Commissioner Of Income-Tax, Rajasthan v. Lakshman Swaroop Gupta And Brothers.

1. At the instance of the Commissioner of Income-tax the Income-tax Appellate Tribunal, Delhi Bench " C ", has referred the following question for our opinion ;

" Whether, on the facts and in the circumstances of the case and in view of the provisions of Section 68 of the Income-tax Act, 1961, the Tribunal was right in law in deleting the cash credit of Rs. 20,000 in the books of account of the assessee on April 7, 1961, from his total income for the assessment year 1962-63 ?"

2. The circumstances which have given rise to the question aforesaid, briefly, stated are these: Lakshman Swaroop Gupta is the proprietor of M/s. Lakshman Swaroop Gupta & Bros., Bharatpur (hereinafter called " the assessee"), who deals in motor parts, electrical goods, miscellaneous articles, tyres and tubes. In the course of assessment proceedings for the assessment years 1961-62 (the previous year being April 16, 1960, to April 15, 1961) the Income-tax Officer found a cash credit entry in the sum of Rs. 20,000 dated April 7, 1961, in the name of Smt. Satyavati Devi, the wife of the assessee. The assessee could not explain the entry satisfactorily and the amount of Rs. 20,000 was added to the assessee's total income as income from other sources for the assessment year 1961-62 and subjected to tax. An appeal was taken before the Appellate Assistant Commissioner and it was contended on behalf of the assessee that the amount had been included in the computation of total income under the head "Other sources" and the previous year should have been the financial year and as the amount of Rs. 20,000 appeared in his books of account on April 7, 1961, if at all taxable, it should fall for consideration in the assessment year 1962-63 and not in the assessment year 1961-1962. The Appellate-Assistant Commissioner accepted the assessee's contention and deleted the said amount of Rs. 20,000 from the computation of the income-tax for the assessment year 1961-62 directing the Income-tax Officer to consider this amount in the assessment year 1962-63 after considering all the evidence. The department rest contended with the decision.

3. In the assessment proceedings for the year 1962-1963 it was contended on behalf of the assessee that the amount of Rs. 20,000 was received by his wife from her mother after the death of her grand-father at Bareilly and an old panchnama, which was contemporaneously prepared, was produced. But the document was dated April 10, 1961, duly attested by an Oath Commissioner. The Income-tax Officer disbelieved the explanation of the assessee and treated the amount of Rs. 20,000 as income from undisclosed sources of the assessee and added the same as the assessee's income from "Other sources". Feeling aggrieved, the assessee preferred an appeal before the Appellate Assistant Commissioner and pleaded that, in view of Section 68 of the Income-tax Act, 1961, the amount was not liable to tax in the assessment year 1962-63. The Commissioner did not accept the contention. Dissatisfied, the assessee preferred an appeal before the Appellate Tribunal and contended that as the cash credit entry did not relate to the previous year beginning on April 16, 1961, and ending on April 15, 1962, corresponding to the assessment year 1962-63, it could not be added as the assessee's income from "other sources" for the assessment year 1962-63. The revenue's contention was that the assessee should be deemed to have acquiesced when he pleaded for its consideration for the assessment year 1962-63 in the assessment proceedings for 1961-62. It was also urged that an anomalous position would result if this amount was excluded because it could not be considered in the assessment year 1961-62 and it cannot be included in the assessment year 1962-63. The Tribunal rejected the contention of the revenue on the ground that the illegality could not be cured by the waiver of the assessee. The Tribunal found that the accounting period of the assessee for which books were maintained was from April 16, 1961, to April 15, 1962, and that as the relevant cash credit entry appeared on April 7, 1961, in the assessee's books of account, the same could not be taxed in the assessment year 1962-63. The Tribunal further found that this anomalous position was born out of the change in law and the saving clauses contained in Section 297 of the Income-tax Act, 1961, did not assist the Tribunal in answering the peculiar problem. Basing their decision on Commissioner of Income-tax v. C.S. Shastri, [1959] 35 ITR 476 (Mad) that a taxing statute must be construed strictly because no one was bound to pay more than what the law clearly required him to do and if the position was ambiguous the taxpayer was entitled to the benefit of that ambiguity, the Tribunal deleted the addition of Rs. 20,000 made in the assessment year 1962-63. At the request of the Commissioner of Income-tax the present reference has been made.

