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Chuharmal S/O Takarmal Mohnani Vs. Commissioner of Income-Tax, M.P., Bhopal [1988] INSC 126 (2 May 1988)

Mukharji, Sabyasachi (J) Mukharji, Sabyasachi (J) Rangnathan, S.

CITATION: 1988 AIR 1384 1988 SCR (3) 788 1988 SCC (3) 588 JT 1988 (2) 495 1988 SCALE (1)1119

ACT:

Income Tax Act, 1961: Sections 69A and 271(1)(c) Explanation-Assessee-Customs authorities seizing foreign watches from assessee's bedroom-Assessee not showing that he was not owner-Value of watches-Whether `deemed income'- Assessable to tax.

Penalty-Income returned less than 80% of income assessed-Penalty can be imposed.

Indian Evidence Act, 1872: Section 110-Normally title follows possession-Person shown to be in possession-Owner- Onus of proving that he is not owner is on person who affirms he is not owner-Applicability of principle to income tax proceedings.

HEAD NOTE:

Petitioner is the assessee. For the assessment year 1974-75 he submitted his return of income showing a total income of Rs.3,113 and stated that he derived this income from two stores which he had been running.

On May 12, 1973 in a search by the Customs authorities, 565 watches of foreign make of the value of Rs.87,455 were seized from the petitioner's bedroom. A panchnama was prepared.

The Income Tax Officer issued a notice dated January 19, 1974 to the petitioner to show cause why a sum of Rs.87,455 the value of the watches seized should not be treated as his concealed income and brought to tax under section 69A of the Act. He further directed issuance of notice under section 271(1)(c) of the Act.

Being aggrieved the petitioner filed an appeal before the Appellate Assistant Commissioner who dismissed the appeal holding that in view of the order passed by the Collector of Customs confiscating the watches and levying penalty of Rs.2 lakhs under the Customs Act, the Income Tax Officer was justified in including the cost of watches in the income of the assessee for the assessment year 1974-75.

789 Thereafter on March 29, 1978 the Assistant Commissioner issued a notice of penalty under section 271(1)(c) of the Act, imposing a penalty of Rs.90,000.

The two appeals filed by the petitioner were dismissed by the Income-tax Appellate Tribunal, and the petitioner sought a reference to the High Court under section 256(1) of the Act.

The High Court held that: (i) by virtue of the search in the house of the petitioner the watches were seized and a Panchnama was prepared, that under Section 110 of the Indian Evidence Act, 1872 it clearly establishes that the possession of the wrist watches was found with the petitioner, that as the petitioner did not adduce any evidence, he had not discharged the onus by proving that the wrist watches did not belong to him, the Tribunal had rightly held that the value of the wrist watches is the income of assessee, and (ii) that in view of the Explanation to section 271(1)(c) the Department had discharged the burden of establishing concealment. The reference was accordingly answered against the assessee.

Dismissing the Special Leave Petition, ^

HELD: 1. The expression 'income' as used in section 69A of the Income Tax Act, 1961 has a wide meaning which meant any thing which came in or resulted in gain.[794D]

2. Section 110 of the Evidence Act provides that where a person was found in possession of anything the onus of proving that he was not the owner was on the person who affirms that he was not the owner. The High Court in J.S. Parker v. V.B. Palekar, 94 ITR 616 held that what was meant by saying that the Evidence Act did not apply to proceedings under the Income Tax Act was that the rigour of the rules of evidence contained in the Evidence Act, was not applicable but that does not mean that when the taxing authorities were desirous in invoking the principles of the Evidence Act in proceedings before them, they were prevented from doing so. [793G-H;794A-B]

3. All that section 110 of the Evidence Act does is that it embodies a salutary principle of common law jurisprudence which could be attracted to a set of circumstances that satisfy its condition. [794B]

