Demonetization special case: Explanation of assessee rejected by the court for the reason that it is improbable that a businessmen would keep a large amount locked up till demonetization

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Demonetization special case: Explanation of assessee rejected by the court for the reason that it is improbable that a businessmen would keep a large amount locked up till demonetization

M.L. TEWARY vs. COMMISSIONER OF INCOME TAX
HIGH COURT OF PATNA
Ramaswami & Choudhary, JJ.
Misc. Judicial Case No. 266 of 1952
1st September, 1954
(1954) 22 CCH 0102 PatHC
(1955) 27 ITR 0630
Legislation Referred to
Sections 4, 69A
Case pertains to
Asst. Year 1946-47
Decision in favour of:
Revenue
Income from undisclosed sources—Unexplained money—High denomination
currency encashed on denomination—Explanation of assessee that he received
high demonetization notes from an ex-ruler towards refund of deposit—Said
explanation rejected by Tribunal finding it improbable that assessee a
businessman would keep a large amount of Rs. 73,000 locked up till
demonetization and accept them despite not being legal tender—Finding of
Tribunal could not be said to be without material hence not to be interfered with
Held :
The question is whether the Tribunal had material for holding that the sum of Rs. 73,000,
the value of the high denomination notes encashed on the 26th Jan., 1946, was concealed
income of the assessee liable to taxed. In the approach to be this question it should be
remembered that the onus is upon the assessee to prove positively the source and nature of
the money which was received during the accounting year. In the absence of any
explanation of the assessee the Revenue authorities are entitled to draw the inference that
the receipt is of an income nature; in other words, the burden of proof in such a case is not
upon the Revenue authorities but the burden of proof is upon the assessee to show that the
item of receipt is not of an income nature. Counsel for assessee did not dispute the
correctness of this principle but his contention was that the assessee in this case has given
a sufficient explanation as to the source and the nature of the amount of Rs. 73,000.
Counsel pointed out in the first place that the assessee had made a declaration at the time

of encashment that the amount of Rs. 73,000 represented his personal saving kept in the
safe custody of the Ruler of Sakti State at the time Jamshedpore was being evacuated. On
19th Sept., 1947, the assessee wrote a letter to the ITO wherein he stated that the sum of
Rs. 73,000 was carried to Sakti in cash and deposited with the Ruler of Sakti in 1942.
Counsel also referred to a certificate granted by the Ruler of Sakti dt. 2nd April, 1947. The
certificate is in the following terms : "With reference to your letter enclosing a request for a
certificate for Mr. S, ITO, regarding the amount of Rs. 73,000 deposited by you with me in
the year 1942 in my personal keeping, I have pleasure in confirming that you had deposited
the amount in question with me in 1942 when you were on your way to Jubbalpor." The
second certificate granted by the Ruler in December, 1947, reads as follows : "Referring to
your request for further particulars relating to your deposit with me of Rs. 73,000 in 1942
and the return thereof to you, I may inform you that it was an usual practice then for the
sake of convenience to change one's smaller value notes into higher denomination notes.
After your deposit of the amount which was mixed up with my money I must have
converted a number of times in the ordinary course. When the high denomination
demonetizing ordinance was passed, I did hand over to you 73 notes of Rs. 1,000 each for
encashment in lieu of the amount that you had deposited with me. I hope this will clear up
the doubts raised by you." Counsel put forward the argument that in the face of the
declaration made by the assessee and in the face of the two certificates granted by the
Ruler of Sakti the Tribunal had no justification for holding that the amount of Rs. 73,000
was not deposited by the assessee with the Ruler of Sakti in 1942. As regards the source of
the money it was explained on behalf of the assessee that from the year 1926 to the year
1945 the assessee and his brother D had withdrawn sum of Rs. 2,72,722 from two
companies, viz., N & Co. and T & Co. This explanation was furnished by the assessee to the
ITO in his letter dt. the 17th Jan., 1947. It was argued by counsel that this explanation
should have been accepted by the IT authorities and the assessee had discharged the onus
of proving in this case the nature and source of the amount of Rs. 73,000 which
represented the value of the high denomination notes encashed after the promulgation of
the Demonetization Ordinance. But the difficulty in accepting the argument is that the
Tribunal has examined the materials and has reached the finding that the Ruler of Sakti has
not given true evidence and the story of the assessee that he had taken liquid cash to the
extent of Rs. 73,000 from Jamshedpore to Sakti in 1942 was a myth. The question at issue
is a question of fact and the High Court would normally have no jurisdiction to interfere with
the finding of the Tribunal on a question of this description. But counsel on behalf of the
assessee contended that there was no material upon which the Tribunal could reach the
finding that the Ruler of Sakti has given false evidence. It is not possible to accept the
argument of Mr. Dutt that there is no material to support the finding of the Tribunal that the
Ruler of Sakti has not given true evidence. The Tribunal has given three reasons on this
point. The Tribunal stated in the first place that the story of the assessee that he took Rs.
73,000 in liquid cash from Jamshedpore to Sakti cannot be accepted since it would have
been more convenient for the assessee to have taken high denomination notes instead of
taking money in small currency notes. Counsel stated that this reason was not a satisfactory
reason because it was the time of panic and the assessee would not by changing small
currency notes into high denomination notes risk the disclosure to the public that he was in
possession of a large amount of money and it was, therefore, more probable that the
assessee would have carried the amount to Sakti without changing them into high
denomination notes. The view taken by the Tribunal on this point cannot, however, be
brushed aside as capricious or irrelevant and it is a possible view which it was open to the
Tribunal to take. The second reason given by the Tribunal is a much stronger reason. The
admitted case of the assessee is that the Ruler handed back the amount of Rs. 73,000 to
the assessee in 73 high denomination notes a fortnight after the promulgation of the
Ordinance. The Tribunal has made an important remark that it is wholly improbable that the
assessee would accept the amount of Rs. 73,000 from the Ruler of Sakti in high

