CHUHARMAL S/0 TAKARMAL MOHNANIversusCOMMISSIONER OF INCOME-TAX, M.P., BHOPAL

    A             CHUHARMAL S/0 TAKARMAL MOHNANI
                                  v.
               COMMISSIONER OF INCOME-TAX, M.P., BHOPAL

                                      MAY 2, 1988
    B
           ISABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.]

               Income Tax Act, 1961: Sections 69A and 271(1)(c) Explana-
         tion-Assessee--Customs authorities seizing foreign watches from
         assessee's bedroom-Assessee not showing that he was not owner-
         Value of watches-Whether 'deemed income'-Assessable to tax.
c
              Penalty-Income returned less than 80% of income assessed-
         Penalty can be imposed.

              Indian Evidence Act, 1872: Section 110-Normally title follows
D       possession-Person shown to be in possession-Owner-Onus ofprov-
        ing that he is not owner is on person who affirms he is not owner-
        Applicability of principle to income tax proceedings.

              Petitioner is the assessee. For the assessment year 1974-75 he
        submitted his return of income showing a total income of Rs.3, 113 and
E       stated that he derived this income from two stores which he had been
        running.

              On May 12, 1973 in a search by the Customs authorities, 565
        watches of foreign make of the value of Rs.87 ,455 were seized from the
        petitioner's bedroom. A panchnama was prepared.
F
              The Income Tax Officer issued a notice dated January 19, 1974
        to the petitioner to show cause why a sum of Rs.87 ,455 the value of the
        watches seized should not be treated as his concealed income and
        brought to tax under section 69A of the Act. He further directed
        issuance of notice under section 271(1)(c) of the Act.
G
              Being aggrieved the petitioner filed an appeal before the AppeUate
        Assistant Commissioner who dismissed the appeal holding that in view
        of the order passed by the Collector of Customs confiscating the
        watches and levying penalty of Rs.2 lakhs under the Customs Act, the
        Income Tax Officer was justified in including the cost of watches in the
H       income of the assessee for the assessment year 1974-75.


                                         788
                        CHUHARMAL v. COMMR. OF INCOME TAX                    789

               Thereafter on March 29, 1978 the Assistant Commissioner issued
                                                                                    A
         a notice of. penalty under section 271(1)(c) of the Act, imposing a pen-
         alty of Rs.90,000.

              The two appeals filed by· the petitioner were dismissed by the
        Income-tax Appellate Tribunal, and the petitioner sought a reference to
    -)( the High Conrt under section 256(1) of the Act.                             B

               The High Conrt held that: (i) by virtue of the search in the house

--
i
         of the petitioner the watches were seized and a Panchnama was pre-
         pared, that under Section 110 of the India~ Evidence Act, 1872 it
         clearly establishes that the possession of the wrist watches was found
         with the petitioner, that as the petitioner did not adduce any evidence,   C
         he had not discharged the onus by proving that the wrist watches did
         not belong to him, the Tribunal had rightly held that the value of the
         wrist watches is the income of assessee, and (ii) that in view of the
         Explanation to section 27l(l)(c) the Department had discharged the
         burden of establishing. concealment. The reference was accordingly
         answered against the assessee.                                             D

               Dismissing the Special Leave Petition,

               HELD: 1. The expression 'income' as used in section 69A of the
     ,~ Income Tax Act, 1961 has a _wide meaning which meant any thing which
        came in or resulted in gain. I794D I                                 E

              2. Section 110 of the Evidence Act provides that where a person
        was found in possession of anything the onus of proving that he was not
        the owner was on the person who a!Ttrms that he was not the owner.

