A fixed deposit stands in the name of a partner's son and my firm used it as security for its overdraft. The Assessing Officer says the money is really the firm's concealed income. Who has to prove what?
The Department. The Supreme Court dismissed the Revenue's appeals and upheld the Calcutta High Court. The onus to prove that the apparent is not the real lies on the party who says so, and it was the Department that claimed the deposit standing in Biswanath's name belonged to the firm. Nothing showed the money came from the firm's coffers or went back into them; Biswanath himself drew the deposit. That his own explanation of where the money came from was false did not make it the firm's, and offering the receipt as security for the firm's overdraft did not make him anything but a surety.
Decided by the Supreme Court (Supreme Court of India - judgment delivered by H.R. Khanna, J) on 1972-09-12, reported as Civil Appeals Nos. 1133 and 1134 of 1969 (Supreme Court of India), on appeal from Income-tax References Nos. 53 and 54 of 1961, Calcutta High Court. It bears on section 34 of the Indian Income-tax Act, 1922, section 66 of the Indian Income-tax Act, 1922, section 68, section 69A of the Income Tax Act 1961, in Cash Credits & Unexplained Money and Evidence & Burden of Proof matters.
This is the case for the proposition that suspicion, however strong, is not evidence of ownership, and that where the Revenue asserts benami it must prove it. Two of its holdings are worked hard in practice. First, the falsity of a third party's explanation about the source of a deposit is not evidence that the money belongs to the assessee - the two questions are different, and a person may own money even though his account of how he got it is untrue. Second, security and ownership are different concepts, so a thing pledged by a surety for the principal debtor's borrowing does not thereby become the principal debtor's property, and the absence of consideration for the guarantee proves nothing. It also states the standard route to discharging the onus: trace the source and origin of the money and find out its ultimate destination.
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The respondent was a registered firm of six partners dealing in jute and other commodities. For assessment year 1946-47 it was assessed in 1948 on Rs 4,71,752, reduced on appeal to Rs 4,28,448. In February 1955 the Income-tax Officer reopened the assessment under section 34. He found that in November 1944 the firm had taken an overdraft limit of Rs 10,00,000 from the Central Bank at Calcutta, secured by two fixed deposit receipts of Rs 5,00,000 each issued by the Jamnagar branch - one dated 8 November 1944 in the name of Raghunath Prasad, son of one partner, the other dated 21 November 1944 in the name of Biswanath, son of another. Each sum had been tendered in cash at the Burrabazar branch in Calcutta, remitted through the Bombay head office and deposited at Jamnagar, then in the princely State of Nawanagar. Neither depositor received anything for pledging his receipt. The officer treated the whole Rs 10,00,000 as the firm's concealed profits. The Appellate Assistant Commissioner deleted Rs 50,000; the Tribunal restored it and held both deposits to be the firm's concealed income. On references directed under section 66(2), the Calcutta High Court held there was material as to the Raghunath Prasad deposit but none as to Biswanath's. The Revenue appealed on the Biswanath deposit alone.
The appeals were dismissed with costs, one hearing fee, and the High Court's answers in the firm's favour were upheld. The three circumstances the Tribunal relied on did not support its conclusion. The falsity of Biswanath's explanation about the source of his Rs 5,00,000 was not decisive even of whether he owned it, still less of whether the firm did; a man may own money although his account of where it came from is untrue, and to move from A's false explanation to B's ownership is a remote and far-fetched conclusion with no direct nexus between the facts found and the inference drawn. The remittance of the money from Calcutta to Jamnagar and the use of the receipt as collateral for the firm's overdraft did not show ownership either, because security and ownership are different concepts and a surety's security does not become the principal debtor's property. The absence of consideration for the guarantee was natural, Biswanath having obliged a firm in which his father was a partner. As the Department asserted that the apparent was not the real, the burden lay on it, and it had shown neither that the money came from the firm nor that it reached the firm.
The Court began with the limits of interference with findings of fact on a reference. Following Sree Meenakshi Mills, a finding of pure fact may be disturbed only where there is no evidence to support it or it is perverse, and the soundness of a conclusion drawn from many facts is judged by their cumulative effect rather than by weighing each in isolation. But, following Dhirajlal Girdharlal, where a court of fact acts on material partly relevant and partly irrelevant it is impossible to say how far the irrelevant material affected its mind, so the finding is vitiated and a question of law arises; the same follows where the decision rests partly on conjecture, surmise and suspicion. The Court set out the passages from Viscount Simonds and Lord Radcliffe in Edwards v Bairstow, adopted by this Court in Mehta Parikh, that intervention is warranted where the authority acted without evidence or on a view of the facts that could not reasonably be entertained. Applying that, the Court examined each circumstance and found the inference broken at every link. It then stated the onus rule and the practical way of discharging it - trace the source and origin of the money and find its ultimate destination - and found that on both, the record was against the Department. Positive evidence showed Biswanath received the money, and the interest on it, on 22 January 1946, unlike the Raghunath Prasad deposit which had been adjusted against the firm's overdraft. The Appellate Assistant Commissioner's order, pressed as fuller, was found to contain two factual errors and to rely on the wholly extraneous circumstance that the bank's office was in the same building as the firm's premises.
