Pandey J.-

The questions referred to this Court under section 66 (2) of the Income-tax Act are:

(1) Whether there was any material before the Tribunal to hold that the sum of Rs.5,67,000 was the income of the assesses Association from undisclosed sources 1

(2) Whether, on a true construction of the adoption deed, the amount of Rs.11,939 spent by or for Parmanand has been rightly disallowed as an expense of the business of the assesses ?

(3) Whether the income of Rs.44,511 was the income of the assesses or of the trust ?

2. Two brothers, Mohanlal and Hargovinddas, were members of an un­divided Hindu family and carried on an extensive business of manufacture and sale of India under the name and style of Mohanlal Hargovinddas, Jabalpur. In the year 1920, Hargovinddas died issueless leaving behind him surviving his two widows, Mst. Ujjabai and Mst. Rukhibai. Thereafter, on 25th November 1921, Moknlal made a will of the entire joint family property, which he alone owned the sole surviving coparcener, in favour of his wife Mst. Jadavbai alias Jadibai this brother's widow Mst. Ujjabai. The material terms of the will are :

"1. That after my death my wife Jadibai and Ujjabai the wife of my deceased brother Hargovinddas these two women will be in possession of that property which I shall leave behind and which is my self-earned property."

2. That if any one out of these two women were to die then the woman who will be living out of these two women i.e. Jadibai and Ujibai will alone be entitled to obtain my entire property and the four women will remain together in the same manner as they are doing now.

3. That after the death of these women namely Jadibai and Ujibai the whole of the estate should pass to my second wife Chanchalbai and Rukhibai the widow of Hargovinddas. They shall be joint owners.

4. If any one out of these also were to die or goes away, i.e. remarries according to the customs of the caste, etc. then in that case the woman who sticks to her religion shall be entitled to receive every kind of property.

"5. None of the women will have the power to spend money out of movable and immovable properties except for necessary expenses and in order to complete works of (religion) nor will she have power to spend in a manner not befitting her position i.e. spend more than a woman of her social status may spend and she will also have no power to waste the property. The trade shall be going on as usual."

On 29th November 1921, Mohanlal also died issueless survived by his two widows, Mst. Jadavbai and Mst. Chanchalbai. In 1923, Mst. Chanchalbai and Mst. Rukhibai remarried. On 29th June 1925, Mst. Jadavbai adopted a boy, Chandu alias Parmanand, as a son to her deceased husband Mohi making with his natural father an agreement dated 28th June material terms of that agreement are as under:

"1. The parties hereto of the 1st and 2nd part and the survivor of them d during their respective lives both before and after the said minor boy has ed his majority absolute power and control over the whole of the movil immovable property, estate and effects of which said Mohanlal possessed end shall be at liberty to manage the same during their r according to their absolute discretion in any manner that they or seemly exercise of such discretion deemed most advantageous to the estate."

2. The parties hereto of the 1st and 2nd part and the surviving of them shall their respective lives be absolutely entitled to the income of the provided however and hereby agreed that they will during their respecting provide the said boy Chandoo with lodging, food, clothes, medical after and all other necessaries and will generally Maintain and educate him out oil income of the said estate in the manner suitable to the position of the 6 and will get him married and perform the usual ceremonies of out of the said income in a manner suitable to the position and i the said family.

3. For the better management and protection of the said estate, said minor boy Chandoo the parties hereto of the 1st part and 2nd part I at liberty to appoint five fit and proper persons to manage the said I Mohanlal Hargovinddas at Jubbulpore and other places in British India on and conditions with such powers as to the said parties may seem proper.

"4. After the death of the survivors of the parties hereto of the 1st and 2nd part the said minor Chandoo will be entitled to inherit for his own absolute benefit all the movable and immovable property, estate and effect of which It said survivor shall die possessed."

