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Hazarilal v. Commissioner Of Income-Tax, Andhra Pradesh.
Factual and Procedural Background
The Income-tax Appellate Tribunal, Hyderabad Bench, under section 66(2) of the Income-tax Act referred the following question for determination:
"Whether the finding that the consideration of Rs. 30,000 was found by the assessee could be sustained on the material on record ?"
The reference concerns assessment year 1953-54 (accounting year ending October 18, 1952). The assessee is an individual. The Income-tax Officer (ITO) found that the assessee had purchased a house for Rs. 30,000 from Abdul Wahab on August 16, 1952, although the property was registered in the name of the assessee's wife, Sarlabai. The assessee denied that the purchase money came from him and asserted that his wife was the purchaser, having sold about 200 tolas of her gold ornaments and, together with Rs. 3,000 she already had in cash, used those proceeds to buy the house.
To substantiate the sale of jewellery the assessee produced patties for sale of bullion, called his eldest brother, Mahadev Prasad, as a witness and filed the wife's affidavit. The brother deposed about dowry gold received by the wife and others; the wife's affidavit stated she had received 72 tolas from her mother-in-law and 207 tolas from her parents (total 279 tolas) which were sold. The assessee himself said that after sale his wife still possessed 50 tolas — a discrepancy the income-tax authorities noted.
The Tribunal observed that the patties produced evidenced sale of bullion (not jewellery), the patties were not in the wife's name and that there were discrepancies between the statements of the assessee and his wife. On this basis the Tribunal concluded that the story that the wife had 279 tolas which were sold could not be believed, that the sale proceeds could not be traced to her jewellery, and that the Rs. 30,000 was income from undisclosed sources. The Tribunal confirmed the order of the Appellate Assistant Commissioner and referred the question under section 66(2).
Legal Issues Presented
- Whether the Tribunal's finding that the consideration of Rs. 30,000 was found by the assessee could be sustained on the material on record.
- Whether the Tribunal erred in law or by misappreciation of evidence in accepting the revenue's conclusion (that the purchase money was from undisclosed sources) despite the assessee's evidence and affidavits.
- Whether, given the property was in the wife's name, the burden of proof remained on the department or shifted to the wife/assessee once the source of consideration was traced to the assessee (i.e., questions on the allocation of onus when patties/consideration are traced).
Arguments of the Parties
Appellant (Assessee)'s Arguments
- The assessee contended that the Appellate Tribunal's order was vitiated by gross misappreciation of evidence and by error of law.
- It was argued that the burden of proof lay on the department and that, since the department adduced no evidence, the department's story ought not to have been accepted against the assessee's version, which was supported by affidavits and oral testimony.
- The assessee relied on the decisions in S. N. Ganguly v. Commissioner of Income-tax and Omar Salay Mohamed Sait v. Commissioner of Income-tax to argue that the Tribunal's adverse finding could not stand under the circumstances.
The opinion does not contain a detailed, separate account of the revenue's (respondent's) legal arguments; the revenue's position is reflected through the ITO's findings and the Tribunal's conclusions recorded in the text.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Omar Salay Mohamed Sait v. Commissioner of Income-tax | Principles on finality of Tribunal findings: (1) pure questions of law are open to court review; (2) mixed questions — factual findings final, legal effect reviewable; (3) factual findings open to attack if no evidence or perverse; (4) an inference-of-fact remains a fact for these purposes. | The court relied on these principles to frame the standard of review: since the present matter primarily involved appreciation of evidence (a question of fact), the Tribunal's finding would be final unless there was no evidence to support it or it was perverse. The court found the present case did not exhibit the Tribunal's misreading or perverse approach illustrated in that precedent. |
| S. N. Ganguly v. Commissioner of Income-tax | Observation that when property is in the name of the wife, the department bears onus to show by some material (beyond mere relationship) that amounts/named ownership did not belong to the wife but to the husband. | The court considered this authority but found it inapplicable to advance the assessee's case because in the present record there existed material (patties stood in the name of the assessee and the same amounts were used for purchase) from which it was reasonable to trace the consideration to the assessee and thus shift the evidential burden to the wife to show it was a gift or truly hers. |
| Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax | Exposition of the meaning of "benami": (a) sham/unreal transaction; (b) genuine transaction where the real purchaser is different from the ostensible transferee; and the need to enquire who paid consideration when appearance differs from reality. | The court quoted this explanation to frame the enquiry: when a dispute exists as to whether the named transferee is the true beneficial owner, tracing the source of consideration is essential and, if traced to the assessee, supports presumption that the transaction benefited the person who paid. |
