PARIMI VENKATASUBBA RAO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee won a prize of Rs. 3,40,000 in the Derby Sweep in 1947. THE principal question in the reference is whether the income-tax authorities were right in holding that, out of this amount, a sum of Rs. 1,00,000 was available to the assessee for investment in his money-lending business during the assessment years 1956-57, 1957-58 and 1958-59. According to the assessee a sum of Rs. 80,000 alone was available to him for investment in the money-lending business at the commencement of the assessment year 1956-57 and in the next two years it dwindled to Rs. 44,000 and Rs. 30,000 only. THE Income-tax Officer was not satisfied with the correctness of the accounts produced by the assessee. He observed :

(2.) THE Income-tax Officer then proceeded to estimate the income of the assessee. Taking into account the amount of prize won by him in 1947 the income received by him in the previous seven years from the money-lending business, the income from other property, the expenditure incurred by the assessee towards his investments and household expenditure, etc., the Income-tax Officer concluded that the assessee must have in his possession capital of Rs. 1,70,000. He treated Rs. 1,50,000 as capital of the money-lending business and estimated the income thereon at 10 per cent., i.e., at Rs. 15,000. THE assessee appealed to the Appellate Assistant Commissioner of Income-tax. Before the Appellate Assistant Commissioner the assessee filed a statement of receipts and expenditure from January 1, 1947, to March 31, 1957. According to this statement the capital left with the assessee at the end of the period was a sum of Rs. 35,745. THE Assistant Commissioner directed the Income-tax Officer to examine the statement with reference to the entries in the cash books, etc., and submit a report. THE Income-tax Officer accordingly examined the matter afresh in the light of the assessee's statement. He pointed out that during the assessment years 1952-53 and 1953-54 the assessee never produced any cash books and that when in the course of assessment proceedings for 1956-57 the inspector visited the premises of the assessee to verify cash balance the assessee would not allow him to do so on the ground that it would be inauspicious to open the iron safe. THE Income-tax Officer further pointed out that though the assessee claimed that a sum of Rs. 37,000 had been expended towards construction of house for his daughter the same house was valued at Rs. 22,000 when a suit was filed to recover possession of the house. THE Income-tax Officer also thought that two amounts of Rs. 5,200 and Rs. 7,000 said to have been expenses incurred on the daughter and on litigation could not be accepted. He also stated that no vouchers were produced for several other expenses mentioned in the statement of the assessee. THE Income-tax Officer found that the assessee had grossly under-estimated his agricultural income. Taking into account all these circumstances the Income-tax Officer held that the estimate of the money-lending capital at Rs. 1,50.000 was correct. THE Appellate Assistant Commissioner agreed with the Income-tax Officer that it was a clear case for the application of the proviso to Section 13 of the Indian Income-tax Act, 1922. He, however, thought that the estimate of capital may be reduced to Rs. 1,00,000. On further appeal by the assessee the Income-tax Appellate Tribunal upheld the estimate of the Appellate Assistant Commissioner observing, however, that the estimate erred on the side of being very lenient. THE Tribunal reduced the rate of interest to 7 per cent. and thus the estimate of income was reduced to Rs. 7,500. On the application of the assessee the Tribunal has referred to us the following question :

(3.) IN the second case, the assessment proceeded entirely on the basis of the "past history" of the assessee. The authorities held that the source from which the assessee derived income in the past had not been shown to have ceased to exist, that the burden of proving that the source had disappeared in any manner was on the assessee and that since the assessee did not discharge the burden the authorities were entitled to assume that the source was still available to the assessee. The Orissa High Court held that the view taken by the income-tax authorities was wrong. Jaganna-dhadas C.J. observed :