Homi Jehangir Gheesta vs The Commissioner Of Income-Tax, Bombay

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 24 of 1958

Decision Date: 22 September 1960

Coram: S.K. Das, M. Hidayatullah, J.C. Shah

In this matter, the Supreme Court of India delivered its judgment on 22 September 1960. The bench was composed of Justice S K Das, Justice M Hidayatullah and Justice J C Shah. The petitioner was Homi Jehangir Gheesta and the respondent was the Commissioner of Income‑Tax, Bombay. The case is reported at 1961 AIR 1135 and 1961 SCR (1) 770, and is cited in later reports as RF 1986 SC1849 (10). The dispute concerned the application of the Indian Income‑Tax Act, 1922 (XI of 1922), specifically section 66(2), which deals with assessments of income from undisclosed sources and the procedure for seeking a reference to a higher court.

The facts, as recorded, show that the appellant had encashed high‑denomination currency notes amounting to Rs 87,500. The Income‑Tax Officer subsequently required him to file a return for the relevant assessment year. The appellant gave three different explanations at various stages regarding how he had obtained the money, and these explanations were materially inconsistent. Because the true nature of the receipt was not disclosed, the officer treated the amount as income from an undisclosed source and made an assessment accordingly. The Assistant Commissioner of Income‑Tax affirmed that assessment on appeal. The appellant then appealed to the Appellate Tribunal, which examined the facts, noted the discrepancies in the appellant’s statements, and upheld the assessment order.

Following the Tribunal’s decision, the appellant filed an application under section 66 of the Income‑Tax Act seeking a reference of the matter to the High Court. The Tribunal held that the order did not raise any question of law and dismissed the application. The High Court subsequently dismissed the appellant’s application summarily under section 66(2). Against that summary dismissal, the appellant obtained special leave to appeal to this Court. The sole question before the Supreme Court was whether, on its face, the Tribunal’s order disclosed a legal issue and whether the High Court was correct in dismissing the reference application without a detailed hearing.

The Court held that the Tribunal’s order did not contain any question of law, and therefore the appeal had to fail. In reaching this conclusion, the Court explained that to apply the principles stated in Dhirajlal Girdharilal v. Commissioner of Income‑Tax, Bombay (1954) 26 ITR 736 and Omar Salay Mohamed Sait v. Commissioner of Income‑Tax, Madras (1959) 37 ITR 151, it was necessary to read the Tribunal’s order as a whole. The purpose was to ascertain whether the Tribunal had properly considered all material facts and the evidence presented for and against the appellant, and whether any irrelevant consideration or prejudice had tainted its conclusion. The Court clarified that this approach does not require a word‑by‑word examination of the order to locate minor lapses or idle opinions, because such isolated defects do not, by themselves, create a question of law. Consequently, the High Court’s dismissal of the reference application was upheld, and the appellant’s challenge was dismissed.

In the earlier decisions of Commissioner of Income‑tax, Bombay, (1954) 26 I.T.R. 736 and Omar Saley Mohamed Sait v. Commissioner of Income‑tax, Madras, (1959) 37 I.T.R. 151, the Court explained that a simple rejection of an explanation offered by a taxpayer does not automatically determine the character of a receipt. However, when the circumstances surrounding the rejection are such that they reasonably lead to the conclusion that the receipt represents income, the assessing authority may draw that inference. The Court emphasized that such an inference is based on fact rather than on a question of law.

The present appeal, designated Civil Appeal No. 24 of 1958, was filed by special leave against the judgment and order dated 4 October 1956 of the former Bombay High Court in Income‑Tax Appeal No. 49 of 1956. The appeal was heard by the Supreme Court on 22 September 1960, and the judgment was delivered by Justice S. K. DAS. For the appellant, Homi Jehangir Gheesta, counsel comprised several members of the bar, while the respondent was represented by counsel for the Commissioner of Income‑tax. The factual background concerned the assessment of the appellant for the year of assessment 1946‑47, in which he was taxed on a total income of Rs 87,500 pursuant to section 23(3) of the Indian Income‑tax Act, 1922.

