1. The Income-tax Appellate Tribunal, Ahmedabad Bench "C", has referred the following questions under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this court :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee had been found in possession of gold valued at Rs. 48.72 lakhs and as such he was the owner of the said gold and the value of the said gold was liable to be included in the income of the assessee because of the fact that no explanation regarding source from which investment in the said gold had been made, had been given by the assessee ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no deduction in respect of the value of the gold which had been confiscated was allowable from the income of the assessee ?"
2. The relevant assessment year is 1984-85. The assessee derived income from the firm of Fakir Mohmed Haji Hassan and Co., Jam-Khambhalia, of which the assessee was a partner. His minor son's share in the said firm was liable to be included in his income. The assessee filed a return for the assessment year 1984-85 on February 12, 1985, declaring an income of Rs. 48,520. The Income-tax Officer issued notice under Section 143(2) of the Act seeking certain information. In response thereto, the assessee's accountant had attended the office of the Income-tax Officer and explained the return. The Income-tax Officer called upon the assessee to give information about the incident of seizure of gold worth Rs. 48,72,000 on April 19, 1983. The assessee disclosed to the Income-tax Officer that the customs department had confiscated the gold in question and the proceedings under the Customs Act were pending against the assessee. The Collector of Customs, in adjudication proceedings, had imposed penalty of Rs. 25 lakhs on the assessee by his order dated November 30, 1983, passed under Section 112 of the Customs Act, 1962, in connection with the smuggling of 2,320 tolas of gold of foreign origin valued at Rs. 48,72,000. The Income-tax Officer recorded a finding that the value of the said gold was liable to be added in the income of the assessee under Section 69A of the Act and made the addition accordingly. During the search by the customs authorities, an amount of Rs. 46,000 was also recovered, which was not explained by the assessee and that amount was also consequently added in the income of the assessee by the Income-tax Officer. In appeal, the Commissioner of Income-tax (Appeals) confirmed the additions and in further appeal, the Tribunal upheld those decisions.
3. The Tribunal found that the facts as disclosed in the customs proceedings, which were relied on in the income-tax proceedings, were that specific information was received by the Customs Department, Ahmedabad, indicating that the assessee would bring imported gold on April 19, 1983, in his car and would make delivery thereof at a place near Quality Restaurant, Kankaria, Ahmedabad. On the basis of such information, a watch was kept and at about 4.30 p.m. when the customs officers spotted the persons who were concerned and accosted them and after a scuffle apprehended three persons, one of whom was the assessee. The car was seized in the presence of the panch witnesses and at that time during search 232 gold bars of foreign markings valued at Rs. 48,72,000 were recovered. These were concealed in five cotton strips kept in the dashboard behind the air-conditioner of the car. A bag containing currency notes of Rs. 46,000 was also recovered. All these articles were seized. The statements which were recorded under Section 108 of the Customs Act were considered in the adjudication proceedings and the gold was confiscated absolutely to the Government by an order made by the customs authorities. The assessee was given an option to redeem the car on payment of fine of Rs. 28,000.
4. The Income-tax Officer found that all the surrounding circumstances indicated that it was the assessee who was the owner of the gold, which was found concealed in the car, and the value of the gold was, therefore, added in his income, which finding was confirmed by the first appellate authority. The Tribunal, on appreciating the evidence, also held that the only inference that could be drawn from the facts of the case was that it was the assessee who had kept the gold in question in the car, and that he had come to Ahmedabad to dispose of it and, since he was the owner of the gold, the value thereof was liable to be added as income of the assessee under Section 69A of the Act. The Tribunal also found that it was not the assessee's case that he had derived any income from any business of smuggling and therefore it could not be said that confiscation of gold represented a trading loss in the hands of the assessee. No deduction could therefore be allowed as claimed by the assessee,
5. In our opinion, the Tribunal has come to these findings on the basis of the material on record, reaching a fair decision in the process. The Tribunal rightly held that the ratio of the decisions in Commissioner Of Income Tax, Gujarat v. S.C Kothari [1971] 82 ITR 794 (SC); Cit Patiala v. Sri Piara Singh . [1980] 124 ITR 40 (SC) and CIT v. Ram Chander [1986] 159 ITR 689 (P&H) did not apply to the facts of the present case because, what was included in the assessee's income was not the profits of an illegal business, but an unexplained investment in gold, which was found in the possession of the assessee.
6. Under Section 4 of the Income-tax Act, income-tax is to be charged in accordance with the provisions of the Act in respect of the total income of the previous year of every person. As provided by Section 5, the total income of any previous year of a person would, inter alia, include all income from whatever source derived which is received or is deemed to be received by such person, subject to the provisions of the Act. It will be seen from Section 69A of the Act that where the bullion, jewellery or other valuable article is not recorded in the books of account and there is no explanation about the nature and source of its acquisition, or the explanation is not satisfactory, the value thereof may be deemed to be the income of the assessee of the financial year immediately preceding the assessment year in which the assessee is found to be the owner of such bullion, etc.
7. The scheme of Sections 69, 69A. 69B and 69C of the Income-tax Act, 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that
the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under Section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from "other sources" which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under Section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69, 69a, 69b and 69C will riot apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted.
8. The opening words of Section 14 "save as otherwise provided by this Act" clearly leave scope for "deemed income" of the nature covered under the scheme of Sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from "other sources" because the provisions of sections 69, 69a, 69b and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head "Income from other sources". Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69, 69a, 69b and 69C of the Act in view of the scheme of those provisions.
9. It is, therefore, clear that, when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was deemed to be the income of the assessee, as a deductible trading loss on its confiscation, because, such deemed income did not fall under the head of income "profits and gains of business or profession".
10. In our opinion, therefore, the Tribunal was perfectly right in holding that the value of the gold was liable to be included in the income of the assessee as the source of investment in the gold or of its acquisition was not explained and that the assessee was not entitled to claim that the value of the gold should he allowed as a deduction from his income.
11. Both the questions referred to us are, therefore, answered in the affirmative, against the assessee and in favour of the Revenue. The reference stands disposed of accordingly with no order as to costs.