Parimisetti Seetharamamma Vs.
Commissioner of Income-Tax, Hyderabad [1965] INSC 118 (21 April 1965)
21/04/1965 SHAH, J.C.
SHAH, J.C.
SUBBARAO, K.
SIKRI, S.M.
CITATION: 1965 AIR 1905 1966 SCR (1) 8
CITATOR INFO:
RF 1986 SC 98 (12)
ACT:
Income-Tax Act, 1922. ss. 3 and 4-Gifts of
jewellery and money made to assessee-Not in the nature of income-Whether burden
of proving if such receipts taxable is upon the department.
HEADNOTE:
The appellant submitted a return of her
income from property and business for the assessment year 1947-48 and disclosed
in a statement that the Maharani of Baroda had, between November 1945 and
February 1948, "out of natural love and affection", given her some
jewellery and money amounting to Rs. 5,20,000. The income-Tax Officer accepted
this statement and did not treat the jewellery and money as taxable income. But
while considering the payment of further similar amounts in the course
assessment proceedings for a subsequent year, the Income-Tax Officer decided to
issue the appellant a notice under s. 34; he eventually held the gifts made by
the Maharani during the years in question to be remuneration for services
rendered by the appellant as a maid-servant, or Secretary, and therefore to be
taxable income.
In appeal, the Appellate Assistant
Commissioner and the Tribunal ,substantially agreed with the view taken by the
Income-Tax Officer. Upon a reference, the High Court also decided in favour of
the respondent, mainly on the ground that as the assessee was admittedly in
receipt of large sums of money, in order to claim exemption from tax, the
burden was upon her to-establish that these amounts were voluntary payments by
the Maharani out of natural love and affection:
and that this burden had not been discharged.
On appeal to this Court.
HELD : The burden of proof was wrongly placed
on the appellant. In all cases in which a receipt is sought to be taxed as
income, the burden lies upon the Department to prove that it is within the
taxing provision. Where, however, a receipt is of the nature of income, the
burden of proving that it is not taxable because it falls within an exemption
provided by the Act, lies upon the assessee. The appellant admitted that .she
had received jewellery and diverse sums of money from the Maharani and claimed
that as these were gifts made out of love and affection, they did not fall
within the taxing provisions. It was not her case that being income, the
receipts were exempt from taxation because of a statutory provision.
Consequently, it was for the Department to establish that these receipts were
chargeable to tax. [12 E-13 A] Whether a receipt is liable to be treated as
income depends very largely upon the facts and circumstances of each case;
it is open to the income-tax authorities to
raise an inference that a receipt by an assembly is assessable income where he
fails to disclose satisfactorily the source and the nature of the receipt. But
here the source of income was dis9 closed by the appellant and there was no
dispute about the truth of the disclosure. [14 C-D] Commissioner of Income Tax,
West Bengal v. Calcutta Agency Ltd., 19 I.T.R. 191 and A.. Govindarajulu
Mudaliar v. Commissioner of Income-Tax, Hyderabad, 34 I.T.R. 807, explained and
distinguished.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos, 199, 200 of 1964.
Appeals by special leave from the judgment
and order dated April 13, 1960 of the Andhra Pradesh High Court in Case
Referred No. 11 of 1960.
AND Civil Appeals Nos. 201 and 202 of 1964.
Appeals from the judgment and order dated April
13, 1960 of the Andhra Pradesh High Court in Case Referred No. 12 of 1960.
N. A. Palkhiwala and R. Ganapathy Iyer, for
the appellant (in all the appeals).
N. D. Karkharnis and R. N. Sachthey for the
respondent (in a the appeals).
The Judgment of the Court was delivered by
Shah, J. The appellant carried on business at Nuzvid as a moneylender and
conducted a cinematography theatre. In respect of income from property and
business she submitted a return of her income for the assessment year 1947-48 and
disclosed in a statement, dated August 26, 1949, that Situ Devi-Maharani of
Baroda-had between November 10, 1945 and February 11, 1948 " out of
natural love and affection" given to her some jewellery and four amounts
of money which aggregated to Rs. 5,20,000/-. The Income-tax Officer, Special
Circle, Vijayawada, accepted the appellant's statement and did not treat the
money and jewellery received by her as taxable income. In the course of
assessment proceedings for the year 1951-52 the Income-tax Officer was inclined
to treat the money and jewellery given to the appellant as remuneration for
services rendered to Sita Devi as a maid-servant. He accordingly issued a
notice under S. 34 of the Income-tax Act and called upon the appellant to
"submit an explanation adducing all documentary and other evidence in her
possession relating to the receipt of assets admitted by her in her
statement" dated August 26, 1949 and relating to other cash amounts and
cheques 10 received by her between August 25, 1948 and October 23, 1952 and to
other assets possessed by the appellant and disclosed by her in her
"wealth statement". By her statement, dated November 27, 1953, the
appellant submitted a detailed explanation about the items referred to in the
letter of the Income-tax Officer and claimed that income received by her was
earned with the aid of property which Sita Devi and the Yuvarani of Pithapuram
had given to her out of love and affection from time to time. On December 26,
1954, the appellant was examined on oath before the Income-tax Officer. She
stated :
"The credits in my accounts are all out
of gifts. As to correspondence I have very few letters but such of them as I
have contain matters relating to others. I shall produce them if you are
prepared to exclude those portions. What other record I have I gave to my
auditors. I have no objection to their producing all those records before you.
