http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: SUMATI DAYAL

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, BANGALORE

DATE OF JUDGMENT28/03/1995

BENCH: AGRAWAL, S.C. (J) BENCH: AGRAWAL, S.C. (J) HANSARIA B.L. (J) MANOHAR SUJATA V. (J)

CITATION:  1995 AIR 2109            1995 SCC  Supl.  (2) 453  JT 1995 (3)   393        1995 SCALE  (2)490

ACT:

HEADNOTE:

JUDGMENT: S.C. AGRAWAL J.: 1.   These  appeals filed by the assessee against the  order dated February 24, 1977 passed by the Income Tax  Settlement Commission  hereinafter  referred  to  as  ’the   Settlement Commission’),  relate to assessment years 1971-72 and  1972- 73.   The appellant carries on business as a dealer  in  art pieces,  antiques  and  curios  at  Bangalore.   During  the assessment  year  1971-72  the appellant  received  a  total amount  of  Rs.  3,11,831  /- by way  of  race  winnings  in Jackpots  and  Treble  events  in races  at  Turf  Clubs  in Bangalore, Madras and Hyderabad.  The said amount was  shown by the appellant in the capital account in the books.   ’The appellant  filed  a return on March 27,  1972  declaring  an income  of  Rs. 27,829/-.  The appellant also made  a  sworn statement  on January 6, 1973 before the Income Tax  Officer and  on  the  basis of the said  statement  the  Income  Tax Officer  made  an  assessment order  dated  March  27,  1974 wherein  he  held  that the sum of Rs. 3,11,831  /-  is  not winnings in races and he treated the said receipts as income from  undisclosed  sources and assessed the same  as  income from  other  sources.  For the assessment year  1972-73  the appellant showed receipts of Rs.93,500/- as race winnings in two Jackpots at Bangalore and Madras and the said amount was credited in the capital account in the books.  The appellant filed  a return declaring an income of Rs. 3,827/-  on  Feb- ruary  3,  1973.  In his assessment order dated  August  31, 1974  the  Income  Tax Officer included the  amount  of  Rs. 93,500/   as  income  from other sources  and  assessed  the income of the appellant on that basis.  The appeals filed by the appellant against the assessment orders were disposed of by  the  Appellate  Assistant Commissioner  by  order  dated December 12, 1975 whereby the assessment of  Rs.3,11,831/-as income under the head other sources for the assessment  year 197 172 and Rs. 93,500/- for the assessment year 1972-73 was

