SHRI GYAN CHAND JAIN V. THE COMMISSIONER OF W

Tax/9900026/1994

AI Insights

The case involves a series of tax disputes between Sri Gyan Chand Jain and the Commissioner of Wealth Tax, Bihar(II), Ranchi, concerning the taxation of undisclosed incomes assessed during the income tax assessments for the years 1963-64 to 1970-71 under the Wealth Tax Act for the years 1985-86 to 1988-89. The core legal issue was whether the additions made as undisclosed income could be taxed under the Wealth Tax Act after a significant lapse of time. The petitioner argued that such intangible assets should be deemed to have been exhausted over time, while the respondent maintained that the presumption of their existence continued. The High Court, referencing a Supreme Court decision, sided with the petitioner, concluding that the presumption of the continued existence of such assets could not hold after a long period.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 732621 (HC-JHARKHAND)
• Appeal Type: Others
• Pronouncement Date: 12-12-2012
• Assessment Year: misc
• Other Referred Cases: Commissioner of Wealth Tax Vrs. J.K.Cotton Manufacturers Ltd. & Ors. (1984) 146 ITR 552(SC), CWT vs. Mishrilal Jain (1986) 161 ITR 583(Pat.), Annamma Paul Perincherry vs. CWT TC 664R. 290, CWT Vs. J.K.Jute Mills Co.Ltd. (1980) 16 CTR (All) 112: (1979) 120 ITR 150(All): TC 64R.289
• Laws Referred To: Wealth Tax Act, Income Tax Act, 1961, Evidence Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: D ROSHAN; RUPA KUMARI; AMIT KUMAR
• Assessee Lawyers: BINOD PODDAR; MAHENDRA CHOUDHARY; DARSHAN PODDAR; PIYUSH PODDAR; AMRITA SINHA
• Keywords: Assessment; Income Tax; Intangible Property; Undisclosed income; Wealth Tax
• Section: 68; 114; 106; 256(1); 256(2)

