The burden of proving that a receipt is taxable lies upon the Department.

Headnote:
INCOME TAX - Gift - Burden of proof - Whether the receipts by the appellant were of the nature of income - 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.
Fact of the Case:

The appellant, a moneylender and cinematograph theatre owner, received large sums of money and jewellery from Sita Devi, the Maharani of Baroda. The Income-tax Officer treated the receipts as taxable income, holding that they were remuneration for services rendered by the appellant as a maid-servant or Secretary to the Princess. The appellant claimed that the receipts were gifts made out of love and affection.
Finding of the Court:

The High Court held that the burden of proving that the receipts were not taxable lay upon the appellant, and that he did not discharge that burden. The Supreme Court held that the burden of proving that the receipts were taxable lay upon the Department, and that it had failed to discharge that burden. The Court also held that the Tribunal's conclusion that the receipts were taxable was 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. The Court held that this was an error of law, and that the Tribunal's conclusion was therefore not binding upon the High Court.
Issues: 1. Whether the receipts by the appellant were of the nature of income? 2. 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?
Ratio Decidendi: 1. The burden of proving that a receipt is taxable lies upon the Department. 2. Where an assessee fails to prove satisfactorily the source and nature of a receipt, the Income-tax Officer may infer that the receipt is of an assessable nature. 3. However, this inference cannot be drawn where the assessee has disclosed the source of the income and there is no dispute about the truth of that disclosure. 4. The Tribunal's conclusion that the receipts were taxable was 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. This was an error of law, and the Tribunal's conclusion was therefore not binding upon the High Court.
Final Decision: The appeals were allowed. The Commissioner was directed to pay the costs of the appellant in the Supreme Court and in the High Court.

Judgement

SHAH, J. : The appellant carried on business at Nuzvid as a moneylender and conducted a cinematograph theatre. In respect of income from property and business she submitted a return of her income for the assessment year 1947-48 and disclosed in a statement dated August 26, 1949 that Sita Devi Maharani of Baroda-had between November 10, 1045 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 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 received by her between August 25, 1948 and October 28, 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 Devi and the Yuvarani of Pithapuram had given to her out of love and affection from time to time. On December 26, 1954 the appellant was examined on oath before the Income-tax Officer. She stated that

"The credits in my accounts are all out of gifts....As to correspondence I have very few 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 objection to their producing all those records before you. In fact I desire that they should do so. . . . . .A 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 are gifted by, Shrimati Seetha Devi."

2. The Income-tax Officer by his order dated March 31, 1956 held that the "gifts made by Sita Devi were remuneration 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 the 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. 96,000 and for the year 1951-52 at Rs. 30,000.

3. In appeal the Appellate Assistant Commissioner agreed with the Income-tax Officer that the receipts were income taxable under the Income-tax Act, but he valued the jewellery received by the appellant in the account year corresponding to the assessment year 1946-47 at Rs. 20,000 and directed consequential modifications in that order. The Income-tax Appellate Tribunal held that the Income-tax Officer was justified in reopening the assessment under S. 34 and that cash, cheques and jewellery received by the appellant from Sita Devi in the previous year corresponding to the assessment years 1946-47, 1947-48, 1950-51. and 1951-52 being remuneration for services rendered, were taxable.

4. The Tribunal submitted two consolidated statements of cases -one in respect of the assessment years 1946-47 and 1951-52 and the other in respect of the years 1947-48 and 1950-51 and submitted in each of the statements the following questi

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1965 Supreme(SC) 140

The burden of proving that a receipt is taxable lies upon the Department.

Cases Referred (1)