CHUNILAL TICAMCHAND COAL COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question in this case arises as to the assessment of income -tax on the petitioner for the assessment year 1940 -47. The petitioner is a private limited company called Messrs. Chunilal Ticamchand Coal Company carrying on business of coal mining at Kusunda in the district of Manbhurn. The shares of the company are held by the members of the two Hindu undivided families of Ticamchand Chaudhury and Baijnath Gopalka. The accounting year in this case is Bengali Samvat 1352 which corresponds to the period from 14 -4 -1945 to 13 -4 -1946. For this year the petitioner showed a sum of Rs.27,917 in his return. But this return was not accepted by the Income -tax Officer who increased the assessable income of the petitioner to a sum of Rs.49,779. On appeal the amount was reduced by the Appellate Commissioner to a sum of Rs.29,360. The matter was taken in further appeal to the Income -tax Appellate Tribunal who reduced the assessable income to the figure of Rs.25,360; in other words, the Income -tax Appellate Tribunal practically accepted the figures given by the petitioner in his return except for minor details. In January 1947 the Income -tax Officer received information that the assessee had exchanged high denomination notes after the passing of the Demonetization Ordinance on 12 -1 -1946. A proceeding under S.34 was started against the petitioner and as a result of this proceeding the Income -tax Officer held that an additional sum of Rs.68,000/ - should be added to the income of the petitioner. An appeal was preferred by the assessee against this assessment before the Appellate Assistant Commissioner but the appeal was dismissed. A further appeal was taken before the Income -tax Appellate Tribunal who took the view that out of the sum of Rs.68,000 only a portion, viz., Rs.35,000 should be treated as coming out of the cash balance of the business and the rest of the amount, viz., Rs.33,000 should be treated as secreted profit of the assessee, liable to be taxed.

(2.) IN this state of facts the Appellate Tribunal has referred the following question of law for the opinion of the High Court: "Whether there is any material to justify the conclusion that Rs.33,000 is secreted profit for the purpose of assessment, this amount being a part of Rs.68,000 which was the amount represented by high denomination notes encashed by the petitioner on 24 -1 -1946 -

(3.) BUT that does not dispose of the question which has been referred to us in this case. It was pointed out by Mr. Bahadur who argued on behalf of the Department that there was material on the record of the case to support the finding that the whole sum of Rs.68,000/ - which was the value of the high denomination notes should be treated as secreted profit of the assessee. Counsel referred in this connection to the order of the Appellate Assistant Commissioner. Two reasons have been given by the Appellate Assistant Commissioner for the finding that the amount of Rs.68,000 did not form a portion of the cash balance on 12 -1 -1946 on which date the Demonetization Ordinance was promulgated. It was stated by the Appellate Assistant Commissioner in the first place that the books of account did not expressly mention that the high denomination notes were received by the assessee in the course of business dealings. But this is hardly a circumstance which can reasonably be taken into account in deciding whether the cash balance consisted in part of high denomination notes.The possession of high denomination notes did not attract suspicion before the authorities promulgated the Demonetization Ordinance. The mere fact that before the date of the Ordinance the assessee did not choose to mention in the account books the receipt of high denomination notes would not suggest that the cash balance was not constituted of the high denomination notes as alleged by the assessee. The second ground upon which the Appellate Assistant Commissioner proceeded was that the assessee did not require the high denomination notes for payment to the labourers working in the coal mine. It was assumed by the Appellate Assistant Commissioner that the cash balance was meant to be a ready fund for conducting day to day affairs of the mining business. On this point Mr. Dutt referred to the statement at page 7 showing a summary of the receipts and disbursements for the period from 15 -12 -1945 to 2 -2 -1946 and upon the basis of this statement counsel argued that the intention of the assessee was always to keep in his hands a sum of at least over Rs.63,000/ - as emergency reserve. It was argued that this cash balance was not meant for conducting the day to day business of the Colliery. For that purpose the assessee drew the amounts whenever necessary from his current account in the various banks at Jharia. For example, the account book dated 22 -12 -1945 shows that the opening balance was Rs.81,493, the receipt was Rs.11,163, the expenditure was Rs.12,453 and the closing balance on that date was Rs.80.203. The accounts for several other dates, viz., 29 -12 -1945, 5 -1 -1946 and 12 -1 -1946 and so on show that the habit of the assessee was to keep the reserve as far as possible intact and to take out money from the current account of various banks at Jharia for meeting the day to day expenditure of the colliery business. In these circumstances the contention put forward on behalf of the assessee is that the assumption made by the Appellate Assistant Commissioner is incorrect. In our opinion the argument of Mr. Dutt is well founded and the assessee has furnished a reasonable explanation for his possession of the high denomination notes to the extent of Rs.68,000.