4. Mr. S.C. Bhandari, learned counsel for the revenue, urged that the sum of Rs. 20,000 is not an income from regular business and, therefore, the assessee's previous year as opted by him under Section 3(1)(b) should not be treated as his previous year but his previous year for this entry is as defined in Section 3(1)(a) of the Income-tax Act. He further contended that the opted previous year was intended to cover regular business and did not relate to an undisclosed income. The reason is because an assessee was entitled to have different previous years for different sources of income. In this view of the matter Section 68 of the Income-tax Act would not apply. He placed reliance on Commissioner of Income-tax v. P. Darolia & Sons, [1955] 27 ITR 515 (Pat), Baladin Ham v. Commissioner of Income-tax, [1969] 71 ITR 427 (SC) and Jethmal Lakhani v. Commissioner of Income-tax, [1963] 49 ITR 633 (Cal).

5. Mr. A. L. Mehta, learned counsel for the assessee, urged that a comparison between the language employed in Section 68 and that which is used in Sections 69, 69A and 69B clearly indicates that for the undisclosed assets the term," previous year " has been differently treated by the legislature. He argued that Section 4 is the charging section and it provides that income-tax shall be charged for any assessment year in respect of the total income of the previous year or previous years, as the case may be, of every person. Under Section 3(1)(c) the Board or authority authorised by the Board in that behalf could determine the previous year in cases only which do not fall under Sections 3(1)(a) and 3(1)(b). Section 3(3) does provide that an assessee may have different previous years in respect of his separate sources of income. But there is nothing to show that the sum of Rs. 20,000 was derived from any distinct source of business and the assessee's opted year under Section 3(1)(b) should be treated to be the previous year for calculating his liability under Section 68 in regard to the sum of Rs. 20,000.

6. It is not and cannot be disputed that it was the Income-tax Act, 1961, which came into force with effect from April 1, 1962, that ought to regulate the scrutiny of the return for the assessment year 1962-63. Let us then examine Section 68, relying on which the Tribunal has excluded from consideration the sum of Rs. 20,000 from the total income of the assessee. Section 68 reads :

" 68. 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."

7. It is admitted that for the assessment years 1961-62 and 1962-63, the previous years of the assessee were between the periods of April 16, 1960, to April 15, 1961, and April 16, 1961, to April 15, 1962, respectively. The endeavour of the learned counsel for the revenue is to assign to the assessee the previous year as envisaged by section 3(1)(a) for the purposes of the computation of the tax on Rs. 20,000 as distinguished from his opted previous year under Section 3(1)(b). The term " previous year ", has been defined in the Act. Let us read Sections 3(1)(a) and 3(1)(b):

" 3. (1) For the purposes of this Act, 'previous year' means-

(a) the financial year immediately preceding the assessment year ; or

(b) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date..... "

8. Generally, the financial year immediately preceding the assessment year is the previous year as covered by section 3(1)(a) but the assessee has been given an option by law under Section 3(1)(b) to make up his accounts on the basis of a twelve-month period starting from any odd day of the year and in that case so far as the assessee is concerned it will be his previous year. We see no justification for giving a different connotation to the term " previous year " for the undisclosed income than the previous year which has been opted by the assessee and accepted by the department as the period for the purposes of computing his income-tax under Section 68 of the Act. We feel fortified in our conclusion when we recall that under Section 68 when any sum is found credited in the books of an assessee maintained for any previous year and his explanation is rejected, the sum so credited may be charged to Income-tax and the express words of the section are "as the income of the assessee of that previous year". These are decisive words. Can we say that when the statute provides a precise method for the taxing of an unexplained cash credit entry in the assessee's books of account, any option is available to the department to shift the opted previous year enabling it to rope in the unexplained entry ? The answer is plainly in the negative. In this context a reference to Section 69 would further illuminate the intention of the legislature. It provides that where in the financial year immediately preceding the assessment year the assessee had made investments which are 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 the investments or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, "the value of the investments may be deemed to be the income of the assessee of such financial year ". The distinction in the phraseology of Sections 68 and 69 indicates that for the purposes of an unexplained income which is contained in the books of account it is the assessee's previous year which shall be the relevant period for including such an unexplained credit but where the investments are not contained in any books of account and they are unexplained or the explanation is unsatisfactory the value of the investments shall be deemed to be the income of the assessee for the financial year preceding the assessment year. This distinction is purposeful. Section 68 accepts the entry as representing the correct financial position of the assessee with regard to the quantum of money and the date of its acquisition but when its source is unexplained or not adequately explained then for the purposes of income it should be treated as the income of the assessee's previous year. Section 69, however, deals with investments which are at large and neither recorded in any account book nor is it possible to precisely locate their date of acquisition. In such a situation law permits the department to deem that it accrued in the preceding financial year for the purposes of roping in such income to tax.

