M.C.DESAI, C.J. - (1.) UNDER this court direction the Income-tax Appellate Tribunal, Allahabad Bench, has referred the statement of case for answering the question of law arising, viz : Whether, on the facts and in the circumstances of the case, there was any material to hold that the sum of Rs. 20,000 was income of the assessee from some other source and was not income included in the assessed income on the rejection of the books of account ?
(2.) THE assessee is registered firm dealing in handloom cloth, Kashi silk, etc., with its head office in Benares. For the assessment year 1946-47, for which the accounting period was September 27, 1944, to October 15, 1945, the assessee submitted a return showing loss. THE income-tax authorities rejected the accounts produced by it and made an assessment by estimating income under the proviso to section 13, at the rate of 10% profit. In the account books there was an entry of cash deposit of Rs. 20,000 standing in the name of one Banshidhar Rawatmal. THE income-tax authorities called upon the assessee to prove the nature and source of the deposit. THEy disbelieved the explanation offered by it and held that the sum of Rs. 20,000 was its income from some undisclosed source, i.e., from sources within their knowledge and not disclosed to the department. THEy added this sum of Rs. 20,000 to the estimated amount of profit and assessed it on an income of Rs. 35,883. THE assessment was maintained by the Tribunal on appeal, which rejected both the contentions advanced before it, namely, (1) the income-tax authorities were not justified in treating the cash deposit of Rs. 20,000, as the assessees income from an undisclosed source and (2) that they were not justified in rejecting the books of account and in making an assessment by estimate. THE assessee did not at all contend before the Tribunal that, if the sum of Rs. 20,000 was to be treated as its income, it could be treated as its income from its business and not from an undisclosed source and that it should have been held to have been included in the estimated income of the business and should not have been added to it. THE appeal before the Tribunal had proceeded on the footing that, if it was an income, from an undisclosed source and not from the business and was, therefore, in addition to the estimated income from the business. It, however, referred the question whether there was any material to justify the finding that the income was from a source other than the business under the express directions from this court. The assessee is known to carry on only one business, namely, that of sale of handloom cloth and Kashi silk, etc.; there is no material whatever to suggest that it carries on any other business. The income-tax authorities and the Tribunal treated the income of Rs. 20,000 as an income from an undisclosed source without expressly stating that, and without even discussing whether it is from a source other than the business. They held that it is an income from an undisclosed source just because the source was not known to them; this fact was made clear by the Income-tax Officer. The source was undisclosed; this means that it could not be said that the income was not from the business. It might have been from this business, or it might have been from another business, or another source; the income-tax authorities and the Tribunal knew nothing whatsoever about it. This absence of knowledge on their part does not mean that the income was necessarily from a source other than the business; in the face of their professed ignorance of the source, they could not say that it was from another source and not the business any more than they could say that it was from the business. Undisclosed means undisclosed and not partially disclosed and partially undisclosed. To say that undisclosed source is a source known to be other than the disclosed business but not known to be of a particular nature is to indulge in self contradiction. The income-tax authorities had estimated the income from the business under section 23(3); the income that they had estimated was the total income from the business and there could not be any scope for their adding to it anything as income from the same business. The very idea that they had estimated the total income excluded the possibility of there being anything to add as income from the business. Therefore, they could not add the sum of Rs. 20,000 to the estimated income from the business, unless they could say that it was income not from the business but from some other source. This they could not say in view of their professed ignorance. As far as they were concerned, the income might have been from this business or might not have been. If it might have been from the business, it could not be added. When they did not know the facts regarding the source at all, they could not proceed as if they knew them; when they were in doubt, their duty was to resolve it in the assessees favour and not against it, i.e., treat it as forming part of the estimated income, if it could be, i.e., it was less than it. They had absolutely no material to justify the finding that it was from some other source, and, without such material, they could not treat it as such and add it to the estimated income from the business. Income from the six sources enumerated in section 6 is taxable : they include (iv) profits and gains of business, profession or vocation and "(v) income from other sources. That income from other sources means income, profits and gains of every kind, if not included under nay of the preceding heads, is made clear in section 12. Thus income from business cannot be treated as income from other sources. If an assessee carried on two or more businesses, professions or vocations, the incomes from all are to be added together as income under head (iv). An income cannot be included under head (v) unless it is found to be income not from business, profession or