| M. M. A. K. Mohideen Thamby & Co. v. Commissioner of Income-tax | Dealt with credit entries standing in names of partners and third parties and the evidential burden to explain such entries. | The court cited this Division Bench decision to support the proposition that, in relation to certain credit entries, the burden may lie on the assessee to explain the entries; the decision was used to contrast with authorities that would place the onus squarely on the department. |
| Radhakrishna Behari Lal v. Commissioner of Income-tax | Earlier decision suggesting the department should prove that amounts in others' names belonged to the assessee (referred to in argument). | The court noted that subsequent decisions (including Mohideen Thamby & Co.) did not follow that proposition and that the present Bench was unable to accept the broad proposition as a binding rule on the department. The Radhakrishna decision was thus distinguished or not followed on facts. |
| P. V. Raghava Reddi v. Commissioner of Income-tax | Observations to like effect (supporting the view that burden to explain credit entries can rest on the assessee). | The court cited this authority to show consistency in the view that the assessee may be required to explain entries and sources when credits or sale proceeds are traced in a manner suggestive of the assessee's involvement. |
| Govindarajulu Mudaliar v. Commissioner of Income-tax | Where an assessee fails satisfactorily to prove the source and nature of certain received amounts, the Income-tax Officer is entitled to draw the inference that the receipts are of assessable nature. | The court applied this principle to hold that once the sale consideration was traced to patties standing in the assessee's name and absent proof of the bullion's source, the ITO was justified in inferring the amounts were from undisclosed sources and therefore assessable. |
Court's Reasoning and Analysis
The court proceeded by identifying the nature of the question referred: although certain legal principles on onus and reviewability applied, the central issue was one of fact — whether the Tribunal's finding that the consideration had been found by the assessee was sustainable on the material on record.
The court first recited the established principle from Omar Salay Mohamed Sait that factual findings of the Income-tax Appellate Tribunal are final and binding unless there is no evidence to support them or they are perverse. The court emphasized that an inference of fact retains its factual character for this standard of review.
The court then examined the record and the Tribunal's findings. Key factual points the Tribunal relied upon were:
- Discrepancy between the wife's affidavit (that she had total 279 tolas which were sold) and the assessee's statement (that after sale the wife still possessed 50 tolas) — an inconsistency that undermined the credibility of the wife's account.
- The patties produced evidenced sale of bullion rather than jewels and the patties were not in the wife's name; in fact the patties stood in the name of the assessee.
- The Tribunal found that, on the material, it was difficult to accept that the sale proceeds of the wife's jewellery were the source of the Rs. 30,000 used to purchase the house.
The court contrasted the present case with the situation in Omar Salay Mohamed Sait where the Tribunal had been found to have misread affidavits, improperly rejected evidence, and relied on conjectures. The court observed that such procedural or perverse errors were not present here; instead, the Tribunal had considered the evidence and reached a conclusion supported by the record.
On the question of burden of proof, the court analysed the contention based on S. N. Ganguly that where property is nominally in the wife's name the department should prove by material (beyond mere relationship) that the amounts did not belong to the wife. The court held that the present record contained such material: the patties for the sale of bullion stood in the name of the assessee and the sale proceeds so evidenced had been used in the purchase. Given that, the court found it reasonable to presume the transaction benefited the person who paid, thereby shifting the evidential burden to the wife/assessee to show it was truly hers (e.g., a gift).
The court also relied on decisions (M. M. A. K. Mohideen Thamby & Co., P. V. Raghava Reddi) holding that the burden to explain credit entries may rest on the assessee and on the Supreme Court's observation in Govindarajulu Mudaliar that if an assessee fails satisfactorily to explain the source of amounts received, the ITO may infer the receipts to be assessable income.
Synthesizing these points, the court concluded that: (a) the Tribunal's factual finding was supported by evidence on record and was not perverse; (b) tracing the consideration to patties in the assessee's name provided material to justify shifting the burden and drawing an adverse inference; and (c) the ITO's inference that the Rs. 30,000 represented undisclosed income was permissible in the absence of satisfactory explanation of the bullion's source.
Holding and Implications
Holding: The reference is answered in the affirmative. The Tribunal's finding that the consideration of Rs. 30,000 was found by the assessee is sustained on the material on record.
Implications:
- Direct effect on the parties: The Tribunal's and Appellate Assistant Commissioner's conclusions are upheld; the assessee is held liable in respect of the Rs. 30,000 as being from undisclosed sources. The assessee was ordered to pay the costs of the reference and an advocate's fee of Rs. 250.
- On precedent and doctrine: The court applied and reconciled earlier authorities to clarify that where evidential material traces consideration to the assessee (for example, patties standing in the assessee's name), the evidential burden may shift and an inference of undisclosed income may properly be drawn if the source is not satisfactorily explained. The decision was rendered on the facts and the court did not purport to lay down a new legal precedent beyond applying established principles.
