1964 (9) TMI 86 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 31,305 covered by the two drafts brought into the taxable territories during the previous year relevant for the assessment year 1948-49 was liable to tax under the Indian Income-tax Act, 1922, despite being encashed after the accounting period had closed.

Detailed Analysis:

Issue 1: Taxability of the Amount Brought into India
Question Presented:
"Whether the amount of Rs. 31,305 covered by the two drafts which the assessee had brought into the taxable territories during the previous year relevant for the assessment year 1948-49 was liable to tax under the Indian Income-tax Act, 1922, though the drafts were encashed on the 26th April, 1948, after the accounting period had closed?"

Facts:
- The assessee left India in 1935 for New Zealand and earned some money there.
- He brought this money to India via two drafts from the New Zealand Bank, drawn on the Chartered Bank, Amritsar.
- The drafts were for Rs. 21,752 (in the name of the assessee) and Rs. 9,553 (in the name of his wife).
- The assessee arrived in India on 8th/9th March, 1948, and the drafts were cashed on 26th April, 1948.
- The Income-tax Department assessed the amount under section 4(1)(b)(iii) of the Income-tax Act for the assessment year 1948-49.

Contentions:
- Assessee's Argument: The income should be treated as brought into India in the subsequent year (assessment year 1949-50) because the drafts were encashed in April 1948, during the accounting period of the subsequent year.
- Department's Argument: Bringing in the drafts is tantamount to bringing in the money into the taxable territories. The encashment of a draft relates back to the date of receipt of the draft, similar to the treatment of cheques.

Relevant Legal Provisions:
- Section 4(1)(b)(iii) of the Indian Income-tax Act, 1922, which includes income "having accrued or arisen to him without the taxable territories before the beginning of such year and after the 1st day of April, 1933, are brought into or received in the taxable territories by him during such year."

Court's Analysis:
- The court noted that the distinction between "received" and "brought in" is crucial.
- Referring to the Supreme Court's decision in Dharamdas Hargovandas's case, it was observed that the meaning of "received" must be understood in the context of clause (b)(iii), which deals with income accrued outside the taxable territories and brought into the taxable territories in the previous year.
- The court emphasized that the income, though accrued outside, must have been received there and later brought into the taxable territories.

Key Judgments Referenced:
- Ogale Glass Works Ltd. Case: It was held that the delivery of a cheque is conditional payment, and once cashed, the payment dates back to the receipt of the cheque.
- Dharamdas Hargovandas Case: It was concluded that income brought into the taxable territories need not be in the same shape as initially received; it could be in the form of a draft or other negotiable instrument.

Conclusion:
- The court concluded that the money was effectively received or brought into the taxable territories when the assessee entered India with the drafts.
- The analogy of the Supreme Court's decision in Ogale Glass Works' case was applied, determining that the receipt of the drafts in the taxable territories during the assessment year 1948-49 constituted bringing in the income.
- Therefore, the amount was liable to tax under the Indian Income-tax Act for the assessment year 1948-49.

Final Judgment:
- The question referred to the court was answered in the affirmative, confirming the tax liability for the assessment year 1948-49.
- No order as to costs was made due to the complex nature of the question and the circumstances of the case.