denomination notes knowing full well that these high denomination notes were not legal
tender in British India. The Demonetization Ordinance was promulgated on the 12th of
January, 1946, and the assessee must be deemed to have known this important fact. It is,
therefore, not clear why the assessee should gratuitously undertake the responsibility of
changing the high denomination notes which actually belonged to the Ruler of Sakti. If the
case of the assessee is right and if the Ruler of Sakti had himself changed the money
deposited by the assessee into high denomination notes it appears to be highly improbable
that the Ruler of Sakti would not himself undertake to cash the high denomination notes
and hand over the proceeds to the assessee instead of asking the assessee to encash the
high denomination notes himself. The Tribunal has also referred to the fact that the
assessee was a business man and it was not likely that he would keep such a large amount
of money in the hands of the Ruler of Sakti in an idle and locked up state without earning
interest. The question whether the Ruler of Sakti has given true or false evidence is a
question of fact and it cannot be said that in finding that the Ruler of Sakti has given false
evidence the Tribunal has acted without any material. If the evidence of the Ruler of Sakti is
disbelieved it is manifest that the assessee has not discharged the onus of proving the
source of the amount of Rs. 73,000 and that amount was rightly added by the ITO to the
income of the assessee for the assessment year as being liable to be taxed.
Conclusion :
In the circumstances of the case, it could not be said that the Tribunal had no evidence to
reject the explanation of assessee regarding source of high denomination notes and the
addition was justified.
Appeal (Tribunal)—Additional evidence—Scope of powers of Tribunal—Tribunal is
competent to issue commission directing taking of evidence of witnesses and
decide the correctness of assessment made by ITO on merits
Facts
The assessee encashed 78 high denomination notes of the value of Rs. 1,000 each.
In the declaration which is required to be made under the Demonetisation
Ordinance the assessee said that the amount was his personal saving kept in the
safe custody of the Ruler of Sakti State when there was panic in the year 1942 and
there was danger of bombing of Jamshedpore. The ITO did not accept the
explanation of the assessee on the ground that the high denomination notes were
not put into circulation in the year 1942 but were put into circulation for the first
time in the year 1943. The assessee took an appeal to the AAC against the order of
the ITO. In the course of the appeal the assessee produced a second certificate
from the Ruler of Sakti wherein it was mentioned that the assessee made the
deposit of Rs. 73,000 in 1942 not in high denomination notes but in currency notes
of much smaller amount. The Ruler admitted in this certificate that he himself
converted the money into high denomination notes after the assessee had made
the deposit. The AAC set aside the order of assessment and remanded the case to
the ITO for taking the evidence of the Ruler of Sakti and after ascertaining the
actual fact to make fresh assessment. Against this order the IT Department
preferred an appeal to the Tribunal and contended that the AAC was wrong in
remanding the case to the ITO and in setting aside the assessment made upon the
assessee. After hearing the parties the Tribunal issued a commission to the ITO of
Rajgarh to examine the Ruler of Sakti and submit report. After the evidence of the
Ruler of Sakti was taken on commission the Tribunal heard the parties again.