    -~
    '
        The High Court in J.S. Parker v. V.B. Palekar, 94 ITR 616 held that
      . what was meant by saying that the Evidence Act did not apply to pro- F
        ceedings under the Income Tax Act was that the rigour of the rules of
        evidence contained in the Evidence Act, was not applicable but that
        does not mean that when the taxing authorities were desirous in invok-
        ing the principles of the Evidence Act in proceedings before them, they
        were prevented from doing so. [793G-H; 794A-B)
                                                                                  G
              3. AU that section 110 of the Evidence Act does is that it embodies
        a salutary principle of common law jurisprudence which could be
        attracted to a set of circumstances that satisfy its condition. [7948 I

               4. In the instant case, possession of the wrist watches was found
         with the petitioner. The petitioner did not adduce any evidence, far less H
    790                   SUPREME COURT REPORTS            [1988] 3 S.C.R.

A   discharged the onus of proving that the wrist watches in question did
    not belong to him. Hence, the High Court held, and according to this
    Court rightly, that the value of the wrist watches is the income of the
    assessee by virtue of Section 69A of the Act. [7930-E]

         5. The amendlnent to the Explanation to section 27l(l)(c) by the
B   Taxation Laws (Amendment) Act 1975 is prospective in effect. [795G I       j.~


          6. In the instant case, the assessee had shown only a total income
    of Rs.3113 and subsequently the raiding party seized wrist watches
    worth Rs.87 ,455. The value of that income was included in the assess·
    able income of the assessee. The total assessable income of the assessee
                                                                                   -
    came to Rs.90,568 whereas the returned income was Rs.3,113 which
c   was certainly less than 110% of the total income and, as such, Explana·
    tion to section 271(1)(c) applied. Accordingly, the Revenue has dis-
    charged the onus of proving concealment of income. [795E]

         Vishwakarma Industries v. Commissioner of Income-tax, 135
D   ITR 652 and Commissioner of Income Tax v. Bherulal Shrikishan,
    [1983] 28 Madhya Pradesh Law Journal 162, approved.

          7. Though the penalty proceedings are penal in nature, in the
    facts of this case the onus on the Revenue has been duly dischar-
    ged. [79SG-H]                                                              ~
E
          CIVIL APPELLATE JURISDICTION: Special Leave Petition
    (Civil) No. 1863of1986.

         From the Judgment and Order dated 10.12.85 of the Madhya
                                                                                   -
    Pradesh High Court in Misc. Civil case No. 297of1981.
F
          Dr. N.M. Ghatate and S. V. Deshpande for the Petitioners.

         Kuldip Singh, Additional Solicitor General, B.B. Ahuja and Miss
    A. Subhashini for the Respondents.                                               '

G         The Judgment of the Court was delivered by

           SABYASACHI MUKHARJI, J. This petition for leave to appeal
    is directed against the judgment and order dated 10th December, 1985
    of the High Court of Madhya Pradesh, Jabalpur Bench. The High
    Court upheld the imposition of penalty as well as the addition of
H   alleged concealed income in the income-tax assessment of the peti-
 -"· >         CHUHARMAL v. COMMR. OF INCOME TAX [MUKHARJI, J.J               791

         tioner. The relevant assessment year with which we are concerned in
                                                                                     A
         this application is 1974-75.

