Sumati
Dayal Vs. Commissioner of Income-Tax, Bangalore [1995] INSC 200 (28
March 1995)
Agrawal, S.C. (J) Agrawal, S.C. (J) Hansaria B.L. (J) Manohar Sujata
V. (J) S.C. Agrawal J.:
CITATION:
1995 AIR 2109 1995 SCC Supl. (2) 453 JT 1995 (3) 393 1995 SCALE (2)490
ACT:
HEAD NOTE:
1.
These appeals filed by the assessee against the order dated February 24, 1977
passed by the Income Tax Settlement Commission hereinafter referred to as 'the
Settlement Commission'), relate to assessment years 1971-72 and 1972- 73. The
appellant carries on business as a dealer in art pieces, antiques and curios at
Bangalore. During the assessment year 1971-72
the appellant received a total amount of Rs.3,11,831 /- by way of race winnings
in Jackpots and Treble events in races at Turf Clubs in Bangalore, Madras and Hyderabad. The said amount was shown by the
appellant in the capital account in the books. 'The appellant filed a return on
March 27, 1972 declaring an income of Rs.27,829/-.
The appellant also made a sworn statement on January 6, 1973 before the Income
Tax Officer and on the basis of the said statement the Income Tax Officer made
an assessment order dated March 27, 1974 wherein he held that the sum of Rs.3,11,831
/- is not winnings in races and he treated the said receipts as income from
undisclosed sources and assessed the same as income from other sources. For the
assessment year 1972-73 the appellant showed receipts of Rs.93,500/- as race
winnings in two Jackpots at Bangalore and Madras and the said amount was credited
in the capital account in the books. The appellant filed a return declaring an
income of Rs.3,827/- on Feb- ruary 3, 1973. In his assessment order dated August 31, 1974 the Income Tax Officer included the
amount of Rs.93,500/ as income from other sources and assessed the income of
the appellant on that basis. The appeals filed by the appellant against the
assessment orders were disposed of by the Appellate Assistant Commissioner by
order dated December 12, 1975 whereby the assessment of Rs.3,11,831/-as income
under the head other sources for the assessment year 197 172 and Rs.93,500/-
for the assessment year 1972-73 was confirmed. The appeals filed against the
said order before the Income Tax Appellate Tribunal were withdrawn by the
appellant under section 245M (2) of the Income Tax Act, 1961 [hereinafter
referred to as 'the Act'], and on August 6, 1976 she moved the application
giving rise to this appeal, before the Settlement Commission wherein the
appellant stated that she was agreeable to a reasonable addition on a
reasonable basis should the Commission hold that the drawings of 1970-71 and
1971-72 were not adequate for purchase of Jackpot tickets, other expenses in
connection with the races and losses, if any, estimated by the Settlement
Commission to have been sustained by the appellant. On the said application the
Commissioner of Income Tax submitted his report dated January 29, 1977 wherein
he urged that the action of the Department in taxing the entire winnings as
income from undisclosed sources should be upheld inasmuch the appellant lacked
any knowledge of race techniques and the theory of probabilities precluded any
systematic and 396 continuous winnings at races on as many as 16 occasions
during a period of less than two years. In his report, the Commissioner also
submitted that the books of accounts did not indicate the expenditure on travel
and other incidental expenses which had been incurred by the appellant for at-
tending the races at Bangalore and Hyderabad. The Commissioner also asked for reopening of the
assessment year 197071 where the appellant had won a sum of Rs. 74,681/- and
which was not brought to tax by the Income Tax Officer.
3. The
matter was heard by three member of the Settlement Commission. By order dated
February 24, 1977 two members of the Commission (Shri R.S. Chadda and Shri K. Srinivassan)
upheld the assessment for the assessment years 1971-72 and 1972-73 made by the
Income Tax Officer and confirmed by the Appellate Assistant Commissioner of
Income Tax; but did not find it possible under Section 245-E to accede to the
request of the Commissioner of Income Tax that the assessment for 1970-71,
which was made without bringing to tax the alleged race winnings of Rs. 74,
681/-, may be reopened on the view that the assessment for 1970-71 was not so
connected with the case pending before them as to make it necessary to reopen
it for the proper disposal of the assessments for 1971-72 and 1972-73. The
Chairman of the Settlement Commission, Shri C.C. Ganapathy, has, however,
dissented from the said view.
