JUDGMENT This is a reference under Section 66(2) of the Income-tax Act (XI of 1922).
The assessee is a firm at Cawnpore having three partners, Mohammad Ayub, Mst. Zinat Bibi and Mst. Sayeeda Khatun. Mst. Zinat Bibi is the wife and Mst. Sayeeda Khatun is the daughter of Mohammad Hamza, brother of Mohammad Ayub. Mohammad Hamza is not himself a partner in this firm, but he has a business under the name of the Indian National Tannery and another under the name of the U. P. Tannery. These are both at Cawnpore.
The year of assessment with which this reference is concerned is 1938-39, but it is necessary first to state certain facts as regards the assessment for the previous year 1937-38. In that year the Income-tax Officer found three items credited as cash receipts in the personal account of the three partners, namely Rs. 645 in the name of Mohammad Ayub, Rs. 44 in the name of Mst. Zinat Bibi and Rs. 11 in the name of Mst. Sayeeda Khatun. These items were in exact proportion to the respective share which each partner had in the firm, and so the Income-tax Officer at once suspected that they represented profits from an undisclosed source. He accordingly called upon the firm to adduce evidence to the contrary, but no acceptable evidence was forthcoming and the Income-tax Officer accordingly included the sum of Rs. 700, being the total of the aforementioned three items in the assessable profits of the firm.
The assessee appealed to the Assistant Commissioner on other points, but not in respect to this sum of Rs. 700.
In the assessment year 1938-39 the firm returned an income of Rs. 3,280. The Income-tax Officer called for the books of account under Section 22(4) of the Act and these showed that the profits had been distributed among the three partners as follows :-
Rs.
Mohammad Ayub ...
3,040 Mst. Zinat Bibi ...
Mst. Sayeeda Khatun ...
The Income-tax Officer also found a sum of Rs. 3,312 credited in the personal accounts of the three partners as under :
Rs.
Mohammad Ayub ...
3,100 Mst. Zinat Bibi ...
Mst. Sayeeda Khatun ...
The assessee was then required under Section 23(3) to give specific evidence to show that the amount of Rs. 3,312, being the total of the last mentioned three items, did not represent profits from an undisclosed source. The only evidence which was forthcoming was the statement of Mohammad Ayub, who said that these items were deposited from capital separately possessed by the three partners; and as regards his own deposit of Rs. 3,100 he said that he had Rs. 15,000 which he had inherited from his father. The Income-tax Officer sent for Mohammad Hamza under Section 37 of the Act and the latter corroborated his brother. The Income-tax Officer found the explanation unsatisfactory and did not accept it and he accordingly included the sum of Rs. 3,312 in the assessable profits of the firm.
The assessee appealed to the Assistant Commissioner, but the appeal was dismissed. An application was then preferred to the Commissioner for review under Section 33 or alternatively for a reference to this Court under Section 66(2) of the Act. The Commissioner declined to exercise his powers of review, but has referred the following question to this Court under Section 66(2).
"Whether there was any material to support the finding of the Income-tax Officer that the deposits in the personal account of the partners were profit from some unknown source".
In the opinion of the Commissioner the question should be answered in the affirmative.
As we have already shown, in the assessment year 1937-38 the deposits in the personal accounts of the three partners were in exact proportion to their shares in the business; and when these items were included in the assessable profits, the assessee submitted to the assessment. In the year of assessment with which we are now concerned, the items credited in the personal accounts were not in proportion to the shares in the business, and we have little doubt that the blunder of the previous year was being deliberately avoided. When the assessee firm was called upon to prove that these items did not come from an undisclosed source of profit, it was unable to produce any sort of account in support of its contention that it represented capital privately held by each partner, and as regards the items credited to Mst. Zinat Bibi and Mst. Sayeeda Khatun, it does not appear that any explanation at all was offered as to the nature of the capital from which these deposits were made. Moreover, the Assistant Commissioner satisfied himself that on the days on which these items were credited the business was not in need of any additional money from outside. Having regard to the above facts and circumstances, it cannot possibly be said that there was no material before the Income-tax Officer which was capable of supporting his finding that the deposits in the personal accounts of the partners were profit from some unknown source. The question referred to us is accordingly answered in the affirmative.
The assessee will pay the costs of this reference. Counsel for the Department is entitled to a fee of Rs. 100 in this case. A Copy of this order under the seal of the Court and the signature of the Registrar will be sent to the Commissioner of Income-tax.
Reference answered in the affirmative.