Back
1964 Supreme(SC) 375
SUPREME COURT OF INDIA
K. Subba Rao, J.C. Shah, S.M. Sikri, JJ.
Commissioner of Income Tax, Madras - Appellant
Versus
M. Ganapathi Mudaliar - Respondent
Civil Appeals Nos. 524-525 of 1963
Decided On : 27-04-1964
For the Appellant :S.K. Kapur, Senior Advocate (R.N. Sachthey, Advocate.
For the Respondent:K.N. Rajagopal Sastri, Senior Advocate (K. Srinivasan and R. Gopalakrishnan, Advocates.
The onus of proving the source of a sum of money found to have been received by the assessee is on him.
Headnote:
INCOME TAX - Assessment - Remittances from Singapore - Whether assessee's income from business in Singapore was correctly assessed - Whether remittances were properly estimated - Interpretation of agreement between assessee and Ayyaru - Analysis of accounts and entries - Consideration of evidence and findings of Tribunal.
Fact of the Case:
The assessee, M. Ganapathi Mudaliar, joined the cloth business started by Ayyaru in Singapore, in the name of Thyagesan and Company. The assessee had married Ayyaru's sister. By an agreement dated September 23, 1940, between Ayyaru and the assessee, the assessee was engaged as a manager for a period of three years from September 23, 1940. His remuneration was to be a fixed salary at the rate of $18 per month and a commission of 10% on the net profits of the business, to be calculated at the end of the said three years. He was also to be provided with free board and lodging. On the same day, a power of attorney was executed by Ayyaru in favour of the assessee, enabling him to carry on the business of a cloth and general merchant, being carried on at No. 182, Selgie Road, Singapore. On September 29, 1945, Ayyaru sold the said business and the goodwill thereof, with the other assets of the said business, at the price of $4441.78.
Finding of the Court:
The Tribunal found that the assessee was the owner of the business and not Ayyaru, as now claimed. The Tribunal also found that the credit of $ 87,500 in Ayyaru's folio was not genuine and represented the assessee's share of profits in addition to that revealed by him.
Issues: 1. Whether there was evidence to come to the conclusion that the computation of the income of the assessee at Rs 1,80,000 and remittance at Rs 30,000 in the assessment for the year 1947-48 was right; 2. Whether there was evidence for the conclusion that the sum of Rs 1,07,461 was remitted into India and was assessable to tax in the assessment for the year 1948-49.
Ratio Decidendi: 1. The Tribunal's finding that Ayyaru was a benamidar of the assessee was vitiated by a wrong approach. 2. The onus of proving the source of a sum of money found to have been received by the assessee is on him. 3. The Tribunal was entitled to disbelieve the assessee's version that no books were kept and to hold that if the accounts existed, they would have shown that the assessee made more than 10% during the whole period of five years for which the business of old Thyagesan and Company was carried on. 4. The Tribunal was entitled to hold that the credit of $ 87,500 in Ayyaru's folio was not genuine and represented the assessee's share of profits in addition to that revealed by him.
Final Decision: The appeals are allowed and the question referred to the High Court answered in the affirmative.
JUDGMENT :
Sikri, J.
These are two appeals by way of special leave against the judgment and order of the Madras High Court, dated October 23, 1959, in a case referred to the High Court relating to Assessment Years 1947-48 and 1948-49. The respondent, M. Ganapathi Mudaliar, hereinafter referred to as the assesses, joined the cloth business started by Ayyaru in Singapore, in the name of Thyagesan and Company. The assessee had married Ayyaru's sister. By an agreement dated September 23, 1940 (Annexure A) between Ayyaru and the assessee, the assessee was engaged as a manager for a period of three years from September 23, 1940. His remuneration was to be a fixed salary at the rate of $18 per month and a commission of 10% on the net profits of the business, to be calculated at the end of the said three years. He was also to be provided with free board and lodging. Clause 4 of the agreement provided that the net profits of the business shall be as shown in the profit and loss account of the business. On the same day, a power of attorney (Annexure B) was executed by Ayyaru in favour of the assessee, enabling him to carry on the business of a cloth and general merchant, being carried on at No. 182, Selgie Road, Singapore. It appears that on September 29, 1945 (Annexure C), Ayyaru sold the said business and the goodwill thereof, with the other assets of the said business, at the price of $4441.78.
2. By an assessment order dated December 30,1950, for Assessment Year 1947-48, the Income Tax Officer assessed the remittances from Singapore at Rs 61,538. He assessed profits at Rs 210.600 which covered the remittances. The Income Tax Officer came to the following conclusion:
"1. The assessee was the sole manager of the old Thyagesan and Company remunerated by a large share of profits for his sole conduct of the business.
2. The alleged profits of $ 1,10,000 for the entire period of five years and the assessee's share thereof $ 11,000 are not correct and they have not been proved to be correct by the production of accounts that existed for the business as per the narration in the sale deed.
3. The accounts have been purposely withheld from production and if they had been produced, they would disclose the true profits of the business and assessee's exact relationship with the business and his share of profits. The profits of the business and the share of profits due to the assessee must be much more than that admitted now. The share of profits due to the assessee are entered in the folio of Ayyaru Mudaliar in the guise of sale proceeds of goods, closing stock, etc. These are simply bogus credits to conceal the real facts as they have not been mentioned in the sale deed. In the circumstances, I estimate the accrued income at $ 1,35,000 or Rs 2,10,500 at 156 exchange. This estimate will include $ 9500 credited in Ayyaru Mudaliar account on 20th October, 1946 under the following narrations:
I issued a reference to the assessee's auditors Messrs. G. Natesan and Company (copy of which was sent to the assessee) asking them to explain the entry fully to furnish the Indian and foreign address of S. A. Md. Sahib, and the circumstances under which the amount was received etc., and to produce a copy of the Kaieluthu letter referred to in the entry. The auditors have sent a reply stating that the amount due by S. A. Md. Sahib was given to the assessee as per letter given by Ayyaru Mudaliar. The burden of proving the credit lies on the assessee as the amount has been credited in his accounts in the name of Ayyaru Mudaliar which account is only a bogus one has been noted before."
3. By an order of the same date, for the year 1948-49, the Income Tax Officer estimated the remittance at Rs 1,58,501. He found that enough profits out of the current year (Rs 17,461) and out of the un-assessed but un-remitted profits of earlier years (Rs 1,41,040) existed.
4. The assessee appealed to the Assistant Commissioner against both the orders. In the appeal relating to the year 194