Held :
Under s. 33(4) of 1922 Act the Tribunal has the authority "to pass such orders as it thinks
fit" upon the appeal and the only condition precedent to the exercise of this power is that
the Tribunal should give an opportunity to both the parties to the appeal to be heard in the
matter. It is not correct to say that the scope of the appeal preferred by the IT Department
was limited only to the two grounds mentioned in the petition of appeal. The subject-matter
of the appeal was the correctness of the assessment imposed by the ITO and the Tribunal
had jurisdiction to issue a commission direct for the examination of witness and also to
decide the correctness of the assessment made by the ITO upon its merit.
Conclusion :
Tribunal has power to take evidence of witness by issuing commission where subject-matter
of appeal is the correctness of assessment made by ITO.
Counsel appeared:
S. N. Dutt & S. K. Mazumdar, for the Assessee : R. J. Bahadur, for the Revenue
RAMASWAMI AND CHOUDHARY, JJ.
In this case the assessee is the managing director of a private limited company doing
automobile business, in which his joint family had a controlling interest. The assessee has
been taxed as an individual for the asst. yr. 1946-47. The accounting year corresponds to
the period from 1st April, 1945, to 31st March, 1946, and for this accounting year the
assessee made a return of income showing Rs. 16,661 as salary and Rs. 3,000 as dividend.
It appears that on the 26th Jan., 1946, the assessee encashed 78 high denomination notes
of the value of Rs. 1,000 each. In the declaration which is required to be made under the
Ordinance the assessee said that the amount was his personal saving kept in the safe
custody of the Ruler of Sakti State when there was panic in the year 1942 and there was
danger of bombing of Jamshedpore. Before the ITO the assessee produced a certificate from
the Ruler of Sakti dt. the 2nd April, 1947. The certificate was to the following effect : "With
reference to your letter enclosing a request for a certificate for Mr. S. M. Patnaik, ITO,
Chaibasa, regarding the amount of Rs. 73,000 deposited by you with me in the year 1942 in
my personal keeping, I have pleasure in confirming that you had deposited the amount in
question with me in 1942 when you were on your way to Jubbulpore. "The ITO did not
accept the explanation of the assessee on the ground that the high denomination notes
were not put into circulation in the year 1942 but were put into circulation for the first time
in the year 1943. The assessee took an appeal to the AAC against the order of the ITO. In
the course of the appeal the assessee produced a second cetificate from the Ruler of Sakti
wherein it was mentioned that the assessee made the deposit of Rs. 73,000 in 1942 not in
high denomination notes but in currency notes of much smaller amount. The Ruler admitted
in this certificate that he himself converted the money into high denomination notes after
the assessee had made the deposit. The AAC set aside the order of assessment and
remanded the case to the ITO for taking the evidence of the Ruler of Sakti and after
ascertaining the actual fact to make fresh assessment. Against this order the IT Department
preferred an appeal to the Tribunal and contended that the AAC was wrong in remanding
the case to the ITO and in setting aside the assessment made upon the assessee. After
hearing the parties the Tribunal issued a commission to the ITO of Raigarh to examine the
Ruler of Sakti and submit report. After the evidence of the Ruler of Sakti was taken on
commission the Tribunal heard the parties again and reached the finding that the Ruler of

