1954 (2) TMI 18 - HC - Income Tax

Summary

Issues:
1. Assessment of cash credit in the books of the assessee in the name of a third party.
2. Interpretation of burden of proof in cases of cash credits in the name of the assessee versus a third party.
3. Application of Section 34 of the Indian Income-tax Act.
4. Evaluation of evidence and material to determine ownership of the cash credit.

Detailed Analysis:
1. The case involved an assessment of a cash credit of Rs. 35,000 found in the books of the assessee in the name of a third party, Kedarnath Agarwala, which was later transferred to his daughter. The Income-tax authorities initially allowed a deduction for interest paid to the daughter but later initiated proceedings under Section 34 of the Income-tax Act, claiming the amount as secreted profit of the assessee.

2. The judgment highlighted the distinction in burden of proof between cases where cash credits are in the name of the assessee versus a third party. If the credit is in the assessee's name, the burden is on the assessee to prove the source; however, if in a third party's name, the burden shifts to the department to prove ownership. Previous court decisions were cited to support this principle.

3. The court analyzed the application of Section 34 of the Income-tax Act, which allows reassessment if income has escaped assessment. The tribunal had held that the amount of Rs. 35,000 was secreted profit and should be assessed under this provision. However, the court emphasized that the department must provide material to establish ownership, which was found lacking in this case.

4. In evaluating the evidence, the court found that the department failed to discharge the onus of proving that the cash credit did not belong to Kedarnath but to the assessee. The tribunal's findings were deemed arbitrary and lacking material support. The court emphasized the importance of the registered deed of gift transferring the amount to Kedarnath's daughter as evidence against the department's claim.

In conclusion, the High Court held that there was insufficient material to support the assessment of income tax on the amount of Rs. 36,120 under Section 34 of the Income-tax Act. The court ruled in favor of the assessee, emphasizing the failure of the department to establish ownership of the cash credit. No costs were awarded in the reference.