The judgment establishes that embezzled amounts, when utilized for personal gain such as construction of property, constitute taxable income under the Income Tax Act, 1961.

P.P. Naolekar, C.J.

1. For the assessment year 1981-82 the assessee Troilakya Chandra Bora, has submitted his return. The Income Tax Officer has found that the assessee constructed a house property, the value of which was determined by the Valuation Officer of the department at Rs. 5,92,803. Construction of the said property was started on 252-1980 and completed on 31-3-1981, While ascertaining the source of investment during the course of assessment proceeding it came to the light that the assessee was an employee of M/s Eastern Tea Brokers (P) Ltd., Guwahati, and has managed to embezzle cash of the said Company. The Income Tax Officer assessed the embezzled amount to Rs. 3,53,220 as income of the assessee and that amount was subjected to tax. The assessee preferred appeal before the Commissioner (Appeals), Guwahati. The Appellate Authority held that the embezzled amount cannot be treated as taxable income in view of section 2(24) of the Income Tax Act, 1961 and has placed reliance on the previous decision rendered by the Tribunal in the assessee's case and the decision of the Madras High Court in the case of CIT v. A.R. Adaikappa Chettiar [1973] 91 ITR 90 (Mad). Against this order, the revenue preferred appeal before the Income Tax Appellate Tribunal, Guwahati. Before the Tribunal the respondent stated that at the relevant period the assessee was an employee of M/s Eastern Tea Brokers (P) Ltd. and he has embezzled an amount of Rs. 3,53,220 of the said firm. The amount embezzled has been utilised by the assessee for construction of house property and that the assessee had executed a pronote dated 12-10-1981 for a sum of Rs. 4,73,535.21 in respect of the amount embezzled by him to his employer. The Tribunal while dismissing, the appeal filed by the revenue held that all types of receipts cannot constitute income of an assessee. Capital receipts, loan receipts and receipts purely of windfall nature certainly does not constitute the income of the recipient. As the assessee acknowledged the liability in respect of the embezzled amount to his employer the said amount forms merely a liability payable at a future date by him and cannot constitute his income, inasmuch as, the embezzled amount cannot be considered to be the business or professional income of the assessee, as the assessee was not in the business or profession of embezzling money. The Tribunal also strongly relied upon the decision of the Madras High Court in A.R. Adaikappa Chettiar's case (supra).

2. Aggrieved by the said order of the Tribunal, the present appeal is preferred under section 260A of the Income Tax Act, 1961. The High Court posed for itself the following two questions for consideration :

3. Whether, on the facts and in the circumstances of the case, Tribunal was justified and correct in law in upholding the order of the Commissioner (Appeals) whereby addition of the embezzled money to the income of the assessee under the head 'Income from other sources' was deleted ?

4. Whether, on the facts and in the circumstances of the case, the embezzled money in the hands of the assessee and utilised by the assessee is an income within the meaning of section 2(24), read with section 69A of the Income Tax Act, 1961 ?"

5. It is submitted by the learned counsel for the revenue that the amount received from any source legally or illegally shall constitute an income of a person, who receives it or takes it from his employer, unless it is specifically exempted from the Income Tax. Merely because the assessee on a latter date executed a pro-note acknowledging his liability to repay the amount back would not change the character of the amount embezzled by him to be that of income. The amount embezzled by the assessee was invested in house property, and, therefore, it constitute income of the assessee. On the other hand, the submission of the counsel for the assessee is that, the embezzled amount is not an amount belonging to an assessee neither it has been received by th