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Judgment
Sankar Prasad Mitra, J.—This is a reference u/s 66(1) of the Indian income tax Act, 1922. The relevant year of assessment is 1946-47. The corresponding year of account is the year 1352 B.S., i.e., from April 14, 1945, to April 13, 1946. The Applicant is a Hindu undivided family which during the material time consisted of (1) Hem Chandra Kar, (2) Jyotirindra Nath Kar, (3) Atul Chandra Kar, (4) Narendra Nath Kar, (5) Bishnu Ram Kar and (6) Benode Behari Kar. Hemchandra, Jyotirindra, Atul and Narendra are brothers. Benode and Bishnu are the sons of two of their deceased brothers Kedarnath and Rajendra.
In the original assessment, the income tax Officer determined the Applicant''s total income at Rs. 35,741 accruing from business and other sources, such as sale proceeds of forest produce, fisheries etc Subsequently, upon the demonetisation of high (sic) notes in January, 1946, the Assessee family encashed such notes of the value of Rs. 19,000 and five of the members, of the total value of Rs. 1,10,000. The amount encashed by each of them is as follows:
(1) Hemchandra Kar ... ... Rs. 26,000
(2) Jyotirindra Nath Kar ... ... Rs. 24,000
(3) Atul Chandra Kar ... ... Rs. 23,000
(4) Narendra Nath Kar ... ... Rs. 21,000
(5) Bishnu Ram Kar ... ... Rs. 16,000
Total: Rs. 1,10,000
When these facts came to light, the income tax Officer reopened the assessment both of the Hindu undivided family and of the five individual members for the assessment year 194647. In the re-assessment of the Hindu undivided family, the income tax Officer included Rs. 19,000 in its total income. And the amounts noted above which had been separately encashed by the five members, were included in the re-assessment of their respective total income.
The re-assessment of the individual members were completed on January 31, 1955. Two days thereafter, i.e., on February 2, 1955, the income tax Officer again issued another notice u/s 34 to the Hindu undivided family seeking to include the sum of Rs. 1,10,000 encashed by the five members individually, as the income of the family. On behalf of the Assessee it was stated before the income tax Officer that the amounts that the five members had encashed belonged to them and not to the family. It was explained that the members were in receipt of pocket allowances varying from Rs. 100 to Rs. 150 each per month and besides, they had received cash and jewellery as gifts from their relations. The income tax Officer was not satisfied with the explanation and included the sum of Rs. 1,10,000 also in the total income of the Hindu undivided family for the assessment year under consideration.
The Appellate Assistant Commissioner held that the second notice u/s 34 issued to the Hindu undivided family on February 2, 1955, was incompetent and therefore, he annulled the re-assessment made on the basis thereof.
The Appellate Tribunal held that, the notice u/s 34 issued on February 2, 1955, was a valid notice and gave the income tax Officer jurisdiction to proceed with the re-assessment of the Hindu undivided family. The Tribunal, therefore, remitted the case to the Appellant (sic) Commissioner to consider the merits of the (sic) and submit his findings to the Tribunal.
Thereupon the Appellate Assistant Commissioner examined the facts bearing upon the matter in issue, after giving the parties an opportunity to produce evidence in support of the respective pleas. He submitted his report dated January 14, 1960, to the Tribunal. He found that there was no evidence excepting the mere assertion of the Assessee that the high denomination notes encashed in the names of the different members of the family represented their individual assets comprising of gifts from relations and savings from personal allowances.
Upon receiving the report of the Appellate Assistant Commissioner the Tribunal heard the parties afresh. The Tribunal considered the materials on record and concurred with the findings of the Appellate Assistant Commissioner. The Tribunal was satisfied that the amounts of the high denomination notes, which were encashed, belonged to the Hindu undivided family and not to the individual members.