The onus to prove that the apparent is not the real is on the party who claims it to be so.
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Handle my notice → Ask a CA on WhatsAppThe Department. The Supreme Court dismissed the Revenue's appeals and upheld the Calcutta High Court. The onus to prove that the apparent is not the real lies on the party who says so, and it was the Department that claimed the deposit standing in Biswanath's name belonged to the firm. Nothing showed the money came from the firm's coffers or went back into them; Biswanath himself drew the deposit. That his own explanation of where the money came from was false did not make it the firm's, and offering the receipt as security for the firm's overdraft did not make him anything but a surety. This was decided by the Supreme Court (Supreme Court of India - judgment delivered by H.R. Khanna, J) and bears on section 34 of the Indian Income-tax Act, 1922, section 66 of the Indian Income-tax Act, 1922, section 68, section 69A of the Income Tax Act 1961. It is reported as Civil Appeals Nos. 1133 and 1134 of 1969 (Supreme Court of India), on appeal from Income-tax References Nos. 53 and 54 of 1961, Calcutta High Court. This is the case for the proposition that suspicion, however strong, is not evidence of ownership, and that where the Revenue asserts benami it must prove it. Two of its holdings are worked hard in practice. First, the falsity of a third party's explanation about the source of a deposit is not evidence that the money belongs to the assessee - the two questions are different, and a person may own money even though his account of how he got it is untrue. Second, security and ownership are different concepts, so a thing pledged by a surety for the principal debtor's borrowing does not thereby become the principal debtor's property, and the absence of consideration for the guarantee proves nothing. It also states the standard route to discharging the onus: trace the source and origin of the money and find out its ultimate destination. If it applies to you, the first step is this: Make the Department state its case as one of ownership, and ask what evidence shows the money left your books and what shows it came back to them.
The respondent was a registered firm of six partners dealing in jute and other commodities. For assessment year 1946-47 it was assessed in 1948 on Rs 4,71,752, reduced on appeal to Rs 4,28,448. In February 1955 the Income-tax Officer reopened the assessment under section 34. He found that in November 1944 the firm had taken an overdraft limit of Rs 10,00,000 from the Central Bank at Calcutta, secured by two fixed deposit receipts of Rs 5,00,000 each issued by the Jamnagar branch - one dated 8 November 1944 in the name of Raghunath Prasad, son of one partner, the other dated 21 November 1944 in the name of Biswanath, son of another. Each sum had been tendered in cash at the Burrabazar branch in Calcutta, remitted through the Bombay head office and deposited at Jamnagar, then in the princely State of Nawanagar. Neither depositor received anything for pledging his receipt. The officer treated the whole Rs 10,00,000 as the firm's concealed profits. The Appellate Assistant Commissioner deleted Rs 50,000; the Tribunal restored it and held both deposits to be the firm's concealed income. On references directed under section 66(2), the Calcutta High Court held there was material as to the Raghunath Prasad deposit but none as to Biswanath's. The Revenue appealed on the Biswanath deposit alone. The matter was decided on 1972-09-12 by the Supreme Court (Supreme Court of India - judgment delivered by H.R. Khanna, J). On those facts the Supreme Court held as follows. The appeals were dismissed with costs, one hearing fee, and the High Court's answers in the firm's favour were upheld. The three circumstances the Tribunal relied on did not support its conclusion. The falsity of Biswanath's explanation about the source of his Rs 5,00,000 was not decisive even of whether he owned it, still less of whether the firm did; a man may own money although his account of where it came from is untrue, and to move from A's false explanation to B's ownership is a remote and far-fetched conclusion with no direct nexus between the facts found and the inference drawn. The remittance of the money from Calcutta to Jamnagar and the use of the receipt as collateral for the firm's overdraft did not show ownership either, because security and ownership are different concepts and a surety's security does not become the principal debtor's property. The absence of consideration for the guarantee was natural, Biswanath having obliged a firm in which his father was a partner. As the Department asserted that the apparent was not the real, the burden lay on it, and it had shown neither that the money came from the firm nor that it reached the firm.
