s PARIMISETH SEETHARAMAMMA v. COMMISSIONER OF INCOME-TAX, H\'f)ERAllAI> April 21, 1965 IK. SUBBA RAO. J. C. SHAH ANDS. M. SIKRI, JJ.] lnco111e Tax Art. J 922, ss. 3 and 4-Gifts of jewellery nrrd n1one)' 111tult• tn assesscc-Not in the nature af inconze-~Vhcther h11rde11 of prol·U1g if .ruch receipts ta.tablr is upon tlu• drparflnent.
The appellant submitted a return of her income from property and business for .the assessment year 1947-48 and disclosed in a statement that the Maharani of Baroda bad, beJween Nov_ember 1945 and February l 948, "out of natural love. and affection", given her some jewellery and money amounting to Rs. 5,20,000. The income-Tax Officer accepted this sra1ement and di<l not treat the jewellery and money as taxable income. But while considering the payment of funher similar amounts in the course assessment proceedings for a subsequent year,
the Incomc-Ta.l ()fficcr <lcciderl to issue the appellant a notice under s. 34; he ev~ntually held the gifts n1:1de by the Maharani during the years in question to be rcnnu1cralion for services rendered by lhe appell:1nt a.;; a n1Jid-servanl or Secretary. and therefore to he taxable income.
In appeal, the Appellate Assistant Commissioner and the Tribunal substantially agreed with the view taken by the Income-Tax Officer. Upon a reference, the High Court al'o decided in favour of the respon- dent, mainly on the ground that as the asscssec was admiJJedly in receipt of Jargc sums of money, in order to claim ex.cn1ption
from tax, the hurdcn \\'3S upon her to establish that these amounts u-·erc voluntary pay- n1cnts by the 1\1aharani out of natural love and affccrinn: anJ that this burden had not been disch:1rgcJ.
On appeal to this ('oun. HELD : The burden of proof was wrongly placed on the appelbnl. In all ca~es in \\·hich a receipt is sought to be taxed a5 incon1e, the burden lies upon the Department to prove that it is \Vithin the taxing provision. Where, ho\vevcr, a receipt is o[ the nature of income, the burden of proving that it is not tax:ahle because it falls
,~·ithin an exemption pro- vided by the Act, lies upon the asscssee. The appellant admitted that ~he had received jewellery and diYersc ~un1s of nloney froni the Mah.irani and claimed that as these v.-crc girts made out of love :ind affection. they <lid not fall within the taxing provisions.
It \Va~ not her c.ise that being income, the receipts were exempt from ta:-::ation because of a statutory provic;ion. Consequently, it was for the Department to c;:;tahllsh that t.hcse receipts \\'ere chargeahlc 10 tax. 112 E-·-13 A]
\Vhcther a receipt is liable to be treated ;1'i i~come depend-> very largely upon the facts and circumstances of each case; it is open to the Income-tax authorities to raise an inference that :i receipt by an ~cssce. is assessable income where he fails to disclose satisfactorily the source and the nature of the rcceipl.
But here the M'urcc of income \\'a'i Jis- c I I ' r ., SEETHARAMAMMA V. C.l.T. (Shah, J.) closed by the appellant and there was no dispute about the truth of the disclosure. [14 C-D]
Comniissioner of Income Tax, West Bengal v. Calcutta Agency Ltd., 19 I.T.R. 191 and A .. Govindaraiulu Muda/klr v. Commissioner of Income Tax, Hyderabad, 34 I.T.R. 807, explained and distinguished. Crvn, APPELLATE JURISDICTION : Civil Appeals Nos, 199,
200 of 1964. c Appeals by special leave from the judgment and order dated April 13, 1960 of the Andhra Pradesh High Court in Case Refer- red No. 11 of 1960. AND Civil Appeals Nos. 201 and 202 of 1964.
Appeals from the judgment and order dated April 13, 1960 of the Andhra Pradesh High Court in Case Referred No. 12 of 1960. N. A. Palkhiwala and R. Ganapathy Iyer, for the appellant (in all the appeals).