             It appears that the petitioner had submitted his return of income
      for the assessment year 1974-75 showing a total income of Rs.3,113 in
      response to a notice issued under section 143(2) of the Act of the
      Income-tax Act, 1961 (hereinafter called 'the Act'). According to the          B
      petitioner, he had derived his income from 2 stores, i.e. M/s. Moha-
      nani Fancy General Stores and M/s. Roopkala General Stores, Durg.
      It, however, appears that on 19th January, 1974 on the basis of the
      order passed by the Superintendent, Central Excise, Jagpur, dated
      25th December, 1975 there was confiscation of foreign watches from
      the house of the petitioner and levy of penalty of Rs.2 lakhs under the
      Customs Act, 1962. Accordingly, the Income Tax Officer issued a
                                                                                     c
      notice calling upon the assessee to show-cause why the value of the
      watches seized from his residence should not be treated as his income
      from undisclosed sources. In this connection it may be relevant to note
      that on 12th May, 1973 a search was made of the petitioner's bed-room
      from where a total of 565 wrist-watches of foreign make valued at              D
      Rs.87,455 were seized from a suit-case and in a secret cavity of a
      looked steel ahnirah and also behind the almirah there were watches
      folded in a bundle of waste papers. A Panchnama was prepared at the
      same time mentioning these facts. According to the Customs Authori-
      ties, the petitioner found himself unable to make any statement at that
      time on account of which recording of statements was deferred. How-            E
      ever, it is stated, the petitioner went out of the station on 14th May,
      1973. The petitioner's statement was recorded on 13th May, 1973 as
    • soon as he was available. In his statement Annexure R-111 duly signed
  I   by him, he has admitted these facts and merely denied knowledge of
~     the manner in which those watches came to be in his house.
                                                                                     F
               It appears from the records of the Customs case, with which we
         will have to deal later in S.L.P. No. 1008/86, the petitioner was given a
         show-cause notice as to why the period of six months fixed under
         section 110(2) of the Customs Act, 1962 should not be extended but
         no reply was given by the petitioner till 10th November, 1973 or even
         thereafter. Hence, by an order dated 10th November, 1973 before the         G
         expiry of six months, time was extended by the Collector of Customs
         for a further period of 6 months for giving a notice as required under
         section 124(a) of the Customs Act, 1962. Under the proviso to sub-
         section 2 of section 110 of the Customs Act, 1962, a show-cause notice
         specifying the requisite particulars, was given to the petitioner on 4th
         May, 1974. In the reply the petitioner made a general denial. The           H
    792                   SUPREME COURT REPORTS            11988] 3 S.C.R.
                                                                                -\ ~·
    enquiry was fixed on 30th October, 1975 for giving a personal hearing
A
    to the petitioner, when the petitioner's Counsel appeared and sought
    for an adjournment to 20th November, 1975, which was granted. How-
    ever, on 20th November, 1975 the Counsel of the petitioner stated that
    the petitioner did not want to avail of the opportunity of personal
    hearing or even to cross-examine the witnesses in whose presence the
B   Panchayatnama was made at the time of the seizure of the watches. It
    is necessary to bear these facts in mind because it has repercussions to
    the notice dated 19th January, 1974, as mentioned hereinbefore issued
    by the Income Tax Officer to show-cause why the aforesaid sum of
    Rs.90,768 should not be treated as the petitioner's concealed income.
    The Income Tax Officer further directed issuance of the notice under
C   section 271(1)(c) of the Act.

        Being aggrieved by the said order the petitioner prderred an
  appeal before the Appellate Assistant Commissioner against the order
  dated 20th February, 1976. The Appellate Assistant Commissioner
  dismissed the appeal and held that in view of the order passed by the
D Collector of Customs, the Income Tax Officer was justified in includ-
  ing the cost of the watches in the income of the assessee for the assess-
  ment year 1974-75. Thereafter, on 29th March, 1978 the Assistant
  Commissioner of the Income-tax issued notice of penalty under sec-
  tion 271(1)(c) of the Act, imposing penalty of Rs.90,000 minimum
                                                                            .~
  imposable being Rs.87,455 and maximum imposable being Rs.1,74,-             \
E 910. Being aggrieved thereby the petitioner filed two appeals before
  the Income Tax Appellate Tribunal. The Tribunal by its order dated
  19th August, 1980 dismissed these appeals. The petitioner has further
  stated that in the meanwhile the State of Madhya Pradesh initiated
  criminal proceedings under section 125 read with lll of the Customs•
                                                                                    -
  Act, 1962 and the learned Chief Judicial Magistrate, Durg, by his
F order convicted the petitioner and awarded one year's rigorous impris-
  onment. Th~r.eafter, on 2nd November, 1982 the petitioner filed an
  appeal in the Court of Additional Judge in the Court of Sessions, who
  by his judgment allowed the appeal and acquitted the petitioner of the
  said criminal charge.

