Full Judgment Text
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PETITIONER:
CHUHARMAL S/O TAKARMAL MOHNANI
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, M.P., BHOPAL
DATE OF JUDGMENT02/05/1988
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
RANGNATHAN, S.
CITATION:
1988 AIR 1384 1988 SCR (3) 788
1988 SCC (3) 588 JT 1988 (2) 495
1988 SCALE (1)1119
ACT:
Income Tax Act, 1961: Sections 69A and 271(1)(c)
Explanation-Assessee-Customs authorities seizing foreign
watches from assessee’s bedroom-Assessee not showing that he
was not owner-Value of watches-Whether ‘deemed income’-
Assessable to tax.
Penalty-Income returned less than 80% of income
assessed-Penalty can be imposed.
Indian Evidence Act, 1872: Section 110-Normally title
follows possession-Person shown to be in possession-Owner-
Onus of proving that he is not owner is on person who
affirms he is not owner-Applicability of principle to income
tax proceedings.
HEADNOTE:
Petitioner is the assessee. For the assessment year
1974-75 he submitted his return of income showing a total
income of Rs.3,113 and stated that he derived this income
from two stores which he had been running.
On May 12, 1973 in a search by the Customs authorities,
565 watches of foreign make of the value of Rs.87,455 were
seized from the petitioner’s bedroom. A panchnama was
prepared.
The Income Tax Officer issued a notice dated January
19, 1974 to the petitioner to show cause why a sum of
Rs.87,455 the value of the watches seized should not be
treated as his concealed income and brought to tax under
section 69A of the Act. He further directed issuance of
notice under section 271(1)(c) of the Act.
Being aggrieved the petitioner filed an appeal before
the Appellate Assistant Commissioner who dismissed the
appeal holding that in view of the order passed by the
Collector of Customs confiscating the watches and levying
penalty of Rs.2 lakhs under the Customs Act, the Income Tax
Officer was justified in including the cost of watches in
the income of the assessee for the assessment year 1974-75.
789
Thereafter on March 29, 1978 the Assistant Commissioner
issued a notice of penalty under section 271(1)(c) of the
Act, imposing a penalty of Rs.90,000.
The two appeals filed by the petitioner were dismissed
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by the Income-tax Appellate Tribunal, and the petitioner
sought a reference to the High Court under section 256(1) of
the Act.
The High Court held that: (i) by virtue of the search
in the house of the petitioner the watches were seized and a
Panchnama was prepared, that under Section 110 of the Indian
Evidence Act, 1872 it clearly establishes that the
possession of the wrist watches was found with the
petitioner, that as the petitioner did not adduce any
evidence, he had not discharged the onus by proving that the
wrist watches did not belong to him, the Tribunal had
rightly held that the value of the wrist watches is the
income of assessee, and (ii) that in view of the Explanation
to section 271(1)(c) the Department had discharged the
burden of establishing concealment. The reference was
accordingly answered against the assessee.
Dismissing the Special Leave Petition,
^
HELD: 1. The expression ’income’ as used in section 69A
of the Income Tax Act, 1961 has a wide meaning which meant
any thing which came in or resulted in gain.[794D]
2. Section 110 of the Evidence Act provides that where
a person was found in possession of anything the onus of
proving that he was not the owner was on the person who
affirms that he was not the owner. The High Court in J.S.
Parker v. V.B. Palekar, 94 ITR 616 held that what was meant
by saying that the Evidence Act did not apply to proceedings
under the Income Tax Act was that the rigour of the rules of
evidence contained in the Evidence Act, was not applicable
but that does not mean that when the taxing authorities were
desirous in invoking the principles of the Evidence Act in
proceedings before them, they were prevented from doing so.
