Income-tax---

----Assessment--Undisclosed income--Cash found in possession-of assessee-- Burden of proof on assessee to prove cash does not belong to him---Failure to prove---Sum liable to be included as income of assessee from other sources---Indian Income Tax Act, 1961, S.69-A.

A search was conducted at certain premises in Madras by the officers of the Enforcement Directorate. The assessee was present at the time of search. Inter alia, Indian currency notes of the value of Rs.4,28,713 were found. The assessee gave a statement to the Enforcement Directorate that two persons from Bombay had earlier handed over a sum of Rs.6 lakhs to him and out of this, two sums of Rs.50,000 and Rs.49,000 were handed over to two persons and the balance remained for disbursement under instructions from one G of Singapore. The Income-tax Officer made enquiries, held that the assessee had failed to furnish a proper explanation for the sum of rupees six lakhs and included the sum in the assessment of the assessee as income from other sources, in terms of section 69-A of the Income Tax Act, 1961. On appeal, the Commissioner of Income-tax (Appeals)' held that under the provisions of section 69-A what was found and seized at the time of the search in the assessee's premises alone could be added as income from other sources and hence, sustained the addition to the extent of Rs.4,28,713 The Tribunal held that there was no case for sustaining even the addition of Rs.4,28,713 as the assessee was not found to be the owner of the amount seized, but only a distributor of the amount on commission basis. On a reference:

Held, that admittedly when .the search was conducted by the Enforcement Directorate, the assessee was present in the premises in question and Indian currency of Rs.4,28,713 was seized from a cupboard in the premises. In a matter like this, under the provisions of section 110 of the Evidence Act, 1872, the onus is on the person, who is in possession of the money to show that he is not the owner of the same. Therefore, the burden was not on the Department to prove that the assessee was the owner of the amount found in the possession of the assessee. Admittedly, the assessee failed to disclose who G of Singapore was or who the persons in Bombay were, giving instructions for distribution of the sums. Admittedly, after distributing a portion of the amount of rupees six lakhs, the balance of Rs.4,28,713 -was in the possession of the assessee. The assessee failed to establish with cogent and convincing evidence that it did not belong to him. Therefore, the sum of Rs.4,28,713 was liable to be assessed in his hands under section 69-A of the Act and not rupees six lakhs, since the entire rupees six lakhs was not found in the possession of the assessee at the time of search.

Chuharmal v. CIT (1988) 172 ITR 250 (SC) fol.

CIT (Addl.) v. Pichaimanickam Chettiar (S.) (1984) 147 ITR 251 (Mad.) held no longer good law.

Parkar (J.S.) v. Palekar (V.B.) (1974) 94 ITR 616 (Bom.) ref.

S. V. Subramanian for the Commissioner.

Nemo for the Assessee.

JUDGMENT

K.A. THANIKKACHALAM, J.---As per the direction of this Court, the Tribunal referred the following questions for the opinion of this Court, under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the "Act"):

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the provisions of section 69-A of the Income-tax Act are not attracted in this case, and accordingly in deleting the entire addition made by the Income-tax Officer under the head 'Other sources'?"

The assessee Sri K.T.M.S. Mahamood, a resident of Kilakarai, has been assessed to income-tax in respect of income from property and also share income from a firm situated in Ceylon. On October 19, 1966, on information that the assessee had in his possession a sizable amount of Indian currency and that he was also involved in illegal remittances, the officer of the Enforcement Directorate searched the first floor of the premises No.34, Appu Maistry Street, Madras 1, wherein the assessee was present at the time of search. In the course of the search, the Enforcement Directorate found some notes, some slips of papers and. Indian currency notes to the tune of Rs.4,28,713. K.T.M.S. Mohamood who was found in the first floor of the premises at the time of the search, gave a statement before the Enforcement Directorate officials in his own handwriting that two persons from Bombay had earlier handed over to him a sum of rupees six lakhs, out of which a sum of Rs.50,000 was passed on to one Kannan, Coral Merchant Street, and Rs.49,000'was handed over to one Angappan of Sarathy & Co., Madras, and the balance remained for disbursement as per the instructions of one Gopal of Singapore.

