Isaac, J.
1. This is a reference made by the Income-tax Appellate Tribunal, Madras Bench, under Section 66(2) of the Indian Income-tax, Act, 1922, as directed by this court on the application of the assessee. The question referred is :
'Whether, on the facts and in the circumstances of the case, the addition of Rs. 60,813 or any portion thereof as the income of the assessee-family from undisclosed sources during the previous year ended March 31, 1951, relevant for the assessment year 1951-52 is valid and justified in law ?'
2. The assessee is a Hindu undivided family consisting of Kannan Kunhi and his younger brothers, who are the sons of one Kollara Sankunni. He was carrying on business in Ceylon for quite a long time, until he returned to India in 1940 and finally settled down in his village, in Chowghat Taluk. Two years later, Kannan Kunhi started a business in Ceylon in partnership with others. The assessee started a business in India for the first time on August 17, 1950 (corresponding to 1-1-1126). That was a business in toddy in Kerala; and the licence was taken in the name of Kannan Kunhi. For the assessment year 1951-52, the assessee was finally assessed by the Income-tax Officer by his order dated June 19, 1959, which is annexure A to this reference. The total income was determined at Rs. 1,40,356 as follows :
Rs.
Income from toddy business
47,703.00
Income from undisclosed sources
63,813.00
Share of profits in business ofthe Ceylon firm, of which Kannan Kunhi is a partner
28,48000
Income from property
360.00
Total
1,40,356.00
3. The assessee was not maintaining any accounts, before it started the toddy business, as according to the assessee it had only a small income from its agricultural properties. The books of account of the assessee relating to the toddy business started with a credit entry of Rs. 46,563 on August 17, 1950. It was also seen that the assessee purchased immovable properties on May 19, 1950, for Rs. 14,250 and on February 16, 1951, for Rs. 3,000. The income from undisclosed source is comprised of these three amounts.
4. Regarding the sum of Rs. 28,480 assessed as share of income from the Ceylon firm, the assessee contended that Kannan Kunhi was a partner of this firm in his individual capacity and that the assessee had no interest therein. This contention, though it was rejected by the Income-tax Officer and the Appellate Assistant Commissioner, was accepted by the Appellate Tribunal. Regarding the sum of Rs. 63,813 assessed as income from undisclosed sources, the assessee contended that the said amount came from past remittances from Ceylon out of the earnings of the family and from savings from agricultural property. The above explanation was rejected by the Income-tax Officer; and his finding was affirmed both by the Appellate Assistant Commissioner and the Appellate Tribunal. The Appellate Assistant Commissioner, however, held that the sum of Rs. 3,000 invested by the assessee on February 16, 1951, for buying immovable properties could have come from the income of the toddy business. Accordingly, this amount was directed to be deleted; and the assessee's income from undisclosed sources was finally determined at Rs. 60,813. We are concerned in this reference only with the inclusion of this amount as part of the assessee's total income.
5. The learned counsel for the revenue contended before us that the assessee had no case before the Appellate Tribunal that the addition of the above amount as income from undisclosed sources was wrong, that its only contention was that this addition should not be made, as the assessee's books of account were rejected, and that the question referred to this court does not, therefore, arise out of the order of the Appellate Tribunal. This contention was advanced on the basis of paragraphs 27 and 28 of the said order, which read as follows:
'27. In regard to the addition retained by the Appellate Assistant Commissioner as income from undisclosed sources, it was urged that the department having rejected the books there was no justification for treating the sum of Rs. 60,813 as income from undisclosed sources.
28. No other point was argued.'
6. We are not able to follow the point stated in paragraph 27. The income from toddy business as estimated by the Income-tax Officer was only Rs. 47,703 ; and therefore a contention that the sum of Rs. 60,813 found as income from undisclosed sources would be covered by the difference between the estimated profits and the book profits could not possibly have been advanced. It is seen from the appeal petition filed before the Tribunal that the assessee raised a ground that its explanation regarding the amount assessed as income from undisclosed sources should have been accepted. In paragraph 37 of its order, the Appellate Tribunal states as follows :
'37. In the assessment year 1951-52 the assessment of Rs. 60,813 remains to be considered. The books had been rejected only in so far as they did not help deducing the correct profit from the business but the fact of investment remains. The assessee had no proper and satisfactory explanation for the source for these sums. We uphold the assessment of Rs. 60,813 as income from undisclosed sources.'
7. It is clear from the above passage that the question of the acceptability of the assessee's explanation was considered and rejected by the Tribunal. It is also significant to note that the application made by the assessee before the Tribunal for referring the question in this reference for the decision of this court was rejected by the Tribunal, not on the ground that the said question did not arise out of the order of the Tribunal, but on the ground that it was not a question of law. We, therefore, overrule the preliminary objection raised by the learned counsel for the revenue.