Sakti has given false evidence and that the amount of Rs. 73,000 was the concealed income
of the assessee which was liable to be taxed.
2. As ordered by the High Court the Tribunal has stated a case on the following questions of
law : "(1) Whether, in an appeal directed against the order of remand passed by the AAC, it
was open to the Tribunal to take fresh evidence and consider the correctness of the
assessment on the merits ; and (2) Whether, in the circumstances of the case, there is
material for holding that the sum of Rs. 73,000, the value of the high denomination notes,
encashed on 26th Jan., 1946, was concealed income ?"
3. With respect to the first question the argument addressed on behalf of the assessee was
that the Tribunal had no authority to take the evidence of the Ruler of Sakti on commission
and consider the correctness of the assessment imposed upon the assessee on merits. Mr.
Dutt pointed out that in the petition of appeal made before the Tribunal the IT Department
mentioned only two grounds : (1) that the AAC has erred in remanding the case for
examination of further evidence in respect of the high denomination notes of Rs. 78,000 ;
and (2) that the AAC should not have entertained fresh evidence which were not produced
at the assessment stage. It was argued by Mr. Dutt that the appeal of the Department was
confined only to these two grounds and therefore it was not open to the Tribunal to judge
the assessment on its merit or to issue a commission direct for the examination of the Ruler
of Sakti. In our opinion the argument of Mr. Dutt on this point cannot be accepted as
correct. Under s. 33(4) of the IT Act the Tribunal has the authority "to pass such orders as it
thinks fit" upon the appeal and the only condition precedent to the exercise of this power is
that the Tribunal should give an opportunity to both the parties to the appeal to be heard in
the matter. It is not correct to say that the scope of the appeal preferred by the IT
Department was limited only to the two grounds mentioned in the petition of appeal. The
subject-matter of the appeal was the correctness of the assessment imposed by the ITO
and we think that the Tribunal had jurisdiction to issue a commission direct for the
examination of the Ruler of Sakti and also to decide the correctness of the assessment
made by the ITO upon its merit. The first question referred to the High Court must therefore
be answered in favour of the IT Department and against the assessee.
4. The next and more important question is whether the Tribunal had material for holding
that the sum of Rs. 73,000, the value of the high denomination notes encashed on the 26th
Jan., 1946, was concealed income of the assessee liable to be taxed. In the approach to this
question it should be remembered that the onus is upon the assessee to prove positively the
source and nature of the money which was received during the accounting year. In the
absence of any explanation of the assessee the Revenue authorities are entitled to draw the
inference that the receipt is of an income nature ; in other words, the burden of proof in
such a case is not upon the Revenue authorities but the burden of proof is upon the
assessee to show that the item of receipt is not of an income nature. Mr. Dutt did not
dispute the correctness of this principle but his contention was that the assessee in this case
has given a sufficient explanation as to the source and the nature of the amount of Rs.
73,000. Counsel pointed out in the first place that the assessee had made a declaration at
the time of encashment that the amount of Rs. 73,000 represented his personal saving kept
in the safe custody of the Ruler of Sakti State at the time Jamshedpore was being
evacuated. On the 19th Sept., 1947, the assessee wrote a letter to the ITO wherein he
stated that the sum of Rs. 73,000 was carried to Sakti in cash and deposited with the Ruler
of Sakti in 1942. The letter of the assessee reads as follows : "I carried to Sakti liquid cash
as per my statement given to you and when the Ordinance was promulgated the Ruler of
Sakti handed over to me the high denomination notes in lieu of the above liquid cash which
I tendered in the Treasury for encashment. The Ruler has also confirmed that I had

