9911796707
TMI Blog1984 (12) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... ran into several crores. Bhai Gian Chand and Bhai Sunder Das came toIndiasometime in 1946. Sometime in March 1954, Bhai Sunder Das, with a view to avoid attachment of his assets for payment of huge income-tax liabilities that came upon him in respect of income earned in Pakistan, got deposited by Bhai Gian Chand Rs. 15 lakhs in the names of his two daughters, styled them as gifts. That amount was first deposited in the State Bank ofCalcutta, in fixed deposits, in the names of Smt. Govind Jaswant Singh and Karan Singh. Those amounts moved from place to place and from hand to hand and eventually came into the possession of Bhai Mohan Singh, the assessee before us, only to be held as for and on behalf of those persons as trustees. That the sum of Rs. 15 lakhs came into the possession of Bhai Mohan Singh, as and by way of trust for and on behalf of the daughters, was a fact accepted by the ITO in the income-tax assessments. In the estate duty proceedings taken on the death of Bhai Sunder Das, on the admission of the assessee in his income-tax proceedings that he was only a nominee insofar as these sums were concerned, the department was satisfied and treated the money as belonging to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r pointed out that in case the ITO should entertain a doubt, the legal heirs of Bhai Sunder Das could be summoned and the assessee even deposited the requisite diet money. 6. The ITO was not prepared to accept this contention. He held that Bhai Sunder Das died in 1963 and the assessee did not accept the liability to anybody. There was, thus, no debt owed by the assessee on the last day of the previous year relevant to the year under assessment to anyone. The ITO further pointed out that the question of calling one for evidence would arise only when confirmatory letters were filed by those persons. Since no confirmatory letters were filed in this case, the question of calling them would not arise. Relying upon the Supreme Court decision in the case of H.E.H. Nizam's Religious Endowment Trust v. CIT [1966] 59 ITR 582, the ITO observed that the onus to establish exemption was on the assessee, who claims exemption of any class of income and that onus was not discharged in this case. He also dealt with the merits of the assessee's claim. The assessee's claim was that the sum of Rs. 17,89,183 was a debt owed by him to Bhai Sunder Das as on31-3-1973, and that money was held by him under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiming the money on the basis of the alleged partial partition in the family or on the basis of the alleged will or on grounds of survivorship. The assessee further submitted that he was also not aware, whether any probate of the alleged will was taken from the Court. This incapacity and disability to make the repayment, in spite of his best intentions, was construed by the ITO as amounting to denial of liability. To prove the point that the legal heirs of Bhai Sunder Das were demanding payment and the assessee was complying, he referred to the orders served on him by the TRO demanding the assessee to clear the income-tax demand owing by Bhai Sunder Das out of the aforesaid sum, which the assessee promptly complied with. The TRO could not have suo motu demanded from the assessee the payment of tax dues of Bhai Sunder Das, unless so requested for by the legal heirs and the assessee would not have complied with unless he accepted the liability as subsisting. But the ITO stuck to his line of argument that the debt became barred by limitation and there was no legal liability and the creditors of the assessee were not even in a position to enforce their rights, by filing a suit for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the manager, estate of Bhai Sunder Das, admitted that sums aggregating to Rs. 16,18,383.86 was held by him as on 31-3-1971 in the trust on behalf of the estate of late Bhai Sunder Das ; (iv) That this debt should not be viewed as a loan but as a deposit. There was no duty cast upon the depositee to find out the depositor to repay the money, unlike in the case of debtors, who are to go out in search of creditors as in the case of loans. The limitation to sue the depositor would commence only after the person, who had made the deposit, seeks the return of the deposit and the creditor fails to honour it. There was no demand by the creditor. There was a doubt in the creditor's mind as to who are the claimants entitled to the repayment. The claimants never established their eligibility for repayment, either by producing a probated will or a succession certificate nor the legal representatives of Bhai Sunder Das ever joined together to claim the repayment of the amount, Consequently, the limitation did not start at all. Therefore, the question of liability, getting