1958 (11) TMI 3 - SC - Income Tax

Whether the Income-tax Appellate Tribunal was bound by the findings of fact of the Income-tax Officer relating to the nature and division of the assets of the joint family in question which he arrived at in his enquiry under section 25A(1) of the Indian Income-tax Act ? Whether there was any material or evidence upon which the taxing authorities could legally hold that the amount of ₹ 2,30,346 (Rupees two lakhs thirty thousand three hundred and forty-six) represented undisclosed profits of the accounting year in question ? Held that - What that tax is would depend on the assessment of income in proceedings taken under section 23, and an order under section 25A would have no effect on that assessment. It is in this context that we must read the observations in the order under section 25A relied on for the appellant. In fact, that order does not expressly decide that the family had the jewels mentioned in exhibit A, and that they were converted into cash as claimed by the appellant. Nor could such a finding be implied therein, when regard is had to the scope of the proceedings under section 25A and to the fact that the order under section 23(3) holding that the sum of ₹ 2,30,346 did not represent the value of the family jewels sold was passed on the same date as the order under section 25A and by the very same officer. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature. That is precisely what the Income-tax authorities have done in the present case, and we do not find any grounds for holding that their finding is open to attack as erroneous in law. Appeal dismissed.

Summary

Issues Involved:
1. Whether the Income-tax Appellate Tribunal was bound by the findings of fact of the Income-tax Officer relating to the nature and division of the assets of the joint family in question which he arrived at in his enquiry under section 25A(1) of the Indian Income-tax Act.
2. Whether there was any material or evidence upon which the taxing authorities could legally hold that the amount of Rs. 2,30,346 represented undisclosed profits of the accounting year in question.
3. Whether the amount in question represents profits of business and is therefore chargeable to tax under the provisions of the Excess Profits Tax Act.

Detailed Analysis:

Issue 1: Binding Nature of Findings under Section 25A
The appellant contended that the Income-tax Officer's order under section 25A should bind the Department to accept that the sum of Rs. 2,30,346 represented the value of family jewels. The court clarified that section 25A was introduced to address a defect where a joint family, upon becoming divided, could escape tax. The section's purpose is to ensure the tax payable on the total income of the family is apportioned among the divided members. The court noted that the order under section 25A did not expressly decide that the family had the jewels mentioned in exhibit A or that they were converted into cash. The court concluded that the order under section 25A and the order under section 23(3) were independent, with the latter focusing on the income assessable to tax, thus rejecting the appellant's contention.

Issue 2: Evidence Supporting the Finding of Undisclosed Profits
The appellant argued that the finding of concealed profits was unsupported by legal evidence and was perverse. The court examined whether the proceedings book, which was pivotal to the appellant's case, was produced before the Income-tax Officer. The court found that the proceedings book was not relied on as evidence before the Income-tax Officer, as indicated by the order sheet extract. The court noted that the appellant's explanation of the credits as proceeds from the sale of family jewels was inconsistent and lacked corroborative evidence. The court held that the Tribunal's refusal to admit the proceedings book in evidence was not unreasonable or perverse. The court cited the precedent that if an assessee fails to prove the source and nature of certain amounts, the Income-tax Officer can infer that the receipts are of an assessable nature. Thus, the court upheld the Tribunal's finding that the sum of Rs. 2,30,346 represented concealed business profits.

Issue 3: Chargeability to Tax under the Excess Profits Tax Act
The appellant contended that there was no evidence to show that the amount represented business profits and was therefore not chargeable to tax under the Excess Profits Tax Act. The court noted that when an amount is credited in business books, it is reasonable to infer it is a business receipt. The court stated that this issue was not one of the questions referred under section 66(2) and thus did not need further consideration. The court concluded that the finding that the credits represented business income was supported by evidence and was not erroneous in law.

Conclusion:
The appeals were dismissed with costs, affirming the findings of the Income-tax authorities that the sum of Rs. 2,30,346 was concealed business income and chargeable to tax.