8. The learned counsel for the revenue contended that it has been well-established by the decision of the Supreme Court in Govindarajulu Mudaliar v. Commissioner of Income-tax, [1958] 34 I.T.R. 807 (S.C.) that, where an assessee fails to prove satisfactorily the source and nature of amounts received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are income. He further submitted that the question whether an explanation offered by an assessee is acceptable or not is a pure question of fact, and that the High Court is not entitled to examine the correctness of the finding of the Tribunal in the said matter. The learned counsel also referred us to the decisions of the Supreme Court in Kale Khan Mohammad Hanif v. Commissioner of Income-tax, [1963] 50 I.T.R. 1 (S.C.) and Commissioner of Income-tax v. M. Ganapathy Mudaliar, [1964] 53 I.T.R. 623 (S.C ), wherein the decision in Govindarajulu Mudaliar's case has been followed. On the other hand, the learned counsel for the assessee invited us to the decision of the Supreme Court in (Mehta Parikh & Co. v. Commissioner of Income-tax, [1956] 30 I.T.R. 181, 189 (S.C.) and contended that the court was entitled to consider whether the finding of the Appellate Tribunal can be sustained on any evidence, and that, in the instant case, there was absolutely no justification to reject the assessee's explanation and hold that the amounts found with the assessee were its income from undisclosed sources during the accounting year.
9. We do not think that there is any conflict or inconsistency between the principles laid down by the Supreme Court in Govindarajulu Mudaliar's case and Mehta Parikh & Co.'s case. In our view, they indicate different aspects of the same matter. We shall first examine the decision in Mehta Parikh & Co. v. Commissioner of Income-tax. In that case, the assessee encashed 61 high denomination notes of the value of Rs. 1,000 each on 18th January, 1946. This was done pursuant to the High Denomination Bank Notes (Demonetisation) Ordinance, 1946, promulgated on 12th January, 1946. For the assessment year 1947-48, for which the accounting year was the calendar year 1946, the Income-tax Officer called upon the assessee to explain the possession of these 61 high denomination notes. The assessee submitted that they were received by him in the course of his business, and that they formed part of the cash balance, which was Rs. 69,891-2-6 on January 12, 1946. The explanation was rejected both by the Income-tax Officer and the Appellate Assistant Commissioner; and the whole amount was treated as income from undisclosed sources. The Appellate Tribunal accepted the assessee's explanation to the extent of Rs. 31,000. The assessee took the matter to the High Court by a reference. The High Court held that there was sufficient material to justify the inference drawnby the Tribunal that Rs. 30,000 was the assessee's income from undisclosedsources. The assessee appealed to the Supreme Court. It examined thefacts of the case, and held that as the whole sum of Rs. 61,000 representingthe value of the high denomination notes was covered by the cash balancesas per books of account of the assessee on the relevant dates, and as thebooks of account were found to be genuine, there was no justification notto accept the explanation of the assessee. The principle was stated asfollows:
'The court would be entitled to intervene if it appears that the fact-finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question.'
10. Referring to the particular facts of the case, the Supreme Court said:
'Really speaking the Tribunal had not indicated upon what material it held that Rs. 30,000 should be treated as secret profits or profits from undisclosed sources and the order passed by it was bad. The appellants had furnished a reasonable explanation for the possession of the high demonination notes of the face value of Rs. 61,000 and there was no justification for having accepted it in part and discarded it in relation to a sum of Rs. 30,000.'
11. We shall now examine the decision in Govindarajulu Mudaliar v. Commissioner of Income-tax. In that case, the Income-tax Officer found that the income of the assessee, chargeable to tax, was Rs. 54,600 for the assessment year 1945-46, Rs. 27,500 for the year 1946-47 and Rs. 54,500 for the year 1947-48. These amounts appeared as credits in the name of the assessee in the account books of a firm of which he was a partner. He was asked by the Income-tax Officer to explain as to how he came to possess these amounts. His explanation was that he got Rs. 80,000 in 1944 from his aunt with whom his father, who died in 1936, had entrusted it, and that Rs. 42,000 represented his share in the profits of a firm which carried on business in arrack. He was not himself a partner of this firm; but he stated that one of its partners was a name-lender for him. The above explanation was examined by the Income-tax Officer in detail, and rejected; and he held that the amounts in question represented concealed income. This finding was affirmed by the Appellate Assistant Commissioner and also by the Appellate Tribunal. The assessee appealed to the Supreme Court by special leave ; and it was contended that it did not follow from the failure of the assessee to establish the case put forward by him that these amounts were income of the previous year, and it was the duty of the department to show from what source the income was derived and why it should be treated as concealed income. The contention was rejected; and in doing so the Supreme Court said:
'Whether a receipt is to be treated as income or not must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar are partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been, it was clearly open to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case.'