extinguished or becoming barred by limitation or the debt becoming unenforceable at law, did not arise. Reliance was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on demand, and in this case there was no evidence of deposit of money nor was there any agreement to show that the money was repayable on demand. Since it was not a deposit, it can only be taken as a loan and the account maintained by the assessee showed no payments after 1960. There was a payment made in 1968 but according to the Commissioner (Appeals), this was an ex gratia payment and not a payment contemplated under the Limitation Act. The other payments made related to income-tax. They could not, therefore, be taken as repayments. Thus, the liability to repay the money extinguished and the loan ceased to become unenforceable. Then the letter of23-6-1971, according to him, did not revive the debt. That letter was only an acknowledgement of the debt within the meaning of section 18 of the Limitation Act, and could not be construed as holding any promise to pay the debt. Nor could it be said to constitute a valid agreement, as neither there was any offer to pay that money nor any acceptance by either side. He held that no constructive trust was created, within the meaning of section 94 of the Indian Trusts Act. According to the Commissioner (Appeals), for section 94 to apply, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the Commissioner (Appeals) as to why in the past years, the department had accepted it as a liability, allowed deduction for the interest, and why it deviated this year when the facts remained the same. He argued that there was a total misappreciation and misunderstanding of sections of the Limitation Act as well as the Indian Contract Act, 1872. He submitted that to create an obligation in the nature of a trust, within the meaning of the Indian Trusts Act, it is not necessary that there should be a document. From the conduct of the parties, an obligation in the nature of a trust can be inferred and in fact sections 80 to 94 envisaged such constructive trusts and enumerated the various possibilities, in none of which writing is necessary or even contemplated. Similarly, when the debt was acknowledged by the assessee and continued to be so, the debt can never be said to have been barred by limitation. He filed before us a voluminous paper book to show the various circumstances and occasions when the assessee had acknowledged the debt either in writing or by making a payment or in his income-tax returns as well as wealth-tax returns. The evaluation of this evidence by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be said to be in pursuance of the directions given by the Tribunal but in a way in violation thereof. There is another point, that is worthy of note. The ITO relied on the order of the Commissioner (Appeals) for the assessment year 1972-73 to support the inclusion of the income. That was a reopened assessment under section 147 of the Income-tax Act, 1961 (' the Act '). The appeal was confirmed by the Commissioner (Appeals), holding that section 147 was rightly applied. Merits were not gone into. The ITO was not, therefore, justified in relying upon that order. Our attention is also invited to the estate duty assessment made on Bhai Sunder Das, wherein Assistant Controller of Estate Duty held that the debt in question was a liability owed by the assessee to that estate. There was the intention to repay the debt, which was more than evident from the surrounding circumstances and the entries passed in the accounts more particularly by earmaking this sum for the repayment to the estate of Bhai Sunder Das. He also relied upon the provisions of the Limitation Act to clear the misappreciation of the legal position entertained by the Commissioner (Appeals). 11. The learned departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he liability of his father, he being legal heir of the deceased, and he paid the following amounts after his death : Rs. 2-11-195415,000 18-11-195420,000 19-11-19541,00,000 21-2-19551,00,000 2-7-19561,00,000 30-1-195650,000 21-3-195650,000 ------------------------ 4,35,000 ------------------------ and, thus the balance remained payable to us as Rs. 10,33,000 on31-3-1956. For and on behalf of the members of late Bhai Sunder 5-9-1966Das Sons, erstwhile HUF." This shows that the legal representatives of Bhai Sunder Das were admitting that a sum of Rs. 10,33,000 was owing to them even as late as 5-9-1966. On22-11-1968, Bhai Surjit Singh Sabharwal son of Bhai Sunder Das wrote a letter to the assessee fromCalcutta. In this letter, he pointed out that he collected the cheque on10-11-1968and expressed his thanks and gratitude personally on his behalf and on behalf of his brothers for the payment. Further, it was mentioned in that letter, that they needed Rs. 2.5 lakhs more to complete a hotel project and