the net profits of the business, to be calculated at the end of the said three years. He was also to be provided with free board and lodging. Clause 4 of the agreement provided that the net profits of the business shall be as shown in the profit and loss account of the business. On the same day, a power of attorney (annexure " B ") was executed by Ayyaru in favour of the assessee, enabling him to carry on the business of a cloth and general merchant, being carried on at No. 182, Selgie Road, Singapore. It appears that on 20/09/1945 (annexure " C "), Ayyaru sold the said business and the goodwill thereof, with the other assets of the said business, at the price of $4,441.78. By an assessment order dated 30/12/1950, for the assessment year 1947-48, Income-tax Officer assessed the remittances from Singapore at Rs. 61,538.00. He assessed profits at Rs. 2,10,600.00 which covered the remittances. The Income-tax Officer came to the following conclusion : " (1) The assessee was the sole manager of the old Thyagesan and Company remunerated by a large share of profits for his sole conduct of the business. (2) The alleged profits of $ 1,10,000 for the entire period of five years and the assessee's share thereof $ 11,000 are not correct and they have not been proved to be correct by the production of accounts that existed for the business as per the narration in the sale deed. (3) The accounts have been purposely withheld from production and if they had been produced, they would disclose the true profits of the business and the assessee's exact relationship with the business and his share of profits. The profits of the business and the share of profits due to the assessee must be much more than that admitted now. The share of profits due to the assessee are entered in the folio of Ayyaru Mudaliar in the guise of sale proceeds of goods, closing stock, etc. These are simply bogus credits to conceal the real facts as they have not been mentioned in the sale deed. In the circumstances, I estimate the accrued income at $ 1,35,000.00 or 625 Rs. 2,10,500 at 156 exchange. This estimate will include $ 9,500 credited in Ayyaru Mudaliar account on 20/10/1946, under the following narrations: " I issued a reference to the assessee's auditors Messrs. G. Natesan and Company (copy of which was sent to the assessee) asking them to explain the entry fully to furnish the Indian and foreign address of 'S. A. Md. Sahib, and the circumstances under which the amount was received, etc., and to produce a copy of the Raieluthu letter referred to in the entry. The auditors have sent a reply staling that the amount due by S. A. Md. Sahib was given to the assessee as per letter given by Ayyaru Mudaliar. The burden of proving the credit lies on the assessee as the amount has been credited in his accounts in the name of Ayyaru Mudaliar which account is only a bogus one has been noted before. " By an order of the same date, for the year 1948-49, the Income-tax Officer estimated the remittance at Rs. 1,58,501.00. He found that enough profits out of the current year (Rs. 17,461), and out of the unassessed but unremitted profits of earlier years (Rs. 1,41,040) existed. The assessee appealed to the Assistant Commissioner against both the orders. In the appeal relating to the year 1947-48, the Assistant Commissioner disbelieved the story that the account books had been lost. He did not place any reliance on the affidavit of Ayyaru because the statements in the affidavit were at variance with the facts, as shown by the sale deed and entries of account. He found that the very description given by the sum of 87,500 in the books raises a strong suspicion about the nature of this credit. He agreed with the Income-tax Officer that the income declared by the assessee could not be accepted, but he held that all the credits in Ayyaru's account could not be treated as unexplained and suspicious. He came to the conclusion " that in the absence of accounts showing the exact income which the appellant got from this source I think his income inclusive of the profit from his own business may be put at Rs. 1,80,000.00. This will be substituted for the sum of Rs. 2,10,600.00 estimated by the Income-tax Officer". He estimated the remittance at Rs. 30,000.00, instead of the sum of Rs. 61,538 adopted by the Income-tax Officer. Regarding the assessment year 1948-49, the Appellate Assistant Commissioner estimated the income of the asseessee from business in Singapore as follows: JUDGEMENT_623_ITR53_1964Html2.htm 626
(3.) THE assessee filed two appeals to the Income-tax Appellate tribunal, Madras, hereinafter referred to as the tribunal, and the Income-tax Officer filed two appeals against the orders of the Appellate Assistant Commissioner. All these four appeals were dealt with by a common order. THE tribunal came to the conclusion that it was the assessee who was the owner of the business and not Ayyaru, as now claimed. THE tribunal also came to the following conclusions: " We are not disposed to take the version of the assessee that the credit in Ayyaru's folio of $87,500 alleged to represent the sale proceeds of closing stock of goods of the old Thyagesan and Company is the truth. THE conclusion of the department that they are not genuine items, but only bogus credit representing the assessee's share of profits in addition to that revealed by him, is nearer the truth. It has to be remembered that in support of the loan of $87,500 except the bare entry in a book brought into being on 7/01/1946, there is not a scrap of paper to evidence this transaction. THEre is, of course, the affidavit of Ayyaru Mudaliar speaking to the version put forward by the assessee, but we are not inclined to place any reliance upon it. " Dealing with the question of remittances, it held as follows : " The intention with which the monies were sent to Pudukkottai is quite plain. It cannot be said that the income-tax department was wrong in concluding that the assessee would not have remitted monies to Pudukkottai, if the same .were not his own profits. Even judging from another angle, the assessee's version cannot be believed. If the money was needed for business what need was there for putting the money as fixed deposit in Pudukkottai banks ? Then again, the assessee says that he kept a sum of $87,500 belonging to Ayyaru Mudaliar to finance the business operation in Singapore. That' obviously seems not to have been done. The purchase of properties soon after would only strengthen the conclusion of the department. We see no basis whatsoever for the assertion of the assessee that the purchases of properties were made from borrowings and that the fixed deposit was kepi safe at Pudukkottai so that Ayyaru Mudaliar may be repaid later on. The plain fact is Ayyaru Mudaliar never seems to have been intent or insistent in getting back the so-called loans. Likewise, we are not inclined to believe that the values of goods amounting to $12,035. of sundries amounting to $6,807 and the sum of $5,114 representing the cash balance in the bank taken over by the petitioner would represent what they are stated to be. The conclusion is irresistible that the assessee enjoyed the bulk of the profits of Thyagesan and Company, that the statement that $11,000 represented his share of profits cannot be believed, that the account books were wilfully not produced and that the credit entries and other entries referred, 627 we are not genuine entries. Therefore, the assessee's real income could not be determined on the basis of the books or the evidence produced before the Income-tax Officer." Dealing with the assessment year 1948-49' the tribunal upheld the order of the Appellate Assistant Commissioner, and in the result all the appeals were dismissed by the tribunal. The tribunal, however, stated a case and referred two questions to the High court, which are as follows: " (1) Whether there was evidence to come to the conclusion that the computation of the income of the assessee at Rs. 1,80,000.00 and remittance at Rs. 30,000.00 in the assessment for the year 1947-48 was right; and (2) Whether there was evidence for the conclusion that the sum of Rs. 1,07,461 was remitted into India and was assessable to tax in the assessment for the year 1948-49 ? " ;