2013 (1) TMI 17 - HC - Income Tax

Undisclosed income Block assessment Search & Seizure Income accrue or arise outside India - Money received from abroad - Gift from relative abroad - Income earn by N.O.R. outside India - Assessee s status is of a person Not Ordinarily Resident in India - AO argued that amount received by assessee represented gifts from her relatives abroad Assessee contended that the money was received from out of rental income - Provision of Section 5(1)(c) Held that - If the claim that it was a rental income which had accrued or arisen outside India, is true, then, the theory of gift made by her brothers and mother could not stand. If the assessee contends that that the benefits of proviso to Section 5(1)(c) enures to the advantage of the assessee, then, the assesee has to prove what is required under the provisions of the Act viz., that she had not derived any income outside India from the business controlled or a profession set up in India. A mere claim that the assessee is Not Ordinarily Resident in India does not take the assessee automatically away from the purview of Section 5. In the absence of any material placed before the authorities concerned that such income had accrued or arisen outside India, decides in favour of revenue

Summary

Issues:
1. Unexplained investment under Section 69 of the Income Tax Act
2. Taxability of gifts received from family members in Singapore under Section 5(1)(a) and Section 5(1)(c)
3. Sustaining the determination of undisclosed income in the block assessment

Issue 1: Unexplained investment under Section 69 of the Income Tax Act:
The assessee, a Singapore citizen married to an Indian, was found to have advanced a sum of Rs.78 lakhs to a textile company partner. The Assessing Officer treated this amount as undisclosed income due to lack of proof regarding its source. Enquiries in Singapore revealed insufficient income of the donors. The Tribunal upheld this decision, emphasizing the lack of evidence on the source and creditworthiness of the donors.

Issue 2: Taxability of gifts under Section 5(1)(a) and Section 5(1)(c):
The assessee claimed the amount was gifted by family members in Singapore and argued for non-taxability under Section 5(1)(c) as a "Not Ordinarily Resident." However, the Tribunal rejected this claim, noting the absence of proof that the income accrued outside India. The Tribunal emphasized that for the proviso to apply, it must be shown that the income did not arise from business or profession in India, which the assessee failed to establish.

Issue 3: Sustaining the determination of undisclosed income:
The Tribunal dismissed the assessee's alternative contention regarding non-taxability under the proviso to Section 5(1)(c) due to lack of evidence that the income did not arise from business in India. The Tribunal held that the assessee's status as "Not Ordinarily Resident" does not automatically exempt the income from taxation under Section 5. As the assessee failed to provide sufficient proof, the Tribunal confirmed the undisclosed income determination.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the tax case appeal due to the assessee's failure to substantiate the source of funds and establish non-taxability under Section 5(1)(c).