1980 (4) TMI 46 - HC - Income Tax

Summary

Issues Involved:
1. Ownership of high denomination notes.
2. Validity of the Tribunal's finding.
3. Competence of the reference under section 66(2) of the Indian Income Tax Act, 1922.
4. Evidence supporting the Tribunal's finding.
5. Allocation and apportionment of undisclosed income.

Detailed Analysis:

1. Ownership of High Denomination Notes:
The primary issue was whether the high denomination notes encashed by the assessees belonged to them or to outside parties. The assessees argued that the notes belonged to third parties who had approached them for encashment due to the demonetization ordinance.

2. Validity of the Tribunal's Finding:
The Tribunal concluded that the high denomination notes did not belong to the assessees but to outside parties. The Tribunal's finding was based on the evidence presented, including the statements made by the assessees and the evidence gathered during the criminal proceedings.

3. Competence of the Reference under Section 66(2):
The assessees contended that the reference was incompetent because the question of law being debated was not the one originally sought by the revenue under section 66(1) of the Indian Income Tax Act, 1922. The court examined whether the reframed question under section 66(2) was within the scope of the original question.

4. Evidence Supporting the Tribunal's Finding:
The Tribunal's finding was based on several pieces of evidence:
- Statements of the assessees during reassessment proceedings.
- Evidence from the criminal trial, including the acquittal of one of the assessees.
- The Tribunal considered the circumstances, such as the financial status of the assessees and the fact that large sums of money were not found in their possession.
- The evidence indicated that the high denomination notes were brought to Desai for encashment by third parties due to the demonetization ordinance.

5. Allocation and Apportionment of Undisclosed Income:
The Tribunal determined that the income from the encashment of high denomination notes should be allocated among the three assessees. The Tribunal allocated Rs. 60,000 to Desai and Rs. 22,750 each to Phatak and Karandikar as their share of the remuneration for encashing the notes.

Conclusion:
The High Court upheld the Tribunal's finding that the high denomination notes did not belong to the assessees but to outside parties. The court found that there was substantial evidence supporting the Tribunal's conclusion. The reference under section 66(2) was deemed competent, and the question was answered in the affirmative, in favor of the assessees. The assessees were awarded the costs of the reference.