4. In the instant case, possession of the wrist watches was found with the petitioner. The petitioner did not adduce any evidence, far less 790 discharged the onus of proving that the wrist watches in question did not belong to him. Hence, the High Court held, and according to this Court rightly, that the value of the wrist watches is the income of the assessee by virtue of Section 69A of the Act. [793D-E]

5. The amendment to the Explanation to section 271(1)(c) by the Taxation Laws (Amendment) Act 1975 is prospective in effect. [795G]

6. In the instant case, the assessee had shown only a total income of Rs.3113 and subsequently the raiding party seized wrist watches worth Rs.87,455. The value of that income was included in the assessable income of the assessee. The total assessable income of the assessee came to Rs.90,568 whereas the returned income was Rs.3,113 which was certainly less than 80% of the total income and, as such, Explanation to section 271(1)(c) applied. Accordingly, the Revenue has discharged the onus of proving concealment of income. [795E] Vishwakarma Industries v. Commissioner of Income-tax, 135 ITR 652 and Commissioner of Income Tax v. Bherulal Shrikishan, [1983] 28 Madhya Pradesh Law Journal 162, approved.

7. Though the penalty proceedings are penal in nature, in the facts of this case the onus on the Revenue has been duly discharged. [795G-H]

CIVIL APPELLATE JURISDICTION: Special Leave Petition (Civil) No. 1863 of 1986.

From the Judgment and Order dated 10.12.85 of the Madhya Pradesh High Court in Misc. Civil case No. 297 of 1981.

Dr. N.M. Ghatate and S.V. Deshpande for the Petitioners.

Kuldip Singh, Additional Solicitor General, B.B. Ahuja and Miss A. Subhashini for the Respondents.

The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J. This petition for leave to appeal is directed against the judgment and order dated 10th December, 1985 of the High Court of Madhya Pradesh, Jabalpur Bench. The High Court upheld the imposition of penalty as well as the addition of alleged concealed income in the income-tax assessment of the peti 791 tioner. The relevant assessment year with which we are concerned in this application is 1974-75.

It appears that the petitioner had submitted his return of income for the assessment year 1974-75 showing a total income of Rs.3,113 in response to a notice issued under section 143(2) of the Act of the Income-tax Act, 1961 (hereinafter called 'the Act'). According to the petitioner, he had derived his income from 2 stores, i.e. M/s. Mohanani Fancy General Stores and M/s. Roopkala General Stores, Durg.

It, however, appears that on 19th January, 1974 on the basis of the order passed by the Superintendent, Central Excise, Jagpur, dated 25th December, 1975 there was confiscation of foreign watches from the house of the petitioner and levy of penalty of Rs.2 lakhs under the Customs Act, 1962.

Accordingly, the Income Tax Officer issued a notice calling upon the assessee to show-cause why the value of the watches seized from his residence should not be treated as his income from undisclosed sources. In this connection it may be relevant to note that on 12th May, 1973 a search was made of the petitioner's bed-room from where a total of 565 wrist-watches of foreign make valued at Rs.87,455 were seized from a suit-case and in a secret cavity of a looked steel almirah and also behind the almirah there were watches folded in a bundle of waste papers. A Panchnama was prepared at the same time mentioning these facts. According to the Customs Authorities, the petitioner found himself unable to make any statement at that time on account of which recording of statements was deferred. However, it is stated, the petitioner went out of the station on 14th May, 1973.

The petitioner's statement was recorded on 13th May, 1973 as soon as he was available. In his statement Annexure R-III duly signed by him, he has admitted these facts and merely denied knowledge of the manner in which those watches came to be in his house.