G         Thereafter, there was a reference to the High Court on two ques-
    tions against the order of the Income-tax Tribunal under section
    256(1) of the Act. The questions are as follows:-

                "(i) Whether, on the facts and in the circumstances of the
                case, was the Tribunal justified in holding that the assessee
H               was the owner of the watches and thus including the value
•
           CHUHARMAL v. COMMR. OF INCOME TAX [MUKHARJI, J.J               793

                thereof in the assessment of the assessee?
                                                                                A
                (ii) Whether, on the facts and in the circumstances of the
                case, the Tribunal.was justified in holding that the depart-
                ment had discharged its burden for establishing the conce-
                alment of income by the assessee for the year under consid-
                eration and thus confirming the penalty of Rs.90,000 levied     B
                by the Inspecting Assistant Commissioner of Income
                Tax?"

           The High Court in its order noted that the raiding party by virtue
    of the search entered into the bed-room of the assessee on 12th May,
    1973 and seized the watches. A Panchnama was prepared. The
    Department found that the assessee was the owner. Section 110 of the        c
    Evidence Act is material in this respect and the High Court relied on
    the same which stipulates that when the question is whether any
    person is owner of anything of which he is shown to be in possession,
    the onus of proving that he is not the owner, is on the person who
    affirms that he is not the owner. In other words, it follows from well-     D
    settled principle of law that normally, unless contrary is established,
    title always follows possession. In the facts of this case, indubitably,
    possession of the wrist-watches was found with the petitioner. The
    petitioner did not adduce any evidence, far less discharged the onus of
    proving that the wrist-watches in question did not belong to the
    petitioner. Hence, the High Court held, and in our opinion rightly, that    E
    the value of the wrist-watches is the income of the assessee. In this

-   connection reference may be made to the views expressed by Justice
    Tulzapurkar as his Lordship then was, of the Bombay High Court in
    the case of J.S. Parkar v. V.B. Palekar, 94 ITR 616 where on differ-
    ence of opinion between Justice Deshpande and Justice Mukhi, Justice
    Tulzapurkar agreed with Justice Deshpande and held the question             F
    whether on the evidence established, the petitioner was the owner of
    the gold seized, though there was no direct evidence placed before the
    taxing authorities to prove that the petitioner had actually invested
    moneys for purchasing the gold in question, the inference of the own-
    ership of the gold in the petitioner in that case rested upon circumstan-
    tial evidence. There also gold was seized from a motor launch belong-       G
    ing to the petitioner in that case. There a contention was raised that
    the provision in section 110 of the Evidence Act where a person was
    found in possession of anything, the onus of proving that he was not
    the owner was on the person who affirmed that he was not the owner,
    was incorrect and inapplicable to taxation proceedings. This conten-
    tion was rejected. The High Court of Bombay held that what was              H
                                                                                 •
    794                   SUPREME COURT REPORTS             11988] 3 S.C.R.

    meant by saying that the Evidence Act did not apply to the proceed-
A
    ings under the Act was that the rigour of the rules of evidence con-
    tained in the Evidence Act, was not applicable but that did not mean
    that the taxing authorities were desirous in invoking the principles of
    the Act in proceedings before them, they were prevented from doing
    so. Secondly, all that section 110 of the Evidence Act does is that it
8   embodies a salutary principle of common law jurisprudence which
    could be attracted to a set of circumstances that satisfy its condition.

