Judgment

JAGANMOHAN REDDY, J. :- These appeals are by the Commissioner of Income-tax, Bihar and Orissa, against the judgment of the High Court of Patna in references under Section 66 (2) of the Income-tax Act, 1922 (hereinafter called the Act ) which answered the questions referred to it in favour of the assessee and against the appellant.

2. We shall presently set out the questions called for by the High Court, but before we do so, it is necessary to state the facts on which those questions have to be determined.

3. The assessee is an individual having income from salary, interest on securities, rents from house properties, dividends etc. In the year 1954-55 for which the previous year is 1st November, 1952 to 31st October, 1953, the assessee filed a return on 28th February, 1955 declaring a total income of Rupees 2,60,737/-. On 24th February, 1958 a revised return was filed including therein property income amounting to Rs. 550/-. The Income-tax Officer completed the assessment on 30th September, 1958 on a total income of Rs. 21,15,845/- which included a sum of Rs. 10,80,000/- treated as the assessee s income from undisclosed sources "for investment in shares in the name of Sri Kalyan Shum Shere, J. B. Rana" (hereinafter referred to as the Rana ). The assessee disputed the inclusion of this amount of Rs. 10,80,000/-. The Income-tax Officer treated this amount as income from undisclosed ources for the following reasons :-

From the statement of case, it would appear that on July 1, 1952 the assessee sold 50,000 ordinary shares of Rhotas Industries Ltd. (R. I. Ltd.) to Dalmia Jain Collieries Ltd. (D. J. C. Ltd.). Another 10,000 shares of R. I. Ltd. were sold on the same day to Maheshpur Collieries (M. C. Ltd.). He also sold 40,000 and 35,000 ordinary shares of S. K. G. Sugar Ltd. the former to D. J. C. Ltd. and the latter to M. C. Ltd. on the same day, viz. 31st July 1952. Thereafter, in the year 1953, the two vendor companies are alleged to have sold these shares for a sum of Rs. 10,80,000/- to one Rana as follows :-

(a) On 30th May 1953 the D. J. C. Ltd. sold 40,000 ordinary shares to S. K.G. Sugar Ltd. for Rs. 3,20,000/-. Again on 28th August, 1953, the D. J. C. Ltd. sold 50,000 ordinary shares to R. I. Ltd., for Rs. 4,00,000/-;

(b) On 30th May, 1953, M. C. Ltd. sold 35,000 ordinary shares of S. K. G. Sugar Ltd. for Rs. 2,80,000/-; and on 28th August, 1953, the same company sold another 10,000 ordinary shares to R. I. Ltd. for Rs. 80,000/-.

4. The shares were delivered allegedly to Rana by Mr. J. F. Wood, General Manager of the Allahabad Bank after collecting the sale price of Rupees 10,80,000/- in cash paid on 30th May, 1953 and 28th August, 1953 and that the sum so received was given as loan to one Sri Durga Prasad of Tumsar through Sri J. F. Wood who paid to him the two amounts aggregating to Rs. 10,80,000/- on the respective dates against two promisory notes and receipts.

5. Though the Rana is shown to have purchased the shares in May and August 1953, he got them transferred to his own name only in April, 1955.

6. On the material on record the Income-tax Officer came to the following conclusions :-

"(i) The Rana could not be contacted at 22. Circus Avenue, Calcutta. The Inspector of the Department found that the tenant of the first floor of 22, Circus Avenue Calcutta was some one else and that the flat had never been let out to the Rana.

(ii) The Income-tax Officer s own personal enquiries showed that the Rana could never have been in a position to invest a sum of over Rs. 10 lakhs in the shares in question.

(iii) Neither the two vendor companies nor the Rana nor Sri Durga Prasad of Tumsar had any account with the Allahabad Bank at that time and the shares were not in the Bank s custody. The letter of Mr. J. F. Wood confirming the transaction did not appear in the Issue No. of the Bank and no office copy of the letter was forthcoming in the bank A person with sufficient financial influence with the Bank alone could have brought ab