deposited a sum of Rs. 73,000 with him in 1942 and it is but logical that in 1942 I could not
be in possession of high denomination notes that were issued by the Reserve Bank in 1943.
"Mr. Dutt also referred to a certificate granted by the Ruler of Sakti dt. 2nd April, 1947. The
certificate is in the following terms : "With reference to your letter enclosing a request for a
certificate for Mr. S. M. Patnaik, ITO, Chaibasa, regarding the amount of Rs. 73,000
deposited by you with me in the year 1942 in my personal keeping, I have pleasure in
confirming that you had deposited the amount in question with me in 1942 when you were
on your way to Jubbalpore. "The second certificate granted by the Ruler in December, 1947,
reads as follows : "Referring to your request for further particulars relating to your deposit
with me of Rs. 73,000 in 1942 and the return thereof to you I may inform you that it was
an usual practice then for the sake of convenience to change one’s smaller value notes into
higher denomination notes. After your deposit of the amount which was mixed up with my
money I must have converted a number of times in the ordinary course. When the high
denomination demonetizing ordinance was passed, I did hand over to you 73 notes of Rs.
1,000 each for encashment in lieu of the amount that you had deposited with me. I hope
this will clear up the doubts raised by you. "Mr. Dutt put forward the argument that in the
face of the declaration made by the assessee and in the face of the two certificates granted
by the Ruler of Sakti the Tribunal had no justification for holding that the amount of Rs.
73,000 was not deposited by the assessee with the Ruler of Sakti in 1942. As regards the
source of the money it was explained on behalf of the assessee that from the year 1926 to
the year 1945 the assessee and his brother D. Tiwary had withdrawn a sum of Rs. 2,72,722
from two companies, viz., Narbheram & Co. and Tiwary Bechar & Co. This explanation was
furnished by the assessee to the ITO in his letter dt. the 17th Jan., 1947. It was argued by
Mr. Dutt that this explanation should have been accepted by the IT authorities and the
assessee had discharged the onus of proving in this case the nature and source of the
amount of Rs. 73,000 which represented the value of the high denomination notes encashed
after the promulgation of the Demonetization Ordinance. But the difficulty in accepting the
argument of Mr. Dutt is that the Tribunal has examined the materials and has reached the
finding that the Ruler of Sakti has not given true evidence and the story of the assessee
that he had taken liquid cash to the extent of Rs. 73,000 from Jamshedpore to Sakti in 1942
was a myth. The question at issue is a question of fact and the High Court would normally
have no jurisdiction to interfere with the finding of the Tribunal on a question of this
description. But counsel on behalf of the assessee contended that there was no material
upon which the Tribunal could reach the finding that the Ruler of Sakti has given false
evidence. We are unable to accept the argument of Mr. Dutt that there is no material to
support the finding of the Tribunal that the Ruler of Sakti has not given true evidence. The
Triburial has given three reasons on this point. The Tribunal stated in the first place that the
story of the assessee that he took Rs. 73,000 in liquid cash from Jamshedpore to Sakti
cannot be accepted since it would have been more convenient for the assessee to have
taken high denomination notes instead of taking money in small currency notes. Mr. Dutt
stated that this reason was not a satisfactory reason because it was the time of panic and
the assessee would not by changing small currency notes into high denomination notes risk
the disclosure to the public that he was in possession of a large amount of money and it was
therefore more probable that the assessee would have carried the amount to Sakti without
changing them into high denomination notes. The view taken by the Tribunal on this point
cannot however be brushed aside as capricious or irrelevant and it is a possible view which
it was open to the Tribunal to take. The second reason given by the Tribunal is a much
stronger reason. The admitted case of the assessee is that the Ruler handed back the
amount of Rs. 73,000 to the assessee in 73 high denomination notes a fortnight after the
promulgation of the Ordinance. The Tribunal has made an important remark that it is wholly
improbable that the assessee would accept the amount of Rs. 73,000 from the Ruler of
Sakti in high denomination notes knowing full well that these high denomination notes were
not legal tender in British India. The Demonetization Ordinance was promulgated on the

12th Jan., 1946, and the assessee must be deemed to have known this important fact. It is
therefore not clear why the assessee should gratuitously undertake the responsibility of
changing the high denomination notes which actually belonged to the Ruler of Sakti. If the
case of the assessee is right and if the Ruler of Sakti had himself changed the money
deposited by the assessee into high denomination notes it appears to be highly improbable
that the Ruler of Sakti would not himself undertake to cash the high denomination notes
and hand over the proceeds to the assessee instead of asking the assessee to encash the
high denomination notes himself. In this connection the statement of the Ruler of Sakti at
page 26 of the paper book is important. In answer to questions Nos. 18 and 19 the Ruler
has made the following statements :—
"18. Did you tender
yourself or did any one
else tender on your behalf
any such H. D. notes for
exchange and, if so, give
details as to by whom
when and where the and
how many ?