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

confirmed.  The appeals filed against the said order  before the  Income  Tax Appellate Tribunal were  withdrawn  by  the appellant under section 245M (2) of the Income Tax Act, 1961 [hereinafter  referred  to as ’the Act’], and on  August  6, 1976  she moved the application giving rise to this  appeal, before  the  Settlement  Commission  wherein  the  appellant stated that she was agreeable to a reasonable addition on  a reasonable  basis  should  the  Commission  hold  that   the drawings  of  1970-71  and 1971-72  were  not  adequate  for purchase  of Jackpot tickets, other expenses  in  connection with  the  races  and  losses,  if  any,  estimated  by  the Settlement   Commission  to  have  been  sustained  by   the appellant.   On  the said application  the  Commissioner  of Income  Tax  submitted  his report dated  January  29,  1977 wherein he urged that the action of the Department in taxing the  entire  winnings  as income  from  undisclosed  sources should be upheld inasmuch the appellant lacked any knowledge of race techniques and the theory of probabilities precluded any systematic and 396 continuous  winnings  at races on as many  as  16  occasions during a period of less than two years.  In his report,  the Commissioner  also submitted that the books of accounts  did not indicate the expenditure on travel and other  incidental expenses  which had been incurred by the appellant  for  at- tending   the  races  at  Bangalore  and   Hyderabad.    The Commissioner also asked for reopening of the assessment year 197071 where the appellant had won a sum of Rs. 74,681/- and which was not brought to tax by the Income Tax Officer. 3.   The matter was heard by three member of the  Settlement Commission.  By order dated February 24, 1977 two members of the  Commission (Shri R.S. Chadda and Shri  K.  Srinivassan) upheld  the assessment for the assessment years 1971-72  and 1972-73 made by the Income Tax Officer and confirmed by  the Appellate Assistant Commissioner of Income Tax; but did  not find  it  possible  under Section 245-E  to  accede  to  the request   of  the  Commissioner  of  Income  Tax  that   the assessment  for 1970-71, which was made without bringing  to tax  the  alleged  race winnings of Rs. 74,  681/-,  may  be reopened on the view that the assessment for 1970-71 was not so connected with the case pending before them as to make it necessary  to  reopen  it for the  proper  disposal  of  the assessments  for 1971-72 and 1972-73.  The Chairman  of  the Settlement  Commission, Shri C.C. Ganapathy,  has,  however, dissented from the said view. 4.   Shri  B.K.Mehta, the learned senior  counsel  appearing for  the  appellant, has submitted that the  source  of  the receipt of the amounts has been established by the appellant by placing on record the certificates from the various  race clubs which show that the said amounts were received by  way of winnings from races and the burden lay on the  Department to  show that the said amounts were not winnings from  races but  was  an income from other sources.  The  submission  of Shri  Mehta is that in the present case the  Department  has not adduced any evidence to discharge the said burden  which lay on it and the majority view of the Settlement Commission is unsustainable inasmuch as it is based on no evidence  and is  founded  on mere suspicion and surmises.   According  to Shri Mehta the Chairman of the Settlement Commission, in his dissenting  opinion,  has correctly applied the  law.   Shri Mehta has placed reliance on the decisions of this Court  in Parimisetti Seethramamma v.   Commissioner  of  Income  Tax, A.P.,  (1965)  57  ITR 532; Sreelekha  Banerjee  &  Ors.  v. Commissioner of Income Tax, Bihar & Ors., (1963) 49 ITR 112; and   Commissioner   of  Income  Tax,  Orissa   v.    Orissa

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

Corporation P. Lid., (1986) 159 ITR 78.  Shri J. Ramamurthy, the  leaned  senior counsel appearing for the  Revenue,  has supported  the majority view and has submitted  that  having regard  to  the  facts and circumstances  of  the  case  the receipts claimed to be winnings from races were income  from other sources and that no case is made out for  interference by  this  Court in appeal under Article 136 of  the  Consti- tution. 5.   It  is  no  doubt true that in all  cases  in  which  a receipt is sought to be taxed as income, the burden lies  on the Department to prove that it is within the taxing  provi- sion and if a receipt is in the nature of income, the burden of  proving that it is not taxable because it  falls  within exemption  provided by the Act lies upon the assessee.  [See :Parimisetti 397 Seetharamamma  (supra) at P. 5361.  But, in view of  Section 68 of the Act, where any sum is found credited in the  books of  the  assessee  for any previous year  the  same  may  be charged to income tax as the income of the assessee of  that previous  year  if the explanation offered by  the  assessee about  the nature and source thereof is, in the  opinion  of the Assessing Officer, not satisfactory.  In such case there is,  prima facie, evidence against the assessee,  viz.,  the receipt  of  money,  and if he fails to  rebut  ,  the  said evidence  being  unrebutted,  can be  used  against  him  by holding  that it was a receipt of an income  nature.   While considering  the explanation of the assessee the  Department cannot, however, act unreasonably. (See : Sreelekha Banerjee (supra) at p. 120) 6.   In the instant cases the amount is credited in  capital account  in the books of the appellant.  The  appellant  has offered  her explanation about the said receipts  being  her winnings   from  races.   The  said  explanation  has   been considered  in  the  light of the  sworn  statement  of  the appellant  dated  January  6, 1973  and  other  material  on record.  The Income Tax Officer and the Appellate  Assistant Commissioner  have not accepted the explanation  offered  by the appellant.  The two members constituting the majority in the Settlement Commission have also taken the same view. 7.   There  is no dispute that the amounts were received  by the  appellant  from  various race clubs  on  the  basis  of winning  tickets presented by her.  What is dispute is  that they  were  really the winnings of the  appellant  from  the races.  This raises the question whether the apparent can be considered  as real.  As laid down by this  Court,  apparent must  be  considered real until it is shown that  there  are reasons  to  believe that the apparent is not the  real  and that  the taxing authorities arc entitled to look  into  the surrounding  circumstances to find out the reality  and  the matter  has to be considered by applying the test  of  human probabilities.  (See : Commissioner of Income Tax  v.  Durga Prasad More,(1971) 82 ITR 540, at pp. 545, 547) 8.   In this context it would be relevant to mention that in order  to give effect to the recommendations of  the  Direct Taxes  Enquiry Committee (under the Chairmanship of  Justice K.N. Wanchoo, retired Chief Justice of India) the definition of  "income"  in section 2(24) of the Act was  amended  with effect  from April 1,1972 by the Finance Act, 1972 so as  to include  within  its ambit, winnings from  lotteries,  cross word  puzzles, races including horse races, card  games  and other games of any sort or from, gambling or betting of  any form  or nature whatsoever.  The reason underlying die  said amendment  was that exemption from tax that was  enjoyed  in respect  of such winnings had provided scope for  conversion

