KM. N.N.S.N. Subramanian vs Commissioner of Income Tax, Madras

Ramachandra Iyer, C.J.—The question referred for decision, namely, ""Whether, on the facts and in the circumstances of the case, there was

material to support the finding of the Tribunal that the sum of Rs. 52,500 was the income of the assessee from undisclosed sources in the year of

account ?"" relates to the assessment for the year 1947-48 of a Hindu undivided family, its then karta being one Nachiappa Chettiar. The relevant

accounting period was the year ending with April 4, 1947. Nachiappa and his adoptive father, Swaminathan Chettiar, originally constituted a Hindu

coparcenary. There was a partition between them on January 20, 1940, with the result the Nachiappa and his sons constituted another undivided

family. The assessment in question concerns Nachiappas family. Subsequently, on June 11, 1948, both Swaminathan and Nachiappa reunited; the

former did not survive the re-union very long. But the re-union has no relevance to the present case, which is concerned with the assessment of the

family of Nachiappa prior to such re-union.

Nachiappa owned certain properties in this country; he had also an interest in some business conducted in Malaya and Burma. On account of

the conditions brought about by the Second World War there was no assessment of his family till July 2, 1948, when the assessment of his income

was made for the year 1947-48. Besides the properties referred to above, the assessee had an interest in partnership business at Singampunari

and Dindigul, in which Nachiappa was a partner. It was later found that the income received by the assessee from the partnership business at

Dindigul-Singampunari had escaped assessment during the year of assessment. Proceedings u/s 34 were then commenced and that income was

brought to tax.

Further enquiry by the Income Tax Officer revealed that on February 5, 1947, a deposit had been made in the Indian Overseas Bank at its

Pudukottai branch, of a sum of Rs. 52,500 in the name of Nachiappas second wife, Meenakshi Achi, who had been married to him for over

eleven years by then. The assessee stated that the moneys belonged to his wife, having been gifted to her a week prior to the deposit by

Swaminathan, his adoptive father, in fulfillment of an ante-nuptial promise. It was conceded that the parents of the lady were not in a position to

provide her with that sum. Meenakshi Achi herself said that she got no moneys from them. It was not even the case of the assessee that, apart from

her husband and father-in-law, there was any other source from which she could have got the moneys to be put in the bank in her name. The

matter in issue before the department was, therefore, a simple one, namely, whether it was the father-in-law or the husband that provided the

necessary funds to the lady for making the deposit in question. The Income Tax Officer found that Swaminathan could not have advanced the

amount for three reasons, (i) From the statement made by Swaminathan as to the details of remittance received by him from his foreign business

and the disbursements made by him, it was clear that he could have had no cash balance on April 1, 1946. Subsequent thereto, he had received

only a sum of Rs. 38,000 prior to the date of the alleged gift, a substantial portion of which must have been utilised for the family expenses and the

balance could not, therefore, have enabled him to make the alleged gift to his daughter-in-law. (ii) After the, death of Swaminathan, his agent filed a

statement showing receipts and disbursements of moneys by Swaminathan during the year of account relevant to the assessment year 1947-48.

The correctness of that statement was confirmed by Nachiappa. In that statement there was no mention of Swaminathan ever having made a gift of

money to his daughter-in-law, Meenakshi Achi. (iii) Nachiappa himself was not prepared to say anything, out of his own knowledge, what his

adoptive father did with his income. The officer, therefore, found that the alleged gift by the father-in-law in favour of his daughter-in-law was not

true and that the sum of Rs. 52,500 deposited in the name of Meenakshi Achi came from Nachiappa. That amount was, therefore, treated as the

income of the assessee from undisclosed sources. This view was affirmed on appeal by the Appellate Assistant Commissioner and on further

appeal by the Appellate Tribunal.