The appellant’s narrative began with the death of his maternal grandfather, M. H. Sanjana, who died on or about 10 May 1920. A dispute arose between Sanjana’s widow, Cursetbai, and his daughter from a first marriage, Bai Jerbanoo, regarding the validity of Sanjana’s will. Bai Jerbanoo, who was the appellant’s mother, eventually settled the litigation and received one‑third of Sanjana’s estate, which was valued at approximately Rs 9,88,000. Bai Jerbanoo died in 1933, leaving behind her husband Jehangirji (the appellant’s father), her son Homi (the appellant), and a daughter named Aloo. Although no documentary evidence was produced, it was asserted that Bai Jerbanoo’s estate at the time of her death was roughly Rs 2,10,000.

At the time of his mother’s death the appellant was a minor. He had two paternal uncles, Phirozeshaw and Kaikhusroo. Phirozeshaw, the elder of the two, assumed control of the appellant’s share of the inheritance, which amounted to Rs 70,000, and invested those funds. Phirozeshaw died on 12 December 1945. Kaikhusroo, the younger brother of Phirozeshaw and one of the executors of Phirozeshaw’s will, subsequently took charge of Phirozeshaw’s estate. While opening a safe belonging to Phirozeshaw, Kaikhusroo discovered a packet bearing the appellant’s name. Inside the packet were high‑denomination currency notes totalling Rs 87,500.

On 24 January 1946 the appellant presented these notes for encashment and made a required declaration. In that declaration he stated that the money represented a legacy from his mother, who had died in 1933 while he was still a minor, and that the sum had been periodically invested by his father and his late uncle Phirozeshaw, who had recently passed away. Following the receipt of a notice from the Income‑tax Officer demanding the filing of a return for the relevant year, the appellant submitted a return showing nil income. The subsequent sections of the record, which are not reproduced here, detail the Income‑tax Officer’s assessment that the nature of the receipt was not adequately disclosed and his conclusion that the amount of Rs 87,500 should be treated as the appellant’s income from an undisclosed source, resulting in an assessment to that effect.

When the Income‑tax Officer asked the appellant to file a return for the relevant year, the appellant lodged a return showing zero income. After the officer inquired about the high‑denomination notes that remained un‑cashed, the appellant replied in a letter dated 7 January 1947 that his uncle Phirozeshaw, who had managed his estate while he was a minor, had handed over to him and his father the sum of Rs 87,500 sometime before Phirozeshaw’s death in 1945. This explanation differed from the later account that Kaikhusroo, another uncle and one of the executors of Phirozeshaw’s will, had opened Phirozeshaw’s safe after his death and discovered a packet addressed to the appellant containing the same amount. The appellant also submitted an affidavit to the Income‑tax Officer on 29 September 1949, in which he again gave statements that conflicted with his earlier letter. After reviewing all the material, the Income‑tax Officer concluded that the true source of the Rs 87,500 had not been disclosed. Consequently, the officer treated the amount as income from an undisclosed source and assessed tax accordingly. The appellant then appealed to the Assistant Commissioner of Income‑tax. At the appellate stage, statements from the appellant’s father and from his uncle Phirozeshaw were recorded by the Income‑tax Officer of the D‑11 Ward, Bombay, and an additional statement from the other uncle, Kaikhusroo, was taken by the appellate authority. The appellate authority reached the same conclusion as the original officer. The matter subsequently went before the Income‑tax Appellate Tribunal, which examined the facts anew. The Tribunal highlighted several material inconsistencies in the appellant’s case. First, the declaration dated 24 January 1946 stated that the mother’s legacy had been invested by the appellant’s father and his late uncle Phirozeshaw, whereas the letter of 7 January 1947 claimed that Phirozeshaw had only managed the estate, apparently to protect the father from scrutiny after the uncle’s death. Second, the 7 January 1947 letter asserted that Phirozeshaw had handed the money to the appellant and his father before his death, while the 29 September 1949 affidavit narrated a different story, indicating that the executor Kaikhusroo handed the money to the appellant after Phirozeshaw’s demise and also gave it to the appellant’s father; the affidavit further noted that the declaration concerning the high‑denomination notes was based on information supplied by the father, and the appellant never mentioned any “packet.” The “packet” theory emerged only when the executor Kaikhusroo testified before the Income‑tax Officer on 22 February 1952. Third, in his statement of 22 February 1952, Mr Kaikhusroo said he had found an envelope containing Rs 87,500, took charge of it, and handed the money to Homi. Yet, before the Appellate Assistant Commissioner H. Range, the same Mr Kaikhusroo later qualified his earlier remark, indicating that he had merely handed over the envelope without counting or verifying its contents. Based on these contradictions, the Tribunal concluded that the appellant had failed to provide a satisfactory explanation of the source of the Rs 87,500 and therefore held that the amount was properly taxable as income.