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

of  "black" money into "white" income.  The  said  exemption from  tax available in respect of such winnings  during  the assessment years 1971-72 and 1972-73. 9.   During the year 1970-71 (pertaining to assessment  year 1971-72)  between  April  6, 1970 to  March  20,  1971,  the appellant  claims to have won in horse races a total  amount of  Ass.  3,  11, 83 1 /- on 13 occasions out  of  which  10 winnings  were from Jackpots and 3 were from Treble  events. Similarly, in the year 1971-72 the appellant won races on  2 occasions and both the times winnings were from Jackpot.  In her sworn statement dated January 6, 1973, the appellant had stated that she started 398 going for races from the end of 1969 and that she first  won Jackpot  on  December 12 1969 on the first day she  went  to races.   The appellant also stated that she worked  out  the combination on the basis of what her husband advised her but she  used  to  add  a few horses of  her  own  although  she admitted   that  she  did  not  know  anything   about   the performance  of  these  horses  before  December  1969.   As regards  her husband, the appellant stated that he won  once in Calcutta and once in Madras and he had similar wins also. The appellant had also stated that she had not gone to races in  1972.  The appellant admitted that she had  been  buying Jackpot tickets of the value of Rs.2,000/-, Rs. 1,400/-  and even tickets for Rs.3,000/- have been bought and that on the first  day  she  won the Jackpot  she  purchased  a  Jackpot combination ticket for approximately Rs.2,500/- and that  on November  8, 1970 she had bought two combinations, each  for about  Rs.2,000/-. The appellant also admitted that she  had not  claimed any loss in races and only winnings were  shown and  stated  that  she won similar amounts  which  were  not accounted  and the losses were met out of the said  amounts. The  appellant further stated that she had no record of  her expenditure  at  the race course as against/  her  claim  of winnings. 10.  Having regard to the said statement of the   appellant, the two,members, constituting the majority on the Settlement Commission,  came  to the conclusion that  the  apparent  is not,the  real  and  that the  appellant’s  claim  about  her winning  in  races  is contrived and  not  genuine  for  the following reasons:               (i)   The  appellant’s knowledge of racing  is               very meagre.               (ii)  A Jackpot is a stake of five events in a               single  day and one can believe a regular  and               experienced   punter   clearing   a    Jackpot               occasionally but the claim of the appellant to               have won a number of Jackpots in three or four               seasons  not merely at one place but at  three               different  centres, namely, Madras,  Bangalore               and Hyderabad appears, prime facie, to be wild               and  contrary to the statistical theories  and               experience    of    the    frequencies     and               probabilities.               (iii) The  appellant’s books do not  show  any               drawings  on race days or on  the  immediately               preceding  days  for the purchase  of  Jackpot               combination  tickets, which  entailed  sizable               amounts varying generally between Rs.  2,000/-               and Rs. 3,000/-.  The drawings recorded in the               books cannot be co-related to the various rac-               ing  events  at which the appellant  made  the               alleged winnings.               (iv)  While  the appellant’s  capital  account

