JUDGMENT
This is a case stated by the learned Commissioner of Income-tax in response to a mandamus issued by a Bench of this Court relating to the assessment of Messrs. Dal Chand and Sons of Ferozepore for the year 1932-33.
The material facts are stated in the mandamus order and need not be recapitulated at length. The assessee was originally assessed for the year in question on a taxable income of Rs. 40,945, based on an admission that Rs. 2,00,000 have been received in full settlement of a decretal debt due from Rai Sahib Madan Gopal. This assessment was not disputed. Subsequently, however, on information given to the Income-tax Officer by an 'undisclosed informer' the Income-tax authorities decided that the assessee had acquired assets worth considerably more than Rs. 2,00,000 in settlement of the decretal debt. Supplementary proceedings were therefore instituted under Section 34 of the Income-tax Act which resulted in an additional income of Rs. 53,120 being held liable to tax.
The settlement of the decretal debt in question between the assessee and Rai Sahib Madan Gopal was incorporated in a registered document dated the 6th January 1932. By this date the debt due to the creditor-assessee amounted in all to a sum of Rs. 3,00,651. The assessee's version of this settlement was as follows. The debt was settled for Rs. 2,00,000, in payment of which some lands belonging to the debtor at Piplanwali and Odianwali valued at Rs. 2,25,000 (which were already under attachment) were transferred to the assessee as decreeholder. The excess amount of Rs. 25,000 was adjusted as follows : Rs. 4,000 was paid by the assessee-creditor as stamp duty on the registered document, while Rs. 21,000 was paid in cash to the judgment-debtor at the time of registration.
On the same date and at the same time another transaction occurred which according to the assessee was no concern of his. Certain property of the same debtor at Fazilka, consisting of a factory and a house, which had also been attached under the decree, was released and was sold by the debtor to Rai Sahib Murari Lal, a close relation of the decree-holder for Rs. 20,000 the amount being paid in cash before the Registrar allegedly to the debtor.
The total cash payment made to the judgment debtor on the 6th January, 1932, was according to the assessee's version, Rs. 20,000 paid by Murari Lal plus Rs. 21,000 paid by himself, that is Rs. 41,000. It is necessary to make this fact clear because in the mandamus order it was mentioned (as has indeed been assumed in the statement of the case by the learned Commissioner) that the total payment made, according to the assessee, to the judgment-debtor on the 6th January, 1932, was Rs. 45,000. In point of fact, however, this Rs. 45,000 included a sum of Rs. 4,000 paid by the assessee as stamp duty on the registered deed of the 6th January, 1932, and it is now admitted by the learned counsel for the Income-tax Department that this sum should not in any case be included in the assessable income of the assessee.
The Income-tax authorities, however, took a different view of the transactions that occurred on the 6th January, 1932. They assessed the value of the judgment-debtor's land at Piplanwali and Odianwali at Rs. 2,00,000, and rejected the story that in settlement of the debt, Rs. 2,00,000 was adjusted by transfer of the property and an excess amount which would be Rs. 25,000 less Rs. 4,000 for the stamp etc. (Rs. 21,000) was paid to the judgment-debtor at the time of registration. They held that the transaction by which Fazilka property was sold by the judgment-debtor to L. Murari Lal on the same day for Rs. 20,000 was a benami transaction in which the beneficial interest really passed to the assessee-creditor and was in fact a part of the debt settlement. But they considered that the Fazilka property had been under-valued at Rs. 20,000, and that the correct valuation of the land and the factory at Fazilka was Rs. 53,120. They therefore, held that the total value of the assets received by the decree-holder from the judgment-debtor in settlement of the debt on the 6th January, 1932, was Rs. 2,53,120 and they revised the assessments accordingly.
It was conceded before the mandamus Bench and has been conceded before us that the transaction dated the 6th January, 1932, by which certain Fazilka property was sold by the judgment-debtor to L. Murari Lal was in fact a benami transaction. It was, however, urged that there was no material to justify the finding that although the transaction may have been benami the beneficial interest passed to the assessee in the settlement of the debt and this was the subject of the fourth question formulated by the mandamus Bench. We agree with the learned Commissioner of Income-tax that there was undoubtedly material to justify a finding that the beneficial interest passed to the assessee in settlement of his debt. Apart from other reasons given by the learned Commissioner of Income-tax the matter is made clear by the statement of benamidar, L. Murari Lal, himself who admitted that he borrowed the money mainly on the security of G.P. Notes belonging to the assessee and that immediately afterwards the factory was leased out to the assessee who has spent considerable sums of money on improvements and additions. It is a fair inference in these circumstances that the beneficial interest passed to the assessee as stated above. The answer, therefore, to this question must be in the affirmative.