12. The question raised by the assessee in the case before us is not whether the Income-tax Officer is entitled to draw the inference that the receipts are income of the year in which they were found with the assessee on his failure to explain their source, but whether there is material to reject the assessee's explanation and draw such an inference on the facts of this case. Now, as stated in the passage quoted above, the question whether a receipt is to be treated as income or not must depend very largely on the facts and circumstances of each case. It is not the law that, when once the explanation is rejected, it automatically follows that the receipts are income. Whether an explanation is acceptable, and if not, whether it should be inferred that the receipts constitute income, are different aspects of the same question. Both these aspects are interrelated, and the question whether such receipts constitute income or not has to be decided on a consideration of all the relevant facts and circumstances of the case. It is quite legitimate in the case of an assessee who is known to be carrying on several activities of an income-earning character or who can reasonably be found to be involved in such activities, to draw the inference that the amounts found with him constitute income from undisclosed sources, in the absence of satisfactory explanation regarding their source. Such an inference should not be readily made in the case of a person, who has no known business or other source of income, or who cannot even be reasonably suspected as engaged in any income-earning activities. In the latter case, there must be more substantial reasons to reject the assessee's explanation, and draw the inference that the amounts found with him constitute income.
13. Let us now examine the facts of the instant' case in the light of the above principles. Sankunni, the karta of the assessee family, carried on business in Ceylon for about 20 years, until he returned to India and settled down in his village in 1940. Kannan Kunhi, the eldest son of Sankunni and the present karta of the family, has been carrying on business in Ceylon from 1942 onwards in partnership with others. The licence of the toddy business started in Kerala on August 17, 1950, was taken in the name of Kannan Kunhi. Out of the sum of Rs. 60,813 assessed as income from undisclosed sources, Rs. 46,563 is the amount credited in the books of account of this business on August 17, 1950. The assessee's explanation, as we have already stated, was that this amount as well as the amounts invested for buying immovable properties came from past remittances from Ceylon and savings from agricultural property. This explanation did not receive any consideration by the Appellate Tribunal. All that it stated about the matter is contained in the one sentence appearing in paragraph 37 of its order; and it reads I
'The assessee had no proper and satisfactory explanation for the source of these amounts.'
14. The Income-tax Officer dealt with this matter as follows:
'Other sources,--Income from undisclosed source.--An amount of Rs. 46,563 has been brought into the books for the new toddy business. The assessee was asked to explain the nature and source of these funds. The explanation furnished is not at all satisfactory, and so I will treat this amount as income from undisclosed sources.
Further it is seen that the assessee has purchased two items of properties during the account year as follows :
On 19-5-1950
Rs. 14,250
On 16-2-1951
Rs. 3,000
Rs. 17,250
In the absence of any evidence as to the source of funds for investment of these assets, I will treat this amount also as income from undisclosed sources.'
15. All that the Appellate Assistant Commissioner said about this question is :
'The appellant's explanation regarding their source is not in the least convincing, and I am satisfied that the Income-tax Officer was quite justified in assessing them as income from undisclosed sources. As regards the investment of Rs. 3,000 on February 16, 1951, I feel it can be held to have come out of the income from toddy business outside accounts estimated by the Income-tax Officer, and this sum of Rs. 3,000 has accordingly to be deleted.'
16. Thus we find that the Income-tax Officer and the Appellate Assistant Commissioner also have not considered the acceptability or otherwise of the assessee's explanation, except making an assertion that it was not acceptable. The other important aspect, namely, whether, on the facts and in the circumstances of the case, it should be inferred that these amounts constituted income of the previous year, though the explanation offered by the assessee was not acceptable, did not receive the consideration of the Appellate Tribunal or the subordinate authorities. Except some agricultural properties, whose annual income came to about Rs. 6,000 according to the assessee, it had no known source of income in India, until it started the toddy business on August 17, 1950. Nor is there any material in the case even to raise a reasonable suspicion that the assessee indulged in any activity of an income-earning nature in the accounting year or in prior years. In these circumstances, a finding that the sum of Rs. 60,518 found with the assessee must be its income from undisclosed sources during a period of about seven and a half months prior to August 17, 1950, appears a little preposterous. Whatever it may be, the explanation offered by the assessee was not on the face of it improbable, though it is entirely a matter for the fact-finding authority to accept it or not. But if the Appellate Tribunal rejects the explanation without considering its acceptability in the light of the facts and circumstances of the case, or it rejects the explanation without stating any grounds whatsoever, or upon a view of facts which could not reasonably be entertained by any person acting judicially, the case would fall within the principle laid down by the Supreme Court in Mehta Parikh & Co.'s case, and the finding of the Tribunal would not be valid. In our view, the same is the position in this case; the addition of Rs. 60,813 as the income of the assessee from undisclosed sources was not valid or justified.
17. In the result, we answer the question in this reference in the negative and in favour of the assessee. The parties will bear their own costs. A copy of this judgment will be forwarded to the Income-tax Appellate Tribunal as required by Section 66(5) of the Act.