[793G-H;794A-B]
3. All that section 110 of the Evidence Act does is
that it embodies a salutary principle of common law
jurisprudence which could be attracted to a set of
circumstances that satisfy its condition. [794B]
4. In the instant case, possession of the wrist watches
was found with the petitioner. The petitioner did not adduce
any evidence, far less
790
discharged the onus of proving that the wrist watches in
question did not belong to him. Hence, the High Court held,
and according to this Court rightly, that the value of the
wrist watches is the income of the assessee by virtue of
Section 69A of the Act. [793D-E]
5. The amendment to the Explanation to section
271(1)(c) by the Taxation Laws (Amendment) Act 1975 is
prospective in effect. [795G]
6. In the instant case, the assessee had shown only a
total income of Rs.3113 and subsequently the raiding party
seized wrist watches worth Rs.87,455. The value of that
income was included in the assessable income of the
assessee. The total assessable income of the assessee came
to Rs.90,568 whereas the returned income was Rs.3,113 which
was certainly less than 80% of the total income and, as
such, Explanation to section 271(1)(c) applied. Accordingly,
the Revenue has discharged the onus of proving concealment
of income. [795E]
Vishwakarma Industries v. Commissioner of Income-tax,
135 ITR 652 and Commissioner of Income Tax v. Bherulal
Shrikishan, [1983] 28 Madhya Pradesh Law Journal 162,
approved.
7. Though the penalty proceedings are penal in nature,
in the facts of this case the onus on the Revenue has been
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duly discharged. [795G-H]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) No. 1863 of 1986.
From the Judgment and Order dated 10.12.85 of the
Madhya Pradesh High Court in Misc. Civil case No. 297 of
1981.
Dr. N.M. Ghatate and S.V. Deshpande for the
Petitioners.
Kuldip Singh, Additional Solicitor General, B.B. Ahuja
and Miss A. Subhashini for the Respondents.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This petition for leave to
appeal is directed against the judgment and order dated 10th
December, 1985 of the High Court of Madhya Pradesh, Jabalpur
Bench. The High Court upheld the imposition of penalty as
well as the addition of alleged concealed income in the
income-tax assessment of the peti
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tioner. The relevant assessment year with which we are
concerned in this application is 1974-75.
It appears that the petitioner had submitted his return
of income for the assessment year 1974-75 showing a total
income of Rs.3,113 in response to a notice issued under
section 143(2) of the Act of the Income-tax Act, 1961
(hereinafter called ’the Act’). According to the petitioner,
he had derived his income from 2 stores, i.e. M/s. Mohanani
Fancy General Stores and M/s. Roopkala General Stores, Durg.
It, however, appears that on 19th January, 1974 on the basis
of the order passed by the Superintendent, Central Excise,
Jagpur, dated 25th December, 1975 there was confiscation of
foreign watches from the house of the petitioner and levy of
penalty of Rs.2 lakhs under the Customs Act, 1962.
Accordingly, the Income Tax Officer issued a notice calling
upon the assessee to show-cause why the value of the watches
seized from his residence should not be treated as his
income from undisclosed sources. In this connection it may
be relevant to note that on 12th May, 1973 a search was made
of the petitioner’s bed-room from where a total of 565
wrist-watches of foreign make valued at Rs.87,455 were
seized from a suit-case and in a secret cavity of a looked
steel almirah and also behind the almirah there were watches
folded in a bundle of waste papers. A Panchnama was prepared
at the same time mentioning these facts. According to the
Customs Authorities, the petitioner found himself unable to
make any statement at that time on account of which
recording of statements was deferred. However, it is stated,
the petitioner went out of the station on 14th May, 1973.
The petitioner’s statement was recorded on 13th May, 1973 as
soon as he was available. In his statement Annexure R-III
duly signed by him, he has admitted these facts and merely
denied knowledge of the manner in which those watches came
to be in his house.
It appears from the records of the Customs case, with
which we will have to deal later in S.L.P. No. 1008/86, the
petitioner was given a show-cause notice as to why the
period of six months fixed under section 110(2) of the
Customs Act, 1962 should not be extended but no reply was
given by the petitioner till 10th November, 1973 or even
thereafter. Hence, by an order dated 10th November, 1973
before the expiry of six months, time was extended by the
Collector of Customs for a further period of 6 months for
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giving a notice as required under section 124(a) of the
Customs Act, 1962. Under the proviso to subsection 2 of
section 110 of the Customs Act, 1962, a show-cause notice
specifying the requisite particulars, was given to the
petitioner on 4th May, 1974. In the reply the petitioner
made a general denial. The
792
enquiry was fixed on 30th october, 1975 for giving a
personal hearing to the petitioner, when the petitioner’s
Counsel appeared and sought for an adjournment to 20th
November, 1975, which was granted. However, on 20th
November, 1975 the Counsel of the petitioner stated that the
petitioner did not want to avail of the opportunity of
personal hearing or even to cross-examine the witnesses in
whose presence the Panchayatnama was made at the time of the
seizure of the watches. It is necessary to bear these facts
in mind because it has repercussions to the notice dated
19th January, 1974, as mentioned hereinbefore issued by the
Income Tax Officer to show-cause why the aforesaid sum of
Rs.90,768 should not be treated as the petitioner’s
concealed income. The Income Tax Officer further directed
issuance of the notice under section 271(1)(c) of the Act.
