- Bookmark
- Share
- CaseIQ
Commissioner Of Income-Tax, Poona v. Bhaichand H. Gandhi
Factual and Procedural Background
This opinion arises from a reference under section 256(1) of the Income-tax Act, 1961, concerning the inclusion of certain cash credits in the income assessment of the assessee for the assessment year 1962-63. During the assessment proceedings, the Income Tax Officer (ITO) included Rs. 30,000 as income from undisclosed sources based on cash credits found in certain books alleged to belong to the assessee. The assessee challenged this inclusion, contending that a deposit of Rs. 10,000 shown in the bank pass book but not in the cash book maintained by him for that year should not be treated as income under section 68 of the Act. The Tribunal agreed with the assessee, holding that the bank pass book was not a book maintained by the assessee and thus the amount did not fall within the ambit of section 68. The questions referred to the court concern whether this holding was justified.
Legal Issues Presented
- Whether a cash credit shown in the assessee's bank pass book but not in the cash book maintained by him falls within the ambit of section 68 of the Income-tax Act, 1961, and is chargeable to income-tax as income of the previous year.
- Whether the deposit of Rs. 10,000 made by the assessee on January 20, 1961, in the bank is includible under section 68 in computing the income for the assessment year 1962-63.
Arguments of the Parties
Assessee's Arguments
- The Rs. 10,000 deposit was shown only in the bank pass book and not in the cash book maintained by the assessee for the relevant previous year.
- The bank pass book is not a book maintained by the assessee, and therefore the amount credited therein should not be treated as income under section 68.
- Even if the amount were treated as undisclosed income, it could only be assessed in the financial year when the deposit was made.
Revenue's Position
- The ITO treated the cash credits, including the Rs. 10,000 deposit, as income from undisclosed sources since the assessee did not satisfactorily explain their nature and source.
- The Department contended that the bank pass book could be treated as a book of the assessee for the purposes of section 68.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Baladin Ram v. CIT, [1969] 71 ITR 427 (Supreme Court) | The assessment of income from undisclosed sources must be made on the basis of the ordinary financial year; section 68 applies only when a sum is credited in the assessee's books for a previous year. | The court relied on this precedent to affirm that income can only be charged under section 68 if found credited in books maintained by the assessee for the relevant previous year, reinforcing the Tribunal's approach. |
Court's Reasoning and Analysis
The court analyzed the scope of section 68, which applies only when a sum is credited in books maintained by the assessee for a previous year and the explanation for such credit is unsatisfactory. The Tribunal’s finding that the bank pass book is not a book maintained by the assessee was central. The court explained that the pass book is merely a copy of the bank's records and does not constitute a book maintained by the assessee or under his instructions. The relationship between the bank and the customer is debtor-creditor, not trustee-beneficiary, which means the pass book cannot be equated to the assessee’s books. The court further relied on the Supreme Court precedent in Baladin Ram v. CIT, which clarified that income from undisclosed sources is assessed according to the ordinary financial year and only if credited in the assessee’s books. Applying these principles, the court upheld the Tribunal’s conclusion that the Rs. 10,000 deposit shown only in the bank pass book does not fall within section 68.
Holding and Implications
Holding: The questions referred were answered in favour of the assessee: (1) affirming that a cash credit shown only in the bank pass book and not in the assessee’s books does not fall within section 68, and (2) negating the inclusion of the Rs. 10,000 deposit under section 68 for the assessment year 1962-63.
Implications: The decision clarifies that for the purposes of section 68, only sums credited in books maintained by the assessee for a previous year can be charged as income. Bank pass books, being records maintained by the bank and not by the assessee, cannot be treated as the assessee’s books. This restricts the scope of section 68 and limits the Revenue’s ability to treat bank pass book entries as undisclosed income. The ruling does not establish new precedent beyond reinforcing settled principles, but it provides authoritative confirmation on the treatment of bank pass books in income tax assessments under section 68.
Kania, J.:— The questions referred to us for determination in this reference under s. 256(1) of the I.T Act, 1961 (referred to hereinafter as “the said Act”), are as follows:
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that a cash credit for the previous year shown in the assessee's bank pass book issued to him by the bank but not shown in the cash book maintained by him for that year does not fall within the ambit of section 68 of the Income-tax Act, 1961, and as such the sum so credited is not chargeable to income-tax as the income of the assessee of that previous year?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the deposit of Rs. 10,000 made by the assessee on January 20, 1961, in the bank was not includible under section 68 of the Income-tax Act, 1961, in computing the income of the assessee for the assessment year 1962-63?”
2. In the course of the assessment proceedings for the assessment year 1962-63, for which the relevant previous year in the case of the assessee was Samvat year 2017, the ITO included Rs. 30,000 in the assessment on account of cash credits found in certain books which, according to the ITO, were the books of the assessee.
3. The explanation offered by the assessee regarding the genuineness of these credits was not accepted by the ITO and he treated the amount as income from undisclosed sources. On an appeal by the assessee, the AAC confirmed the view of the ITO. On a further appeal to the Tribunal by the assessee, an argument was put forward on behalf of the assessee that in respect of one of the deposits included in the said sum of Rs. 30,000, namely, a deposit of Rs. 10,000, this deposit was shown on January 21, 1961, in the bank account of the assessee. It was contended on behalf of the assessee that this amount was not an amount credited in the books of the assessee maintained by the assessee for the previous year ending on November 8, 1961 (Samvat year 2017) and that the bank pass book was not a book maintained by the assessee. It was contended on behalf of the assessee that the amount, even if treated as undisclosed income of the assessee, could only be assessed in the financial year. The Tribunal accepted the contention of the assessee holding that the said bank pass book could not be treated as a book of the assessee, as contended by the Department, and held that it was not a book maintained by the assessee for any previous year as referred to in s. 68 of the said Act. It is from this decision that the aforesaid questions have been referred to us.
4. Section 68 of the said Act says as follows:
“Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”
5. In Baladin Ram v. CIT, [1969]71 ITR 427, it has been held by the Supreme Court that it is now well settled that the only possible way in which income from an undisclosed source can be assessed or reassessed is to make the assessment on the basis that the previous year for such an income would be the ordinary financial year. Even under the provisions embodied in s. 68 of the said Act, it is only when any amount is found credited in the books of the assessee for any previons year that the section will apply and the amount so credited may be charged to tax as the income of that previous year, if the assessee offers no explanation or the explanation offered by him is not satisfactory.
6. As the Tribunal has pointed out, it is fairly well settled that when moneys are deposited in a bank, the relationship that is constituted between the banker and the customer is one of debtor and creditor and not of trustee and beneficiary. Applying this principle, the pass book supplied by the bank to its constituent is only a copy of the constituent's account in the books maintained by the bank. It is not as if the pass book is maintained by the bank as the agent of the constituent, nor can it be said that the pass book is maintained by the bank under the instructions of the constituent. In view of this, the Tribunal was, with respect, justified in holding that the pass book supplied by the bank to the assessee in the present case could not be regarded as a book of the assessee, that is, a book maintained by the assessee or under his instructions. In our view, the Tribunal was justified in the conclusions at which it arrived.
7. In the result, the questions referred to us are answered as follows:
Question No. 1: In the affirmative.
Question No. 2: In the negative.
8. It is clarified that both the questions are answered in favour of the assessee.
9. The Commissioner to pay the costs of the reference to the assessee.
Alert