In fact I desire that they should be
so.......
A complete inventory of records with my
auditor will be given to you on Monday and you may look into them. I can give
full particulars for all deposits in my accounts.
I have not purchased any jewellery worth
mentioning. I have filed a statement for that. All my jewels are gifted by
Srimati Seetha Devi." The Income-tax Officer by his order, dated March 31,
1956, held that the "gifts made by Sita Devi were remuneration for
services rendered by the appellant as a maid-servant or Secretary to the
Princess and were accordingly taxable as income in her hands". For the
year 1946-47 he determined the escaped income of the appellant at Rs. 4,70,000/(Rs.
4,00,000/being the value of jewellery and Rs.
70,000/cash). He determined the escaped income for the year 194748 at Rs.
2,50,000/-, for the year 1950-51 at Rs. 96,600/and for the year 1951-52 at Rs.
30,000/-.
In appeal the Appellate Assistant
Commissioner agreed with the Income-tax Officer that the receipts were income
taxable under the Income-tax Act, but he valued the jewellery received by the
appellant in the account year corresponding to the assessment year 1946-47 at
Rs. 20,000/and directed consequential modifications in that order. The
Income-tax Appellate Tribunal held that the Income-tax Officer was justified in
reopening the assessment under s. 34, and that cash, cheques and jewellery
received by the appellant from Sita Devi in the previous year corresponding to
the assessment years 1946-47, 1947-48, 1950-51 and 1951-52 being remuneration
for services rendered, were taxable.
The Tribunal submitted two consolidated statements
of caseone in respect of the assessment years 1946-47 and 1951-52 and the other
in respect of the years 1947-48 and 1950-51 and submitted in each of the
statements the following question :
"Whether on the facts and in the
circumstances of the case what the assessee received in the relevant years is
assessable to tax and whether Section 34 of the Income Tax Act could be invoked
in regard to the years 1947-48, 1948-49 and 1950-51 ?" (Reference to the
year 1948-49 in the question is due to oversight as no reference was asked for
and none was made in respect of that year.) The High Court held that there was
evidence before the Tribunal to support the finding that the appellant was an
employee of Sita Devi and that the cash, cheques and jewellery admitted as
received by the appellant were not given to her as gifts made out of love and
affection, but as remuneration for services rendered. In the reference relating
to the years 1947-48 and 1950-51 the High Court called for a supplementary
statement, for determination of the question whether action under s. 34 was
justifiable. The Tribunal submitted a supplementary statement and thereafter
the High Court answered the second branch of the question holding, that the
action of the Income-tax Officer under s. 34 was justified. The appellant has
appealed to this Court against the order of the High Court recording answers in
the two references.
It is not necessary to consider whether the
Income-tax Officer was competent to issue a notice under s. 34 of the Income-tax
Act for the years 1947-48 and 1950-51, for in our view the property received by
the appellant was not remuneration given to her by Sita Devi for services
rendered or to be rendered by her.
The High Court in dealing with the question
about the liability of the receipts to tax observed :
"The Supreme Court in the case of the
Commissioner of Income-tax v. Calcutta Agency Ltd.
