1965 (4) TMI 21 - SC - Income Tax

Whether on the facts and in the circumstances of the case what the assessee received in the relevant years is assessable to tax and whether section 34 of the Income-tax Act could be invoked in regard to the years 1947-48, 1948-49 and 1950-51 ? Held that - What the assessee received in the relevant years of account was not assessable to tax. It is unnecessary to record, as already observed, a finding on the second branch of the question, viz., whether section 34 of the Income-tax Act could properly be invoked in regard to those receipts. Appeal allowed.

Summary

Issues Involved:
1. Whether the amounts and jewellery received by the appellant from Sita Devi were gifts or remuneration for services rendered.
2. Whether the Income-tax Officer was justified in reopening the assessment under section 34 of the Income-tax Act for the years 1947-48 and 1950-51.
3. Whether the burden of proof lay on the appellant to establish that the receipts were gifts and not taxable income.

Issue-wise Detailed Analysis:

1. Whether the amounts and jewellery received by the appellant from Sita Devi were gifts or remuneration for services rendered:

The appellant, a money-lender and cinema theatre operator, disclosed receiving jewellery and money from Sita Devi, Maharani of Baroda, as gifts out of "natural love and affection." Initially, the Income-tax Officer accepted this claim. However, in subsequent assessment proceedings, the Income-tax Officer treated these receipts as remuneration for services rendered by the appellant as a maid-servant or secretary to Sita Devi. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this view, treating the receipts as taxable income. The High Court also supported this finding, stating that the appellant failed to provide evidence that these were gifts and not remuneration. The Supreme Court, however, disagreed, stating that the burden of proving that the receipts were taxable income lay on the department, not the appellant. The Court found that the evidence relied upon by the Tribunal, such as the appellant's role in disbursing salaries and being described as a "private secretary" in a bill, was insufficient to prove that the receipts were remuneration for services rendered.

2. Whether the Income-tax Officer was justified in reopening the assessment under section 34 of the Income-tax Act for the years 1947-48 and 1950-51:

The Tribunal and the High Court had held that the Income-tax Officer was justified in reopening the assessment under section 34. However, the Supreme Court found it unnecessary to consider the competence of the Income-tax Officer to issue a notice under section 34, given its finding that the receipts were not remuneration for services rendered. Therefore, the reopening of the assessment under section 34 was not addressed in detail by the Supreme Court.

3. Whether the burden of proof lay on the appellant to establish that the receipts were gifts and not taxable income:

The High Court had held that the burden of proving that the receipts were gifts lay on the appellant. However, the Supreme Court stated that the Act imposes a general liability to tax upon all income, but it does not mean that everything received by a person is taxable income. The burden of proving that a receipt is taxable lies on the department. The appellant's claim was that the receipts were gifts and not income, hence the burden was on the department to prove otherwise. The Supreme Court found that the High Court had committed an error of law by placing the burden of proof on the appellant. The Court concluded that the evidence presented by the department was insufficient to establish that the receipts were taxable income.

Conclusion:

The Supreme Court allowed the appeals, holding that the amounts and jewellery received by the appellant were not assessable to tax as income. The Court also found that the High Court had erred in placing the burden of proof on the appellant. The appeals were allowed, and the Commissioner was ordered to pay the costs of the appellant in both the Supreme Court and the High Court.