1970 (2) TMI 45 - HC - Income Tax

Assessee,an Iranian,came to India - credit of foreign receipts in assessee s accounts - taxability u/s 4(1)(b)(iii) of Indian Income-tax Act, 1922 - burden is on revenue to show that source for accumulating profits existed in the non-taxable territory

Summary

Issues Involved:
1. Taxability of remittances under Section 4(1)(b)(iii) of the Income-tax Act for the assessment years 1946-47 and 1947-48.
2. Validity of the notice issued under Section 34(1)(a) of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Taxability of Remittances under Section 4(1)(b)(iii):
- Background: The department sought to tax remittances of Rs. 99,769 and Rs. 1,20,563 for the assessment years 1946-47 and 1947-48, respectively. The assessee claimed these remittances were from inherited wealth, specifically Rs. 4,00,000 in cash from his father.

- Tribunal's Findings: The Tribunal did not accept the assessee's claim of inheritance and brought the amounts to tax. The Tribunal held that the burden of proof was on the assessee to show that the remittances were not from accumulated profits.

- Evidence Considered:
- Documents and Affidavits: Various documents and affidavits were submitted by the assessee to support his claim, including statements from individuals familiar with the family's wealth and a wealth statement filed with Iranian authorities.
- Inconsistencies: The Tribunal noted inconsistencies in the evidence, such as discrepancies in the letters from Mahmood Farsad and the affidavits of Khan Saheb Sarose K. Irani and S. R. Ahrestani.
- Income in Iran: The Tribunal considered the assessee's income in Iran as per the certificates of assessment and payment of tax, but found the evidence insufficient to support the claim of Rs. 4,00,000 in cash.

- Legal Principles Applied:
- Burden of Proof: The Tribunal applied the principle that the burden of proof lies on the assessee to show that remittances were not out of accumulated profits, relying on judgments like Commissioner of Income-tax v. Jankidas Rewari and Commissioner of Income-tax v. R. M. Raja.
- Presumption of Accumulated Profits: The Tribunal presumed that remittances were from accumulated profits due to the lack of credible evidence from the assessee.

- Court's Analysis:
- Burden of Proof Misapplied: The court found that the Tribunal erred in placing the entire burden on the assessee without correlating the source of income with the probable amount of accumulated profits.
- Correct Approach: The court agreed with the Appellate Assistant Commissioner's method of approximating the income and accumulated profits, considering the available evidence and the assessee's circumstances.

- Conclusion: The court concluded that the Tribunal erred in law in its findings and that the amounts of Rs. 99,769 and Rs. 1,20,563 were not assessable under Section 4(1)(b)(iii).

2. Validity of Notice under Section 34(1)(a):
- Background: The Income-tax Officer issued a notice under Section 34(1)(a) despite the assessee having filed a voluntary return. The assessee challenged the validity of this notice.

- Tribunal's Decision: The Tribunal refused to allow the assessee to raise this ground, believing it would invalidate the entire assessment proceedings.

- Legal Principles Applied:
- Supreme Court Precedent: The court referred to the Supreme Court's decision in Commissioner of Income-tax v. Ranchhoddas Karsondas, which held that an assessment based on a notice issued under Section 34(1)(a) when a voluntary return had already been filed is invalid.
- Appellate Tribunal's Powers: The court cited judgments like Commissioner of Income-tax v. Hazarimal Nagi & Co. and Kanpur Industrial Works v. Commissioner of Income-tax, which state that a respondent can raise new grounds in defense of an appeal, even if it affects the validity of the entire assessment.

- Court's Analysis:
- Right to Raise New Grounds: The court held that the Tribunal erred in not allowing the assessee to raise the ground of invalid notice. The assessee was entitled to raise this ground to defend against the department's appeal for enhancement.
- Impact on Assessment: The court clarified that raising this ground would not disturb the assessment order in favor of the department but would serve as a defense against the appeal.

- Conclusion: The court answered in the negative, indicating that the Tribunal's refusal to allow the assessee to challenge the validity of the notice was not in accordance with the law.

Summary of Answers to Questions:
- First Reference:
1. The Tribunal erred in law in finding that Rs. 99,769 was assessable under Section 4(1)(b)(iii).
2. The Tribunal misdirected itself in law by ignoring material evidence.

- Second Reference:
1. The Tribunal's refusal to allow the assessee to challenge the notice under Section 34 was not in accordance with law.
2. The amount of Rs. 1,20,563 was not assessable under Section 4(1)(b)(iii).

Costs:
The respondent is to pay the costs of the assessee in both references.