COMMISSIONER OF INCOME TAX PATIALA Vs. PIARA SINGH

JUDGEMENT

(1.) Is a smuggler, who is taxed on his income from smuggling under the Income Tax Act, 1922, entitled to a deduction under Section 10 (1) of the Act on account of the confiscation of currency notes employed in the smuggling activity

(2.) The respondent, Piara Singh, was apprehended in September, 1958 by the Indian Police while crossing the Indo-Pakistan border into Pakistan A sum of Rs.65,500/- in currency notes was recovered from his person. On interrogation he stated that he was taking the currency notes to Pakistan to enable him to purchase gold in that country with a view to smuggling in into India. The Collector of Central Excise and Land Customs ordered the confiscation of the currency notes.

(3.) The Income Tax Officer now took proceedings under the Indian Income Tax Act, 1922 for assessing the assessee's income and determining the tax liability. He came to the finding that out of Rupees 65,500/- an amount of Rs.60,500/- constituted the income of the assessee from undisclosed sources. An appeal by the assessee was dismissed by the Appellate Assistant Commissioner. In 2nd appeal before the Income Tax Appellate Tribunal the assessee represented that if he was regarded as engaged in the business of smuggling gold he was entitled to a deduction under Section 10 (1) of the Income Tax Act of the entire sum of Rs.65,500/- as a loss incurred in the business on the confiscation of the currency notes. The Appellate Tribunal upheld the claim to deduction. It proceeded on the basis that the assessee was carrying on a regular smuggling activity which consisted of taking currency notes out of India and exchanging them with gold in Pakistan which was later smuggled into India. At the instance of the Revenue, a reference was made to the High Court of Punjab and Haryana on the following question: