S.R. Lakshmanan vs Commissioner of Income Tax

Ratnam, J.—In these tax case references u/s 256(2) of the Income Tax Act, 1961, (hereinafter referred to as ""the Act""), at the instance of

the assessee, the following question has been referred to this court for its opinion :

Whether there is any material for the tribunal to hold that the assessee had paid a sum of Rs. 40,000 out of Rs. 2,30,000 as commission for

repatriation ?

The assessee is a partner in several firms carrying on hotel business in different places. He was carrying on business at Ceylon and was being

assessed as a non-resident. He wound up his business at Ceylon, returned to India on October 10, 1971, and thereafter settled down at

Tiruchirapalli. By his letter dated December 9, 1971, he informed the Income Tax Officer that he had brought from Ceylon Rs. 2,30,000 being the

sale proceeds of the business carried on by him there and that he had invested the same in the manner indicated therein. In the course of

assessment proceedings for the assessment year 1972-73, the assessee claimed that he had sold the business at Ceylon for Rs. 2,30,000 and got

the money repatriated, though not through the normal channel. The Income Tax Officer despite doubting the claim of the assessee that the assets of

the business sold in Ceylon were of the value of Rs. 2,30,000, took the view that the entirety of that amount would not have been available to the

assessee for making investments, as the assessee should have necessarily paid commission for repatriating the money from Ceylon. Estimating such

commission at 50 per cent., the Income Tax Officer brought to tax Rs. 1,15,000 under the head ""Other sources"". Aggrieved by this, the assessee

preferred an appeal before the Appellate Assistant Commissioner and accepting the contention of the assessee that in view of the circular of the

central Board of Direct Taxes, viz., F. No. 222/7/70-IT(A-II), dated August 5, 1971, there was no need for the assessee to establish by clinching

evidence that in fact Rs. 2,30,000 had been repatriated from Ceylon, he held that the Income Tax Officer was not entitled to make an enquiry into

the question of payment of commission for the illegal remittance and deleted the inclusion of Rs. 1,15,000 under the head ""Other sources"". On

further appeals to the Tribunal by the assessee as well as the Department against the order of the Appellate Assistant Commissioner to the extent

to which it was adverse to them, it was held that the amount of Rs. 2,30,000 having been brought into India in a clandestine manner, should have

been so brought in only after payment of some commission in India, as no money was available with the assessee for payment in Ceylon as claimed

by him and that it would not be unreasonable to hold that a sum of Rs. 40,000 had been paid by the assessee by way of commission for

repatriation and in that view sustained the addition of Rs. 40,000 under the head ""other sources"". That is how the question set out earlier has

arisen.

Learned counsel for the assessee, relying upon the circular issued by the Central Board of direct Taxes in F. No. 222/7/70-IT(A-II) dated

August 5, 1971, contended that it is not open to the Revenue to go into the question of payment of commission and that the view taken by the

Tribunal that a sum of Rs. 40,000 should have been paid by the assessee as commission for repatriation is also not supported by any material. On

the other hand, learned counsel for the Revenue submitted that the circular referred to has no bearing whatever on the quantum of repatriated

amounts and that it would be open to the Income Tax authorities to ascertain the correctness or otherwise of the claim made in this regard by the

assessee. It was also further pointed out that having regard to the non-availability of funds with the assessee in Ceylon, the commission would not

have been paid at Ceylon as claimed by the assessee. Learned counsel also drew our attention to the fact that it is not the case of the assessee that

he personally repatriated the amounts from Ceylon and it necessarily followed that the assessee employed the agency of another person and such

person should have been paid commission in India for the repatriation of the amounts after that event. Reference was also made to the omission on

the part of the assessee even to mention the names of the persons to whom the assessee is stated to have paid commission in Ceylon to contend

that the payment of commission in Ceylon was a myth.