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

             was  credited with the gross amounts  of  race               winnings,  there  were no  debits  either  for               expenses  and  purchases  of  tickets  or  for               losses.               (v)   In view of the exceptional luck  claimed               to  have  been enjoyed by the  appellant,  her               loss  of interest in races from  1972  assumes               significance.    Winnings  in  racing   became               liable  to income tax from April 1,  1972  but               one would not give up an activity yielding  or               likely to yield a large income merely  because               the  income  would suffer tax.   The  position               would  be different,               399               however, if the claim of winnings in races was               false  and  what  were  passed  off  as   such               winningsreally  represented  the   appellant’s               taxable income from some undisclosed sources. 11.  The  majority  opinion concludes that it would  not  be unreasonable  to  infer that the appellant  had  not  really participated  in  any of the races except to the  extent  of purchasing  the winning tickets after the events  presumably with unaccounted funds. 12.  The  Chairman  of  the Settlement  Commission,  in  his dissenting  opinion, has laid emphasis on the fact that  the appellant had produced evidence in support of the credits in the  form  of  certificates from  the  racing  clubs  giving particulars  of  the  crossed cheques  for  payment  of  the amounts  for  winning of Jackpots, etc.   The  Chairman  has rejected  the  contention  regarding lack  of  expertise  in respect of the appellant and has observed that the expertise is the last thing that is necessary for a game of chance and anybody  has to go and call for five numbers in counter  and obtain  a Jackpot ticket and that books containing  informa- tion are available which are quite cheap. 13.  This, in our opinion, is a superficial approach to  the problem.   The matter has to be considered in the  light  of human   probabilities.   The  Chairman  of  the   Settlement Commission has emphasised that the appellant did possess the winning ticket which was surrendered to the Race Club and in return a crossed cheque was obtained.  It is, in our view, a neutral circumstance, because if the appellant had purchased the  winning ticket after the event she would be having  the winning  ticket  with her which she could surrender  to  the Race   Club.   The  observation  by  the  Chairman  of   the Settlement  Commission  that  "fraudulent  sale  of  winning ticket  is  not  an usual practice but is very  much  of  an unusual practice" ignores the prevalent malpractice that was noticed  by  the District Taxes Enquiry  Committee  and  the recommendations made by the said Committee which led to  the amendment of the Act by the Finance Act of 1972 whereby  the exemption from tax that was available in respect of winnings from   lotteries,   crossword  puzzles,  races,   etc.   was withdrawn.   Similarly the observation by the Chairman  that if  it is alleged that these tickets were  obtained  through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality.  The transaction about purchase  of winning  ticket  takes place in secret and  direct  evidence about such purchase would be rarely available.  An inference about  such a purchase has to be drawn on the basis  of  the circumstances available on the record.  Having regard to the conduct of the appellant as disclosed in her sworn statement as  well as other material on the record an inference  could reasonably be drawn that the winning tickets were  purchased by the appellant after the event.  We are, therefore, unable

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

to  agree  with the view of the Chairman in  his  dissenting opinion.   In  our  opinion,  the  majority  opinion   after considering surrounding circumstances and applying the  test of  human  probabilities  has  rightly  concluded  that  the appellant’s  claim about the amount being her  winning  from races   is  not  genuine.   It  cannot  be  said  that   the explanation offered by the appellant in respect of the  said amounts has been rejected unreasonably and that the  finding that the said amounts are income of the appellant from other sources is not based on evidence. 400 14.   In  the  circumstances,  no  case  is  made  out   for interference  with  the  order  passed  by  the   settlement commission  the appeals therefore fail and  are  accordingly dismissed with costs. 402