(19 L5Sup. CI/65-2 I.T.R. 191) observed that
the burden of proving the necessary facts in order to entitle the assessee to
claim exemption was upon the assessee. It would, therefore, appear that where
admittedly the assessee was in receipt of large sums of money as showji in the
accounts submitted by her, that they were outside the pale of taxable income
was a matter which had to be established by the assessee herself. The question
is as to whether the assessee has discharged the burden that lay upon her. She
did not produce any evidence in support of her case that these amounts were
gifts made by Sita Devi out of love and affection. When she was asked to lead
evidence to substantiate her contention she pleaded utter inability lo do
anything of the kind and denied the existence of any correspondence which would
throw any light upon the question and simply contended herself by making bland
statements bland 'Her Highness Sita Devi Gaekwad of Baroda used to give me
these gifts accordingto the will and pleasure of her highness'. With regard to
the jewellery that she received from Princess Sita Devi she makes the same
statement to say that these were received -is gifts on various occasions in
India and she says 'I do not have any correspondence regarding these gifts The
bare allegation supported by any evidence, in our opinion, was not sufficient
to discharge the burden which lay upon the assessee. the burden lay upon the
assessee In this case to establish that the amounts received were voluntary
payments made by the Princess Out of love and affection." In so observing
the High Court, in our judgment, has committed an error of law",. By ss. 3
& 4 the Act imposes a general ability to tax upon all income. But the Act
does not provide that whatever is received by a person must be regarded as
income liable to tax. In all cases in which a receipt is sought to be taxed as
income, the burden lies upon the Department to prove that it is within the
taxing, provision. Where however a receipt is of the nature of income, the
burden of proving, that it is not taxable because it falls within in exemption
provided by the Act lies upon the assessee. The appellant admitted that she had
received jewellery and diverse sums of money from Sita Devi and she claimed
that these were gifts made out of love and affection. The case of the appellant
was that the receipts did not fall within the taxing 13 provision : it was not
her case that being income the receipts were exempt from taxation because of a
statutory provision. It was, therefore, for the Department to establish that
these receipts were chargeable to tax. The decision of this Court in the
Commissioner of Income-tax, West Bengal v. Calcutta Agency Ltd. (1) lends no
support to the proposition which the High Court has enunciated. That was a case
in which the taxpayer was claiming under s.
10(2)(xv) allowance for an expenditure out of
the income of the business and to establish such a claim indisputably the
burden lay upon the taxpayer. The following observations made by Kania C.J., in
delvering the judgment of the Court make the ratio of the judgment clear
"Now it is clear that this being a claim for exemption of an amount,
contended to be an expenditure fallenunder section 10(2)(xv), the burden of
proving the necessary facts in that connection was on the assessee, it being
common ground that the commission was due and bad become piyable and was
therefore the business income of the assessee company liable to be taxed in the
assessment year.' Counsel for the Commissioner submitted that where an assessee
fails to prove satisfactorily the nature of the receipt, it is open to the
Income-tax Officer to infer that the receipt is taxable, and relied upon the
observations made in A. Govindarajulu Mudaliar v. Commissioner of Hyderabad (2)
by Venkatarama Aiyar, J., who speaking for the Court observed:
"There is ample authority for the
position that where an assessee fails to prove satisfactorily the source and
nature of certain amount of cash received during, the accounting year, the
Income-tax Officer is entitled to draw the inference that the receipts are of
an assessable nature." But these observations cannot be read divorced from
their context. In the books of the firm in which the assessee was a partner
certain amounts were found credited to the assessee, and when called upon to
explain how he came to possess those amounts, he rendered an explanation which
was not accepted by the Tribunal, and the amounts were treated as income liable
to tax. It was argued on behalf of the assessee in Govindarajulu Mudaliar's
case (2) that even if the case set up by him was not accepted by (1) 19 I.T.R.
191.
(2) 34 T.T.R 807.
14 the Tribunal, it did not follow as a
matter of law that the amounts in question were income received during the
previous year, and it was for the Department to adduce evidence to show from
what source the income was derived and why it should be treated as concealed
income, and in the absence of such evidence the finding of the Tribunal was
erroneous.
This Court held that it was open to the
Income-tax Officer when the assessee failed satisfactorily to disclose the
source and nature of the receipt to treat that as concealed income of the
previous year in which the assessee was being taxed. The observation relied
upon does not lay down a proposition that it may be inferred that a receipt is
taxable as income because the assessee fails to lead all evidence in support of
the case pleaded by him that the receipt is not within the taxing provision.
Whether a receipt is liable to be treated as income depends very largely upon
the facts and circumstances of each case : it is open to the Income-tax
authorities to raise an inference that a receipt by an assessee is assessable
income where he fails to disclose satisfactorily the source and the nature of
the receipt. But in this case the source of the income was ,disclosed by the
appellant, and there was no dispute about the truth of that disclosure.
The High Court disposed of the reference
holding that the onus of proving that the receipts were not taxable lay upon
the view expressed by us the answer recorded by the High Court on the
taxability of the receipts must be discharged.
Sincethe High Court has not considered the
evidence, we would normally have remanded the case for disposal of the
reference according to law. But this proceeding has been pending for a very
long time, and in enforcement of the orders of assessment the entire property
of the appellant has been attached. We have, therefore, thought it fit to hear
and decide the reference on the merits.
