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TMI Blog1989 (8) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... thority on November 26, 1983, and again on May 26, 1984. By an order dated December 30, 1988, the Competent Authority has forfeited five assets consisting of two immovable properties and three movable assets. When the appeal was heard on July 20, 1989, the learned representative for the Department pointed out that the paper book filed by the appellant contained some documents which had never been produced before the Competent Authority and the grounds of appeal were not properly formulated. The appellant was given an opportunity for filing an application for production of additional evidence and for amending the grounds of appeal. The appellant has done so and we have heard the appeal thereafter. In the interest of justice, we consider that the additional ground of appeal should be admitted under rule 9 and the production of the additional evidence should be allowed under rule 14(1)(c). The reasons for this will appear a little later. The first asset which has been forfeited is described as Kadam-Sahatka Wadar, Gwalior. This property was purchased in the name of Shri Viyas Chand on June 7, 1958, for Rs. 6,000 from Lt. Col. Bhagwantrao Ramrao Kadam. In 1958, Shri Viyas Chand w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l on June 29, 1982, for Rs. 40,000. The front portion of the house was sold on July 6, 1982, to Shri Suresh Bishambardayal Bansal for Rs. 40,000. These purchasers in whom the title to the property has vested have also not been heard by the Competent Authority. The appellant had not brought these two registered documents to the notice of the Competent Authority up to December 30, 1988. It must, however, be remembered that when third parties have acquired certain rights for adequate consideration, without notice of any right or claim vested in the Revenue, they cannot be deprived of the same. Section 281 of the Income-tax Act which declares certain transfers to be void when made with an intention to defeat the collection of taxes specifically exempts transfers to third parties for adequate consideration. The SAFEM (FOP) Act, in section 3(1)(c), refers to any property acquired whether before or after the commencement of the Act. It also refers to property held by one person on behalf of another but excludes such property when held by a transferee in good faith for adequate consideration. Section 2(2) refers to any holder of property but excepts a person who is, or was a transferee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome undisclosed source in the assessment year 1971-72 and Rs. 5,350 in the assessment year 1976-77. This much of illegal income cannot convert the entire business income into an illegal source out of the profits of which the owner can withdraw for the purposes of other investments. The existence of the business, at least since the assessment year 1964-65 when the books of account have been commenced, has not been challenged. The business consisted of selling imported watches but the major portion of the income was from repairs which was essentially an activity not depending on the introduction of capital. Therefore, the accumulated income from the business which was withdrawn and invested in house property cannot be described as tainted income. We, therefore, hold that the explanation for the acquisition of the house is quite probable and cannot be disbelieved in the absence of any other evidence on record. The order of the Competent Authority in respect of this asset is also set aside. The next asset to be considered is the appellant's share and interest in the business of Neelam Watch Co. which had become a firm from April 1, 1975, onwards. At the commencement of the firm, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the appellant. There are no funds left in his account from which he could make the payment for the investment in the bonds. The forfeiture of this asset is, accordingly, confirmed. The last asset consists of one life insurance policy for an amount of Rs. 10,000. The said policy was taken out in June, 1972. According to the appellant, the premia on this policy were paid by debiting the same to his capital account in the books of account of the business. The assessee's drawings, over and above these for house construction, have been quite inadequate. This aspect was emphasised by the learned Departmental representative, especially in the very year when the policy was issued. Even in the accounting period 1975-76, relevant to the assessment year 1976-77, the Income-tax Appellate Tribunal remarked in its order dated April 1, 1982, that the withdrawals disclosed by the appellant were hardly sufficient for meeting household expenses, when the family consisted of himself, his wife and three school-going children. [According to the Income-tax Officer's report, the appellant had five children, born in 1954, 1957, 1959, 1962 and 1965]. The appellant has not been able to furnish any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to those amounts. The firm's main earnings have been from watch repair works. They can hardly be attributed to capital investment. It may also be mentioned that withdrawals to the extent of about Rs. 90,000 were considered as legitimate and explained by the income-tax authorities which went for investment in the property in Hindu Colony, Gwalior. In this regard, reference may be made here to the following observations of the Appellate Tribunal in the case of Rupchand Prasad v. Competent Authority [1989] 178 ITR 292, 297 (ATFP) : " There is no gainsaying that running of a business and earnings of profits are not entirely dependent upon the capital investment. To an extent, such investment may play a substantial role when sophisticated or high cost machineries are involved. In a mercantile business, where the initial investment was as low as Rs. 5,000 and the present business runs into lakhs (the turnover for assessment year 1982-83 was Rs. 4.6 lakhs), that investment hardly played any part. Such trading activities require business acumen, foresight, reputation, insight into market conditions, personal contacts, hard labour, location, etc., etc. It is the sum total and cumulative e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awals than when the forfeiture under the SAFEMA took place, and are, therefore, much relevant It would, therefore, appear quite harsh that, now, by a single sweep, all that the appellant had built from 1960 should be forfeited. It would appear just and proper if the forfeiture of the said two amounts of Rs. 5,200 and Rs. 5,350, along with whatever could be attributable to these investments, should be forfeited. In the absence of direct evidence of what has accrued on account of those amounts, accretion of interest at some reasonable rate could be added up and if the entire amount so sought to be forfeited is less than 50% of the appellant's capital and assets in the business, he should be allowed the benefit of section 9 of the SAFEMA. In my humble opinion, therefore, an inquiry in this regard should be directed by the Competent Authority. A similar fate should bear the insurance premia and whether the amounts so withdrawn from the business could be treated as from legitimate source or otherwise. So far as the Government bonds are concerned, they were purchased from the amount of voluntary disclosure the source of which remained unexplained before the income-tax authorities and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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