In the record the executor Kaikhusroo stated that he handled the packets as they were, without counting the notes or verifying their contents, and the tribunal noted that his answers regarding receipts and inventory demonstrated a failure to take even the reasonable precautions that an ordinary person – let alone an executor – would observe. Consequently the tribunal concluded that, under the circumstances, the assessee had miserably failed to explain satisfactorily the source of the sum of Rs 87,500, that the amount was properly taxable as income, and it dismissed the appeal by an order dated 7 October 1955. The appellant then moved the tribunal to refer certain questions of law to the High Court, alleging that such questions arose from the tribunal’s order; the tribunal held that no question of law was present in its October 1955 order and, by an order dated 8 March 1956, dismissed the appellant’s application for a reference under section 66 of the Income‑Tax Act, 1922. Unsuccessful before the tribunal, the appellant proceeded to the Bombay High Court by filing a petition under section 66(2), which the High Court summarily dismissed on 4 October 1956. Thereafter the appellant filed a petition for special leave to appeal to this Court; by an order dated 3 December 1956, this Court granted special leave to appeal from the High Court’s 4 October 1956 order, while it made no immediate decision on the appellant’s request for leave to appeal from the tribunal’s orders of 7 October 1955 and 8 March 1956. The present appeal therefore arose under the special leave granted by this Court. The short point for consideration was whether the High Court had been correct in summarily rejecting the petition under section 66(2), that is, whether the tribunal’s order of 7 October 1955, on its face, raised any question of law. On behalf of the appellant it was argued that the principles laid down by this Court in Dhirajlal Girdharilal v. Commissioner of Income‑Tax, Bombay applied, because although a tribunal’s decision is final on a question of fact, a legal issue arises if the tribunal reaches its conclusion by considering material that is irrelevant, partially relevant, or by basing its decision on conjecture, surmise, or suspicion. The appellant contended that the tribunal’s decision suffered from all three defects. Counsel for the appellant further objected to the part of the tribunal’s order stating that “we were also not told why the deceased uncle, if he took charge of the minor’s money, did not hand it over to Bai Aloo when she became a major in 1939 or even when she got married in 1944,” arguing that this consideration was irrelevant, especially since Bai Aloo herself had previously stated before the Income‑Tax Officer that she had received Rs 85,000 from the same uncle, had filed a return, and had not been assessed on that sum, thereby supporting the appellant’s position. The Court, however, observed that the circumstances referred to by the tribunal in connection with Bai Aloo’s statement were not irrelevant.

The Tribunal’s order contained a remark that it was not told why the deceased uncle, having taken charge of the minor’s money, did not hand it over to Bai Aloo when she became a major in 1939 or when she married in 1944. The appellant argued that this was an irrelevant consideration and pointed out that Bai Aloo herself had made a statement before the Income‑tax Officer, D‑II Ward, Bombay, on 22 February 1952, in which she described how she had received a sum of Rs 85,000 from her uncle Phirozeshaw before his death. She further stated that she had filed a return with the Income‑tax Officer but that no assessment was ever made on the amount received. Counsel for the appellant maintained that the Tribunal’s focus on why Phirozeshaw did not hand over the money in 1939 or 1944 was misplaced, and that, if Bai Aloo’s statements were to be considered, they actually supported the appellant because no assessment had been issued in respect of the sum she had obtained.

The Court did not consider the circumstances referred to by the Tribunal in connection with Bai Aloo’s statement to be irrelevant. The Tribunal was required to examine the correctness of a story in which the mother supposedly left Rs 2,10,000, with each heir receiving one‑third of that amount. To judge the probability of that story, the Tribunal had to scrutinise every aspect, including why Bai Aloo’s money was not paid when she attained majority or when she married. From that perspective, the enquiry into the timing of the payment was a relevant consideration. It was also relevant to investigate what the father of the appellant did with his share of the money; the Tribunal correctly observed that the father concealed the share under the heading “mixing of investments”. These matters were pertinent to assessing the likelihood of the overall narrative.

