COMMISSIONER OF INCOME TAX Vs. MEGHU SAO JHANDHU SAO

JUDGEMENT

(1.) THE assessee in this case is an HUF dealing in the business of mica, cloth and grain. The assessment year is 1947 -48. The accounting period of the mica business was the calendar year 1946 and for cloth and grain was the Diwali year 2002 -2003 which corresponded to the period 19th Nov., 1945, to 26th of Oct., 1946. The assessee had maintained his books of account for these businesses according to these accounting years. The original assessment was made by the ITO on a amount of Rs. 5,117 as total income derived by the assessee from property and from business.

(2.) THE ITO later on discovered that on 21st of Jan., 1946, the assessee had encashed high denomination notes to the extent of Rs. 22,000. A proceeding under S. 34 was started against the assessee who was asked to explain the source of this amount. The assessee explained that the amount was a part of the cash balance of the business. This explanation was rejected and the ITO assessed the whole amount of Rs. 22,000 as secreted profits of the assessee from the business. An appeal was preferred by the assessee to the AAC who allowed the appeal to the extent of Rs. 3,000 and held that the balance of Rs. 19,000 should be held to be the secreted profits of the assessee. A further appeal was taken to the Tribunal on behalf of the assessee. The Tribunal affirmed the view of the AAC that the amount of Rs. 19,000 represented the secreted profits of the assessee from the business, but the Tribunal considered that the amount could not be taxed during the asst. yr. 1947 -48. The reason given by the Tribunal was that the encashment of the high denomination notes took place on the 21st of Jan., 1946, and there could be no previous year in respect of income from undisclosed sources other than the financial year preceding the assessment year. The Tribunal, therefore, held that the amount should not have been assessed to tax for the asst. yr. 1947 -48 and allowed the appeal preferred on behalf of the assessee.

(3.) ON behalf of the IT Department Mr. Tarkeshwar Prasad made the submission that the Tribunal was wrong in law in taking the view that the amount of Rs. 19,000 should not have been taxed for the asst. year 1947 -48. It was pointed out by the learned counsel that for the mica business the assessee kept his account books according to the calendar year 1946 and for the cloth and grain business the account books were kept according to Diwali year 2002 -2003 Samvat, corresponding to the period from 19th Nov., 1945, to the 26th of Oct., 1946. In the course of assessment the assessee had intimated his option that the previous year should not be the financial year 1946 -47 but should be the accounting year for the two businesses according to the books of account. The point taken by Mr. Tarkeshwar Prasad was that it was not open to the Tribunal to say that the secreted profits which the assessee had made from the businesses of mica and cloth and grain should not be assessed for the previous year according to the account maintained by the assessee himself. In our opinion the argument of the learned counsel is well -founded. The ITO has mentioned in the course of his order that the amount of Rs. 22,000 represented the income of the assessee from the secret source of the business. At page 6 of the paper book the ITO has mentioned that the two businesses of the assessee were (a) mica and (b) cloth and grain. The ITO has made reference to the fact that during the war period "highly profitable deals of short duration were not unknown". If the order of the ITO is read as a whole it appears to us that the amount of Rs. 22,000 was treated by him as secret income derived by the assessee from two sources of business, viz., mica and cloth and grain. It is necessary to say in this connection that it is not the case of the assessee that he has any other business apart from the business of mica and the business of cloth and grain. The finding of the ITO must therefore be taken to be that the income of Rs. 22,000 was derived by the assessee from the secret transactions in the business of mica and in the business of cloth and grain. If that is the position the Tribunal was not justified in law in holding that in respect of this amount of Rs. 19,000 the previous year should be taken to be the financial year 1945 -46 and not the accounting year shown by the assessee in his books of account for the two businesses of mica and cloth and grain. In the course of his argument Mr. R. J. Bahadur appearing on behalf of the assessee stressed the point that the "profitable deals" referred to by the ITO should be taken to be a distinct source of income within the meaning of S. 2(11) of the IT Act. We are unable to accept this argument as correct. The profitable deals were made by the assessee in the two businesses of mica and cloth and grain and merely because these deals had not been disclosed by the assessee in his account books it cannot be said that they are a separate source of income within the meaning of S. 2(11) of the Act. To adopt the language of Lord Atkin in the case of Rhodesia Metals Ltd. vs. Commissioner of Taxes (1941) 9 ITR Suppl 45, " the expression ' source of income ' is not a legal concept but it must mean something which a practical man would regard as a real source of income". It is therefore clear that the amount of Rs. 19,000 which represented the secreted profits of the assessee from the two businesses of mica and cloth and grain should not be treated as a separate source of income. The source of this income is the mica business and the cloth and grain business of the assessee for which accounts were maintained by the assessee either according to the Diwali year 2002 -2003 or according to the calendar year 1946. Sec. 2(11)(a) of the Act is important in this context. Sec. 2(11)(a) states : "'Previous year ' means in respect of any separate source of income, profits and gains the twelve months ending on the 31st day of March next preceding the year for which the assessment is to be made, or, if the accounts of the assessee have been made up to a date within the said twelve months in respect of a year ending on any date other than the said 31st day of March, then at the option of the assessee the year ending on the day to which his accounts have so been made up : Provided that were an assessee has once been assessed in respect of a particular source of income, profits and gains, he shall not in respect of that source exercise this option so as to vary the meaning of the expression ' previous year ' as then applicable to him except with the consent of the ITO and upon such conditions as the ITO may think fit". In this case it is the admitted position that the assessee had exercised his option in the course of assessment and had chosen as accounting years the calendar year 1946 and the Diwali year 2002 -2003 for the respective businesses of mica and of cloth and grain. We see therefore no justification on the part of the Tribunal to hold that the previous year for the secreted profits of the amount of Rs. 19,000 should be financial year 1945 -46 and that assessment should have been made in the asst. year 1946 -47.