"3. The relevant assessment year under the Income-tax Act is 194748, the previous year being 5th November 1945 to 24th October 1946. However, the' chargeable accounting, period for the Excess Profits Tax is 5th November 1945 31st March 1946 and for the Business Profits Tax is 1st April 1946 to 24t October 1946. The unit of assessment is an association of persons constituted the Mst. Jadavbai and Mst. Ujjabai, who claim to be the owners of the bushes carried on in the name of Mohanlal Hargovinddas. It appears that, during for relevant period, the adopted son Parmanand, who had attained majority, took i part in the management of that business."

"4. On 18th January 1946, Mohanlal Hargovinddas encashed high detonation notes of the value of Es. 6,22,000. Out of this amount, Bs. 5,67,000 was held to be assessable income derived from undisclosed sources. Further, a sum of Rs.11,939 spent out of the proceeds of the business by Parmanand for the personal requirements was not allowed as a business expense falling under sec­tion 10 (2) (xv) of the Income-tax Act. Also, another sum of Rs.44,511, being the profits of Gorakhpur shop of the assessee, was treated as income of the assessee and the contention that the income belonged to Mohanlal Hargovinddas Charitable Trust was not accepted."

"5. In regard to the encashment of 622 high denomination notes of Es. 1,000 each on 18th January 1946, the two ladies disclosed the sources of the amount as under:"

Sale proceeds of 25 silver bars... Rs.98,284

Sale of old silver coins.... Rs.2,50,000

Cash withdrawal from Mohanlal Hargovinddas on 15th October 1945.... Rs.1,50,000

Cash withdrawal from Mohanlal Hargovinddas on 21st November 1945. Rs.1,00,000

High denomination notes in the cash balance of Mohanlal Hargovinddas on 18th January 1946. Rs.55,000

"6. In the declaration prescribed by clause 6 of the High Denomination Bank Notes (Demonetization) Ordinance given by Mohanlal Hargovinddas on 18th January 1946, the sources of the money in high denomination notes disclosed were as under:"

"Our being an extensive business, we are required to keep large cash on hand and this we have been doing for a long time and this fact is already on the record of Income-tax Department."

"Chiefly from banks either in payment of cheques or by exchange of small notes and through sale of gold and silver and received in ordinary course of business."

"Received from our shops at various times and by sale of gold and silver and represent Stridhan by which the business in Bombay was carried on from 1937 to date."

7. For the assessment year 1946-47, the profits derived as a result of sale of silver bars and old coins mentioned in paragraph 5 above were estimated at Rs.99,122 and subjected to tax under section 34 of the Income-tax Act. Although that assessment was affirmed in appeal, the Tribunal set it aside on the ground that section 34

"ibid was not attracted for the reason that there was no fresh information leading to the discovery that the income had escaped assess­ment."

"8. The Income-tax Officer, who determined the tax for the assessment year 1947-48, held that Rs.5,67,000 was income derived from undisclosed sources for the following reasons:"

"(i) The two ladies were the owners of the property and the business assets and the withdrawals made by them could not be their stri-"

"(ii) The assessee dealt with the silver bars and old coins in a business­like manner and sold them in separate lots, thereby making a consi­derable profit."

"(iii) The assessee failed to show that the sale proceeds of silver bars and old silver coins and the withdrawals made by them consisted of those high denomination notes which were encashed on 18th January 1946."

"(iv) There were material discrepancies in the declaration made in connation with the encashment of the high denomination notes and the explanation subsequently put forward."

"9. The Appellate Assistant Commissioner, in affirming the finding that Rs.5,67,000 represented income derived from undiscovered sources, elaborated the reasons given in support of that view by the Income-tax Officer and laid emphasis on the absence of evidence to indicate that the sale proceeds of old coins and silver bars and the withdrawals were in high denomination notes. He pointed out that (a) there was no proof to show that the sale coins and silver bars were obtained in high denomination notes and hoarded ladies, (b) there were no details to show that the withdrawals were in high denomination notes, (c) since it was usual to Maintain a record of high sendoff nation notes handled, it was unbelievable that the agents of a firm of the standing of Mohanlal Hargovinddas did not keep even a record of the number of hi denomination notes received in the shop and handed over to the two ladies and (d) the assessee failed to produce any letter from the bank concerned to sol that high denomination notes were received from it."