vocation, and without any material it cannot be found to be not income from business, profession or vocation. The only material that can be pointed out by the Tribunal as material justifying the finding that the disputed income of Rs. 20,000 was income from other sources, or even another business, is the mere fact that the explanation given by the assessee for the entry has been found to be unacceptable or even false. I may concede that when an explanation offered by an assessee for a certain entry in his books has been found to be false, not only may it be ignored but also it may be presumed that the receipt evidenced by the entry was assessable income. The limit to which the falsehood of the entry may lead to a presumption ends there; one cannot go further and presume that the come was from a particular source. The fact that the money was received on a certain date, as shown in the entry may be accepted as correct and it may be said that the income was received on that day, but that finding results from the mention of the date of the receipt. When the entry is to the effect that the money was received on a particular date, though the nature of the receipt as stated in the entry is disbelieved and it may be presumed to be income, the fact that it was received on the particular date may be accepted and the result would be a finding that the income was received on that day. Assumption of the source of the income stands on a different footing. An assessee makes an entry about an assessable income in order to evade its being taxed; he disguises an income as a capital receipt to prevent taxation. Therefore, when an entry about a capital receipt is found to be false, it will be presumed that it was an income disguised as capital receipt, but the question of the source still remains. There are a number of cases dealing with the question whether the amount of a cash credit or deposit entry in the account books, which have been rejected, and the explanation for which entry has been found to be false or unacceptable, is to be treated as income from an undisclosed source and capable of being added to the estimated income or undisclosed income form the business and to be deemed to have been included in the estimated income. One of the earliest cases dealing with the question is Srinivas Ramkumar v. commissioner of Income-tax. Agarwal C.J. and Meredith J. of the Patna High Court repelled the assessees contention that the amount of the deposit was undisclosed income form the business and was included in the estimated income from it and that to add to it the estimated income would amount to double taxation. The learned Chief Justice, who delivered the judgment, conceded that, if the amount had been income from the business, the assessees contention would have to be upheld, but went on to observe that it was not his case at any time that it was his income from the business, that this case always was that it was money deposited by a third person and that after rejecting his explanation for the entry the income-tax authorities could rely on circumstantial evidence that he had been indulging in extensive speculation business and that the amount was income from that business and not from the admitted disclosed business. It is to be noted that in that case there was evidence to the effect that the assessee carried on undisclosed business in speculations, and this evidence, coupled with the fact that his explanation for the deposit was found to be false, could justify the finding that the income was not from the admitted business but from the undisclosed speculation business. The estimate was only of the income of the admitted business and the amount of the deposit could certainly be added to it, because it was income from another business and the assessees total income from all businesses carried on by him was assessable.
(3.) THE next is Ramcharitar Ram Harihar Prasad v. Commissioner of Income-tax, another case from the Patna High Court, decided by Ramaswami and Rai JJ. THE material facts in that case were that the income-tax authorities estimated the assessees income by adding Rs. 15,644 to the income disclosed in the return and further added to it the sum of Rs. 85,370 on account of entries of cash credits in the accounts and the learned judges observed that this resulted in double taxation of the amount of Rs. 15,644. It was founded by the income-tax authorities that the assessee did not carry on any business other than the business for which the return was filed and that the income of Rs. 85,000 and odd was an undisclosed income from the business. Ramaswami J. pointed out at page 307 that an amount of a cash credit can be added to the estimated income from the business only when there is material to show that the assessee carries on an independent business apart from the business for which assessment is made. That would be a case of an exceptional nature. THE argument on behalf of the Commissioner of Income-tax that there was a possibility that the amount of Rs. 85,000 and odd was income from an undisclosed sources other than the business of which the return was filed was rejected with the remarks : THEre is no material whatever in the statement of the case to support the argument (page 307), and that : ... it is important to notice that there is no material to show that the assessee carries on any independent business other than the business of dealing in sugar, salt, kirana, etc. (page 308). On the facts found by the Tribunal the amount of Rs. 15,644 could not be said to be unconnected with the amount of Rs. 85.000 and odd and, therefore, it was held by the learned judges that the former amount was included in the latter amount and could not be added to it. This case is on all fours with the case at hand. THEre is no evidence in the instant case also about the assessees carrying on any business other than that of handloom cloth, Kashi silk, ect. Next we come to a Calcutta case