N. D. Karkhanis and R. N. Sachthey, for the respondent (in all the appeals). The Judgment of the Court was delivered by : Shah, J. The appellant carried on business at Nuzvid as a
money-lender and conducted a cinematograph theatre. In respect of income from property and business she submitted a return of her income for the assessment year 194 7-48 and disclosed in a statement, dated August 26, 1949, that Sita Devi-Maharani of Baroda-had between November 10, 1945 and February 11, 1948 "out of natural love and affection" given to her some jewellery and four amounts of money which aggregated to Rs. 5,20,000/-. The Income-tax Officer, Special Circle, Vijayawada, accepted the appellant's statement and did not treat the money and jewellery G received by her as taxable income.
In the course of assessment proceedings for the year 1951-52 the Income-tax Officer was inclined to treat the money and jewellery given to the appellant as remuneration for services rendered to Sita Devi as a maid-servant. He accordingly issued a notice under s. 34 of the Income-tax Act and called upon the appellant to "submit an explanation adducing all documentary and other evidence in her possession relating to the receipt of assets admitted
by her in her statement" dated August 26, 1949 and relating to other cash amounts and cheques l 0 SUPREME COURT llEPORIS [1966] I 5.CR. rccei\'cd by her between August 25, 1948 and October 23, 1952 and to other assets possessed by the appellant and disclosed by her in her "wealth statement". By her statement, dated November 27, 1953, the appellant submitted a detailed explanation about the items referred to in the letter of the Income-tax Officer and claimed that income received by her was earned with the aid of property which Sita Devi and the Yuvarani of Pithapuram had given to her out of love :i.nd affection from rime to time. On December 26, 1954, the appellant was examined on oath before the Income-ta~ B Officer.
Sho stated : "The credits in my accounts are all out of gifts. As to correspondence I have very fow letters but such of them as I have contain matters relating to others. I shall produce
them if you are prepared to exclude those portions. What other record I have I gave to my auditors. I have no objec- tion to their producing all those records before you. In fact I desire that they should be so .
complete inventory of records with my auditor will be given to you on Monday and you may look into them. I can give full particulars for all deposits in my accounts. I have not purchased any jewellery worth
mentioning. I have filed a statement for that. All my jewels arc gifted by Srimati Seetha Devi." The Income-tax Officer by his order, dated March '.\I, 1956, held that the "gifts made by Sita Devi were remuneratiou for services rendered by the appellant as a maid-servant or Secretary to the Princess and were accordingly taxable as income in her hands". For the year 1946-47 he determined the escaped income of ae appellant at Rs. 4, 70,000/- (Rs. 4,00,000/- being the value of jewellery and Rs. 70,000/- cash).
He determined the escaped income for the year 1947-48 at Rs. 2,50,000/-, for the year 1950-51 at Rs. 96,600/- and for the year 1951-52 at Rs. 30,000/-. In appeal the Appellate Assistant Commissioner agreed with the Income-tax Officer that the receipts were income taxable under the Income-ta.t Act, but he valued the jewellery received by the appellant in the account year corresponding to the ai;sessment year 1946-47 at Rs. 20.000/- and directed consequential modifi- cations in that order.
The Income-tax Appellate Tribunal held that the Income-tax Officer was justified in reopening the assess- c ll ii 4 SEETHARAMAMMA V. C.I.T. (Shah, J.) A ment under s. 34, and that cash, cheques and jewellery received by the appellant from Sita Devi in the previous year correspond- ing to the assessment years l 946-47, 1947-48, 1950-51 and 1951-52 being remuneration for services rendered, were taxable. The Tribunal submitted two consolidated statements of case– B one in respect of the assessment years 1946-4 7 and 1951-52 and the other in respect of the years 1947-48 and 1950-51 and sub- mitted in each of the statements the following question :
c "Whether on the facts and in the circumstances of the case what the assessee received in the relevant years is assessable to tax and whether Section 34 of the Income Tax Act could be invoked in regard to the years
1947-48, 1948-49 and 1950-51 ?" (Reference to the year 1948-49 in the question is due to' D oversight as no reference was asked for and none was made in respect of that year.) The High Court held that there was
evidence before the Tribunal to support the finding that the appellant was an employee of Sita Devi and that the cash, cheques and jewellery admitted as received by the appellant were not given to her as gifts made out of love and affection, but as remuneration for services rendered.