On these facts, the following questions of law have been referred to this Court:
(i) Whether on the facts and in the circumstances of this case the assessment made upon the Assessee Hindu undivided family pursuant to a notice u/s 34 of the Indian income tax Act issued on February 8, 1955, was in accordance with law?
(ii) Whether on the facts and in the circumstances of the case, the sum of Rs. 1,10,000 was rightly included in the assessment of the Hindu undivided family?
Supporting the decision of the Tribunal on the first question Mr. Debi Pal, learned Counsel for the Commissioner, relies on the provisions of Section 34(1)(a) of the Indian income tax Act, 1922 and contends that in the instant case there was omission or failure on the part of the Assessee i.e. the Hindu undivided family, to disclose fully and truly all material facts necessary for its assessment for the year in question. At the time of the first re-assessment the Hindu undivided family disclosed that only the sum of Rs. 19,000, which was encashed by it, belonged to it. It is the conduct of the Assessee that has to be tested, submits Mr. Pal, in each case u/s 34(1)(a). If the Hindu undivided family had said to the income tax Officer that the sum of Rs. 1,10,000 was also encashed but it was not its income and the income tax Officer had taxed the individuals the second notice might have been bad. But that was not the course of conduct of the Hindu undivided family in the instant reference. Mr. Pal referred us to the well-known decision of the Supreme Court in Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, the Supreme Court says:
To confer jurisdiction under this section [Section 34(1)(a)] to issue notice in respect of assessment beyond the period of four years, but within a period of 8 years, from the end of the relevant year, two conditions have therefore to be satisfied. The first is that the income tax Officer must have reason to believe that income, profits or gains chargeable to income tax have been under-assessed. The second is that he must have also reasons to believe that such ''underassessment'' has occurred by reason of either (i) omission or failure on the part of an Assessee to make a return of his income u/s 22, or (ii) omission or failure on the part of an Assessee to disclose fully and truly all material facts for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the income tax Officer could have jurisdiction to issue a notice for the assessment or re-assessment beyond the period of four years, but within the period of 8 years, from the end of the year in question.
At p. 201 the Supreme Court observed:
The position, therefore, is that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of ''underassessment'', that would be sufficient to give jurisdiction to the income tax Officer to issue notices u/s 34. Whether these grounds were adequate or not for arriving at the conclusion that there was non-disclosure of material facts would not be open for the Court''s investigation. In other words, all that is necessary to give this special jurisdiction is that the income tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of some material fact.
Mr. Pal has strongly urged that if the above principles laid down by the Supreme Court be applied to the facts of the present case, the second re-assessment would be perfectly justifiable. The Hindu undivided family failed to bring to the notice of the income tax Officer that the sum of Rs. 1,10,000 was its own income.
The contentions of learned Counsel for the Commissioner cannot be upheld on the facts of the present case. The Supreme Court in the case of the Calcutta Discount Co. Ltd. (Supra) at p. 200 has made the following observations:
The words are ''omission or failure to disclose, truly and fully all material facts necessary for his assessment for that year. It postulates a duty on every Assessee to disclose fully and truly all material facts necessary for his assessment what facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will for the purpose of computing or determining the proper tax due from an Assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the Assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as regards certain other facts and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable....
The Supreme Court in this passage has indicated that primary facts may come into the possession of the income tax Officer through various channels. They may be disclosed by the Assessee; they may be discovered by the income tax Officer on the basis of the facts disclosed by the Assessee; they may also be found otherwise. And it is from these primary facts that the income tax Officer draws inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the income tax Officer has to draw proper legal inferences and ascertain the tax payable. Now, what are the facts here? The Appellate Assistant Commissioner in para. 4 of his order at p. 12 of the Paper Book states:
The income tax Officer reports that in the course of re-assessment u/s 34 for the individual members it became apparent that they acted as mere name-lenders of the H.U.F. and that the total sum of Rs. 1,10,000 encashed by them actually belonged to the H.U.F. To consider this aspect a second notice u/s 34 had to be issued and therefore, the notice must be treated as valid.