It will be convenient next to deal with the third question which relates to the valuation of the agricultural land at Piplanwali and Odianwali and of the Fazilka property. So far as the valuation of the agricultural lands at Piplanwali and Odianwali is concerned, Rs. 2,25,000 was the value estimated by the assessee himself but was not accepted by the Income-tax authorities on grounds, which we consider supported by material. The answer to the first part of question No. (3), therefore, is in the affirmative. As regards the Fazilka property, nothing has been urged before us to challenge the finding of the learned Income-tax Commissioner as to its valuation except in regard to an item of Rs. 4,350 relating to the value of fittings and accessories of the factory.
The value of the machinery has been estimated by an engineer at Rs. 15,650, a valuation which is not contested; but the Income-tax Officer added to this valuation an item of Rs. 4,350 so as to bring the total value of the machinery on the 6th January, 1932, up to Rs. 20,000. The reason given was that the engineer had not taken into consideration in his valuation the cost of fittings and accessories. Now the engineer was not questioned on this point and the excess valuation added by the Income-tax Officer of Rs. 4,350 appears to have been based on no material, but an entirely arbitrary figure added to the engineer's valuation in order to bring up the total value of the machinery to a round sum of Rs. 20,000. We can see no justification for the addition of this item of Rs. 4,350 and we consider that this sum should be deducted from the estimated valuation. For the rest the valuation of the Fazilka property is a finding of fact based on material which cannot be challenged and we see no reason to interfere. Our answer to the second part of the third question, therefore, is that an item of Rs. 4,350 should be deducted from the estimated valuation of the Fazilka property.
The first two questions formulated by the mandamus Bench are dependent on the effect of the statement of the "undisclosed informer" and can conveniently be considered together. It has been held in Ganga Ram Balmokand v. Commissioner of Income-tax, Punjab [1937] 5 ITR 464 , a Division Bench authority to which one of us was a party, after a full consideration of all the relevant authorities that proceedings before the Income-tax Officer are not judicial proceedings in the sense in which this term is ordinarily used and that all that is required of him is to proceed without bias and give sufficient opportunity to the assessee to place his case before him or in other words to conduct himself in accordance with the rules of justice, equity and good conscience. Again, in Commissioner of Income-tax, Bombay v. Kemchand Ramdas [1940] 8 ITR 159 , it was pointed out that "provided the course of natural justice is observed, and the assessee is informed of the substance of the information on which the Income-tax Officer proposes to act and of the case against him and he is given a reasonable opportunity to meet that case, we think it is open to an Income-tax Officer, and that the nature of his work makes it inevitable, to act, on private and confidential information in a work which is of a strictly private and confidential nature without disclosing the names of his informants." We are in full agreement with this observation. Now, in the present case it is clear that the income-tax authorities have not relied only on the statement of the undisclosed informer. On the contrary they have, without disclosing the name of the informant, which they were fully entitled to withhold, given the substance of the information to the assessee and also allowed him ample opportunity to rebut it. Quite apart from the statement of the undisclosed informer, the Income-tax Officer relied on a statement on oath from the debtor R.S. Madan Gopal and his son and chose to accept the entries in the debtor's account books, which substantially support the Department's version, in preference to the entries in the assessee's account books which in this respect have been held unreliable. It is conceded that the Income-tax Officer had a discretion to prefer the debtor's account books to the creditor's account books in this respect and that he was fully justified in acting on his local knowledge and the previous history of the case.
It was, however, urged before us that the Department was not entitled to go behind the consideration of the settlement of the debt as stated in the registered deed which it was contended was conclusive under the provisions of Sections 91 and 92 of the Evidence Act. We are of opinion, however, that neither Section 91 nor 92 helps the petitioner's case. Section 91 of the Evidence Act is concerned solely with the mode of proof of a document while the limitations imposed by Section 92 relate only to the parties to the document and would not be binding on the Income-tax authorities so as to debar them from interpreting the document in the way in which they have done in the present case. Just as in a preemption suit the pre-emptor may challenge the amount of consideration in a sale deed on the ground that it was not fixed or paid in good faith, so here it was open to the Income-tax authorities to challenge the amount of consideration for which the assessee as judgment-creditor settled his debt with his debtor.
We would, therefore, answer question No. (1) in the negative holding that the finding of the Income-tax authorities is not vitiated.
As regards the second question, part (a) has already been answered by the finding that the sale of the Fazilka property to L. Murari Lal was benami and that the beneficial interest really passed to the assessee in the settlement of the debt. As regards part (b) of this question, we hold that there was material for the Income-tax Officer to find that a sum of Rs. 21,000 out of Rs. 25,000 was not paid by the assessee, though it is plain that the balance of Rs. 4,000 was spent by the assessee in payment of the stamp duty and should not, therefore, be included in the petitioner's assessable income.
In the result, therefore, the only answers favourable to the assessee which emerge from our finding are that in reply to question No. (2)(b) we would hold that a sum of Rs. 4,000 should be deducted from the assessable income of the assessee and in reply to question No. (3) the value of the Fazilka property should be reduced by Rs. 4,350.
The reference is answered accordingly.