requested for releasing at least Rs. 1 lakh by20-12-1968. Apart from this, there was a very crucial and telling paragraph in this letter which should clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er book, which is again a letter written by Bhai Swinder Singh, for and on behalf of Bhai Sunder Das Sons, to the assessee on 12-5-1969 where the receipt of a letter dated 22-4-1969 was acknowledged, along with the original certificates for deduction of tax at source on account of income-tax under section 203 of the Act on account of interest amounting to Rs. 13,536.89 and Rs. 71,095.60, on the amount held by the assessee on their behalf. This shows again that even on 12-5-1969, the understanding between the parties as well as their conduct was that the assessee was holding money on account of Bhai Sunder Das Sons, that the interest earned on the fixed deposits belonged to them and the tax deduction certificates were being passed on to them. Now, that letter also shows that a receipt was enclosed by them to Bhai Mohan Singh, acknowledging the payment of the balance amount of interest. How deep and real are the disputes between the legal representatives of Bhai Sunder Das and how careful the assessee was in getting proper and due discharge for the amount paid by him to them, is indicated by an agreement signed by them and given to the assessee, which is at page 7 in the paper bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount up to31-3-1975was also given to us, which showed a credit balance of Rs. 19,50,991.02 by 31-3-1975 after crediting the interest of Rs. 96,162. A sum of Rs. 9,019 was debited to this account on6-9-1974, which represented the arrears of income-tax demand of Bhai Sunder Das for 1960-61 paid to the ITO. There were also payments made earlier towards income-tax. This shows the position of this account in the books of the assessee. We have already shown that the legal representatives of Bhai Sunder Das have never stated that no money was owing to them from the assessee and on the contrary, there were transactions between the assessee and them and the acknowledgments given by them and they have also said more than once that the money was held by the assessee in the trust for them. Secondly, we have also seen that the assessee is making payments to the income-tax authorities in discharge of the tax liabilities of the legal representatives of Bhai Sunder Das. Thirdly, the assessee is admitting this liability in its accounts. The question then is, can it, in this background, be said that the debt ceased to exist ? Can the payments made to the income-tax authorities by the assessee be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was so signed. (2) Where the writing containing the acknowledgement is undated, oral evidence may be given of the time when it was signed ; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received." This clearly says that where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment is made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. Acknowledgment means a definite admission of liability. It is not necessary that there should be a promise to pay ; the simple admission of debt is sufficient. Surrounding circumstances also can be taken into consideration in construing the words used in writing---B. Shambumal Gangaram v. State Bank ofMysoreAIR 1971 Mys. 156. In Official Liquidator v. Bishan Singh 1968 All. L.J. 171 and Mohesh Lal v. Busunta Kumaree 6 Cal. 340, it was held that where a series of acknowledgments have been made, each within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments to the income-tax authorities, it is before the expiration of the prescribed period. 15. We may also notice at this stage the difference between a deposit and a loan. In the case of loan, money passes from the payer to the payee at the instance and for the requirement or use of the latter, while in the case of a deposit the payee receives the money at the instance of the payer and the requirement or use of the payee is not a relevant fact for consideration. Surrounding circumstances, relationship of the parties and the character of the transaction, are all factors decisive of whether a transaction is a deposit or money or loan--Ram Janki Devi v. Juggilal Kamalapat AIR 1971 SC 2551. In case of doubt, the presumption is that a transaction is a deposit and not a loan. A depositee stands in a fiduciary relation to the depositor. It has been held in Kanyalal Supdubhai v. Hiralal Deoram AIR 1947 Bom. 255 that where money is deposited in confidence, the transaction is a deposit made in trust and the depositee stands in a fiduciary relation to the depositor and is liable to render an account to the depositor. In this case, the history, and the genesis of the amount showed t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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