Costs: Advocates fee Rs. 250. Reference answered in the affirmative.
- The Income-tax Appellate Tribunal, Hyderabad Bench, has under section 66(2) of the Indian Income-tax Act referred the following question for determination :
"Whether the finding that the consideration of Rs. 30,000 was found by the assessee could be sustained on the material on record ?"
The reference relates to the assessment year 1953-54, the relevant accounting period being the year ending October 18, 1952. The assessee is an individual. According to the Income-tax Officer, he had purchased a house for Rs. 30,000 from the Abdul Wahab on August 16, 1952, though in the name of his wife, Sarlabai. He does not admit the truth of this contention. His case is that his wife, Sarlabai, is the purchaser who having sold 200 tolas of her gold ornaments and made the said purchase with the help of the sale proceeds of the ornaments plus Rs. 3,000 which she had already in cash. When called upon to substantiate the sale, the assessee produced patties for sale of bullion, called his eldest brother, Mahadev Prasad, as a witness and filed the affidavit of his wife. The elder brother deposed that, at the time of marriage, the assessees wife got jewels of about 200 tolas in weight as dowry some 25 years ago, though he himself got only six tolas of gold as dowry land the eldest son of the assessee who was recently married received only 30 tolas of gold. The wife in her affidavit stated that she got 72 tolas from her mother-in-law and 207 tolas from her parents in her marriage which took place 25 years ago and that all these jewels of the total weigh of 279 tolas were sold away. Her husband, the assessee, however, stated that, after the sale of the jewellery, his wife still possessed 50 tolas of gold jewels. This discrepancy with regard to the total extent of jewels that the wife possessed, in the circumstances of the case, seems to have weighed with the income-tax authorities. If what she possessed was only 279 tolas and all of them were sold away, it was not possible for her to be still in possession of 50 tolas. One other circumstance which was noticed by the Tribunal was that what appeared from the patties produced was the sale of certain bullion and that no jewels were sold and further the patties were not in the name of the wife. The Tribunal, therefore, came to the conclusion that the story that she got 279 tolas of gold could not be believed and that, what were sold were jewels of the wife is difficult to accept; and, having regard to the discrepancy between the statement of the assessee and his wife contained in the affidavit, the conclusion of the Income-tax Officer that the purchase money cannot be traced to the sale of the jewellery of the wife and it must be the income from undisclosed sources is correct. On that basis, the Appellate Assistant Commissioners order was confirmed by the Tribunal.
It is contended on behalf of the assessee that the order of the Appellate Tribunal is vitiated by gross misappreciation of evidence and also by an error of law in that, even though the burden lay on the department and no evidence was adduced on their behalf, the story of the department was accepted an against the story of the assessee which was supported by the a affidavit and the oral testimony. It is argued on the strength of the decisions in S. N. Ganguly v. Commissioner of Income-tax and Omar Salay Mohamed Sait v. Commissioner of Income-tax that the order of the Appellate Tribunal in the above circumstances cannot stand and ought to be set aside by the court. It is indisputable that the Income-tax Appellate Tribunal is essentially a fact-finding Tribunal. Its finding on questions of fact, after consideration of the evidence, is final and binding unless the finding is open to attack on the ground that there is no evidence to support it or that it is perverse. This position has been lucidly dealt with and authoritatively laid down by their Lordships of the Supreme Court in Omar Salay Mohamed Sait v. Commissioner of Income-tax. The position was summed up thus :
"(1) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the court under section 66 (1).
(2) When the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the fact found is final its decision as to the legal effect of those findings is a question of law which can be reviewed by the court.
(3) A finding on a question of fact is open to attack under section 66(1) as erroneous in law when there is no evidence to support it or if it is perverse.
(4) When the finding is one of fact, the fact that it is itself an inference from other basic fact will not alter its character as one of fact."
It follows therefore, in cases which involve only a question of fact, the finding of the Tribunal cannot be a assailed unless there is no evidence to support it or the finding is perverse. Further, the finding essentially of fact will not change its character as such only because it is itself an inference from other basic facts. Here in this case if it is held that the Tribunal did not go wrong on the question of onus, what remains thereafter to be considered is purely a question of fact which would entirely rest upon the appreciation of evidence. If therefore the Tribunal had considered all the evidence, as it had done in this case, there can be no occasion for interference by this court.