Even before this court, as it was before the Tribunal, there is no dispute that the assessee had brought certain amounts into India from Ceylon in

a clandestine manner. The assessee, after returning to India on October 10, 1971, and settling down at Tiruchirapalli informed the Income Tax

Officer on December 9, 1971, that he had brought from Ceylon Rs. 2,30,000 out of the sale proceeds of a business carried on by him there and

that he had invested the amounts in the manner indicated in his letter. Inasmuch as the amount claimed by the assessee to have been repatriated

was in excess of Rs. 50,000, paragraph 2 of the circular referred to above would stand attracted. The very purpose of the circular is only to avoid

inconvenience that may be caused to persons of Indian origin migrating from Ceylon in their Income Tax assessments in India, owing to the

absence of direct or documentary evidence in the shape of transfer through banks, hundis, etc., in support of remittances from Ceylon and not to

insist upon the same. However, in paragraph 2 of the circular, repatriation of funds from Ceylon will be accepted by the Income Tax Officer only

on production of adequate evidence by the assessee to the effect that he had sufficient resources in that country to cover the remittances, provided

other requirements regarding the date of migration and the giving of intimation to the Income Tax Officer are also satisfied. It is further provided

that the actual remittance of money through bank, etc., need not be established. In other words, under the circular, the person who repatriates

funds from Ceylon had to produce adequate evidence generally to show that he had resources in Ceylon to cover the remittances and it would not

be necessary to establish such remittances only through banks. The circular, thus, recognised repatriation of funds, though not in the normal or

usual channel. However, a careful reading of the circular would clearly establish that the predominant idea is to avoid resulting in inconvenience to

repatriates by the absence of production of proper documents for remittance through banks and other recognised channels of repatriation. Even

so, we are unable to read the circular as preventing the Income Tax Officer from ascertaining the quantum of the remittance from Ceylon, through

an irregular channel. In our view, according to the circular, if resources are established to have been available in Ceylon, then, the manner in which

those resources are repatriated to India (though not a recognised one) would not be questioned, but would be accepted. That, however, does not

mean that regarding the quantum of such remittances, the circular would disable the authorities under the Act from ascertaining the exact quantum

repatriated. We are, therefore, unable to agree with learned counsel for the assessee that by reason of the circular, the Revenue cannot proceed to

determine the quantum of repatriation through irregular channels.

We may now proceed to consider the claim of the assessee that commission was paid in Ceylon. Regarding this, it is seen from the assessment

order that the assessee, in the course of his statement made on March 17, 1975, deposed that he could not remember the names and addresses of

persons in Ceylon or the amount of commission paid to them for helping to get the money repatriated to India. We are of the view that the

assessee would not have had any difficulty in naming the persons to whom the commission was paid in Ceylon if, in fact, such commission had

been paid. Apart from this, we find that in paragraph 9 of the order of the Tribunal, the Tribunal had referred to the statement filed on behalf of the

assessee and had concluded that in Ceylon no money was available with the assessee for payment of the commission. This had not in any manner

been contradicted and this necessarily shows that the assessee could not have paid any commission whatever in Ceylon to those who had assisted

him in repatriating funds to India, though through an irregular channel. There is also an improbability in the claim that commission had been paid in

Ceylon. It is difficult to accept that without the actual repatriation of funds to India and the receipt of the same by the assessee in India, the

assessee had paid commission to those who helped him in this regard. In other words, it is unbelievable that the assessee, who had, even according

to the Tribunal, no funds for payment of commission in Ceylon, had paid commission, even before the repatriation of the funds to India and the

receipt of the same by the assessee here. We, therefore, do not have any hesitation whatever in rejecting the claim of the assessee that commission

was paid even in Ceylon. It follows that the commission should have been paid only after the transmission of the funds from Ceylon to India

through an irregular channel and after such transmission became a fait accompli and not before. That would mean that the amount repatriated was

not only Rs. 2,30,000 as claimed by the assessee, but something more, including the commission paid for such repatriation. The Income Tax

Officer estimated the commission paid by the assessee at Rs. 1,15,000 and it was rightly characterised by the Tribunal as excessive. Though the

assessee claimed that only 10 per cent. of the amount repatriated was usually paid as commission, it is seen that if large amounts are repatriated,

the commission paid also varies. Considering all the facts and circumstances, we are of the view that the estimate by the Tribunal of the commission

paid by the assessee at Rs. 40,000 for repatriation of funds from Ceylon cannot be characterised to be either erroneous or otherwise excessive or

even not supported by any material. We have earlier pointed out how the commission could not have been paid in Ceylon and it follows that such

commission could have been paid only in India and that too after receipt of the moneys by such repatriation and the estimate of the commission so

paid at Rs. 40,000 is also not unreasonable. In other words, the sum of Rs. 40,000 would not have been available to the assessee for making the

investments during the relevant previous year and to this extent, the Tribunal was quite right in sustaining the addition under the head ""Other

sources"". We, therefore, answer the question referred to us in the affirmative and against the assessee, with the costs of the Revenue. Counsel''s

fee Rs. 500. One set.