Judgement Text

" IN THE HIGH COURT OF JHARKHAND AT RANCHI Tax Case No.23 of 1994 with Tax Case No.24 of 1994 with Tax Case No.25 of 1994 with Tax Case No.26 of 1994 Sri Gyan Chand Jain ........ Petitioner ( In all cases ) Vrs. Commissioner of Wealth Tax, Bihar(II), Ranchi ...... Opp.Party( In all cases) CORAM : HON’BLE THE CHIEF JUSTICE HON’BLE MRS JUSTICE JAYA ROY .... For the petitioner : M/s Binod Poddar, Sr.Adv, Mahendra Choudhary, Darshan Poddar, Piyush Poddar & Amrita Sinha,Advs. For the Respondent : M/s D.Roshan, Rupa Kumari & Amit Kumar,Advs. Reportable Dated 12 th December, 2012 By Court­ These are the Tax Cases , wherein the question involved is only one, which is as under : “Whether, on the facts and circumstances of the case, the addition of Rs.23,59,461/­ made up to the Assessment Year 1971­72 as extra income of the appellant was available with the appellant for purposes of taxation under the Wealth Tax Act”? 2. The petitioner's application for reference of such question submitted before the Tribunal under sub­section(1) of Section 256 of the Income Tax Act, 1961 was rejected by the Tribunal vide orders dated 11th March, 1994, pertaining to the assessment years 1985­86 to 1988­89. 3. The facts of these matters are that the Income Tax Officer while assessing the petitioner's income found that the total surplus available with the petitioner by way of income being Rs.21,15,164/­ and the 2 total wealth disclosed by the petitioner being Rs.97,25,000/­, the increase in the wealth is to the tune of Rs.76,09,836/­ The said income of Rs.76,09,836/­ was taken to be income from undisclosed source. In view of the above reasonings, the total available surplus available with the petitioner during the assessment year 1953­54 to 1976­77 was declared to be Rs.21,15,164/­ based on the assessed income of the petitioner for all the above three years. 4. According to the assessee, the assessed income of the petitioner included all the intangible additions made to the income of the petitioner were ultimately found to be Rs.23,59,461/­ during the assessment years 1963­64 to 1970­71. The said undisclosed incomes assessed in income tax assessment proceedings are sought to be taken for taxation under the Wealth Tax Act for the assessment year 1985­86 to1988­89. The petitioner's contention was that the said undisclosed income which is intangible property of the assessee cannot be kept alive forever for the purpose of taxation under the Wealth Tax and such intangible additions are required to be deemed to the exhausted within a reasonable period of subsequent years from the date of such assessment by the Income Tax Officer during the income tax assessment proceeding . 5. The plea raised by the assessee did not impress the Tribunal and, therefore, the Tribunal refused to refer the question of law to this Court. Therefore, the assessee has filed these four Tax Cases, which are being decided by this common order. 6. At the outset, we may state that as per the law, as was in force in the year 1994, in case application of the assessee is rejected by the Appellate Tribunal for reference of question to the High Court then, the 3 assessee can submit the application before the High Court under sub­ section(2) of Section 256 of the Act of 1961 . Sub­section(2) of Section 256 of the Act of 1961 provided that in such case when petitioner's prayer has been rejected by the Tribunal and he has filed the Tax Case in the High Court then, the High Court may, if satisfied, ask the Appellate tribunal to state the case and refer the question of law to the High Court. Said procedure has now been deleted and today it is not required that such Tax Case be filed under Section 256(2) of the Act of 1961 and the High Court should ask the Tribunal to send the statement of case and question to the High Court. However, these are the old matters under old law and, therefore, they have been registered as Tax Cases. The peculiar facts of the case required us to avoid this procedure of calling question from the Tribunal because of the reason that the issue which has been raised by the petitioner appears to have already been answered by the Hon'ble Supreme Court in the case of Commissioner of Wealth Tax Vrs. J.K.Cotton Manufacturers Ltd. & Ors.( 1984) 146 ITR 552(SC) and, therefore, no useful purpose will be served by sending the matter to the Tribunal for sending it back to this Court for deciding the question of law, which, in our opinion, has already been answered by the Hon'ble Supreme Court. 7. The contention of the petitioner is that the assessment of income of the petitioner was based on the assessment made by the Income Tax Officer in the income tax assessment proceeding and, therefore, the assessment and increase are only assessment and, therefore, intangible property. It is submitted that any intangible property which was only due to the best judgment of the officer is an assessment of existence of the property and that assessment can continue for a reasonable period 4 and thereafter one presumption can also be drawn that such intangible property may have extinguished. Mr. Binod Poddar, learned Senior Advocate, relied upon the judgment of the Hon'ble Supreme Court delivered in the case of Commissioner of Wealth Tax Vrs. J.K.Cotton Manufacturers Ltd. & Ors.