The Court began with the limits of interference with findings of fact on a reference. Following Sree Meenakshi Mills, a finding of pure fact may be disturbed only where there is no evidence to support it or it is perverse, and the soundness of a conclusion drawn from many facts is judged by their cumulative effect rather than by weighing each in isolation. But, following Dhirajlal Girdharlal, where a court of fact acts on material partly relevant and partly irrelevant it is impossible to say how far the irrelevant material affected its mind, so the finding is vitiated and a question of law arises; the same follows where the decision rests partly on conjecture, surmise and suspicion. The Court set out the passages from Viscount Simonds and Lord Radcliffe in Edwards v Bairstow, adopted by this Court in Mehta Parikh, that intervention is warranted where the authority acted without evidence or on a view of the facts that could not reasonably be entertained. Applying that, the Court examined each circumstance and found the inference broken at every link. It then stated the onus rule and the practical way of discharging it - trace the source and origin of the money and find its ultimate destination - and found that on both, the record was against the Department. Positive evidence showed Biswanath received the money, and the interest on it, on 22 January 1946, unlike the Raghunath Prasad deposit which had been adjusted against the firm's overdraft. The Appellate Assistant Commissioner's order, pressed as fuller, was found to contain two factual errors and to rely on the wholly extraneous circumstance that the bank's office was in the same building as the firm's premises. In the words reproduced by the source cited on this page: "The onus to prove that the apparent is not the real is on the party who claims it to be so."
It was decided by the Supreme Court on 1972-09-12 and is reported as Civil Appeals Nos. 1133 and 1134 of 1969 (Supreme Court of India), on appeal from Income-tax References Nos. 53 and 54 of 1961, Calcutta High Court. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 34 of the Indian Income-tax Act, 1922, section 66 of the Indian Income-tax Act, 1922, section 68, section 69A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were dismissed with costs, one hearing fee, and the High Court's answers in the firm's favour were upheld. The three circumstances the Tribunal relied on did not support its conclusion. The falsity of Biswanath's explanation about the source of his Rs 5,00,000 was not decisive even of whether he owned it, still less of whether the firm did; a man may own money although his account of where it came from is untrue, and to move from A's false explanation to B's ownership is a remote and far-fetched conclusion with no direct nexus between the facts found and the inference drawn. The remittance of the money from Calcutta to Jamnagar and the use of the receipt as collateral for the firm's overdraft did not show ownership either, because security and ownership are different concepts and a surety's security does not become the principal debtor's property. The absence of consideration for the guarantee was natural, Biswanath having obliged a firm in which his father was a partner. As the Department asserted that the apparent was not the real, the burden lay on it, and it had shown neither that the money came from the firm nor that it reached the firm. It arises in Cash Credits & Unexplained Money and Evidence & Burden of Proof matters, on section 34 of the Indian Income-tax Act, 1922, section 66 of the Indian Income-tax Act, 1922, section 68, section 69A of the Income Tax Act 1961, and was decided by Supreme Court of India - judgment delivered by H.R. Khanna, J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not let a third party's failed explanation be turned against you; point out that his ownership and your ownership are separate questions. Where you have merely had the benefit of somebody's deposit as collateral, say plainly that a surety's security remains the surety's property and that sureties commonly give security for nothing. Attack the reasoning, not just the result: a finding of fact resting partly on irrelevant material or on surmise raises a question of law, because it is impossible to say how far the irrelevant material influenced it.
Still good law. The onus proposition and the treatment of vitiated findings of fact are constantly applied; the harvested page records the judgment as cited in several hundred later decisions. No later decision doubting it was read as part of this exercise. Note that the case arose under the 1922 Act, which had no deeming provision equivalent to sections 68 and 69A, so the burden here was the ordinary one and not the statutory burden those sections cast on an assessee in whose books a credit appears. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line dates the case to 1973 and carries no citations; the judgment was delivered on 12 September 1972 and that date has been used, with the appeal numbers taken from the judgment's own first page in place of reporter citations. The harvested page leaves the bench entry blank, so only the author, Khanna, J, can be named. Decided under the Indian Income-tax Act, 1922: the additions were made on ordinary principles of proof, not under sections 68 or 69A of the 1961 Act, which the batch line lists and which cast a different burden. The Court decided only that there was no material to hold the Biswanath deposit to be the firm's income; the companion deposit in Raghunath Prasad's name was held against the firm and that finding, upheld by this Court in an earlier appeal decided on 18 January 1971, stands. Nothing here decides whose money the Biswanath deposit actually was. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed with costs, one hearing fee, and the High Court's answers in the firm's favour were upheld. The three circumstances the Tribunal relied on did not support its conclusion. The falsity of Biswanath's explanation about the source of his Rs 5,00,000 was not decisive even of whether he owned it, still less of whether the firm did; a man may own money although his account of where it came from is untrue, and to move from A's false explanation to B's ownership is a remote and far-fetched conclusion with no direct nexus between the facts found and the inference drawn. The remittance of the money from Calcutta to Jamnagar and the use of the receipt as collateral for the firm's overdraft did not show ownership either, because security and ownership are different concepts and a surety's security does not become the principal debtor's property. The absence of consideration for the guarantee was natural, Biswanath having obliged a firm in which his father was a partner. As the Department asserted that the apparent was not the real, the burden lay on it, and it had shown neither that the money came from the firm nor that it reached the firm.
TaxSphere, “CIT v Daulat Ram Rawatmull”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-daulat-ram-rawatmull/ (validity last checked 2026-08-29)
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