But the position will be different if there is no evidence on record in support of the finding of the Tribunal or the finding is such that no reasonable man would come to, on the basis of the material on record. It is contended that the present case bears close analogy to the facts in the supreme Court case in the above decision and therefore. But it would appear that those facts have in fact no parallel in the present case. In that case, the Tribunal had misread the affidavits, improperly rejected the evidence, failed to take into consideration some of the evidence already on record, pointed out certain things as loopholes in the case, even though there were no loopholes at all and their finding was rested on mere conjectures, surmises and suspicions. Such is not the case here. As already pointed out, on the evidence on record, the Tribunal came to the conclusion that the source of consideration for the purchase sale proceeds of bullion, the patties of which stood in his name, could not be traced to this wife who had failed to establish that she had the jewels which in fact were sold in the shape of bullion and he sale proceeds thereof constituted the consideration of the purchase of the property.
Then it is argued that when the property had admittedly in the name of the wife, the onus lay on the department to prove that the apparent state of things is not the real state and that the wife was not the owner thereof. In this behalf, reliance has been placed on S. N. Ganguly v. Commissioner of Income-tax. As observed in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, the word "benami" is popularly used to denote two classes of transaction even though each differs from the other in the legal character and incidents. In one sense, it means a transaction which is sham or unreal. In the other sense it is used for the transaction which is genuine but the real purchaser is not one who is shown to be as such. The ostensible purchaser is a mere name-lender and the beneficial interest in fact rests with the real owner. When a dispute arises as to whether a person named in the deed is the real transferee, one has to enquire into the question as to who paid the consideration for the transfer. This practice of putting property into a false name, that is, in the name of a person other than the real owner as stated by Mulla in his Principles of Hindu Law (12th edition at page 748), is not uncommon. This practice has arisen partly from superstition - some persons and some names being considered as lucky and others as unlucky. Partly also, the practice is due to a desire to conceal family affairs from public observation. But many transactions originate in fraudulent purpose; more especially for the purpose of keeping out creditors who are told, when they come to execute the decree, that the property belongs to fictitious owner and cannot be seized. It is no doubt true that there cannot be any presumption that the property purchased in the name of a wife belongs to the husband, but when once the source of consideration is traced to the husband, the burden would shift to the other side. It is obvious from the record that the patties evidencing the sale of bullion the sale proceeds of which formed the consideration for the purchase of the property in question, stood in the name of the assessee. Thus, when the source of consideration is traced to the assessee, there is every reason to presume that the transaction is for the benefit of the person who paid the money and the burden would naturally shift to the wife claiming title to show, by satisfactory evidence, that it was a gift to her or the property otherwise belonged to her. Judged thus, it is obvious that the finding of the Tribunal is not vitiated by any error of law on the question off onus or otherwise. The authority relied on, viz., S. N. Ganguly v. Commissioner of Income-tax, does not advance the petitioners case. There it was observed that the onus of proof will be not on the assessee but on the income-tax department to show by at least some material that the amount standing in the name of the if does not belong to the wife but belongs to the assessee and that there must be some material, apart from the existence of the close relationship of husband and wife, to suggest that the amount did not really belong to the wife. In the present case, in fact, there was such material as the patties stood in the name of the husband, i.e., the assessee, and the same amount was utilised for the purchase of the property. In M. M. A. K. Mohideen Thamby & Co. v. Commissioner of Income-tax a Division Bench of this court had to deal with the question with regard to credit entries standing in the names of partners as well as the third parties wherein it was argued that, in relation to such entries, the department ought to have proved that the amounts standing in their names do not belong to them but belonged to the assessee. That argument was advance in the decision of Radhakrishna Behari Lal v. Commissioner of Income-tax. The learned judges expressed their inability to subscribe to the proposition enunciated in that decision and observed that it was difficult for the department to establish positively that these credit were not genuine ones and that the amounts represented thereby really belonged to the assessee and the entries were fictitious. They observed that the burden both with regard to credits in the names of the partners as also in the names of third parties is on the assessee to explain the credit entries irrespective of in whose names they stand. Observations to like effect were made by Subba Rao C.J. (as he then was), who delivered the opinion of the Bench in P. V. Raghava Reddi v. Commissioner of Income-tax. This view is well supported by the observation of the Supreme Court in Govindarajulu Mudaliar v. Commissioner of Income-tax, where it was observed that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of assessable nature. When it is once clear that the sale consideration was the sale proceeds of the patti which stood in his name, in the absence of proof as to the source from which this bullion came, it is open to the Income-tax Officer to draw an inference that it is from an undisclosed source within the meaning of sub-section (5) of section 6 of the Income-tax Act and is assessable to tax. The reference is answered accordingly in the affirmative. The assessee shall pay the costs. Advocates fee Rs. 250 Reference answered in the affirmative.
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