In the reference relating to the years 1947-48 and 1950-51 the High Court called for a supplementary statement, for determination of the question whether action under s. 34 was justifiable.
The Tribunal sub- mitted a supplementary statement and thereafter the High Court answered the second branch of the question holding that the action of the Income-tax Officer under s. 34 was justified. The appellant has appealed to this Court against the order of the High Court recording answers in the two references.
It is not necessary to consider whether the Income-tax Officer was competent to issue a notice under s. 34 of the Income-tax Act for the years 1947-48 and 1950-51, for in our view the property received by the appellant was not remuneration given to her by Sita Devi for services rendered or to be rendered by her. The High Court in dealing with the question about the liability' of the receipts to tax observed :
"The Supreme Court in the case of the Commis- sioner of Income-tax v. Calcutta Agency Ltd. (19 LSSup. Cl/65-2 1 2 [1966] l S.C.R. J.T.R. 19 I) observed that the burden of proving the
necessary facts in order to entitle the assessec to claim exemption was upon the a.sscssee. It would, therefore. appear that where admittedly the assessee was in receipt of large sums of money as shown in the accounts sub-
mitted by her, that they were outside the pale of taxable income was a matter which had to he established bv the asscsscc herself. The question is as to whether th~ assessee has discharged the burden that lay upon her.
She did not produce any evidence in support of her case that these amounts were gifts made by Sita Devi out of Jove and affection. When she was asked to lead evidence to substantiate her contention she pleaded utter
inability to do anything of the kind and denied the existence of any com:spondence which would throw any light upon the question and simply contended herself by mal:ing bland statements like 'lier Highness Sita Devi
Gaekwad of Baroda used to give me these gifts accord- ing to the will and pleasure of her Highness·. With regard to the jewellery that she received from Princess Sita Devi she makes the same statement to say that these
were received as gifts on various occasions in India and she says 'I do not have any correspondence regardir.g these gifts'. The hare allegation un- supported by any evidence, in our opinion. was not suffi-
cient to discharge the burden which lay upon the assesscc. the burden lay upon the asscssee in this case to establish that the amounts received were voluntary payments made hy the Princess out of love
and affection." Jn so observing, the High Court, in our judgment, has committed an error of law. By ss. 3 & 4 the Act imposes a general liability to tax upon all income. But the Act docs not provide that what-
ever is received by a person must be regarded as income liable to tax. Jn all cases in which a receipt is sought to be taxed as income, the burden lies upon the D~partment to prove that it is within the taxing provision.
Where however a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessce. The appellant admitted that she had received jewel- lery and diverse smm of money from Sita Devi and she claimed that these were gifts made out of love and affection. The case of the appellant was that the receipts did not fall within the taxing n
c II SEETHARAMA~IMA V. C.I.T. (Shah, J.) A provision : it was not her case that being income the receipts were exempt from taxation because of a statutory provision. It was, therefore, for the Department to establish that these receipts were chargeable to tax. Tue decision of this Court in the Commissioner of Income-tax, West Bengal v. Calcutta Agency Ltd.(') lends no c
support to the proposition which the High Court has enunciated. That was a case in which the taxpayer was claiming under s. 10(2)(xv) allowance for an expenditure out of the income of the business and to establish such a claim indisputably the burden lay upon the taxpayer.