The Tribunal further noted that the fact that Bai Aloo was not assessed did not render the story any more probable. The order recorded that a summons was issued to the father by the Income‑tax Officer to appear on 23 June 1950, which the father failed to obey. The appellant argued that this failure should not be held against him because the summons had been served on 22 June for attendance the following day, and the father had written a letter asking for a later date. The Court did not think that this circumstance vitiated the Tribunal’s order, which was based on grounds far more substantial than the father’s non‑appearance. The father was eventually examined, and his statements were taken into account. The Tribunal also pointed out that no explanation was offered as to why the uncle assumed control of the appellant’s and his sister’s share while their father was alive, and why the father allowed himself to be excluded from custody and management of the children’s funds. The Court considered this to be another relevant consideration, and concluded that, if the father could have explained, he should have done so when he made his statement before the Income‑tax Officer, D‑II Ward, Bombay, on 8 February 1952.

The Court observed that the father was still alive at the relevant time and questioned why he permitted himself to be omitted from the custody and management of the funds that belonged to his children. The Court considered this point to be a material circumstance. It held that, if the father was in a position to explain this omission, he ought to have done so at the time he gave his statement before the Income‑tax Officer of D‑11 Ward, Bombay, on 8 February 1952. The Tribunal had earlier recorded that “we were also told that the assessee was taking his education between 1943 and 1950 and as such he had no opportunity to earn any income. In a place like Bombay and particularly in the family of a businessman, a person may earn even when he learns.” This observation was strongly criticised by counsel for the appellant. Counsel pointed out that the appellant had produced certificates from the school, college and university authorities showing that he remained a student up to 1950, and therefore the Tribunal should not have made the remark quoted above. Counsel argued that the Tribunal’s finding was coloured by prejudice. The Court rejected that contention. Even assuming that the appellant had satisfactorily proved his status as a student until 1950, the Court said this fact did not affect the principal issue, namely whether the appellant had received a sum of Rs 70,000 from his mother’s estate, a sum that was allegedly increased by investments to Rs 87,500 in 1945. The Tribunal correctly noted that no evidence had been produced of the value of the estate left by the mother, although some evidence existed concerning what the mother had received from the estate of her father, Sanjana. Nor was there any evidence of the investments alleged to have raised the original amount of Rs 70,000. The Court acknowledged an argument that the Tribunal’s comment about a person possibly earning in Bombay while studying was merely speculative, but held that, even if that comment were erroneous, it did not bear on the decisive question.

The Court stressed that the entire order of the Tribunal must be read as a whole to ascertain whether every material fact, both for and against the assessee, had been considered fairly and with due care, whether the evidence on both sides had been weighed in reaching the conclusion, and whether the conclusion had been influenced by irrelevant considerations or prejudice. Counsel for the appellant had guided the Court through the Tribunal’s full order and the pertinent documents upon which it was based. After a thorough examination of the order and the accompanying materials, the Court was unable to concur with counsel’s submission that the Tribunal’s order was vitiated by any of the alleged defects. Consequently, the Court found no basis to set aside the Tribunal’s findings.

The Court examined the objections that had been raised by reference to the earlier decisions in Dhirajlal Girdharilal v. Commissioner of Income‑tax, Bombay and Omar Salay Mohamed Sait v. Commissioner of Income‑tax, Madras. The first case is reported in (1) (1954) 26 I.T.R. 736 and the second in (2) (1959) 37 I.T.R. 151. The Court made it clear that it did not accept the proposition that those precedents required the order of the Tribunal to be inspected sentence by sentence, as if under a microscope, in order to discover a minor lapse here or an incautious opinion there that could be used as the basis for a legal issue. In light of the arguments presented, the Court observed that, when the Tribunal evaluates probabilities that arise properly from the facts alleged or proved, it does not indulge in conjectures, surmises or suspicions. The Court also considered the contention that, even if the appellant’s explanation for the sum of Rs 87,500 were rejected, the Department had failed to produce any direct evidence showing that the amount constituted income in the hands of the appellant. The Court held that the Department was not required to prove by direct evidence that the sum of Rs 87,500 was income of the appellant in a case of this nature. It further agreed that a mere rejection of the assessee’s explanation does not, in every case, establish that a particular receipt must be treated as income; however, where the circumstances of the rejection are such that the only proper conclusion is that the receipt must be regarded as income of the assessee, the assessing authorities are justified in drawing that conclusion. Such a conclusion, the Court stressed, is an inference of fact rather than an inference of law. Consequently, for the reasons set out above, the Court found that no question of law arose from the Tribunal’s order and that there were no grounds to interfere with the judgment and order of the Bombay High Court dated 4 October 1956. Accordingly, the appeal was dismissed, and costs were awarded.