A. Govindarajulu Mudaliar vs Commissioner Of Income-Tax, Hyderabad

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Not extracted

Decision Date: 24 September 1958

Coram: A.K. Sarkar, P.B. Gajendragadkar, Venkatarama Aiyar

In this matter, the Supreme Court examined special leave appeals filed against the judgment of the Income‑Tax Appellate Tribunal in Madras dated 29 January 1953, which had disposed of three appeals designated I.T.A. Nos. 3489, 3490 and 3491 of 1952‑53. The appellant, A. Govindarajulu Mudaliar, was engaged in the manufacture and sale of arrack and also operated a lorry service. For the assessment year 1945‑46 the assessing Income‑Tax Officer determined that the income liable to tax was Rs 54,600; for the year 1946‑47 the assessed income was Rs 27,500; and for the year 1947‑48 the assessed income was Rs 54,500. These sums appeared in the ledger of a partnership firm of which the appellant was a partner, recorded as credits from him. The officer therefore required the appellant to explain the origin of the amounts. The appellant responded in two parts. First, he asserted that his father had earned roughly Rs 80,000 from the arrack business, that this amount was in his father’s possession at the time of his death in 1936, and that before dying his father had entrusted the money to the appellant’s aunt. The aunt died in 1944 and, according to the appellant, she handed the entire Rs 80,000 over to him. Second, the appellant claimed that the balance of about Rs 42,000 represented his share of profits earned in a partnership that also dealt in arrack during the years 1938‑39 to 1944‑45. The partnership’s named partners were Ediga Thayappa and M. Govindaswamy Mudaliar, and the appellant maintained that Thayappa was merely a benamidar for him, so that the profits amounting to Rs 42,000 were rightfully his.

The Income‑Tax Officer rejected both explanations and concluded that the sums were concealed income, consequently assessing tax thereon. The appellant appealed this finding to the Appellate Assistant Commissioner, who, after re‑examining the facts, affirmed the officer’s conclusions. The appellant then took the dispute to the Appellate Tribunal, which by its judgment of 29 January 1953 upheld the decision of the Appellate Assistant Commissioner. The Tribunal undertook a detailed review of the alleged gift of Rs 80,000, scrutinising the claim that it had been transferred from the appellant’s father to his aunt and subsequently to the appellant, and found the claim to be untrue. Turning to the Rs 42,000 claim, the Tribunal observed that no evidence demonstrated that Ediga Thayappa acted as a benamidar for the appellant, and noted that the partnership’s account books listed only the name of Thayappa. Accordingly, the Tribunal held that there was no basis to establish the appellant’s entitlement to the Rs 42,000.

The Tribunal observed that the only reference to Thayappa in the records was his name appearing as a partner, that the firm was registered under section 26A of the Indian Income‑tax Act, and that the application listed only Thayappa’s name as a partner. The Tribunal further noted that during the six‑year period there was no evidence that Thayappa had transferred any share of the profits to the assessee, and that, contrary to the appellant’s claim, Thayappa had not received any remuneration for his alleged participation. Accordingly, the Tribunal rejected the testimony of Eidga Narashiah and Govindaswamy Mudaliar, who had been examined by the appellant in an attempt to prove his case. As a result, the Tribunal held that the appellant’s claim concerning the sum of Rs 42,000 was not substantiated. The Tribunal then expressed its reasoning in the following terms: “As the assessee has not succeeded in proving his version that Rs 80,000 was got from his aunt being given to her by his father and that Rs 42,000 was earned as his share of income from Adoni and Nandyal combines, there is no alternative left but to treat them as undisclosed income.” The appellant contended that, even if he had failed to establish his version, it did not follow as a matter of law that the amounts in question must be treated as income received or accrued during the previous year. He argued that the burden lay on the Department to produce evidence showing the source of the income and to explain why the amounts should be considered concealed, and that in the absence of such evidence the Tribunal’s finding was erroneous. The Court was unable to agree with this contention. It held that the determination of whether a receipt constitutes income depends largely on the facts and circumstances of each case. In the present matter, the receipts were reflected in the account books of a firm in which the appellant and Govindaswamy Mudaliar were partners. When called upon to explain the receipts, the appellant offered two explanations: that Rs 80,000 represented a gift from his aunt, herself a recipient of his father’s gift, and that Rs 42,000 represented his share of income from a business he claimed to own. Both explanations were rejected, and, having been dismissed, it was proper for the Income‑tax Officer to conclude that the receipts were concealed income. The Court noted that established authority allows the Income‑tax Officer to draw the inference of assessable income when an assessee fails to satisfactorily prove the source and nature of cash received during the year of account. Consequently, the Court found that the Tribunal’s conclusion was fully supported by the facts, that there was no ground for interfering with that finding, and that the appeals were dismissed with costs. The Court also recorded that the appellant had applied for a reference to the High Court under section 66(2) of the Indian Income‑tax Act, and that the High Court had dismissed that application.

In the earlier proceedings, the appellant had applied to the High Court under section 66(2) of the Indian Income‑tax Act, seeking a reference of the Tribunal’s order; the learned judges of that Court dismissed the application, and no further appeal was filed against that dismissal. The present proceeding before this Court concerned an appeal filed directly against the decision of the Appellate Tribunal itself. The Court recalled that it had previously held in Dhakeswari Cotto Mills Ltd. v. Commissioner of Income‑tax, West Bengal, that an appeal to this Court under article 136 of the Constitution was permissible against a decision of the Appellate Tribunal under the Income‑tax Act. However, because in the present case the appellant had already approached the High Court and a final order adverse to him had been rendered, it was not appropriate for him to now challenge the correctness of the Tribunal’s order on grounds that could have been raised in an appeal against the High Court judgment. All the arguments that the appellant sought to raise were already presented in the reference under section 66(2), and consequently those grounds were no longer open for consideration. The respondent did not raise any objection to this view, and while deciding the appeal on its merits the Court did not intend to be interpreted as endorsing the competence of the appeal. Accordingly, the Court dismissed the appeal and awarded costs.