The following observations made by Kania C.J., in delivering the judgment of the Court make the ratio of the judgment clear : "Now it is clear that this being a claim for exemp- tion of an amount, contended to be an expenditure fall-
ing under section 10(2)(xv), the burden of proving the necessary facts in that connection was on the assessee, it being common ground that the commission was due and had become payable and was therefore the busi-
ness income of the assessee company liable to be taxed in the assessment year." Counsel for the Commissioner submitted that where an assessee fails to prove satisfactorily the nature of the receipt, it is open to the Income-tax Officer to infer that the receipt is taxable, and relied upon the observations made in A. Govindara- julu Mudaliar v. Commissioner of Income-tax, Hyderabad( 2 ) by Venkatarama Aiyar, J., who speaking for the Court observed: "There is ample authority for the position that where
an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Oflicer is entitled to draw the inference that the receipts are of an assessable
nature." G But these observations cannot be read divorced from their con- text. Jn the books of the firm in which the assessee was a partner certain amounts were found credited to the assessee, and when called upon to explain how he came to possess those amounts, he rendered an explanation which was not accepted by the Tribu- nal, and the amounts were treated as income liable to tax. It
was argued on behalf of the assessee in Govindarajulu Mudaliar's case (2 ) that even if the case set up by him was not accepted by (I} 19 I.T.R. 191. (2) 34 I. T.R 807. SUPREME COURT
REPORTS [ 1966] l S.C.R. the Tribunal, it did not follow as a matter of law that the amounts in question were income received during the previous year, and it was for the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income, and in the absence of such evidence the finding of the Tribunal was erroneous.
This Court held that it was open to the Income-tax Officer when the assessee failed satisfactorily to disclose the source and nature of the receipt to treat that a~ concealed income of the previous year in which the asscssee was being taxed.
The observation relied upon does not lay down a proposition that it may be inferred that a receipt is taxable as income because the asscssee fails to lead all evidence in support of the case pleaded by him that the receipt is not within the taxing provision.
Whether a receipt is liable to be treated as income depends very largely upon the facts and circum- stances cf each case : it is open to the Income-tax authorities to raise an inference that a receipt by an asscssce is assessable income where he fails to disclose satisfactorily the source and the nature of the receipt.
But in this case the source of the income was disclosed by the a;ip-.:llant, and there was no dispute about the truth of that disclosure. The High Court disposed of th~ reference holding that the
onus of proving that the receipts were not taxable lay upon the appellant, and that she did not discharge that burden. On the view expressed by us the answer recorded by the High Court oo the taxability of the receipts must be discharged.
Since the High Court has not considered the evidence, we would normally have remanded the case for disposal of the reference according to law. But this proceeding has been pending for a very long time, and in enforcement of the orders of assessment the entire property of the appellant has been attached.
We have, therefore, thought it fit to hear and decide the reference on the merits. In the view of the Income-tax Appellate Tribunal, in deter- mining the question whether receipts by the appellant represented income liable to be brought to tax under the Income-tax Act. it could not be said that there were no materials justifying the Depart- ment in treating the assessee as being an employee of Sita Devi, for apart from the information the Department had collected from various sources. there were clear indications that the assessee wa.~ acting as the local agent of Sita Devi in Pittapuram for disbursing salary to various servants of Sita Devi, and that she was described as the Private Secretary to Sita Devi in a "bill" issued by the c
II SEETHARAMAMMA v. C.!.T. (Shah, /.) Bombay Garage Ltd., and that in any event it was for the appellant to prove her case of gift. The Tribunal then observed that the word "income" is not precisely defined in the Act and the Act seeks to bring to tax all income, profits and gains from whatever source derived and inasmuch as receipt of the amounts. and jewellery in question had been admitted it was for the appel- !ant to establish that it was not liable to be taxed under the Act. Observing then that the appellant had not placed "all the cards on the table which will go to show the real nature of the receipt of the amounts and the jewellery" and had declined to produce the correspondence which passed between her and Sita Devi, but merely offered to produce certain extracts from the letters which the Income-tax Officer refused to admit, it was open to the Income- tax authorities to raise an inference that the receipts were income, when ample opportunity was given to the assessee to explain the nature of the receipts and since the appellant had not chosen to do so, she was not entitled to the exemption under s. 4(3)(vii). The conclusion of the Tribunal recorded on this process of reasoning was open to grave challenge in point of law. It does not appear that any serious attempt was made by the appellant to prove that the receipts under discussion were exempt from tax, because they were casual and of a non-recurring nature.