4. Shri
B.K.Mehta, the learned senior counsel appearing for the appellant, has
submitted that the source of the receipt of the amounts has been established by
the appellant by placing on record the certificates from the various race clubs
which show that the said amounts were received by way of winnings from races
and the burden lay on the Department to show that the said amounts were not
winnings from races but was an income from other sources. The submission of Shri
Mehta is that in the present case the Department has not adduced any evidence
to discharge the said burden which lay on it and the majority view of the
Settlement Commission is unsustainable inasmuch as it is based on no evidence
and is founded on mere suspicion and surmises. According to Shri Mehta the
Chairman of the Settlement Commission, in his dissenting opinion, has correctly
applied the law. Shri Mehta has placed reliance on the decisions of this Court
in Parimisetti Seethramamma v. Commissioner of Income Tax, A.P., (1965) 57 ITR
532; Sreelekha Banerjee & Ors. v. Commissioner of Income Tax, Bihar &
Ors., (1963) 49 ITR 112; and Commissioner of Income Tax, Orissa v. Orissa
Corporation P. Lid., (1986) 159 ITR 78. Shri J. Ramamurthy, the leaned senior
counsel appearing for the Revenue, has supported the majority view and has
submitted that having regard to the facts and circumstances of the case the
receipts claimed to be winnings from races were income from other sources and
that no case is made out for interference by this Court in appeal under Article
136 of the Consti- tution.
5. It
is no doubt true that in all cases in which a receipt is sought to be taxed as
income, the burden lies on the Department to prove that it is within the taxing
provi- sion and if a receipt is in the nature of income, the burden of proving
that it is not taxable because it falls within exemption provided by the Act
lies upon the assessee. [See :Parimisetti 397 Seetharamamma (supra) at P. 5361.
But, in view of Section 68 of the Act, where any sum is found credited in the
books of the assessee for any previous year the same may be charged to income
tax as the income of the assessee of that previous year if the explanation
offered by the assessee about the nature and source thereof is, in the opinion
of the Assessing Officer, not satisfactory. In such case there is, prima facie,
evidence against the assessee, viz., the receipt of money, and if he fails to rebut
, the said evidence being unrebutted, can be used against him by holding that
it was a receipt of an income nature. While considering the explanation of the assessee
the Department cannot, however, act unreasonably. (See : Sreelekha Banerjee
(supra) at p. 120)
6. In
the instant cases the amount is credited in capital account in the books of the
appellant. The appellant has offered her explanation about the said receipts
being her winnings from races. The said explanation has been considered in the
light of the sworn statement of the appellant dated January 6, 1973 and other material on record. The Income Tax Officer and
the Appellate Assistant Commissioner have not accepted the explanation offered
by the appellant. The two members constituting the majority in the Settlement
Commission have also taken the same view.
7.
There is no dispute that the amounts were received by the appellant from
various race clubs on the basis of winning tickets presented by her. What is
dispute is that they were really the winnings of the appellant from the races.
This raises the question whether the apparent can be considered as real. As
laid down by this Court, apparent must be considered real until it is shown
that there are reasons to believe that the apparent is not the real and that
the taxing authorities arc entitled to look into the surrounding circumstances to
find out the reality and the matter has to be considered by applying the test
of human probabilities. (See : Commissioner of Income Tax v. Durga Prasad
More,(1971) 82 ITR 540, at pp. 545, 547)
8. In
this context it would be relevant to mention that in order to give effect to
the recommendations of the Direct Taxes Enquiry Committee (under the
Chairmanship of Justice K.N. Wanchoo, retired Chief Justice of India) the
definition of "income" in section 2(24) of the Act was amended with
effect from April 1,1972 by the Finance Act, 1972 so as to include within its
ambit, winnings from lotteries, cross word puzzles, races including horse
races, card games and other games of any sort or from, gambling or betting of
any form or nature whatsoever. The reason underlying die said amendment was
that exemption from tax that was enjoyed in respect of such winnings had
provided scope for conversion of "black" money into "white"
income. The said exemption from tax available in respect of such winnings
during the assessment years 1971-72 and 1972-73.
9.
During the year 1970-71 (pertaining to assessment year 1971-72) between April 6, 1970 to March 20, 1971, the appellant claims to have won in horse races a total
amount of Ass. 3, 11, 83 1 /- on 13 occasions out of which 10 winnings were
from Jackpots and 3 were from Treble events.
Similarly,
in the year 1971-72 the appellant won races on 2 occasions and both the times
winnings were from Jackpot. In her sworn statement dated January 6, 1973, the appellant had stated that she
started 398 going for races from the end of 1969 and that she first won Jackpot
on December 12 1969 on the first day she went to races.
The appellant also stated that she worked out the combination on the basis of
what her husband advised her but she used to add a few horses of her own
although she admitted that she did not know anything about the performance of
these horses before December 1969. As regards her husband, the appellant stated
that he won once in Calcutta and once in Madras and he had similar wins also.
The
appellant had also stated that she had not gone to races in 1972. The appellant
admitted that she had been buying Jackpot tickets of the value of Rs.2,000/-, Rs.