Either my state-treasurer
or the palace
superintendent encashed
my notes. I did not do it. I
cannot say how many and
when. When the Ordinance
was promulgated, I had
made it known by the beat
of drums that those who
were in possession of H. D.
notes should present them
into the State treasury with
a proper declaration form
and the same were sent to
Raipur Imperial Bank for
encashment. When the
money was received it was
disbursed to the owners.

19. Since Mr.Tiwary had
deposited his money with
you in form other than
these very 73 notes, did
lie object to take them
knowing very well that
they were not legal tender
in British India then ? If
he did, how did you
induce him to accept ?

He did object but I had
assured him to accept
them. I certified that these
notes were with me and I
would have got them
encashed myself".

5. In answer to question No. 18 the Ruler admitted that he had encashed high
denomination notes presented by other persons and in answer to question No. 19 the Ruler
said that the assessee objected at the time the high denomination notes were given to him
and the Ruler assured him and also "certified that these notes were with me and I would
have got them encashed myself." It does not appear that this statement is true since no

certificate has been produced on behalf of the assessee from the Ruler of Sakti granted in
January or February of 1946. In this connection the Tribunal has referred to another
important circumstance that though the money was deposited with the Ruler of Sakti in
1942 the assessee did not take the trouble to get it back until after the Ordinance was
promulgated. The Tribunal has also referred to the fact that the assessee was a business
man and it was not likely that he would keep such a large amount of money in the hands of
the Ruler of Sakti in an idle and locked up state without earning interest. As we have stated
already the question whether the Ruler of Sakti has given true or false evidence is a
question of fact and we are not prepared to say that in finding that the Ruler of Sakti has
given false evidence the Tribunal has acted without any material. If the evidence of the
Ruler of Sakti is disbelieved it is manifest that the assessee has not discharged the onus of
proving the source of the amount of Rs. 73,000 and that amount was rightly added by the
ITO to the income of the assessee for the assessment year as being liable to be taxed.
6. Where the case involves a question of fact the jurisdiction of the High Court to interfere
with the finding of the Tribunal is of a very limited character. If the Tribunal decides the
question of fact without any material at all or if the Tribunal decides the question of fact by
applying a wrong legal principle the High Court has jurisdiction to interfere. But the High
Court has no jurisdiction to interfere with the finding of the Tribunal merely because the
High Court takes a different view upon the question of fact after examination of the same
material. In the present case we are satisfied that the question has not passed from the
region of fact into the region of law and the High Court has no authority to interfere with the
finding of the Tribunal on the question referred. The principle has been well stated by Lord
Sterndale in Currie vs. IRCs (1921) 12 TC 245: "The first question that has been debated
before us is this : Is the question whether a man is carrying on a profession or not, a matter
of law or a matter of fact ? I do not know that it is possible to give a positive answer to that
question, because it must depend upon the circumstances with which the Court is dealing.
There may be circumstances in which nobody could arrive at any other finding than that
what the man was doing was carrying on a profession, and therefore taking it from the point
of view of a judge directing a jury, or any other tribunal which has to find the facts, the
judge would be bound to direct them that on the facts they could only find that he was
carrying on a profession. That reduces it to a question of law. On the other hand, there
might be facts on which the direction world have to be given the other way. But between
those two extremes there is a very large tract of country in which the matter becomes a
question of degree ; and where it becomes a question of degree, it is then undoubtedly, in
my opinion, a question of fact ; and if the CITs come to a conclusion of fact without having
applied any wrong principle, then their decision is final upon the matter. "In the present
case we are not satisfied that the finding of fact reached by the Tribunal is based upon no
material or that a wrong legal principle has been applied. It follows that the High Court has
no jurisdiction to interfere with the conclusion reached by the Tribunal and the question
referred to the High Court must he answered against the assessee and in favour of the IT
Department. The assessee must pay the costs of the reference. Hearing fee Rs. 250.

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