In the view of the Income-tax Appellate
Tribunal, in determining the question whether receipts by the appellant represents
income liable to be brought to tax under the Income-tax Act, it could not be
said that there were no materials justifying the Department in treating the
assessee as being an employee of Sita Devi, for apart from the information the
Department had collected from various sources, there were clear indications
that the assessee was acting as the local agent of Sita Devi in Pittapuram for
disbursing salary to various servants of Sita Devi, and that she was describe
as the Private Secretary to Sita Devi in a "bill" issued by the 15
Bombay Garage Ltd., and that in any event it was for the appellant to prove her
case of gift. The Tribunal then observed that the word "income" is
not precisely defined in the Act and the Act seeks to bring to tax all income,
profits and pins from whatever source derived and inasmuch as receipt of the
amounts and jewellery in question had been admitted it was for the appellant to
establish that it was not liable to be taxed under the Act. Observing then that
the appellant had not placed "all the cards, on the table which will go to
show the real nature of the receipt of the amounts and the jewellery" and
had declined to produce the correspondence which passed between her and Sita
Devi, but merely offered to produce certain extracts from the letters which the
Income-tax Officer refused to admit, it was open to the Income-tax authorities
to raise an inference that the receipts were income, when ample opportunity was
given to the assessee to explain the nature of the receipts and since the
appellant had not chosen to do so, she was not entitled to the exemption under
s. 4(3)(vii).
The conclusion of the Tribunal recorded on
this process of reasoning was open to grave challenge in point of law. It does
not appear that any serious attempt was made by the appellant to prove that the
receipts under discussion were exempt from tax, because they were casual and of
a nonrecurring nature. The appellant's case primarily was that the receipts
were not taxable because they were not income chargeable to tax. The Tribunal
rightly observed that the information collected by the Department from
different sources which consisted of record of ex parte statements of certain
persons about the relation between Sita Devi and the appellant, which they even
declined to give in writing, could have no value in establishing the case of
the Department. There remained two pieces of evidence on which the Tribunal
relied-(i) admission made by the appellant that she acted as the local agent in
Nuzvid for disbursing salary to servants of Sita Devi and (ii) in a
"bill" issued by the Bombay Garage Ltd. the appellant was described
as "Private Secretary to Princess Sita Devi". But these circumstances
could not establish that what was given to her by Sita Devi was remuneration
for services rendered or to be rendered. Realizing this infirmity, the Tribunal
observed that the burden of proving that the receipts were not income lay upon
the appellant. The Tribunal did not infer that as remuneration for disbursing
salary to Sita Devi's servants she was given large amounts of money and
jewellery. Description of the appellant in the cash-memo issued by the Bombay
Garage Ltd. as "Private Secretary to Princess Sita Devi" could have
no evidentiary value.
1 6 It is not claimed that there was evidence
on the record that this was the general repute of the appellant. Description of
the appellant as Private Secretary of Sita Devi in a stray cash-memo issued by
a third party about the source of whose knowledge there is not an iota of
evidence, could not evidence a relationship of master and servant : much less
could it prove that what was given by Sita Devi to the appellant was
remuneration for service rendered. The conclusion of the Tribunal is,
therefore, based on matters which may at the highest create some suspicion, and
upon its view that the burden of proving that the receipts were not taxable lay
upon the appellant. But a conclusion recorded by the Tribunal by wrongly
throwing the burden of proof upon the assessee cannot be regarded as binding
upon the High Court in a reference under Counsel for the Commissioner contended
that beside the two circumstances relied upon by the Tribunal, there were other
circumstances on which the conclusion of the Tribunal could be sustained. These
circumstances, counsel submitted, are on the record and must have weighed with
the Tribunal in arriving at its finding that the receipts by the appellant were
of the nature of income. These were (a) that the appellant belonged to a family
of Dasis who are generally employed in the ruling family of Pittapuram in a
menial capacity; (b) that the appellant was receiving a salary of Rs. 8/per
month from the Maharaja of Pittapuram: (c) that the appellant was associated
with Sita Devi for at least 8 years before the earliest year of account
relevant in these appeals; (d) that large amounts in cash and also jewellery
were given to the appellant from time to time after Sita Devi married the
Gaekwad of Baroda; (e) that the gifts commenced immediately after Sita Devi
married the Gaekwad of Baroda; (f) that the appellant assisted Sita Devi in
securing divorce from the Yuvaraja of Vuyyur and in getting married to the
Gaekwad of Baroda; (g) that the appellant lived with Sita Devi in London in the
year 1949-50 and also at Baroda; and (h) that similar sifts were given to one
Narasinghrao "associate of the appellant" and to the daughters of the
appellant's sisters. There is no evidence in support of (f), and the
circumstances (a) to (e) & (g) cannot possibly lead to the conclusion that
property of large value was given to the appellant by Sita Devi as remuneration
for performance of service. Circumstance (h) is irrelevant.
On the first part of the two questions it
must be recorded that what the assessee received in the relevant years of
account was not 17 assessable to tax. it is unnecessary to record, as already
observed, a finding on the second branch of the question, whether s. 34 of the
Income-tax Act could properly be involved in regard to those receipts.
costs of the appellant in this Court and in
the High Court.
One hearing fee.
Appeals allowed.
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