The Appellate Tribunal in para. 6 of its Order states:
...But when the income tax Officer was making the re-assessment of the individual members it became apparent to him that the individual members could not have come by the respective amounts in the manner stated by them. The income tax Officer, however, felt bound to complete the re-assessment, as stated by the Departmental Representative, as a protective measure. It was only after the re-assessments of the individual members had been completed on the 31st January, 1955, that the income tax Officer had reason to believe that, in fact, the amounts represented the income of the Hindu undivided family and he issued a fresh notice u/s 34 to the Hindu undivided family on the 2nd February, 1955, for including Rs. 1,10,000 more in the total income of the Hindu undivided family.
From these statements of the Appellate Assistant Commissioner and the Appellate Tribunal it appears that, when the first reassessment was made the primary facts necessary for re-assessment of the Hindu undivided family were in the possession of the income tax Officer. These primary facts came into his possession not by virtue'' of disclosures made by the Hindu undivided family but were discovered by him otherwise. At the time of the first re-opening of the assessments not only of the Hindu undivided family but also of the individual members thereof the question of assessment of the entire amount represented by the high denomination notes was under direct consideration. The notice u/s 34 might have been issued to the Hindu undivided family in respect of the sum of Rs. 19,000 only. But, it is well-known, when a notice is issued u/s 34, based on a certain item of income that has escaped income tax, it is permissible for the income tax Officer to include other items of escaped income in the assessment in addition to the item which had initiated and resulted in the notice u/s 34: COMMISSIONER OF Income Tax, PUNJAB, HIMACHAL PRADESH and BILASPUR, SIMLA Vs. JAGAN NATH MAHESHWARY., . It was open to the income tax Officer, therefore, to assess the whole amount (Rs. 19,000 plus Rs. 1,10,000) in the hands of the H.U.F. and at the same time to make protective assessments in the hands of the individual members. The income tax Officer, in the instant case, did not choose to do so even after disbelieving the statement that the amount came out of the savings of the individual members. The escapement, if any, in the present reference, therefore, took place by reason of the failure of the income tax Officer to assess the Hindu undivided family with respect to the sum of Rs. 1,10,000 when he was in full possession of all the material facts. In these circumstances we cannot justify the issue of the second notice u/s 34 to the Hindu undivided family. The answer to the first question raised in this reference, therefore, is in the negative.
Having regard to the fact that we are of opinion that the second notice u/s 34 to the Hindu undivided family was not in accordance with law the second question framed herein is academic. But in case this matter goes further up we intend to express our views on this aspect of the reference as well.
Mr. E.R. Meyer, learned Counsel for the Assessee, has urged before us that, the onus has been wrongly put upon his client to prove that the sum of Rs. 1,10,000 does not represent its income. He contends that it is wrong to say that where the Hindu undivided family has a nucleus of funds the onus is on the individual members of the family to show that the properties standing in their own names were in fact not joint family properties. Learned Counsel has relied on a number of decisions, but we shall refer to only two of them which appear to be more relevant. In (1957) 31 ITR 271 the Nagpur High Court has held that, there is no presumption that a business carried on by a member of a joint Hindu family is a joint family business, nor is there any provision that a business started even by a karta is joint family business. Consequently, with regard to income from a business carried on by a joint family, it is not for the joint family to prove that it is not the income of the joint family the burden is on the income tax authorities to establish that the income is the income of the joint family and not of the member. The mere fact that the joint family owned considerable fund is not sufficient to throw the burden on the joint family, unless there is evidence to show that those funds were used for the purposes of the business. We are, with great respect, unable to agree fully with this decision for reasons stated later in this judgment.