"10. The Income-tax Appellate Tribunal merely accepted the reasons by the Appellate Assistant Commissioner and observed that it failed to sale he ladies should keep with them large sums when they got interest on the lying to their credit in the business."

"11. It is well settled that the question whether admitted or proved provide evidence to support the conclusions of fact reached is a question of Bomford v osborne (H. M. Inspector of Taxes) (1942) 10 ITR (supplement) 27. In other words, wk matter of this kind IB raised, the question would be whether the conclusions based on any evidence or upon a view of facts which may reasonably be en tamed: Edwards (Inspector of Taxes) v. Bairstow ( 1955) 28 ITR 579. Accordingly, the Sup. Court observed Meenakshi Mills,. Commissioner of Income ( 1957) 31 ITR 28, that in proceedings under section 66 of the Income-tax Act, a finding on a quit fact is open to attack as erroneous in law when there is no evidence to support or if it is perverse."

"12. In NiIkantha Narayan Singh v. Commissioner of Income-tax (1951) 20 ITR 8, a Zamindar had encashed in the relevant accounting year high denomination, of the aggregate value of us. 84,000. The Zamindar explained that the, represented the savings from the amounts he had withdrawn for his pen expenses. It was found that the account-books produced for seven years. accepted as genuine showed that the Zamindar had a balance of E,"

1,8400). The Patna High Court held that there was no onus on the Zamindar to exp.' from whom each high denomination note was obtained, that no adverse 3 night to have been drawn by reason of his failure so to do and that there was in material to support the conclusions that Es. 84,000 represented income from undisclosed sources A similar view was taken in Chunilal Ticamchand Coal Co Income-tax 27 I T R 602, where of the Patna High Court observed:

"It was stated by the Appellate Assistant Commissioner in the first place that the books of account did not expressly mention that the high denomination notes were received by the assessee in the course of business dealings. But this is hardly a circumstance which can reasonably be taken into account in deciding whether the cash balance consisted in part of high denomination notes. The possession of high denomination notes did not attract suspicion before the authorities promulgated the Denomination Ordinance. The mere fact that before the date of the Ordinance the assessee did not choose to mention in the account books the receipt of high denomination notes would not suggest that the cash balance was not constituted of the high denomination notes as alleged by the assessee."

The view taken in the last mentioned case was expressly approved by the Supreme Court in Mehta Parikh and Co. v. Commissioner of Income-tax 30 IT B 181, Bhagwati J. observed that the assessee had furnished-a reasonable explanation in possession of high denomination notes of the face value of Rs.61,000 and was no justification for having accepted it in part and discarded it in to a sum of Rs.30,000. Venkatarama Ayyar J. observed:

"I prefer to rest my decision on the ground that the finding of the Tribunal that high nation notes of the value of Rs.30,000 represented the concealed profits of the is not supported by any evidence and is, in consequence, erroneous in point of rand liable to be set aside. To put the matter in a nutshell the accounts appellant have been accepted by the Tribunal as genuine, and it is impossible to say, regard to the cash balance as shown therein, that the notes in question could not B been included therein. The Tribunal observes that it is unlikely that so many high action notes would have been held as a part of the cash on hand for such a large or of days. That, no doubt, is highly suspicious; but the decision of the Tribunal t rest not on suspicion but on legal testimony."

Following the two Patna cases, the Allahabad High Court also took the same in Kanpur Steel Co. Ltd. v. Commissioner of Income-tax (I). Finally,; the view taken in the four cases referred to above, the Supreme Court in Lalchand Bhagat Ambica Ram v. Commissioner of Income-tax (2):

"Nobody had any inkling of the promulgation of the High Denomination Bank Notes monetization) Ordinance, 1946, on January 12, 1946, and if in the normal course of and, situated as the appellant was, the appellant kept these large cash balances in i denomination notes of Rs.1,000 each, there was nothing surprising or improbable in If the appellant had to disburse such large sums of monies at short notices at the different branches of the appellant and also to its leopardess apart from financing the I Government for grain purchase work which it used to carry on, it would be convenient for ft to handle these large sums of moneys in high denomination notes of Rs.1,000 each and the most natural thing for it to do was to keep these cash balances in as many high nomination notes as possible.................."