Being aggrieved by the said order the petitioner
preferred an appeal before the Appellate Assistant
Commissioner against the order dated 20th February, 1976.
The Appellate Assistant Commissioner dismissed the appeal
and held that in view of the order passed by the Collector
of Customs, the Income Tax Officer was justified in
including the cost of the watches in the income of the
assessee for the assessment year 1974-75. Thereafter, on
29th March, 1978 the Assistant Commissioner of the Income-
tax issued notice of penalty under section 271(1)(c) of the
Act, imposing penalty of Rs.90,000 minimum imposable being
Rs.87,455 and maximum imposable being Rs.1,74,910. Being
aggrieved thereby the petitioner filed two appeals before
the Income Tax Appellate Tribunal. The Tribunal by its order
dated 19th August, 1980 dismissed these appeals. The
petitioner has further stated that in the meanwhile the
State of Madhya Pradesh initiated criminal proceedings under
section 125 read with 111 of the Customs Act, 1962 and the
learned Chief Judicial Magistrate, Durg, by his order
convicted the petitioner and awarded one year’s rigorous
imprisonment. Thereafter, on 2nd November, 1982 the
petitioner filed an appeal in the Court of Additional Judge
in the Court of Sessions, who by his judgment allowed the
appeal and acquitted the petitioner of the said criminal
charge.
Thereafter, there was a reference to the High Court on
two questions against the order of the Income-tax Tribunal
under section 256(1) of the Act. The questions are as
follows:-
"(i) Whether, on the facts and in the
circumstances of the case, was the Tribunal
justified in holding that the assessee was the
owner of the watches and thus including the value
793
thereof in the assessment of the assessee?
(ii) Whether, on the facts and in the
circumstances of the case, the Tribunal was
justified in holding that the department had
discharged its burden for establishing the
concealment of income by the assessee for the year
under consideration and thus confirming the
penalty of Rs.90,000 levied by the Inspecting
Assistant Commissioner of Income Tax?"
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The High Court in its order noted that the raiding
party by virtue of the search entered into the bed-room of
the assessee on 12th May, 1973 and seized the watches. A
Panchnama was prepared. The Department found that the
assessee was the owner. Section 110 of the Evidence Act is
material in this respect and the High Court relied on the
same which stipulates that when the question is whether any
person is owner of anything of which he is shown to be in
possession, the onus of proving that he is not the owner, is
on the person who affirms that he is not the owner. In other
words, it follows from wellsettled principle of law that
normally, unless contrary is established, title always
follows possession. In the facts of this case, indubitably,
possession of the wrist-watches was found with the
petitioner. The petitioner did not adduce any evidence, far
less discharged the onus of proving that the wrist-watches
in question did not belong to the petitioner. Hence, the
High Court held, and in our opinion rightly, that the value
of the wrist-watches is the income of the assessee. In this
connection reference may be made to the views expressed by
Justice Tulzapurkar as his Lordship then was, of the Bombay
High Court in the case of J.S. Parkar v. V.B. Palekar, 94
ITR 616 where on difference of opinion between Justice
Deshpande and Justice Mukhi, Justice Tulzapurkar agreed with
Justice Deshpande and held the question whether on the
evidence established, the petitioner was the owner of the
gold seized, though there was no direct evidence placed
before the taxing authorities to prove that the petitioner
had actually invested moneys for purchasing the gold in
question, the inference of the ownership of the gold in the
petitioner in that case rested upon circumstantial evidence.
There also gold was seized from a motor launch belonging to
the petitioner in that case. There a contention was raised
that the provision in section 110 of the Evidence Act where
a person was found in possession of anything, the onus of
proving that he was not the owner was on the person who
affirmed that he was not the owner, was incorrect and
inapplicable to taxation proceedings. This contention was
rejected. The High Court of Bombay held that what was
794
meant by saying that the Evidence Act did not apply to the
proceedings under the Act was that the rigour of the rules
of evidence contained in the Evidence Act, was not
applicable but that did not mean that the taxing authorities
were desirous in invoking the principles of the Act in
proceedings before them, they were prevented from doing so.
