1958 (4) TMI 9 - SC - Income Tax

Whether on the evidence adduced by the appellant it could be said that the notes were part of the assets received by him from his father? Held that - Having come to the conclusion that the books of account of Ratangarh could not be accepted, the Tribunal went on to observe that from 1926 to 1945 the only source of income of the appellant and his father was interest earned on moneys deposited in bank. It came to that conclusion apparently because the books of account produced did not disclose any other source of income. The Tribunal also found that about 1945 the appellant had in his bank a sum of about ₹ 8 lakhs to 10 lakhs and that being so, in view of the only source of income mentioned earlier, it was impossible to believe that he had another seven lakhs of rupees in notes in December, 1945, as alleged by him. The Tribunal then held that in these circumstances, the appellant s uninvested cash was likely to be between ₹ 1,50,000 and ₹ 2,00,000 out of which a sum of ₹ 1,40,000 at the most could have been in high denomination notes. In this view of the matter the Tribunal held that out of the high denomination notes of the total value of ₹ 2,68,000 encashed by the appellant in January 1946, notes worth ₹ 1,40,000 could have been his capital assets and the balance of ₹ 1,28,000 must have been his undisclosed income. The Tribunal therefore directed that the appellant must pay tax on the sum of ₹ 1,28,000. The learned counsel for the appellant criticised this part of the Tribunal s judgment as based on mere speculation. We cannot help feeling that this criticism may be partly justified but we do not appreciate how it assists the appellant. It does not, in our view, in any way affect the Tribunal s finding on the question as to whether the appellant had proved that the notes had devolved on him on his father s death. The Tribunal in this part of the judgment was really making a concession to the appellant and gave a benefit to him to which he was strictly not entitled in view of the Tribunal s findings on the evidence led by the appellant. We are unable to hold that the Tribunal s judgment is liable ; to be set aside because it held that the whole of ₹ 2,68,000 was not taxable. Appeal dismissed.

Summary

Issues:
1. Taxability of high denomination notes encashed by the appellant.
2. Validity of the Tribunal's decision regarding the appellant's undisclosed income.
3. Assessment of the appellant's source of income and assets.
4. Applicability of tax on the appellant's income arising or accruing in British India.

Detailed Analysis:

1. The primary issue in this case was the taxability of high denomination notes encashed by the appellant during the relevant accounting year. The Income-tax Officer initially held that the amount represented by the notes was income from undisclosed business activities and, therefore, taxable. The Appellate Assistant Commissioner, however, concluded that the notes formed part of the assets inherited by the appellant from his father and deleted the sum from the assessment. The Tribunal, on appeal, allowed only a portion of the amount as undisclosed income, resulting in a modified assessment order.

2. The Tribunal's decision on the appellant's undisclosed income was based on the evidence presented regarding the appellant's father's wealth and business activities. The Tribunal found discrepancies in the books of account kept at Ratangarh, leading to doubts about the genuineness of the entries related to the high denomination notes. Despite the appellant's arguments challenging the Tribunal's findings, the Supreme Court upheld the Tribunal's decision, emphasizing that the Tribunal's view was supported by the evidence presented and was a reasonably possible interpretation.

3. Another aspect addressed in the judgment was the assessment of the appellant's source of income and assets. The Tribunal analyzed the appellant's financial history and concluded that the appellant and his father primarily earned income from interest on bank deposits. The Tribunal's calculation of the appellant's uninvested cash and assets led to the determination that a portion of the encashed high denomination notes could be considered as capital assets, while the remaining amount was treated as undisclosed income, subject to taxation.

4. The appellant raised a contention regarding the applicability of tax on the high denomination notes, arguing that a finding should have been made regarding whether the income represented by the notes had arisen or accrued in British India. However, the Supreme Court dismissed this argument, noting that the point had not been raised earlier in the proceedings and could not be introduced at a later stage. The Court held that the failure to address this specific issue did not invalidate the Tribunal's overall decision on the taxability of the appellant's income.

In conclusion, the Supreme Court dismissed the appeal and upheld the Tribunal's decision regarding the taxability of the high denomination notes encashed by the appellant, emphasizing the importance of evidence and the Tribunal's interpretation of the facts presented during the proceedings.