The next case of Mr. Meyer is a decision of the Supreme Court in Mehta Parikh and Co. Vs. Commissioner of Income Tax, Bombay, . The Appellants in this case encashed on January 18, 1946 high denomination notes of Rs. 1,000 each of the face value of Rs. 61,000. After examining cash balances from December 20, 1945 to January 18, 1946, the income tax Officer found that in order to sustain the contention of the Appellant that this amount did not represent undisclosed profits, he would have to presume that there were 18 high denomination notes on January 1, 1946 and that all cash receipts thereafter upto January 18, were received in notes of Rs. 1,000 which he found impossible to do and assessed the whole amount of Rs. 61,000 as undisclosed profits. Before the Appellate Assistant Commissioner the Appellants produced affidavits from some persons to the effect that Rs. 43,000 were paid in Rs. 1,000 notes during the relevant period. The Appellate Assistant Commissioner did not accept the affidavits and confirmed the order of the income tax Officer. The Tribunal, on appeal, accepted the Appellants explanation as to Rs. 31,000 but rejected it as to Rs. 30,000. The Supreme Court was of opinion that the view of the Tribunal that it was impossible for the Appellant to have 61 notes on January 18 and rejection of 30 such notes were based on pure surmise and as the Appellants had furnished a reasonable explanation for possession of 61 notes, there was no justification for accepting their explanation in part and discarding it in relation to the sum of Rs. 30,000 and no part of the sum of Rs. 61,000 could in the circumstances of the case have been assessed as undisclosed profits. This case it is obvious, has nothing to do with the question of onus. It is a case in which the Supreme Court has stressed the principle, as in the case of Lalchand Bhagat Ambica Ram Vs. Commissioner of Income Tax, Bihar and Orissa, that a Judicial Tribunal cannot proceed on conjecture, suspicion or surmise.
The correct position in law seems to be that in cases of encashment of high denomination notes the initial onus is cast upon the Assessee to prove the source of the money represented by the notes and also to prove that the sum in question does not bear the nature of income. If the explanation offered by the Assessee be accepted by the tax authorities no further difficulty arises and the sum is not to be treated as the income of the Assessee. If, on the other hand, the explanation is not convincing and there is ample justification for holding it to be so then the Department is entitled to draw the inference that the sum encashed represents income either from the sources already disclosed by the Assessee or from some undisclosed source. It is open to the Department to treat the explanation as partly good and reject the rest of it; but when the Department chooses this course it must either show an inherent weakness in the rest of the explanation or rebut it by putting to the Assessee information or evidence which it has in its possession.
We may refer to a decision of the Supreme Court which supports the broad propositions set out in the foregoing paragraph. In Smt. Srilekha Banerjee and Others Vs. Commissioner of Income Tax, Bihar and Orissa, the Assessee, who was a colliery proprietor and a coal raising contractor, had encashed on January 22, 1946, high denomination notes of the value of Rs. 51,000. In his application under the Ordinance for encashment of the notes he had stated that for the purpose of conducting his business and making payment to labour which was to the tune of Rs. 30,000 to Rs. 40,000 every week, he had to keep large sums of money to meet an emergency as he did not get payment for work done every week. His explanation before the income tax Officer that the high denomination notes formed part of the cash balance at his head office was rejected by the income tax Officer on the ground:
(i) that there was a discrepancy in the statements filed by the Assessee to prove that the amount was cash in hand;
(ii) that although his business was large and the withdrawals from the accounts which he had in various banks were large and frequent, the Assessee had not maintained a central account showing withdrawals from the banks and remittances made to his various businesses;
(iii) that none of the books maintained by the Assessee and produced by him contained a bank account;
(iv) that there was no account of the personal expenses of the Assessee; and
(v) that he failed to show why he kept large sums in hand at one place when at each of the places where work was carried on there were banks with which he had accounts.
The Appellate Assistant Commissioner further found that the Assessee had withdrawn a sum of Rs. 45,000 on the day on which the high denomination notes were encashed and a further sum of Rs. 6,005 a few days later and neither sum had been utilised by the Assessee. The sum of Rs. 51,000 was brought to tax as income from undisclosed sources.