9. It is trite but true to say that no tax can be levied on the subject without words of the Act clearly indicating an intention to lay a burden upon him. The citizen must come within the letter of the law and the argument that he falls within the spirit of the law cannot avail the department. Reference in this connection may be made to Duke of Westminster v. Inland Revenue Commissioners, [1935] 19 TC 490, 524 (HL).

10. We might notice in passing the cases cited by the learned counsel for the department. In Darolia's case, [1955] 27 ITR 515 (Pat) the learned judges of the Patna High Court held that in respect of an amount of cash received during the account-

ting year the burden of proof was upon the assessee to show positively the source and nature of the receipt and in the absence of an adequate explanation the revenue authorities were entitled to draw the inference that the receipts were in the nature of income and liable to be taxed, and where the assessee bad not adopted a system of accounting or opted for any previous year the only course open to the income-tax authorities was to take the financial year ending on 31st March. This case is clearly distinguishable. There was no system of accounting and no opted previous year.

11. In Baladin Ram's case, [1969] 71 ITR 427 (SC) the assessee was a Hindu undivided family. The relevant assessment year was 1944-45, corresponding to the accounting year ending on Diwali Samvat 2000 (October 28, 1943). On February 20, 1945, the Income-tax Officer made an assessment on a total income of Rs. 26,800 odd which comprised income from the share in the business of Kasi Iron Foundry and the income from the property. That order was revised under Section 34 of the Indian Income-tax Act, 1922. In the revised assessment order the total income of the assessee was computed at Rs. 71,731. A sum of Rs. 40,000 was included as income from undisclosed sources. The assessment was challenged before the Appellate Tribunal and was set aside on the ground that there had not been proper service of a notice under Section 34. A revised assessment order was passed on October 16, 1952, and the total income of the assessee was computed at Rs. 85,817 which included a sum of Rs. 49,696 as income from undisclosed sources. Another notice under Section 34 was served on March 31, 1953, for the assessment year 1944-45, and on March 18, 1954, a revised assessment was made adding another sum of Rs. 32,000 as the assessee's income from undisclosed sources, being the alleged investment of the assessee in the sarpat and bamboo business prior to February 18, 1944. This swelled the total income of the assessee to Rs. 1,17,817, and the undisclosed income amounted Rs. 81,696. An appeal was taken ultimately before the Income-tax Appellate Tribunal and it found that the unexplained investment which was really the income of the assessee from undisclosed source was Rs. 27,875 instead of Rs. 32,000 and a question of law was referred under Section 66(1) of the Indian Income-tax Act, 1922, to the effect whether, on the facts and in the circumstances of the case, the revised assessments under Section 34, dated 16th October, 1952, and 18th March, 1954, were legal and valid. The High Court held both the orders as legal and valid. By special appeal the matter was taken to the Supreme Court and their Lordships observed that it appeared to be well settled that in such circumstances the only possible way in which such undisclosed income could be assessed or reassessed was to make the assessment during the ordinary financial year. The learned counsel invited their Lordship's attention to Section 68 of the Income-tax Act, 1961, and the learned judges observed:

" It is, however, obvious that even under the provisions embodied under the new Act it is only when any amount is found credited in the books of an assessee that the section will apply. On the other hand if the undisclosed income was found to be from some unknown source or the amount represents some concealed income which is not credited in his books the position would probably not be different from what was laid down in the various cases decided when the Act was in force."

12. This is the passage on which Mr. Bhandan relies. We are unable to appreciate how in the circumstances of our case which we have detailed above, this passage is helpful to him. In Balaam's case, [1969] 71 ITR 427, 432 (SC) the books of account did not contain the undisclosed income and the dates of their acquisition could not be located and, therefore, resort had to be taken to the financial year. That precisely is the principle enunciated in Section 69 of the Act.

13. We need not examine Jethmal Lakhani's case, [1963] 49 ITR 633 (Cal) because it has been mentioned with approval by their Lordships in the above case, which we have already noticed earlier.

14. No other point was pressed.

15. In our opinion, the answer to the question referred is that, on the facts and in the circumstances of the case, Section 68 of the Income-tax Act, 1961, clearly applies and the Tribunal was right in law in deleting the cash credit of Rs. 20,000 in the books of account of the assessee on April 7, 1961, from the total income of the assessment year 1962-63.

16. The reference is answered against the department but in the circumstances of the case there will be no order as to costs.