1,400/- and even tickets for Rs.3,000/- have been bought and that on the first
day she won the Jackpot she purchased a Jackpot combination ticket for
approximately Rs.2,500/- and that on November 8, 1970 she had bought two
combinations, each for about Rs.2,000/-. The appellant also admitted that she
had not claimed any loss in races and only winnings were shown and stated that
she won similar amounts which were not accounted and the losses were met out of
the said amounts.
The
appellant further stated that she had no record of her expenditure at the race
course as against/ her claim of winnings.
10.
Having regard to the said statement of the appellant, the two,members,
constituting the majority on the Settlement Commission, came to the conclusion
that the apparent is not,the real and that the appellant's claim about her
winning in races is contrived and not genuine for the following reasons:
(i)
The appellant's knowledge of racing is very meagre.
(ii) A
Jackpot is a stake of five events in a single day and one can believe a regular
and experienced punter clearing a Jackpot occasionally but the claim of the
appellant to have won a number of Jackpots in three or four seasons not merely
at one place but at three different centres, namely, Madras, Bangalore and
Hyderabad appears, prime facie, to be wild and contrary to the statistical theories
and experience of the frequencies and probabilities.
(iii)
The appellant's books do not show any drawings on race days or on the
immediately preceding days for the purchase of Jackpot combination tickets,
which entailed sizable amounts varying generally between Rs. 2,000/- and Rs.
3,000/-. The drawings recorded in the books cannot be co-related to the various
rac- ing events at which the appellant made the alleged winnings.
(iv)
While the appellant's capital account was credited with the gross amounts of
race winnings, there were no debits either for expenses and purchases of
tickets or for losses.
(v) In
view of the exceptional luck claimed to have been enjoyed by the appellant, her
loss of interest in races from 1972 assumes significance. Winnings in racing
became liable to income tax from April 1, 1972 but one would not give up an activity yielding or likely to
yield a large income merely because the income would suffer tax. The position
would be different, 399 however, if the claim of winnings in races was false
and what were passed off as such winnings really represented the appellant's
taxable income from some undisclosed sources.
11.
The majority opinion concludes that it would not be unreasonable to infer that
the appellant had not really participated in any of the races except to the
extent of purchasing the winning tickets after the events presumably with
unaccounted funds.
12.
The Chairman of the Settlement Commission, in his dissenting opinion, has laid
emphasis on the fact that the appellant had produced evidence in support of the
credits in the form of certificates from the racing clubs giving particulars of
the crossed cheques for payment of the amounts for winning of Jackpots, etc.
The Chairman has rejected the contention regarding lack of expertise in respect
of the appellant and has observed that the expertise is the last thing that is
necessary for a game of chance and anybody has to go and call for five numbers
in counter and obtain a Jackpot ticket and that books containing informa- tion
are available which are quite cheap.
13.
This, in our opinion, is a superficial approach to the problem. The matter has
to be considered in the light of human probabilities. The Chairman of the
Settlement Commission has emphasised that the appellant did possess the winning
ticket which was surrendered to the Race Club and in return a crossed cheque
was obtained. It is, in our view, a neutral circumstance, because if the
appellant had purchased the winning ticket after the event she would be having
the winning ticket with her which she could surrender to the Race Club. The
observation by the Chairman of the Settlement Commission that "fraudulent
sale of winning ticket is not an usual practice but is very much of an unusual
practice" ignores the prevalent malpractice that was noticed by the
District Taxes Enquiry Committee and the recommendations made by the said
Committee which led to the amendment of the Act by the Finance Act of 1972
whereby the exemption from tax that was available in respect of winnings from
lotteries, crossword puzzles, races, etc. was withdrawn. Similarly the
observation by the Chairman that if it is alleged that these tickets were
obtained through fraudulent means, it is upon the alleger to prove that it is
so, ignores the reality. The transaction about purchase of winning ticket takes
place in secret and direct evidence about such purchase would be rarely
available. An inference about such a purchase has to be drawn on the basis of
the circumstances available on the record. Having regard to the conduct of the
appellant as disclosed in her sworn statement as well as other material on the
record an inference could reasonably be drawn that the winning tickets were
purchased by the appellant after the event. We are, therefore, unable to agree
with the view of the Chairman in his dissenting opinion. In our opinion, the
majority opinion after considering surrounding circumstances and applying the
test of human probabilities has rightly concluded that the appellant's claim
about the amount being her winning from races is not genuine. It cannot be said
that the explanation offered by the appellant in respect of the said amounts
has been rejected unreasonably and that the finding that the said amounts are
income of the appellant from other sources is not based on evidence.
400
14. In
the circumstances, no case is made out for interference with the order passed
by the settlement commission the appeals therefore fail and are accordingly
dismissed with costs.
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