The Supreme Court held on the facts, that there were materials to show that the sum of Rs. 51,000 did not form part of the cash balance of the Assessee and the source of the money not having been satisfactorily proved the Department was justified in holding it to be assessable income of the Assessee from some undisclosed source.
The Supreme Court has expressed the view that if there is an entry in the account books of the Assessee which shows the receipt of a sum on conversion of high denomination notes tendered for conversion by the Assessee himself, it is necessary for the Assessee to establish, if asked, what the source of that money is and to prove that it does not bear the nature of income. The Department is not at this stage required to prove anything. It can ask the Assessee to produce any of books of account or other documents or evidence pertinent to the explanation if one is furnished and examine the evidence and the explanation. If the explanation shows that the receipt was not of an income nature, the Department cannot act unreasonably and reject that explanation to hold that it was income. If, however, the explanation is unconvincing and one which deserves to be rejected the Department can reject it and draw the inference that the amount represents income either from the sources already disclosed by the Assessee or from some undisclosed source. The Department does hot then proceed on no evidence, because the fact that there was receipt of money was itself evidence against the Assessee. There is thus, prima facie, evidence against the Assessee which he fails to rebut and being unrebutted, that evidence can be used against him by holding that it was a receipt of an income nature. The very words ''an undisclosed source'' show that the disclosure must come from the Assessee and not from the Department. In cases of high denomination notes, where the business and the state of accounts and dealings of the Assessee justify a reasonable inference that he might have for convenience kept the whole or part of a particular sum in high denomination notes, the Assessee, prima facie, discharges his initial burden when he proves the balance and that it might reasonably have been kept in high denomination notes. Before the Department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the Assessee information or evidence which it has in its possession. The Department cannot by merely rejecting unreasonably a good explanation convert good proof into no proof.
Mr. Meyer in trying to distinguish this case has stated that the Supreme Court was dealing with a case in which there was an entry in the account books of the Assessee and the sum in question was tendered by the Assessee himself. In this case so far as the sum of Rs. 1,10,000 is concerned nothing was tendered by the Assessee itself nor was there an entry in the Assessee''s books of account. These distinctions on facts made by Mr. Meyer are undoubtedly there; but in this judgment of the Supreme Court one finds the general approach that the tax authorities should make to a case of conversion of high denomination notes and from this point of view Sreelekha Banerjee''s case (Supra) is relevant and important to us.
I would now go into the question of onus with respect to Hindu undivided families specially in the context of the fact in the present reference that the undivided family did not tender the high denomination notes for encashment.
In Shrinivas Krishnarao Kango Vs. Narayan Devji Kango and Others, , the Supreme Court relies on the decision of the Privy Council in Appalaswami v. Surya Narayana Murti AIR (1947) P.C. 189 (192). The law was thus stated by the Judicial Committee:
The Hindu law upon this aspect of the case is well-settled. Proof of the existence of a joint family does not lead to the presumption that property held by any member of the family is joint and the burden rests upon any one asserting that any item of property is joint to establish the fact. But where it is established that the joint family possessed some joint property which from its nature and relative value may have formed the nucleus from which the property in question may have been acquired, the burden shifts to the party alleging self-acquisition to establish affirmatively that the property was acquired without the aid of the joint family property.
Reference may also be made in this connection to Mulla''s Hindu Law, 11th ed., p. 268.
The income tax Appellate Tribunal in para. 3 of its Order, in the instant case, has stated that here the joint family is admittedly in possession of adequate nucleus. The onus, therefore, shifts to the Assessee to prove that the amounts in question did not belong to the undivided family. Perhaps it would have been more correct to say that it was for the individual members to establish that the moneys represented by the high denomination notes were their own moneys and not those of the undivided family. But on the whole the approach of the Tribunal regarding burden of proof appears to us to be correct.