in D. C. Auddy and Bros. v. Commissioner of Income-tax. Chakravartti C.J., with whom Lahiri J. concurred, approved of the addition of an amount of a cash credit to the estimated income. He agreed with Ramcharitar Ram Harihar Prasad, but distinguished it on the ground that the income disguised as a cash credit was income from an undisclosed source. THE statement of the assessee that the amount was received from third parties was held to be an admission that it was not an income from the business. THE learned Chief Justice observed at page 723 : If their explanation as to the particular source fails, they can hardly complain that their contention that the amounts came from outside is accepted and the sums concerned are brought under assessment as undisclosed profits from other sources. With great respect I find myself unable to agree to this proposition, the question is not whether an assessee has just cause for treating the income as income not from the business, but from a source other than it. Even income-tax authorities cannot approbate and reprobate; they cannot reject a part of a statement and accept the other part; they must accept the whole statement or reject the whole statement. It is certainly open to them to reject a part of a statement and act upon the other part if there is independent evidence which itself would be sufficient to justify their action. It would really be a case of their acting on the independent evidence and treating the second part of the statement as supporting or corroborating it. Without independent evidence leading to the same conclusion they cannot act upon the second after rejecting the earlier part. An entry of a cash credit or deposit only means that the money belonged to, and was received from, a their party; if it is found to be unacceptable, you say that the money is of the assessee and that he brought it into the accounts. The question will then arise - from where did he get it ? Since he has no explanation, you may say, it is his undisclosed income, but y o u cannot fall back upon the rejected entry and say further that it is income from a source other than the business. You cannot distort his statement the money is of a third party and treat it is an admission that it is of another source. Therefore, it is illogical to treat the entry as a statement that the money was an income (of the assessee) from a source other than the business. The entry is quite consisted with the money coming either from the business or from another source, and it is not open to the income-tax authorities arbitrarily to select one possibility in preference to the other. Omnia praesumuntur contra spoliatorem, but there are limits to the presumptions to be drawn even against a dishonest person. A fact can be presumed to exist only if the non-existence of it is reasonably inconsistent with the circumstances. If the existence of a fact and its non-existence are both consistent with the circumstances, neither the existence not the non-existence can be presumed. Therefore, the income-tax authorities could presume that the amount was an undisclosed income and also that it was an undisclosed income and also that it was an undisclosed income of the year in which the entry was made, but could not go further to assume that it was income not from the business but from another source. The learned Chief Justice said at page 723 : If the finds good reason to take the view that the cash credits really represent a part or the whole of the suppressed profits of the known source of income, he will assess it as a part of the income from that source..... If, on the other hand, the Income-tax Officer thinks that the deposits cannot be properly related to the known source to which the accounts relate, he will be quite entitled to treat them as they are, namely, merely as undisclosed profits from some source which is not known to him or, in other words, as concealed profits from undisclosed other sources. He equates source which is not known to him with undisclosed other source, for which I can find no justification. Undisclosed source means, source, the nature of which is now known; it does not mean a source other than the disclosed source, namely, the business. A source, the nature of which is now know, may include the business. If an income is form the business, but the fact is now known to the Income-tax Officer, it is a case of an income from an undisclosed source. The above observation emphasizes that an Income-tax Officer must have material in support of the view that the income disguised as a cash credit or deposit is really an income from the business; the words If, on the other hand, the Income-tax Officer thinks show that he must equally have good reason for the view that the income is not related to the business. He cannot think that it is not related to the business, unless he has some reason to justify his thinking so; I do not think the learned Chief Justice meant that he can arbitrarily think that it is not related to the business. Then the learned Chief Justice said at page 724 : Indeed, unless there be strong reasons to connect unexplained cash credits with the undisclosed profits derived from a known source of income, it is not possible to see how the taxing authorities can follow any course other than bringing them under assessment as income from other undisclosed sources........... If it (explanation) is properly rejected and the Income-tax Officer is left with an amount by which the assessees wealth increased during the accounting year, he is entitled, in law, to treat it as income and not knowing from what source the amount had come can only assess it as income from an unknown and undisclosed source. It is unrealistic to demand that he should find out that some source other than the disclosed ones, in fact, existed and should indicate what that source is before he can permit himself to bring the amounts under assessment as undisclosed profits. ;