1988 PLP rib (PTD)

8. After considering the arguments from both the sides we feel no hesitation in forming the view that though the income was attributed as having come from betting on horses, no conclusive, or even reasonably convincing,- evidence was tendered to show that the amount was earned from such an activity. In fact the inquiries from the Race Club demolish the claim of the respondent inasmuch as the Club pointed out that the names of the horses has not been mentioned on the cards nor these bore the stamp of the Race Club and (furthermore) had visible overwriting and tampering. It also is significant that the cards do not contain the name of the respondent and, therefore, there is hardly any basis to accept that these belonged to the respondent and that these related to the horses who won the races on the respective dates or that winnings were collected by the respondent for himself. Furthermore, it is beyond comprehension as to how the photo copies of the cards could be made out in a short period of time before the finish of a race and collection of the win money against surrender of the cards, when no such arrangement of photo copying is available at the Race Club premises. For all these deficiencies and infirmities in the explanation as also the evidence led by the respondent, we see no scope for acceptance of the plea that the amount was earned by successful betting on horse-racing. Obviously, the learned A.A.C. clearly erred in holding that the decision of the Karachi High Court in re: New China Glassware Company (supra) applied in the present case, completely ignoring the clearly distinguishable facts. Our conclusion therefore, is that the respondent failed to make out a case for exemption under clause '(vii)' of subsection (3) of section 4 of the repealed Income-tax Act for receipts of casual and non-recurring nature. For forming this view we have benefited from the pronouncement by the learned Judges of the Supreme Court of Pakistan in the case of Mrs. Samina Shaukat Ayub Khan P L D 1981 S C 85 where it was unequivocally held that if the nature of the receipt and its source are not satisfactorily explained by the assessee, the assessing officer may legitimately presume that the amount in question is an income of the assessee from an 'undisclosed source'. The upshot of the above discussion is that the amount of Rs.29,300 is clearly a receipt which, not being exempt as casual and] non-recurring in nature, is to be treated as taxable income from an undisclosed source, as was rightly done by the assessing officer.

9. As respects the absence of prior approval from the I.A.C. for making addition under section 4(2-C) read with section 4(2-E) of the repealed Income-tax Act, we are of the view that this alleged deficiency was unduly emphasized by the learned A.A.C. on a clearly erroneous presumption that the assessing officer made the addition by resort to deeming provisions of the repealed Act. A bare reading of the two provisions referred to by the learned A. A. C. leaves room for doubt that: Section 4(2-C): relates to a situation where the value and quantum of money or value of the article is "not recorded in the books of accounts

nor shown by him in any statement" furnished under subsection (4-A) of section

22. In the present case, though books of accounts were not maintained, a wealth statement was filed and did contain the disclosure, which generated the controversy. This provision of law is obviously not applicable. Section 4(2-E): relates to those assessees, who incur an expenditure but "offer no explanation about the nature or source of the money from which the expenditure was met" (or the explanation is not found satisfactorily) whereupon "the amount of expenditure

be deemed to be the income". This provision is not applicable to the facts of the present case because here the dispute pertains to the receipt, which admittedly was disclosed by the respondent but was claimed exempt from tax. It involves no fictional income. (underlined here for emphasis) Therefore, the presumption by the learned A.A.C. that the addition pertained to these two subsections is only conjectural. We may, with advantage, reproduce the finding by the assessing officer for facility of proper appraisal of the factual position. "In view of the above observations and discussion, the betting income of Rs.29 300 claimed as exempt from tax being of casual nature, is taxable. The amount o Rs.29,300. is, therefore, disallowed and added in the income from 'other sources' non-disclosed to the Department

" (underlined here for emphasis) The sagacity of the assessing officer's decision is understandable for the reason that the situations visualised 'by the other 'deeming' provisions were also not attracted to the circumstances of the present] respondent Section 4(2-A) stood ousted as no books of accounts were maintained; section 4 (2-B) because the receipt; was duly recorded in the wealth statement, and section 4(2-0) for The reason that no excess over the recorded/ disclosed figure was worked out. It is true, the assessing officer called for the details of funds, which went into the construction of the property but accepted the declared quantum of these. What he disputed was the purported casual nature of an amount of RS.29,300 which the respondent claimed exempt under section 4(3)(vii) of the repealed Act. There was thus no occasion for the assessing officer to treat this amount as "deemed income" by fiction of law. This amount very much existed, was admitted by the respondent and was declared as income though it was claimed to be exempt from I tax.

10. The learned. A. A. C. obviously failed to appreciate the subtlety inasmuch as the controversy was not about the extent and nature of the 'expenditure' but about the character of the 'receipt' (Le. casual or non-recurring). The conclusion, therefore, is inescapable that the learned A. A. C. fell in grave error in presuming that the assessing officer intended to make the addition under section 4(2-C) read with section 4(2-_E) of the repealed Act for which he failed to obtain the mandatory approval from the I.A.C. thus besetting the assessment with illegality. The factual and legal situation obtaining in the present appeal once again tempts us to revert to the decision by the Supreme Court of Pakistan in re: Mrs: Samina Shaukat Ayub Khan (supra) wherein while discussing the scope of 'income' the learned Judges, authoritatively pronounced: "In the last analysis, the question whether a` particular kind of receipt is income or not would depend for its answer on the peculiar circumstances and facts of the case. If the nature of the receipt and its source are not satisfactorily explained by the assessee

.the I.-T.O. may legitimately presume that the amount in question is income of the assessee from an undisclosed source. ,

Once a finding is recorded that the amounts in question could be treated as income within the meaning of the charging section, namely, section 3 of the Income-tar .let, the burden of proving that the income qualified for exemption under any of the clauses of section 4 of the Act was on the assessee. Subsection (1) of section 4 of the Act provides- that "subject to the provisions of this Act; the total income of any previous year of any person includes all income, profits and gains from whatever sources derived

"Subsection (3) of the same section then enumerates exemptions, and the operative words are "any income, profits -or gains falling within the following clause shall not be included in the total income of the person receiving them

" It was for the appellant to show that she was covered by the exemption granted by clause (vii) of subsection (3).

11. For the reasons recorded hereinabove our conclusion remains' that the learned A.A. C. (i) Erred in holding that the impugned addition to income at Rs.29,300 did not constitute 'income' (within the meaning of subsection (6-C) of section 2 of the repealed Act) and that being receipt from betting on horse races, it is of casual nature entitled to exemption as per' section 4(3)(vii) of the repealed Act; and (ii) he misdirected himself in law in presuming that the addition was intended for an amount "deemed as income" by resort to the provisions of subsection (2-C) read with subsection (2-E) of, section 4 of the repealed, Income-tax. Act, for which prior approval of I.A.C. though mandatory was, not obtained thus causing illegality. We, therefore, feel no hesitation in vacating the order of the learned" A.A.C, with the result that the assessment -as made by the assessing officer stands good.

12. In the result the Department appeal succeeds. M.B.A./479/T Appeal accepted.