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TMI Blog1956 (2) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts also disclose that subsequently the said amount was repaid to the lady in instalments. The entry indicates that the amount of ₹ 6,500 represented the sale proceeds of a diamond necklace. When the Income-tax Officer asked the assessee to explain this entry, it was represented to him that the necklace was that of Rajeswaramma and that it was sold to one Damavarapu Sridevamma and, in support of that explanation, the account books of Sridevamma were produced, which contained an entry that the said jewel was sold to her. The Income-tax Officer found a similar entry in the previous year in the name of another members of the family, Lilavathamma, for exactly the same amount representing the sale proceeds of a diamond necklace. He also rejected the account book of Sridevamma on the ground that she was a close relative of the assessee and that the entry in her accounts must have been collusively made at the instance of the assessee. Rejecting the assessee's explanation, he came to the conclusion that the cash credit represented the secret profit of the family the source of which the assessee was not prepared to divulge. In that view, he added the sum of ₹ 6,500 to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necklace was purchased Rukminiamma for, if really Rajeswaramma intended to sell the jewel to make a new one for her with a better design, it is not explained why the amount was credited in the firm's accounts at all and why it was left with the family firm for two years. The fresh material, therefore, does not in any was affect the finding given by the Tribunal on the material already placed before it. The Tribunal was certainly justified on the material placed before it in holding that the sum of ₹ 6,500 represented the profits, the source of which had not been property explained by the assessee. Even so, learned counsel for the assessee contends that the Income- tax Officer cannot add that amount to the disclosed income unless he has come to a definite conclusion on relevant material that the said income is derived from a particular source. To put it differently, the argument runs that, though an assessee attributes a credit entry to a specific capital asset and fails to establish it, the Income-tax Officer cannot treat the said item as revenue income from a undisclosed source unless he further finds on other material the specific source from which it is derived. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal held that the amount was the secreted profit of the assessee. The learned Judges held that there was no material on which it could be held that it was secret profit. The learned Judges, in dealing with that question, observed at page 349: In the approach to this question it is necessary to bear in mind the distinction between a case where there is cash credit in the name of the assessee and a case where the cash credit is found not in the name of the assessee but in the name of a third party. If the cash credit stands in the assessee's name, the burden of proof is upon the assessee to show that the item of receipt is not of an income nature. It is for the assessee in such a cash to prove positively the source and nature of amount shown in the item and if the assessee fails to furnish satisfactory explanation, the Income-tax authorities are entitled to draw the inference that the receipt is of an income nature. That is the principle laid down by two authorities of this court. Jadunandan Sahu Deokisanram v. Commissioner of Income-tax,. Bihar and Orissa [1948] 16 I.T.R. 175 and S.N. Ganguly v. Commissioner of Income-tax, Bihar and Orissa [1953] 24 I.T.R. 16. But the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believed his evidence. They found that the sum of ₹ 78,000 was the concealed income of the assessee, which was liable to be taxed. The learned Judges, in the context of the aforesaid facts, made the following observations: In the approach to this question it should be remembered that the onus is upon the assessee to prove positively the source and nature of the money which was received during the accounting year. In the absence of any explanation of the assessee the revenue authorities are entitled to draw the inference that the receipt is of an income nature. The learned Judges accepted the fining of the Tribunal on the ground that there was material to support their finding. we respectfully agree with the observations of the learned Judges. The Punjab High Court in Indo-European Machinery Company v. Commissioner of Income-tax [1955] 28 I.T.R. 593, had to deal with a case where a credit entry of ₹ 30,500 was found in the name of a partner and the partner explained that it was a mere deposit by a friend. The Tribunal did not accepted the explanation but the learned Judges held that the finding was not based on any material but only on mere suspicion. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said person by honest means. These observations do not throw any light on the present question. Now, we shall proceed to consider the case relied upon by the learned counsel for the Commissioner. Where an assessee has failed to prove positively the source and the nature of certain amounts of cash received during the accounting year, a Division Bench of the Madras High Court in Madappa v. Commissioner of Income-tax Madras [1948] 16 I.T.R. 385, held that the Income-tax Officer was entitled to draw the inference that the receipts were of an income nature. Yahya Ali J., in delivering the judgment on behalf of the Bench, observed at page 390: The first question postulates that the assessee has failed to prove positively the source and nature of the amounts of cash received during the year, and upon the foundation of fact the question raised is whether the Income-tax Officer is in such a position entitled to draws the inference that the receipts are of an income nature. There cannot be the slightest conceivable doubt that when bother the source and the nature of the cash receipts shown in the accounting year have not been proved, the Income- tax Officer cannot draw any other infe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state at page 723: But so far as the deposits themselves are concerned, the case made by the partners themselves obviously was that they came from an outside source. If their explanation as to the particular source fails, they can hardly complain that their contention that the amount came from outside is accepted and the sums concerned are brought under assessment as undisclosed profits from other sources. When certain amounts appear in the books of an assessee as cash credit or capital deposits, the taxing authorities, if they feel suspicious, naturally ask for an explanation. If the explanation offered is satisfactory, there is an end of the matter and no other question arises. If the explanation be not found to be satisfactory, it is now well-settled that the taxing authorities are entitled to bring such sums under assessment on a basis which involves several presumptions. Once the explanation fails, the taxing authorities are entitled not only to treat the amounts as income amounts, but also as amounts forming part of the income of the year in which the entries were made. The learned Judge at a later stage developed the point thus: If he (the Income-tax Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he different sources of income liable to tax, if the condition laid down under section 4 are satisfied. If the income is derived from one or other of the sources, it is liable to be taxed unless it is exempted under section 4 of the Act. It exhausts the sources which yield taxable income. After specifying the incomes from definite sources, the section introduces a residuary head 'income from other sources'. A taxable income, and indeed any income, must have a source, for the source is the tree which yields the fruit. The assessee is certainly in a better position than the Income-tax Officer to know the particular source from which he derives the income. Section 106 of the Indian Evidence Act lays down that, when any fact is especially within the knowledge of any person, the burden of proving that fact is upon him. It has therefore been held by all Courts, without any dissenting note, that the burden of proving that a particular income has its origin in capital sources lies upon the assessee, for it is within his particular knowledge to know that fact. It he accepts that the income is from a revenue source but seeks to claim exemption under section 4, the burden is again ..... X X X X Extracts X X X X X X X X Extracts X X X X
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