"If the entries in the books of account in regard to the balance in Rokar and the balance Almirah were held to be genuine, logically enough there was no escape from the concisions that the appellant had offered reasonable explanation as to the source of the 291 in denomination notes of Rs.1,000 each which it encashed on January 19, 1946."

13. In the instant case, the Taxing Authorities and the Tribunal accepted At old coins and silver bars were sold for an aggregate sum of Rs.3,48,284. d, at an earlier stage, the Taxing Authorities had, as shown, actually taxed profits derived as a result of sale of old coins and silver bars. It was also: from the account books, which were accepted as genuine, that a part of the) us cash balance of the shop always remained with the two ladies, that they I to withdraw the surplus from time to time, that they made available funds in that surplus whenever required for the business of the shop and that, in the all course, they had withdrawn from the cash balance Rs.1,50,000 on 15th October 1945 and Rs.1,00,000 on 21st November 1945. In our opinion, these furnish a reasonable explanation as to the source of the high demolition notes of the aggregate value of Rs.56,7,000. The Main ground on which explanation was not accepted was that the assessee failed to prove on the s of the entries in account-books that the amount was received or withdrawn n high denomination notes. In our opinion, that fact cannot, in the circumcise of the case, reasonably support the conclusion that the amount of Rs.5,67,000 was not in high denomination notes. Another ground given by the Tribunal was that the ladies were unlikely to keep with them large sums when they got interest on the sums lying to their credit in the business. Besides being contrary to fact, this view ignored that the ladies were themselves the c the business and any entries relating to interest could only be book entrain also think that the statement in the declaration under clause 6 of the nation Ordinance that the amount was

"received from our shop at various 1 and by sale of gold and silver and represent straphang by which the bus: Bombay was carried on from 1937 to date"

is not, in effect, inconsistent assessee's explanation as to the source of the high denomination not statement clearly discloses that the amount was made up in part of with from the shop and in part of sales of gold and silver. The fact that ladies called the business of sale of gold and silver in Bombay, of whit were the owners, as their Sridhar is hardly of any consequence. Also, nothing to show that the business of sale of gold and silver carried on in ] in the past, as a result of which silver bars were acquired, was not duly shown the books of account. In these circumstances, that statement could r used to discredit the explanation as to the source of Rs.5,67,000 which ' factually correct. Finally, the view that the two ladies could have acquit the high denomination notes from other sources is mere speculation without I evidence.

"14. Our attention was, however, drawn to Chunilal Restage. Commission of Income-tax 281 ITR 341, and Sovachand Baid v. Commissioner of Income-tax 34 I TB 650, for' proposition that the finding of the Tribunal on this question was a finding of it and could not for that reason be questioned before us. We readily accept a finding of fact, of which it could not be said that it was not supported evidence or was unreasonable, is not open to challenge in proceedings section 66 of the Income-tax Act. But the two cases relied upon are dieting able because in those cases the explanation about the source of the amole covered by, the high denomination notes was not accepted. In this case, once if is accepted that Rs.3,48,284 were obtained by sale of old coins and silver 1 and Us. 2,50,000 were withdrawn from the shop, the conclusion must be that the assessee has offered a reasonable explanation as to the source of the high nation notes. In the Circumstances, we are of opinion that the finding that Rs.5,67,000 representing the value of high denomination notes encashed on 18 January 1947 was income from undisclosed sources is not based upon material before the Tribunal."