It appears from the records of the Customs case, with which we will have to deal later in S.L.P. No. 1008/86, the petitioner was given a show-cause notice as to why the period of six months fixed under section 110(2) of the Customs Act, 1962 should not be extended but no reply was given by the petitioner till 10th November, 1973 or even thereafter. Hence, by an order dated 10th November, 1973 before the expiry of six months, time was extended by the Collector of Customs for a further period of 6 months for giving a notice as required under section 124(a) of the Customs Act, 1962. Under the proviso to subsection 2 of section 110 of the Customs Act, 1962, a show-cause notice specifying the requisite particulars, was given to the petitioner on 4th May, 1974. In the reply the petitioner made a general denial. The 792 enquiry was fixed on 30th october, 1975 for giving a personal hearing to the petitioner, when the petitioner's Counsel appeared and sought for an adjournment to 20th November, 1975, which was granted. However, on 20th November, 1975 the Counsel of the petitioner stated that the petitioner did not want to avail of the opportunity of personal hearing or even to cross-examine the witnesses in whose presence the Panchayatnama was made at the time of the seizure of the watches. It is necessary to bear these facts in mind because it has repercussions to the notice dated 19th January, 1974, as mentioned hereinbefore issued by the Income Tax Officer to show-cause why the aforesaid sum of Rs.90,768 should not be treated as the petitioner's concealed income. The Income Tax Officer further directed issuance of the notice under section 271(1)(c) of the Act.

Being aggrieved by the said order the petitioner preferred an appeal before the Appellate Assistant Commissioner against the order dated 20th February, 1976.

The Appellate Assistant Commissioner dismissed the appeal and held that in view of the order passed by the Collector of Customs, the Income Tax Officer was justified in including the cost of the watches in the income of the assessee for the assessment year 1974-75. Thereafter, on 29th March, 1978 the Assistant Commissioner of the Income- tax issued notice of penalty under section 271(1)(c) of the Act, imposing penalty of Rs.90,000 minimum imposable being Rs.87,455 and maximum imposable being Rs.1,74,910. Being aggrieved thereby the petitioner filed two appeals before the Income Tax Appellate Tribunal. The Tribunal by its order dated 19th August, 1980 dismissed these appeals. The petitioner has further stated that in the meanwhile the State of Madhya Pradesh initiated criminal proceedings under section 125 read with 111 of the Customs Act, 1962 and the learned Chief Judicial Magistrate, Durg, by his order convicted the petitioner and awarded one year's rigorous imprisonment. Thereafter, on 2nd November, 1982 the petitioner filed an appeal in the Court of Additional Judge in the Court of Sessions, who by his judgment allowed the appeal and acquitted the petitioner of the said criminal charge.

Thereafter, there was a reference to the High Court on two questions against the order of the Income-tax Tribunal under section 256(1) of the Act. The questions are as follows:- "(i) Whether, on the facts and in the circumstances of the case, was the Tribunal justified in holding that the assessee was the owner of the watches and thus including the value 793 thereof in the assessment of the assessee? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the department had discharged its burden for establishing the concealment of income by the assessee for the year under consideration and thus confirming the penalty of Rs.90,000 levied by the Inspecting Assistant Commissioner of Income Tax?" The High Court in its order noted that the raiding party by virtue of the search entered into the bed-room of the assessee on 12th May, 1973 and seized the watches. A Panchnama was prepared. The Department found that the assessee was the owner. Section 110 of the Evidence Act is material in this respect and the High Court relied on the same which stipulates that when the question is whether any person is owner of anything of which he is shown to be in possession, the onus of proving that he is not the owner, is on the person who affirms that he is not the owner. In other words, it follows from wellsettled principle of law that normally, unless contrary is established, title always follows possession. In the facts of this case, indubitably, possession of the wrist-watches was found with the petitioner. The petitioner did not adduce any evidence, far less discharged the onus of proving that the wrist-watches in question did not belong to the petitioner. Hence, the High Court held, and in our opinion rightly, that the value of the wrist-watches is the income of the assessee. In this connection reference may be made to the views expressed by Justice Tulzapurkar as his Lordship then was, of the Bombay High Court in the case of J.S. Parkar v. V.B. Palekar, 94 ITR 616 where on difference of opinion between Justice Deshpande and Justice Mukhi, Justice Tulzapurkar agreed with Justice Deshpande and held the question whether on the evidence established, the petitioner was the owner of the gold seized, though there was no direct evidence placed before the taxing authorities to prove that the petitioner had actually invested moneys for purchasing the gold in question, the inference of the ownership of the gold in the petitioner in that case rested upon circumstantial evidence.

