COMMISSIONER OF INCOME TAX Vs. PIARA SINGH

JUDGEMENT

(1.) AT the instance of the Commissioner of Income-tax, Patiala, the following question of law has been referred for our opinion:

(2.) THE assessee, Piara Singh, and his companion. Chain Singh, were apprehended by the police on the Indo-Pakistan border on the night between 19th and 20th September, 1958. THEy were moving towards a village, Sarja Mirja, on the Pakistan side. On search, an amount of Rs. 65,500 in currency notes was recovered from the person of Piara Singh and a sum of Rs. 69,800 from the person of Chain Singh. On interrogation, both these persons stated on 20th of September, 1958, that they were taking the currency notes out of India to Pakistan with a view to smuggle gold which had to be purchased in Pakistan and brought into India. THEy admitted that they were doing so through the assistance of one Rehmat, a Pakistani smuggler. A notice was consequently served on Piara Singh, assessee, as to why the amount recovered from him should not be confiscated and further penal action taken against him under Sections 5 and 7 of the Land Customs Act, 1924, read with Section 167(8) of the Sea Customs Act, 1878, read with Section 23A of the Foreign Exchange Regulation Act, 1947, and Section 19 of the Sea Customs Act. After hearing the assessee, the Collector of Central Excise and Land Customs ordered the confiscation of the entire amount recovered from him and imposed a penalty of Rs. 1,000.

(3.) THE Appellate Tribunal, after considering the respective contentions of the assessee and the department, held that the sum of Rs. 65,500 exclusively belonged to the assessee. It was further held that the amount so recovered did not represent his capital as distinct from income. On the question whether the entire sum recovered amounted to his income during the previous year, it was held that only Rs. 20,000 was the income of the previous year from smuggling activity. THE claim of the assessee for deduction of the amount of Rs. 65,500 as loss was accepted on the basis that the assessee was carrying on a regular smuggling activity which consisted of taking out of India currency notes and exchanging them with gold in Pakistan and smuggling that gold into India. As the hazard of losing the money with which the gold had to be acquired was inherent in the activity, any confiscation of that amount would be a loss and thus allowable deduction within the meaning of Section 10(1). THE Tribunal upheld the assessee's claim on the basis of the amount of Rs. 65,500 being a permissible deduction within the meaning of Section 10(1) of the Act. THE department was dissatisfied with this decision and moved an application under Section 256(1) of the Income-tax Act, 1961, and only one question of law has been stated as already referred. THE question whether the income of the assessee during the previous year was only Rs. 20,000 out of Rs. 65,500 was not pressed for a reference to this court.