In the parallel proceedings to the action taken by the Enforcement Directorate under the Foreign Exchange Regulation Act, the Income-tax Officer made some independent enquiries and on the basis of the enquiries made came to the conclusion that the assessee had no proper explanation for the sum of Rs.6 lakhs which he claimed to have been left by two persons of Bombay. Though the assessee had given a statement as narrated above before the Enforcement Directorate authorities, he later retracted from the sworn statement given and deposed that he was not in fact a tenant of the premises searched by the Enforcement people and that the cash, in fact, belonged to one Amanullah Quarishi. The Income-tax Officer also examined the later stand of the assessee, but came to the conclusion that the assessee had failed to discharge the onus of proving that he was not the owner of the money, and in this view of the matter, included the sum of Rs.6 lakhs in the assessment as income from "other sources".

On appeal, the Appellate Assistant Commissioner confirmed the order passed by the Income-tax Officer. Aggrieved, the assessee filed a second appeal before the Tribunal. The Tribunal set aside the assessment, with a direction to the Income-tax Officer to make a fresh assessment after examining as to, whether it could be said that the ownership of the funds also vested with the assessee. In accordance with the directions given by the Appellate Tribunal, the case was examined by the Income-tax Officer, who again came to the conclusion that the assessee had miserably failed to prove that the money did not belong to him. According to the Income-tax Officer, as it was clearly established that the assessee had resided in the premises bearing door No.34, Appu Maistry Street, Madras 1, and as he was found in possession of the sum of Rs.4,28,713 and that as he failed to prove that the funds did not belong to him, the sum of Rs.6 lakhs has to be treated as income from "other sources", taxable under section 69-A of the Income-tax Act, in the assessee's assessment.

The assessee, once again took up the matter in appeal with the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) by his order in I.T.A. No.C/18 of 1975-76, dated September 19, 1979, held that under the provisions of section 69-A what was found and seized at the time of the search in the assessee's premises could only be added as income from "other sources" and hence sustained the addition to the extent of Rs.4,28,713. According to the Commissioner of Income-tax (Appeals), the provisions of section 69-A of the Income-tax Act could not be invoked in relation to what has been claimed to have been parted with by the assessee, i.e., Rs.50,000 paid to one Kannan and Rs.49,000 handed over to one Angappan. The assessee filed an appeal before the Appellate Tribunal, against the order of the Commissioner of Income-tax (Appeals) in sustaining the addition to the extent of Rs.4,28,713 under "other sources", while the Department has filed cross-objections stating that the Commissioner of Income-tax (Appeals) should have sustained the entire addition.

The Tribunal held that there is no case for sustaining even the addition of Rs.4,28,713 as the assessee was not found to be the owner of the amount seized, but only. a distributor of the amount on commission basis. According to the Appellate Tribunal, the possession of funds by the assessee was not certainly as the owner of the money, but also as a distributor of the money belonging to others and that in such a situation, the provisions of section 69-A of the Act would not be applicable.

Before us, learned senior standing counsel appearing for the Department submitted that it is an admitted fact that the assessee was in possession of Rs.4,28,713. This amount was recovered from the assessee. He is presumed to be the owner. He must show that he is not the owner of the money found in his possession. There is no evidence on record to show that the amount in the hands of the assessee is for distribution. The addresses of the two persons. in Bombay were not disclosed. So also the address of one Gopal said to have given instructions from Singapore was also not disclosed. In fact, the assessee does not know who is that said Gopal. He has also not seen him. According to the assessee, two persons are said to have received the amount from the assessee. These two persons were also not examined and their addresses were also not given. Under section -110 of the Evidence Act the burden is on the assessee to prove that he is not the owner of the money, which is in his possession. In order to support this contention, learned senior standing counsel appearing for the Department relied upon the decision of the Supreme Court in Chuharmal v. CIT (1988) 172 ITR 250. In view of the decision of the Supreme Court in Chuharmal v. CIT (1988) 172 ITR 250, the decision of this Court rendered in Addl. CIT v. S. Pichaimanickam Chettiar (1984) 147 ITR 251, is no longer good law. In Addl. CIT v. S. Pichaimanickam (1984) 147 ITR 251, this Court held that the decision of the Bombay High Court in J.S. Parkar v. V.B. Palekar (1974) 94 ITR 616, will not be applicable to the facts arising in that case. But the Supreme Court in Chuharmal v. CIT (1988) 172 ITR 250 upheld the view taken by the Bombay High Court in J.S. Parkar v. V.B. Palekar (1974) 94 ITR 616. For all these reasons, it was submitted that the Tribunal was not correct in holding that a sum of Rs.4,28,713 cannot be assessed under section 69-A of the Act.

