The Hindu Business Line : More room for presumptions

Finance Bill 2007 lays down that the presumptions can be made or given effect in all proceedings under the I-T Act and need not be confined to search and seizure proceedings.

Tax law often makes use of subtle concepts in jurisprudence to impact the consequences of provisions in the Income-Tax Act. One such concept relates to the use of presumptions. A presumption is a rule of law, statutory or judicial, by which finding of a basic fact gives rise to existence of presumed fact, until it is rebutted. This is the definition of presumption given in Black's Law Dictionary. Certain inferences are drawn from the available evidence. By itself a presumption is not evidence. It is either conclusive or rebuttable. A presumption that can be overturned upon the showing of sufficient proof is called a rebuttable presumption.

Presumption in search cases

The tax department is conferred with powers to search the business and residential premises of persons believed to be in possession of unaccounted income. During the search, the authorised officer can examine on oath any person found to be in possession or control of any books of accounts, documents, money or other valuable articles or things. Statement made on such examination may be used in evidence in any proceedings under the I-T Act.

A specific provision — Section 132 (4A) — lays down that any books of accounts or valuables found in the possession/control of any person in the course of search may be presumed to belong to such person and that the contents of such books of accounts and other documents may be presumed to be true.

It will also be presumed that the signature found in such documents was that of the person by whom the document is purported to have been signed. This presumption enabled the assessing officer (AO) to make an estimate of undisclosed income in a summary manner to the best of his judgment on the basis of such materials as are available with him. Such proceedings for making a summary estimate of undisclosed income were considered to be quasi-judicial in nature.

`May', `shall'

Raising of such presumption was enacted by the legislature to facilitate the making of a provisional adjudication within the timeframe prescribed under Section 132. The Section talks of "may presume" as distinct from "shall presume". These two are different from "conclusive proof".

The first category of presumptions, "may presume", leaves it to the court's discretion to make the presumption according to the circumstances of the case. Under the "shall presume" category, the court is bound to take the fact as proved until evidence is given to disprove it. In cases of "conclusive proof", an artificial probative effect is given by law to certain facts. This is an irrebuttable presumption.

There was a judicial controversy with regard to the scope of the presumption raised under Section 132(4A). Is the presumption available even for making a regular assessment in search cases? The Allahabad, Delhi and Rajasthan High Courts held in various judgments that the presumption will not hold for purposes of making an assessment and that it will be available only in relation to the provisional adjudication in a summary manner with regard to undisclosed income under Section 132. The Karnataka High Court, on the other hand, expressed the view that the presumption is available in respect of other proceedings under the Act also though it may be a rebuttable presumption.

The matter was taken to the Supreme Court. The court ruled in favour of the taxpayer. It pointed out that the presumption under Section 132 (4A) is available only in regard to proceedings for search and seizure under Section 132. It is not available for framing the regular assessment. There was no statutory indication in this regard.

The Finance Bill Amendment

This favourable judgment of the Supreme Court was pronounced in November 2006 in P. R.Metrani vs CIT (287 ITR 209 SC). The Finance Bill, 2007 overturns this verdict of the Supreme Court by introducing a new Section 292(C). Clause 69 of the Finance Bill inserts the new Section 292(C) reproducing the provisions of Section 132(4A) and lays down that the presumptions can be made or given effect in all proceedings under the Income-Tax Act and need not be confined to such proceedings. The burden of rebutting the presumption is now on the person searched under Section 132.

It has been pointed out that while Section 68 of the Act throws the burden on the taxpayer to prove the genuineness of the cash credit in the books of accounts, the newly introduced Section 292(C) raises a presumption against the taxpayer in respect of books of accounts, documents, articles or things found during a search. Clearly, a case of "Heads I win, Tails you loose".

It is a pity that the newly introduced Section 292C is sought to be given retrospective operation from October 1, 1975. Such retrospectivity will affect pending proceedings. Nothing would have been lost if the amendment was made prospective. The Supreme Court ruling could have been left untouched up to March 31, 2007.

(The author is a former Chief Commissioner of Income-Tax.)

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