( 1984) 146 ITR 552(SC). In the said case, the same issue was before the Hon'ble Supreme Court and Hon'ble Supreme Court considered the issue in para­11 which will be relevant and is quoted hereinbelow: Para­11 “ As regard the elaboration of the contention based on a presumption sought to be raised by counsel for the revenue against the assessee-companies from the analogy of the presumption arising in income-tax cases under S.68 of the IT Act, 1961, the contention is fallacious for two reasons. It is true that by reason of the settlement made under the Taxation on Income(Investigation Commission) Act, 1947, the assessee- companies must be taken to have admitted that they had made secret profits which were kept out of the books of account and it is also true that no explanation was forthcoming from the assessee-companies as to what became of such secret profits but the question is whether, from such absence of explanation, any presumption can be raised that such secret profits were still retained by them on the valuation date in the circumstances of the case? In the first place, the analogy of the rule applicable in income-tax cases would be inapplicable in wealth-tax cases inasmuch as in the former case the unexplained cash credit item is regarded as income of the assessee from undisclosed source having accrued to him during the accounting year while in the latter case only the valuation date is relevant on which date the assets( secret profits) must be held by the assessee and it will not do that such asset was held by him some time during the concerned year. Secondly, after a lapse of a sufficiently long period, no presumption can be raised that a secret profit earned some time during the concerned year has continued to be held by the assessee on the valuation date. In the instant case the secret profits admittedly earned by the assessee-companies related to assessment years prior to September, 1948,(as proceedings under the Taxation on Income(Investigation Commission) Act, 1947, could be taken only in respect of assessment years prior to 1st Sept., 1948) and the tax liability in respect thereof was determined in 1952, but we are concerned with the valuation dates 30th June, 1956, and 31st Dec. 1956, and , therefore, the presumption as suggested by the counsel cannot be drawn against the assessee-companies after a lapse of 8 long years. In Annamma Paul Perincherry vs. CWT TC 664R. 290 and CWT Vs. J.K.Jute Mills Co.Ltd. ( 1980) 16 CTR (All) 112: (1979) 120 ITR 150(All): TC 64R.289, the Kerala High Court as well as the Allahabad High Court have taken a similar view that no such presumption can be raised after a lapse of a sufficiently long period and we approve of the said view. In any case, as sated above, the deductibility of the two tax liabilities in question does not depend upon whether the assets in respect whereof such liability has been determined, are available or not while aggregating the assets of the assessee-companies. The 5 contention of the counsel for the Revenue, therefore, must fail. (emphasis supplied) 8. The Tribunal in original order and learned counsel for the Revenue before us relied upon the judgment of Patna High Court delivered in the case of CWT vs. Mishrilal Jain (who is the predecessor of the present petitioner) reported in (1986) 161 ITR 583(Pat.) and submitted that the judgment of the Supreme Court delivered in the case of J.K.Cotton Manufacturers Ltd.(supra) has been considered by the Patna High Court in the petitioner predecessor's case and distinguished the said case and held that the presumption of existence of property once has been drawn then it can be rebutted by positive proof and cogent evidence and those proofs are with the assessee and since in the said case he failed to rebut the proof of existence of intangible assets, therefore, the assessee cannot avoid the tax. The Tribunal in it's order dated 30th January, 1992 (original order) considered the above judgment of Mishrilal Jain as well as Section 106 and 114 of the Evidence Act in support of the stand taken by the Revenue that the existence of fact(assessment presumed) is required to be rebutted by positive evidence and if assessee has failed to rebut that presumption then the said undisclosed asset is subject to Wealth Tax. 9. We have considered the submissions of the learned counsel for the parties and also considered the judgment of Patna High Court in the case of Mishrilal Jain, which has considered the case of J.K.Cotton Manufacturers Ltd. 10. At the outset, we may state that Mishrilal Jain's case has it's own facts which were ignored by the Tribunal. In that case the intangible additions was of the year 1967­68 and relevant assessment year for the wealth tax was 1971­72. Therefore, in short period of four 6 years, when plea was taken that the said intangible assets must have extinguished, was not accepted on facts. However, the Hon'ble Supreme Court in the case of J.K.Cotton Manufacturers Ltd. has clearly observed that after lapse of sufficiently a long period, no presumption can be raised that a secret profit earned sometime during the concerned year has continued to be held by the assessee on the valuation date. Therefore, in view of the ratio of the judgment of the Supreme Court delivered in the case of J.K.Cotton Manufacturers Ltd., a presumption drawn of existence of fact, obviously in the line of the reasoning given in the provisions of the Evidence Act can stand rebutted by counter presumption of extinction of such wealth which was possessed long ago to be in the hands of the assessee. It is true once a presumption is drawn, that can be rebutted by evidence by the person against such presumption goes and it is one of the well settled proposition of law, but there may be exception to it and one of that exception is that said presumption of existence of assets and it might have extinguished after passing of the long time, which is also sufficient rebuttal to the original presumption of existence of the assets in the hands of the assessee. Therefore, in view of the binding judgment of the Hon'ble Supreme Court in the case of J.K.Cotton Manufacturers Ltd., we are of the considered opinion that the question is required to be answered in favour of the assessee and it is held that in these cases , the addition of Rs.23,59,461/­ made from assessment years 1963­64 to 1970­71 cannot be held to be the assets in the hands of the assessee after the period of more than eight years and, therefore, in these cases no tax can be imposed on the basis of such addition of Rs.23,59,461/­ treating it to be wealth for the purpose of 7 wealth tax for the years 1985­86 to 1988­89 and onwards. 11. The question since has already been answered by the Hon'ble Supreme Court, therefore, we are not sending the matter back to the Tribunal for referring the issue and we are deciding the issue itself in these applications without reference. The Revenue may now proceed accordingly, in the light of the decision. 12. These Tax Cases are allowed accordingly. ( Prakash Tatia, C.J. ) ( Jaya Roy, J ) G.Jha/ "