There also gold was seized from a motor launch belonging to the petitioner in that case. There a contention was raised that the provision in section 110 of the Evidence Act where a person was found in possession of anything, the onus of proving that he was not the owner was on the person who affirmed that he was not the owner, was incorrect and inapplicable to taxation proceedings. This contention was rejected. The High Court of Bombay held that what was 794 meant by saying that the Evidence Act did not apply to the proceedings under the Act was that the rigour of the rules of evidence contained in the Evidence Act, was not applicable but that did not mean that the taxing authorities were desirous in invoking the principles of the Act in proceedings before them, they were prevented from doing so.

Secondly, all that section 110 of the Evidence Act does is that it embodies a salutary principle of common law jurisprudence which could be attracted to a set of circumstances that satisfy its condition.

We are of the opinion that this is a correct approach and following this principle the High Court in the instant case was right in holding that the value of the wrist- watches represented the concealed income of the assessee.

Section 69A of the Act was inserted in the Finance Act, 1964 and it came into force w.e.f. 1st January, 1964. The High Court has rightly held that the expression 'income' as used in section 69A of the Act, has wide meaning which meant anything which came in or resulted in gain. Hence, in the facts of this case a legitimate inference could be drawn that the assessee had income which he had invested in purchasing the wrist-watches and, as such, that income was subject to tax. In the view the High Court was justified in justifying the Tribunal's holding that the assessee was the owner of the wrist-watches and thus including the value in the assessment of the income of the assessee as his wealth and so deemed to be the income of the assessee by virtue of section 69A of the Act coupled with surrounding circumstances. Therefore, inclusion of the money in purchasing the wrist-watches, that is to say, Rs.87,455 was correct and proper for the assessment year under reference.

In this connection section 69A of the Act may usefully be set out as follows:

"Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year." 795 So far as the first question is concerned, the High Court answered accordingly and in our opinion rightly.

As regards the second question, section 271(1)(c) of the Act was inserted in the Finance Act, 1974 which reads as follows:

"Explanation: Where the total income returned by any person is less than eighty per cent of the total income (hereinafter in the Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub- section." From the facts found by the revenue, the assessee had shown only a total income of Rs.3,113 and subsequently the raiding party seized wrist-watches worth Rs.87,455. Thus the value of that income was included in the assessable income of the assessee. Therefore, the total assessable income of the assessee came to Rs.90,568 whereas the returned income was Rs.3,113 which was certainly less than 80% of the total income and, as such, Explanation applied. Accordingly, the revenue has discharged the onus of proving concealment of income. This view was expressed by a Full Bench of Punjab & Haryana High Court in Vishwakarma Industries v. Commissioner of Income-tax, 135 ITR 652 where all the relevant authorities have been discussed.

In that view of the matter and in view of the principles behind the purpose of Explanation, the assessee in the instant case, has failed to discharge his onus of proof. The aforesaid Explanation was amended by Finance Act, 1964 with effect from 1st April, 1964. The amendment was prospective in effect and in the year under reference the amendment was in force. Though the penalty proceedings are penal in nature but in the facts of this case the onus on revenue has been duly discharged. This was also the view of the Bench decision of the Madhya Pradesh High Court in Commissioner of Income Tax v. Bherulal Shrikishan, [1983] 28 Madhya Pradesh Law Journal 162.

796 The second question referred to hereinbefore was, therefore, answered in favour of the revenue by the High Court and in our opinion the High Court was justified in so doing.

In the aforesaid view of the matter, there is no merit in this application for leave to appeal and it is accordingly dismissed.

N.V.K. Petition dismissed.

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