Secondly, all that section 110 of the Evidence Act does is
that it embodies a salutary principle of common law
jurisprudence which could be attracted to a set of
circumstances that satisfy its condition.
We are of the opinion that this is a correct approach
and following this principle the High Court in the instant
case was right in holding that the value of the wrist-
watches represented the concealed income of the assessee.
Section 69A of the Act was inserted in the Finance Act,
1964 and it came into force w.e.f. 1st January, 1964. The
High Court has rightly held that the expression ’income’ as
used in section 69A of the Act, has wide meaning which meant
anything which came in or resulted in gain. Hence, in the
facts of this case a legitimate inference could be drawn
that the assessee had income which he had invested in
purchasing the wrist-watches and, as such, that income was
subject to tax. In the view the High Court was justified in
justifying the Tribunal’s holding that the assessee was the
owner of the wrist-watches and thus including the value in
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the assessment of the income of the assessee as his wealth
and so deemed to be the income of the assessee by virtue of
section 69A of the Act coupled with surrounding
circumstances. Therefore, inclusion of the money in
purchasing the wrist-watches, that is to say, Rs.87,455 was
correct and proper for the assessment year under reference.
In this connection section 69A of the Act may usefully be
set out as follows:
"Where in any financial year the assessee is found
to be the owner of any money, bullion, jewellery
or other valuable article and such money, bullion,
jewellery or valuable article is 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
acquisition of the money, bullion, jewellery or
other valuable article, or the explanation offered
by him is not, in the opinion of the Assessing
Officer, satisfactory, the money and the value of
the bullion, jewellery or other valuable article
may be deemed to be the income of the assessee for
such financial year."
795
So far as the first question is concerned, the High
Court answered accordingly and in our opinion rightly.
As regards the second question, section 271(1)(c) of
the Act was inserted in the Finance Act, 1974 which reads as
follows:
"Explanation: Where the total income returned
by any person is less than eighty per cent of the
total income (hereinafter in the Explanation
referred to as the correct income) as assessed
under section 143 or section 144 or section 147
(reduced by the expenditure incurred bona fide by
him for the purpose of making or earning any
income included in the total income but which has
been disallowed as a deduction), such person shall
unless he proves that the failure to return the
correct income did not arise from any fraud or any
gross or wilful neglect on his part, be deemed to
have concealed the particulars of his income or
furnished inaccurate particulars of such income
for the purposes of clause (c) of this sub-
section."
From the facts found by the revenue, the assessee had
shown only a total income of Rs.3,113 and subsequently the
raiding party seized wrist-watches worth Rs.87,455. Thus the
value of that income was included in the assessable income
of the assessee. Therefore, the total assessable income of
the assessee came to Rs.90,568 whereas the returned income
was Rs.3,113 which was certainly less than 80% of the total
income and, as such, Explanation applied. Accordingly, the
revenue has discharged the onus of proving concealment of
income. This view was expressed by a Full Bench of Punjab &
Haryana High Court in Vishwakarma Industries v. Commissioner
of Income-tax, 135 ITR 652 where all the relevant
authorities have been discussed.
In that view of the matter and in view of the
principles behind the purpose of Explanation, the assessee
in the instant case, has failed to discharge his onus of
proof. The aforesaid Explanation was amended by Finance Act,
1964 with effect from 1st April, 1964. The amendment was
prospective in effect and in the year under reference the
amendment was in force. Though the penalty proceedings are
penal in nature but in the facts of this case the onus on
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revenue has been duly discharged. This was also the view of
the Bench decision of the Madhya Pradesh High Court in
Commissioner of Income Tax v. Bherulal Shrikishan, [1983] 28
Madhya Pradesh Law Journal 162.
796
The second question referred to hereinbefore was,
therefore, answered in favour of the revenue by the High
Court and in our opinion the High Court was justified in so
doing.
In the aforesaid view of the matter, there is no merit
in this application for leave to appeal and it is
accordingly dismissed.
N.V.K. Petition dismissed.
797