          We are of the opinion that this is a correct approach and follow-
    ing this principle the High Court in the instant case was right in holding
                                                                                 -
                                                                                 r;;;;.~




    that the value of the wrist-watches represented the concealed income
    of the assessee.
c
        Section 69A of the Act was inserted in the Finance Act, 1964 and
  it came into force w.e.f. 1st January, 1964. The High Court has rightly
  held that the expression 'income' as used in section 69A of the Act, has
  wide meaning which meant anything which came in or resulted in gain.
D Hence, in the facts of this case a legitimate inference could be drawn
  that the assessee had income which he had invested in purchasing the
  wrist-watches and, as such, that income was subject to tax. In the view
  the High Court was justified in justifying the Tribunal's holding that
  the assessee was the owner of the wrist-water.es and thus including the
  value in the assessment of the income of the assessee as his wealth and
E so deemed to be the income of the assessee by virtue of section 69A of
  the Act coupled with surrounding circumstances. Therefore, inclusion
  of the money in purchasing the wrist-watches, that is to say, Rs.87,455
  was correct and proper for the assessment year under reference. In this
  connection section 69A of the Act may usefully be set out as follows:

F               "Where in any financial year the assessee is found to be the
                owner of any money, bullion, jewellery or other valuable
                article and such money, bullion, jewellery or valuable arti-
                cle is not recorded in the books of account, if any, main-
                tained by him for any source of income, and the assessee
                offers no explanation about the nature and source of
G               acquisition of the money, bullion, jewellery or other valu-
                able article, or the explanation offered by him is not, in the
                opinion of the Assessing Officer, satisfactory, the money
                and the value of the bullion, jewellery or other valuable
                article may be deemed to be the income of the assessee for
                such financial year."
H
            CHUHARMAL v. COMMR. OF INCOME TAX [MUKHARJI, J.[               795

          So far as the first question is concerned, the High Conrt ans-         A
     wered accordingly and in our opinion rightly.

           As regards the second question, section 271(1)(c) of the Act was
     inserted in the Finance Act, 1974 which reads as follows:

                         "Explanation: Where the total income returned by B
                   any person is less than eighty per cent of the total income
                   (hereinafter in the Explanation referred to as the correct
               '   income) as assessed under section 143 or section 144 or
                   section 147 (reduced by the expenditure incurred bona fide
                   by him for the purpose of making or earning any income
                   included in the total income but which has been disallowed
                   as a deduction), such person shall unless he proves that the
                                                                                c
                   failure to return the correct income did not arise from any
                   fraud or any gross or wilful neglect on his part, be deemed
                   to have concealed the particulars of his income or furnished
                   inaccurate particulars of such income for the purposes of
                   clause (c) of this sub-section."                             D


           From the facts found by the revenue, the assessee had shown
     only a total income of Rs.3, 113 and subsequently the raiding party
     seized wrist-watches worth Rs.87,455. Thus the value of that income
     was included in the assessable income of the assessee. Therefore, the
                                                                                 E
     total assessable income of the assessee came to Rs.90,568 whereas the
     returned income was Rs.3, 113 which was certainly less than 80% of the
•    total income and, as such, Explanation applied. Accordingly, the
     revenue has discharged the onus of proving concealment of income.
     This view was expressed by a Full Bench of Punjab & Haryana High
     Court in Vishwakarma Industries v. Commissioner of Income-tax, 135
                                                                                 F
     ITR 652 where all the relevant authorities have been discussed.

           In that view of the matter and in view of the principles behind the
     purpose of Explanation, the assessee in the instant case, has failed to
     discharge his onus of proof. The aforesaid Explanation was amended
     by Finance Act, 1964 with effect from 1st April, 1964. The amendment        G
     was prospective in effect and in the year under reference the amend-
·~
     ment was in force. Though the penalty proceedings are penal in nature
     but in the facts of this case the onus on revenue has been duly dis-
     charged. This was also the view of the Bench decision of the Madhya
     Pradesh High Court in Commissioner of Income Tax v. Bherulal
     Shrikishan, I1983 I 28 Madhya Pradesh Law Journal 162.                      H
    796                 SUPREME COURT REPORTS         [1988] 3 S.C.R.
                                                                          .( .
A        The second question referred to hereinbefore was, therefore,
    answered in favour of the revenue by the High Court and in our
    opinion the High Court was justified in so doing.

        In the aforesaid view of the matter, there is no merit in this.
B application for leave to appeal and it is accordingly dismissed.

    N.V.K.                                          Petition dismissed.