The appellant's case primarily was that the receipts were not taxable because they were not income chargeable to tax. The Tribunal rightly observed that the information collected by the Department from different sources which consisted of record of ex parte state- ments of certain persons about the relation between Sita Devi and the appellant. which they even declined to give in writing, could have no value in establishing the case of the Department. There remained two pieces of evidence on which the Tribunal relied- (i) admission made by the appellant that she acted as the local agent in Nuzvid for disbursing salary to servants of Sita Devi and (ii) in a "bill" issued by the Bombay Garage Ltd. the appellant was described as "Private Secretary to Princess Sita Devi". But
these circumstances could not establish that what was given to her by Sita Devi was remuneration for services rendered or to be rendered. Realizing this infirmity, the Tribunal observed that
the burden of proving that the receipts were not income lay upon the appellant. The Tribunal did not infer that as remuneration for disbursing salary to Sita Devi's servants she was given large amounts of money and jewellery.
Description of the appellant in the cash-memo issued by the Bombay Garage Ltd. as "Private Secretary to Princess Sita Devi" could have no evidentiary value. (1966] l S.C.R. It is not claimed that there was evidence on the record that this was the general repute of the appellant.
Description of the appellant as Private Secretary of Sita Devi in a stray cash-memo issued by a third party about the source of whose knowledge there is not an iotn of evidence, could not evidence a relationship of master and servant : much less could it prove that what was given by Sita Devi to the appellant was remuneration for service rendered. The conclusion of the Tribunal is, therefore, based on matters which may at the highest create some suspicion, and upon its view that the burden of proving that the receipts were not taxable lay upon the appellant.
But a conclusion recorded by the Tribunal by wrongly throwing the burden of proof upon the assessee cannot be regarded as binding upon the High Court in a reference under s. 66 of the Income-tax Act.
Counsel for the Commissioner contended that beside the two circumstances relied upon by the Tribunal, there were other circumstances on which the conclusion of the Tribunal could be sustained.
These circumstances, counsel submitted, are on the record and must have weighed with the Tribunal in arriving at its finding that the receipts by the appellant were of the nature of income.
These were (a) that the appellant belonged to a family of Dasi1· who arc generally employed in the ruling family of Pitta- puram in a menial capacity; (b) that the appellant was receiving a salary of Rs. 8/- per month from the Maharaja of Pittapuram; (c} that the appellant was associated with Sita Devi for at least 8 years before the earliest year of account relevant in these appeals; (d) that large amounts in cash and also jewellery were given to c
the appellant from time to time after Sita Devi married the Gaekwad of Baroda; (e) that the gifts commenced immediately 1'' after Sita Devi married the Gaekwad of Baroda; (f} that the appel- lant assisted Sita Devi in securing divorce from the Yuvaraja of Vuyyur and in getting married to the Gaekwad of Baroda; (g) that the appellant lived with Sita Devi in London in the year 1949-50 and also at Baroda; and (h} that similar gifts were given to one Narasinghrao "associate of the appellant" and to the daughters of the appellant's .sisters.
There is no evidence in support of (f}, and the circumstances (a} to (e) & (g) cannot possibly lead to the conclusion that property of large value was given to the appellant by Sita Devi as remuneration for performance of service.
Circumstance (h) is irrelevant. On the first part of the two questions it must be recorded that what the Jssessee received in the relevant years of account was not SEETHARAMAMMA V. C.J.T. (Shah. J.)
assessable to tax. It is unnecessary to record, as already observed, a finding on the second branch of the question, viz. whether s. 34 of the Income-tax Act could properly be invoked in regard to those receipts.
The appeals will be allowed. The Commissioner will pay the costs of the appellant in this Court and in the High Court. One hearing fee. Appeals allowed.