On the Tribunal refusing to state a case u/s 66(1), the assessee applied to this court for directing the Tribunal to state a case u/s 66(2). At that

time a complaint was made on behalf of the assessee that the account books, which would prove the gift by Swaminathan to Meenakshi Achi and

which had been actually filed before the Tribunal before the hearing of the appeal, had not been considered by it. This court directed the Tribunal

that, in submitting a statement of the case, it should record a finding with reference to the materials placed before it. The Tribunal has accordingly

submitted a statement of the case showing that the account books of Swaminathan, as well as the explanatory statement filed by the assessees

counsel, do not support the case as to gift by Swaminathan to Meenakshi Achi.

Mr. Kesava Ayyangar, appearing for the assessee, does not now challenge the correctness of the finding reached by the department as well as

the Tribunal that Swaminathan could not have provided and did not actually provide the money for the deposit standing in the name of Meenakshi

Achi. But learned counsel has argued that, inasmuch as the bank account stands in the name of Meenakshi Achi, a mere finding that Swaminathan

did not provide her with any funds cannot lead to the inference that the deposited money represents the moneys given to her by her husband,

Nachiappa. It is therefore urged that there was no material for the department as well as the Appellate Tribunal to hold that the sum of Rs. 52,500

was the income of the assessee.

Considered as an abstract proposition, divorced from the facts of the case, the contention can be said to be unexceptionable. As the deposit

stands in the name of Meenakshi Achi, there can be no presumption that it was her husbands money. The case of her husband was that the money

came from a particular source, namely, from his adoptive father. Failure to establish that case cannot, as a matter of law, mean that the amount in

question represents the income received by Nachiappa which he subsequently transferred over to his wife. But this case cannot be decided on

mere presumptions. A positive case was advanced and evidence was adduced. There are two vital matters in the case which have a material

bearing on the decision of the question. First, the story of the father-in-law providing such a large sum as Rs. 52,500, in fulfilment of an alleged

undertaking given by him at the time of Meenakshi Achis marriage, has been demonstrated to be false. It is now found that he had no available

funds to pay the amount. It even appears extremely unlikely that he would have done so, after the partition between himself and Nachiappa. If

really he had promised to make a gift of moneys to his daughter-in-law, who was willing to come into his family as the second wife of Nachiappa,

the appropriate occasion for implementing the promise will be either at the time or immediately after marriage, or, at any rate, at the time of

partition. It was not then done. Swaminathan himself, during his lifetime, never said that there was either such an agreement or that he had provided

moneys to Meenakshi Achi in fulfilment of his obligations. It is so clear from the material available in the case that Meenakshi Achi had no other

source from which she could have obtained the money except her own husband, who had several businesses of his own. It has also been proved

that Nachiappa had deliberately suppressed from the Income Tax authorities a part of his income relating to the business to which we have made

reference earlier. The assessee was, therefore, not a person who was above adopting devices to evade the tax. Secondly, the only point at issue

before the authorities was whether the father-in-law or the husband of Meenakshi Achi provided her with funds. There was no suggestion of a

possibility of Meenakshi Achi obtaining the money from any other source. It is clear from the record that the assessee has proceeded on the

footing that if the case of gift by Swaminathan is to be negatived, the money must be held to have been contributed by him. It will follow that the

result of the finding reached by the Appellate Tribunal (which is now accepted by the learned counsel appearing before the assessee), that there

was no gift of the sum of Rs. 52,500 to Meenakshi Achi by her father-in-law, means that the money must have been given to her by here own

husband.

In Govindarajulu Mudaliar v. Commissioner of Income Tax certain credits found in the accounts of the assessee were not satisfactorily explained

by him. It was held that it was open to the Income Tax Officer and the Appellate Tribunal to hold that they represented the concealed income of

the assessee. Referring to an argument, similar to the one now pressed before us, the Supreme Court observed :

Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the

receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to

give explanation he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which

he claimed to be the real owner. When both these explanations were rejected, as they have been, it was clearly open to the Income Tax Officer to

hold that the income must be concealed income.