In spite of this tax case being adjourned on several occasions for appearance on behalf of the assessee, none was present on all these days when this tax case was being posted for hearing.

We have heard learned senior standing counsel appearing for the Department and perused the records carefully. The fact remains 'that the premises at No.34, Appu Maistry Street, Madras, were raided by the Enforcement Directorate. -In the raid, the Enforcement Directorate found certain documents like letters, pocket note books, etc., along with Indian currency amounting to Rs.4,28,713 in an almirah. The assessee, his brother- in-law, Jamal Mohamed, and one Ibrahim were present in the premises at the time of the search. When the assessee was interrogated he said that he received a sum of Ps.6 lakhs from Bombay and that he sent Rs.50,000 to one Baskaran or Kannan of No. 108, Coral Merchant Street, Madras, through his brother-in-law, Jamal Mohamed, and Rs.49,000 was paid to Angappan of Sarathy & Co., 21, Ramaswamy Street, Madras. In the course of the proceedings before the Income-tax Officer, Karaikudi, the assessee stated on November 16, 1966, that the first floor of No.34, Appu Maistry Street, was used as a residence of one Amanullah Quaraishi with whom he had no connection whatsoever, that he went to the premises to visit his sick relations and at that time the officers of the Enforcement Directorate, after ascertaining that he was K.T.M.S. Mahamood, took him to the first floor where one Ibrahim was found. When he went there, Indian currency of Rs.4,39,000 was found which was seized by the officers of the Enforcement Directorate. He told them that the amount did not belong to him, but they took him to the office, and compelled him to give a statement as directed by them, on promise of immediate release from custody. Therefore, he gave the statement under compulsion. According to him, it is not true to say that there was disbursement of the amount said to have been received from Bombay, that he did not sent Rs.49,000 to Sarathy and Company and that he has no connection whatsoever with the amount said to have been received from Bombay. On independent enquiry, the Income-tax Officer ascertained that Angappan received the amount from Jamal Mohamed. So also one Baskaran, No. 108, Coral Merchant Street, admitted that he has also received the amount from the assessee. In the meanwhile Amanullah Quaraishi filed a suit C.S. No.62 of 1971 in the High Court claiming that he is the owner of the sum of Rs.6 lakhs found in the premises No.34, Appu Maistry Street, Madras, but the suit was dismissed on August 23, 1978. Before the Enforcement Directorate, the assessee stated that he is not a tenant in respect 6f premises No.34, Appu Maistry Street, and that Amanullah Quaraishi was the actual tenant. In any event, the fact remains that when the search was conducted by the Enforcement Directorate the assessee was present in the premises No.34, Appu Maistry Street, Madras. Indian currency to the value of Rs.4,28,713 was seized from an almirah kept in the first floor of premises No.34, Appu Maistry Street. The claim of Amanullah Quaraishi that the said amount belongs to him was negatived by the High Court. The assessee admitted that a sum of rupees six lakhs was sent from Bombay. One Gopal from Singapore directed the assessee to hand over two sums of money to two persons, viz., Angappan and Baskaran. These two amounts were said to have been paid out as per the instructions given by one Gopal from Singapore. The address of the said Gopal is not known. The assessee said that he himself has not seen the said Gopal. Whatever might have happened earlier, the amount of Rs.4,28,713 was seized from the almirah in the first floor at premises No-34, Appu Maistry Street, Madras, in the presence of the assessee and others. The assessee accepted that this amount is meant for distribution to others. Only a portion of the amount of rupees six lakhs is said to have been distributed to two persons. The sum of Rs.4,28,713 remains undistributed. It was found that the said amount was in the possession of the assessee. In order to make the assessment under section 69-A of the Act for undisclosed income the assessee must not only be a person, who is in possession of the undisclosed income; but he should also be the owner of the same. The assessee himself has admitted that he is in possession of Rs.4,28,713. The point for consideration is whether the Department has established that the assessee is also the owner of Rs.4,28,713. In a matter like this, under the provisions of section 110 of the Evidence Act, the onus is on the person, who is in possession of the money to show that he is not the owner of the same. Therefore, the burden is not on the Department to prove that the assessee is the owner of the amount found in the possession of the assessee.

