NARAYANDAS KEDARNATH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question that arises on this reference is whether certain amounts standing to the credit of some of the partners of the assessee firm can be treated as the undisclosed profits of the firm itself. The facts giving rise to the reference are : that a some of Rs. 2,30,600 was brought in the assessment year 1940 -41 by six partners of the assessee firm, and a further sum of Rs. 40,647 was brought in by five partners in the assessment year 1941 -42. It has been found as a fact by the Tribunal that these amounts were actually brought in from Jaipur by means of drafts of the Imperial Bank of India, Jaipur. Therefore, we start with this position that these amounts do not represent fictitious entries but they represent actual cash received by firm through some of his partners. Now These partners were called upon to explain how these moneys were available to them in Jaipur and how they managed to get these moneys to the credit of the assessee firm, and we accept the Tribunal's finding that no satisfactory explanation was vouchsafed by any of these partners. All that they said was that the firm had suffered losses and, therefore, they had brought these moneys from Jaipur and come to the help and assistance of the firm. But, it remained a secret as to how these partners managed to find these large amounts in Jaipur on which they so easily and successfully could draw. But the question that arises for our consideration is, what is the inference the Tribunal is entitled to draw from that some of the partners who bring moneys into in the firm are unable to account for these moneys ? Is it legitimate to draw an inference that these amounts represent the undisclosed profits of the firm or that they represent the undisclosed profits of the individual partners ? Now I can understand a case where amounts appear to the credit of the an account in the firm and the firm may take up the position that those moneys were brought in by the partners in whose account the amount stands to the credit and the firm may fail to establish the department that these moneys were actually brought in by the persons in whose account they stand or by anyone at all. In that case a legitimate inference can be drawn that the amounts standing to the credit in that account represent undisclosed profits of the firm. I can also understand a case where a firm may make profits, send away the profits out of Bombay, and by a circuitous manner succeed in bringing it back in the name of partners or strangers. If the department was satisfied that moneys, although paid in the name of partners or strangers, were really undisclosed profits of the firm and were not individual contribution made by partners or strangers, then it would be legitimate for the department to draw an inference that those moneys represent the undisclosed profits of the firm. But here the only finding we have from the Tribunal is that these moneys were brought in by the partners from their native place and that no adequate explanation forthcoming from the persons themselves as to where these moneys came from. Now it seems to me that the assessee firm has discharged the burden which was upon it to explain these credit entries and it has discharged the burden by satisfied the department that these entries represent genuine remittances received from Jaipur which have gone into the coffers of the firm. When that burden is discharged, it would be for the department to find that notwithstanding the fact that these moneys were actually brought in they do not represent the undisclosed profits of the firm which left the firm earlier and returned through the intermediary of the partners. If the department was not satisfied with the explanation given by the partners then it is legitimate for the department to draw an inference that these amounts represent undisclosed profits of the partners and to assess them in their own assessment. It is true that we are as anxious as the department to see that there is no dishonest evasion of payment of income -tax, but I take it that there are at least some honest assessee in this state, and we have got also to think of these honest assessee. There may be a genuine case where a partner or a stranger may bring in moneys to the credit of the firm and the partner or the stranger may have come into those moneys by thoroughly dishonest means, but it not for the firm which is being assessed to satisfy the department that the moneys which it received from the partner or the stranger were moneys which it received from the partner or the stranger were moneys which the partner or the stranger obtained by honest means. In my opinion that would be throwing too heavy a burden upon the assessee. We do not wish to lay down any general law which should apply to all cases. In most cases it would depend upon the facts actually found. On the facts actually found and strictly confining our decision to the facts of this case we are of opinion that there were no materials on which department could have come to the conclusion that these credit represented undisclosed profits of the firm.

(2.) SIR Jamshedji has drawn our attention to the statement of the case where the Tribunal seems to have taken the view that the questions that had been framed and which we had asked the Tribunal to refer to us were not proper questions and they have suggested what the proper question is. In our opinion that was not the proper attitudes for the Tribunal to take. The law and procedure are perfectly clear. It is open to the assessee to apply the Tribunal to refer the questions of law to us. If the Tribunal refuses then the assessee comes before usand we, if we think it a fit case, frame the questions, as we are entitled to, and ask the Tribunal to make a statement of the case with regard to the questions which we have framed : and it is for us to answer those questions after perusing the statement of the case. It is not for the Tribunal to consider whether the questions framed by us are proper question or not.

(3.) REFERENCE answered accordingly.