The income tax Officer, we find from p. 8 of the Paper Book, has stated as follows:
It was intimated previously by the members themselves that they had no separate source of income and that they received a pocket allowance of Rs. 100 to Rs. 150 per month from H.U.F. and that the sources of the H.D. Notes were their receipts of cash and jewellery from their aunt or grandmother who died in 1927-28 A.D. No evidence was produced in support of their position by any of the members. Their explanation is also at complete variance to what they stated at the time of encashment of the H.D. Notes in question, namely, that these H.D. Notes were derived from their personal savings. Their pocket allowances being Rs. 100 to Rs. 150 p.m. it is hardly possible for them to make any savings worth the name. Further, nothing concrete has been shown by them to prove that they had in reality any savings at their disposal at the time of encashment of the H.D. Notes.
From the above discussion, the natural and inevitable presumption will be that the H.D. Notes belonged to the H.U.F. and that the members merely encashed them in their individual names for avoiding tax on the H.U.F....
In the face of these facts we cannot but hold that the Tribunal has correctly applied the law. The Supreme Court in the case of Homi Jehangir Gheesta Vs. The Commissioner of Income Tax, Bombay, has said that, it is not in all cases that by mere rejection of the explanation of the Assessee, the character of a particular receipt as income can be said to have been established; but where the circumstances of the rejection are such that the only proper inference is that the receipt must be treated as income in the hands of the Assessee, there is no reason why the assessing authorities should not draw such an inference. Such an inference is an inference of fact and not of law. We do not, therefore, see how in these circumstances we can disturb the finding of the Tribunal. Here is a case of receipt of money by conversion of high denomination notes. The members of the Hindu undivided family offered explanations as to the sources of these moneys. The explanations were found to be self-contradictory and unconvincing. The income tax Officer was not satisfied with them and he included the moneys in the total income of the undivided family on the basis that the individuals were trying to avoid taxation on the H.U.F. We are unable to say that he was not justified in doing so.
Mr. E.R. Meyer, learned Counsel for the Assessee, ultimately said to us that assuming that all his other contentions failed all that could be held by the assessing authority was that the sum of Rs. 1,10,000 was joint family property. They could not hold, submits Mr. Meyer that, this was the income of the joint family. This argument of Mr. Meyer does not appeal to us on the facts of the present reference. The Supreme Court in A. Govindarajulu Mudaliar Vs. Commissioner of Income Tax, Hyderabad, lays down that whether a receipt is to be treated as income or not must depend very largely on the facts and circumstances of each case. Where an Assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year the income tax Officer is entitled to draw the inference that the receipt is of an assessable nature. Here, as I-have said, the income tax Officer was convinced that the members of the family were attempting to escape taxation on the H.U.F.
Lastly, we should observe that even apart from the question of onus the Appellate Tribunal has said in para. 4 of its Order:
considering the evidence on record and the circumstances of the case we are satisfied that the amount of the high denomination notes encashed belonged to the Hindu undivided family and not to the individual members of the family who encashed them. The Assessee''s representative referred to the fact that there was no encashment in the name of Benode Behari, a son of a deceased brother of Jyotirindra Nath Kar. It was contended that if the high denomination notes belonged to the joint family there would be some encashment in the name of Benode Behari as well and the fact that no high denomination notes were encashed in his name was inconsistent with the theory that the joint family was the owner of all the money. The argument cuts both ways. If, as stated, in Jyotirindra Nath Kar''s affidavit, all the members had received gifts from Smt. Sashimukhi and Narmada Devi and such members had converted the bulk of the amounts received by them into H.D. Notes. There was no explanation why no high denomination notes were encashed by Benode Behari. The contention is, therefore, unavailing.
This view of the Tribunal as well we see no reason to interfere with. In the premises, the answer to Q. No. 2 referred to us is in the affirmative. But as I have already stated, in view of our answer to Q. No. 1 in the negative, Q. No. 2 in this reference is academic.
Each party will bear and pay its own costs.
K.C. Sen, J.
I agree.