Judgment:
Thanikkachalam, J.
1. As per the direction of this Court, the Tribunal referred the following questions for the opinion of this Court, under s. 256(2) of the IT Act, 1961, hereinafter referred to as the 'Act' :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the provisions of s. 69A of the IT Act are not attracted in this case, and accordingly in deleting the entire addition made by the ITO under the head 'other sources' ?'
2. 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 19th October, 1966 on information that the assessee had in his possession 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-I, 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. Mahamood 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 M/s. Sarathy & Co., Madras, and the balance remains for disbursement as per the instructions of one Gopal of Singapore.
3. In the parallel proceedings to the action taken by the Enforcement Directorate under the FERA, the ITO 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 ITO 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'.
4. On appeal, the AAC confirmed the order passed by the ITO. Aggrieved, the assessee filed a second appeal before the Tribunal. The Tribunal set aside the assessment, with a direction to the ITO 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 Tribunal, the case was examined by the ITO, 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 ITO, as it was clearly established that the assessee had resided in the premises bearing door No. 34, Appu Maistry Street, Madras-I 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 s. 69A of the IT Act, in the assessee's assessment.
5. The assessee, once again took up the matter in appeal with the CIT(A). The CIT(A), by his order in ITA No. C/18/1975-76, dt. 19th September, 1979, held that under the provisions of s. 69A 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 CIT(A), the provisions of s. 69A of the IT Act could not be invoked to what has been claimed to have been parted away 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 Tribunal, against the order of the CIT 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 CIT(A) should have sustained the entire addition.
6. 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 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 s. 69A of the Act would not be applicable.
7. Before us, the 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. Those two persons were also not examined and their addresses were also not given. Under s. 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, the learned Senior Standing Counsel appearing for the Department relied upon the decision of the Supreme Court in Chuharmal vs . CIT : [1988]172ITR250(SC) . In view of the decision of the Supreme Court in : [1988]172ITR250(SC) , cited supra, the decision of this Court rendered in Addl. CIT vs . Pichaimanickam Chettiar : [1984]147ITR251(Mad) is no longer good law. In : [1984]147ITR251(Mad) cited supra, this Court held that the decision of the Bombay High Court in J. S. Parkar vs. V. B. Palekar : [1974]94ITR616(Bom) , will not be applicable to the facts arising in that case. But the Supreme Court in : [1988]172ITR250(SC) , cited supra upheld the view taken by the Bombay High Court in : [1974]94ITR616(Bom) (supra). 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 s. 69A of the Act.
8. In spite of this tax case was 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.
9. We have heard the 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 was raided by the Enforcement Directorate. In the raid, the Enforcement Directorate found certain documents like letters, pocket note books etc., alongwith 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 Rs. 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 M/s. Sarathy & Co., 21, Ramaswamy Street, Madras. In the course of the proceedings before the ITO, Karaikudi, the assessee stated on 16th November, 1966 that the first floor of No. 34, Appu Maistry St., 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 relation and at that time the Officers of the Enforcement Directorate, after ascertaining that he was K. T. M. S. Mehamood, 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 send Rs. 49,000 to Sarathy & Company and that he has no connection whatsoever with the amount said to have been received from Bombay. On independent enquiry, the ITO ascertained that Angappan received amount from Jamal Mohamed. So also one Baskaran, No. 108, Coral Merchant Street, admitted that he has also received 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 St., Madras, but the suit was dismissed on 23rd August, 1978. Before the Enforcement Directorate the assessee stated that he is not a tenant in respect of premises No. 34, Appu Maistry St., 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 Amnullah 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 s. 69A 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 s. 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.
10. In Chuharmal vs. CIT (supra), the Supreme Court, while considering the provisions of s. 69A of the Act, held 'that all that s. 100 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'.
11. In : [1988]172ITR250(SC) , cited supra, the Supreme Court was of the opinion that the approach made by the Bombay High Court in J. S. Parkar vs. V. B. Palekar (supra) 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.
12. Our attention was drawn to the decision rendered by this Court in Addl. CIT vs. Pichaimanickam Chettiar (supra) wherein while considering the provisions of s. 69A of the IT Act, 1961 and s. 110 of the Evidence Act, 1872, this Court held that merely on the basis of the s. 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 s. 69A of the Act. Liability to be taxed under s. 69A of the Act can arise only if he is shown to be the owner of the goods. Accordingly this Court in the above said decision held that the principle adumbrated in : [1974]94ITR616(Bom) , of the Bombay High Court cited supra, will not be applicable to the facts of that case.
13. It remains to be seen that the Supreme Court while rendering its decision in : [1988]172ITR250(SC) , cited supra, approved the decision of the Bombay High Court in : [1974]94ITR616(Bom) . Therefore the above said view expressed by this Court in : [1984]147ITR251(Mad) , cannot be accepted as a correct view.
14. 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.
15. The Tribunal was also of the view that it is for the Department to establish that the assessee is the 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 : [1988]172ITR250(SC) , cited supra. 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 in 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 s. 69A 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 s. 69A 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 s. 69A of the Act only to the extent of Rs. 4,28,713. To this extent, the order passed by the ITO in making the addition under s. 69A 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.