In Chuharmal v. CIT (1988) 172 ITR 250, the Supreme Court, while considering the provisions of section 69-A of the Act, held "that all that section 110 of the Evidence Act, 1872, did was to embody a salutary principle of common law jurisprudence, viz., where a person was found in possession of anything, the onus of proving that he was not its owner was on that person. This principle could be attracted to a set of circumstances that satisfy its conditions and was applicable to taxation proceedings. The Supreme Court further held that the Tribunal had rightly treated the petitioner as the owner of the watches, since he did not adduce any evidence far less discharge the onus on him of proving that they did not belong to him and that their value was rightly assessed as the income of the petitioner."

In Chuharmal v. CIT (1988) 172 ITR 250, the Supreme Court was of the opinion that the approach made by the Bombay High Court in J.S. Parkar v. V.B. Palekar (1974) 94 ITR 616, was correct in holding that the value of the watches represented the income of the assessee. The Supreme Court also pointed out that from the well established principle of law that normally, unless the contrary is established, title always follows possession.

Our attention was drawn to the decision rendered by this Court in Addl. CIT v. S. Pichaimanickam Chettiar (1984) 147 ITR 251, wherein while considering the provisions of section 69-A of the Income Tax Act, 1961, and section 110 of Evidence Act, 1872, this Court held that merely on the basis of section 110 of the Evidence Act, the value of the gold cannot be taken to be his income. Merely because the assessee has kept silent and has not disclosed the name of the owner of the gold, he cannot be assessed under section 69-A of the Act. Liability to be taxed under section 69-A of the Act can arise only if he is shown to be the owner of the goods. Accordingly, this Court in the abovesaid decision held that the principle adumbrated in J.S. Parkar v. VB. Palekar (1974194 ITR 616 of the Bombay High Court will not be applicable to the facts of that case.

It remains to be seen that the Supreme Court while rendering its decision in Chuharmal v. CIT (1988) 172 ITR 250, approved the decision of the Bombay High Court in J.S. Parkar v. V.B. Palekar (1974) 94 ITR 616. Therefore, the abovesaid view expressed by this Court in Addl. CIT v. S. Pichaimanickam Chettiar (1984) 147 ITR 251, cannot be accepted as a correct view.

Therefore, in a matter like this, when the assessee was found in possession of Indian currency, it is for him to prove that he is not the owner of the currency. It is not correct to state that in a matter like this, the onus is on the Department to prove that the assessee is the owner of the currency found in his possession.

The Tribunal was also of the view that it is for the Department to establish that the assessee is toe owner of the currency found in his possession. The Tribunal also pointed out that mere possession of the currency would not lead to the conclusion that the assessee is the owner of the currency. These views taken by the Tribunal were negatived by the Supreme Court in the decision reported in Chuharmal v. CIT (1988) 172 ITR 250. Admittedly, in the present case, the assessee failed to disclose, who is the person called Gopal, who is instructing from Singapore, for the distribution of the amount and who are the persons, who are [n Bombay instructing the assessee to distribute the amount to the said two persons to whom the amounts were said to be disbursed. Admittedly, after distributing a portion of the amount of rupees six lakhs, the balance of Rs.4,28,713 was admittedly in the possession of the assessee. The assessee failed to establish with cogent and convincing evidence that it does not belong to him. Under such circumstances, the Tribunal was not correct in stating that the sum of Rs.4,28,713 cannot be assessed in the hands of the, assessee under section 69-A of the Act. Thus, considering the facts arising in this case, in the light of the decision cited supra, we hold that the assessee failed to establish that he is not the owner of the amount found in his possession. Accordingly, the said sum of Rs.4,28,713 is liable to be assessed in his hands under section 69-A of the Act and not rupees six lakhs under the head "other sources", since the entire rupees six lakhs was not in the possession of the assessee at the time of search. Therefore, the addition is sustainable under section 69-A of the Act only to the extent of Rs.4,28,713. To this extent, the order passed by the Income-tax Officer in making the addition under section 69-A of the Act is in order. Accordingly, we answer the question referred to us in the negative and in favour of the Department only to the extent of the addition of Rs.4,28,713. No costs.

M.B.A./3045/FCOrder accordingly.