"15. The second question relates to Rs.11,939 which Parmanand was allow­ed to take from the proceeds of the business in the relevant year. The Taxing Authorities and the Tribunal appear to have assumed that Parmanand was a co-owner of the business. This is not correct. The operation of the will dated 25th November 1921 made by Mohanlal, who was the sole surviving coparcener, was not affected by the subsequent adoption of Parmanand: KrishnamurtM Ayyar v. Krishnamurthi Ayyar 54 IA 24S= A IR 1927 P C 139, Udhao v. Bhaskar 1946 N L J 165=A I R 1946 Nag. 203=1 L R 1946 Nag. 425, and Mst. Jhunkaribah v. Phoolchand 1958 MPLJ 513= A I R 1958 M P 261. In the last mentioned case, the entire case-law bearing on the point was exhaustively reviewed and it was held that the theory of relation back laid down in Anant Bhilcappa v. Shanker Ramchandra 70 IA 232= A I R 1943 PC 196, should be confined to the facts of that case. It is no doubt true that, under the will, limitations were placed upon the power of the two ladies to deal with the property bequeathed to them but we think that those limitations should be disregarded as repugnant to the nature of the interest devised by the will. The position which emerges is I that Parmanand has no present interest in the business carried on in the name of Mohanlal Hargovinddas."

"16. The question however is whether the sum of Rs.11,939 taken out of the proceeds of the business by Parmanand for his personal requirements could be allowed as a business expense falling under section 10 (2) (xv) of the Income-tax Act. Parmanand disclaimed being an employee of the two ladies for the purpose of supervising the business. There is also no agreement, express or implied, to remunerate him for supervision of the business which he seems to have voluntarily; undertaken. All that is said in support of the claim is that the two ladies decided to give him whatever amount he required for his personal expenses without any limit. In our opinion, this decision of the two ladies is attributable to their obligation to Maintain Parmanand in pursuance of the second condition mentioned in the agreement dated 28th June 1925 which they made with his father and it does not, by itself, furnish any ground for holding Rs.11,939 to be I an expense either wholly or exclusively for the purpose of the business. In our view, that payment was made to Parmanand upon non-commercial considerations. That being so, it is not allowable as a business expense."

"17. In regard to the third question, it may be noted that the assessee did not produce any evidence before the Income-tax Officer to show that its business carried on in the selling agency shop at Gorakhpur was transferred to the “Mohanlal Hargovinddas Charitable Trust”. Evidence was, however, allowed to: be produced by the Assistant Commissioner who found that the business was not vested in the trustees under the subsequently executed trust deed dated 10th January 1946. The Assistant Commissioner held that mere opening of separate account-books or preparation of bills in the name of the trust or correspondence with the constituents in that name would not show that the business was transferred to the trust and that there was in fact no convincing evidence to prove that income derived from the Gorakhpur business was the income of the trust. This view was affirmed by the Tribunal. Before us, reliance is placed upon the minutes of the meeting of the trustees dated 10th November 1945 whereat the two ladies “decided to give an agency of their Gorakhpur shop”. It is no doubt true that the trustees claimed to have accepted the agency but it does not appear that the decision of the two ladies was carried into effect. If it were otherwise, the ladies would not have failed to incorporate the business as a part of the property in respect of which the deed dated 10th January 1946 was executed in favour of the Mohanlal Hargovinddas Charitable Trust. Further, it is clear that the Main and branch shops of the assessee spent money out of the income of this business for “charitable works”. It appears to us that the ladies, who were charitably disposed, did want to apply the income from the business of the Gorakhpur shop for charity but they did not vest the business in trust and also retained control over its income to be applied for charity. In the circumstances, we agree with the Tribunal that the income from the business of the Gorakhpur shop was the income of the assessee."

18. Our answers to the questions referred to us are:

"(1) There was no material to support the finding that Rs.5,67,000 was income from undisclosed sources."

"(2) Rs.11,939 spent by Parmanand for his personal requirements wail allowable as expense incurred for the purpose of business of t assessee."

(3) The income from the business of Gorakhpur shop was the income of the assessee and not of the Mohanlal Hargovinddas Charity Trust.

19. Since the assessee has succeeded on the Maln point, it costs, which we assess at Rs.500, from the Department.

Reference answered accordingly.