It was, however, been argued that the principle accepted in the above decision would not apply to a case where the money is standing in the

name of a third party. In such a case it is said there can be no presumption that the assessee had actually received the money and then paid it over

to the third party. There is certainly force in this contention. But, as we pointed out, the point to be decided here is whether it was the father-in-

laws money or the husbands money that went in to make the deposit. There was no case as we said that independent of either of them the lady

could have got that or even any sum.

Learned counsel for the assessee placed considerable reliance on the decision in Ramkinkar Banerji v. Commissioner of Income Tax, where an

assessee, who was interested in a colliery, wanted to obtain a deduction of a sum of money paid by him as royalty to his wife who had acquired

the interest of the superior landlord. The Income Tax authorities declined to allow the deduction from his income on the ground that there was no

evidence to show that the landlords rights were acquired by the wife out of her own funds. The Patna High Court held that, in the absence of

evidence to the contrary, the wife must be presumed to have acquired the rights with her own funds and should, therefore, be regarded as the

owner thereof. The payment of royalty was allowed to be deducted. This decision only gave effect to the familiar principle of law, namely, that

where a property stands in the name of a married woman, it cannot be presumed that it was not hers but that of her husband. It will no doubt be

open to a party, who wants to plead that the apparent title is not the real one to prove that fact : where that has not been done, the apparent title

will be the real one.

But the case before us does not rest on mere presumptions. Statements were made which required an investigation by the department and the

Tribunal and which showed that, but for her husbands wealth, the lady had no means. If the story of the gift by the father-in-law fails, the

department had no other alternative except to proceed upon the footing that the money must have been the husbands.

Mr. Kesava Ayyangar, however, placed considered reliance on the observations of the Privy Council in Commissioner of Income Tax v.

Bombay Trust Corporation Ltd. There, an Indian company, which was borrowing moneys from a foreign company had paid interest therefore : it

also happened to be the agent of the foreign company and in that capacity it was assessed to tax as such agent. During the relevant period all the

moneys due to the foreign company by the Indian Company were purported to be paid to a common banker at Shanghai. There were entries in the

account books of the bank as well as the Indian company showing that there was no longer any loan by the Hong Kong company to the Indian

company, but, on the contrary, the latter had borrowed from the Shanghai bank. The Income Tax authorities sought to assess the Indian company

on the interest paid in respect of the loan by the Shanghai Bank as being in effect interest paid to the Honk Kong company, in view of the fact that

all the companies were closely associated concerns and worked in concert. The Privy Council, while setting aside that assessment, observed :

However sceptical the attitude which the Income Tax authorities may think fit to adopt towards the declarations offered and the entries made in the

Bombay companys books, it is necessary, if the assessment made is to be supported, that there shall be some evidence to show that in 1927 the

loan from the Hong Kong company continued and that interest accrued or arose to that company thereon. If the entries in the books show no

payment to the Hong Kong company, and nothing due to the Hong Kong company, the Income Tax authorities cannot without evidence insist

upon a right to treat entries showing a tael loan of six and a half crores made by the Shanghai company, and interest calculated in table paid

thereon, as evidence that a somewhat similar amount was due from and was being paid by the Bombay company to the Hong Kong company.

But it must be noticed that in that case the Shanghai company was capable of advancing the large sum of money, which the accounts showed

as having been done by it. Their Lordships of the Privy Council have themselves pointed out that it was credible that the persons in ultimate control

of all the associated companies should desire to pay off the foreign company and to obtain another financier for the Indian company, as that would

have the effect of saving the tax.

But those or similar circumstances do not exist here. The only question in the present case is whether it was the assessee who enabled his wife

to make the deposit in question, or it was his father. That question has to be decided on the materials available, with reference to the comparative

means of the two persons. The Tribunal, in affirming the view taken by the department, has found as a fact that it was the husband who gave the

money. In our opinion, there was sufficient material in the case to reach that conclusion.

The question referred to us is, therefore, answered in the affirmative and against the assessee. He will pay the costs of the department.

Counsels fee Rs. 250.

Questions answered in the affirmative.