1937 (5) TMI 10 - HC - Income Tax

Summary

Issues Involved:

1. Taxation of Kashmir profits.
2. Remittance of Rs. 37,000.
3. Calculation of excess inwards.
4. Legal presumption of profits in imported timber.

Issue-wise Detailed Analysis:

1. Taxation of Kashmir Profits:

The firm, registered in Lahore, engaged in timber business in Kashmir, was assessed for profits made in British India and Kashmir. The dispute arose regarding the taxation of Rs. 67,095 profits from Kashmir. The Commissioner of Income Tax held that these profits were received in India and thus taxable. The firm contended that these profits were not received in India and should not be taxed.

2. Remittance of Rs. 37,000:

The Income Tax Officer included Rs. 20,102 in the assessment, assuming it represented profits brought into British India. The firm argued that the Rs. 37,000 remitted to India was not profits but capital used to repay a bank overdraft. The Assistant Commissioner and the Commissioner upheld the taxation, stating the purpose of the remittance did not determine its nature as profits.

3. Calculation of Excess Inwards:

The Commissioner calculated an excess inwards of Rs. 96,512, based on the difference between remittances to Kashmir (Rs. 7,37,488) and the cost price of the timber brought into India (Rs. 8,34,000). The firm argued that the cost price included Rs. 1,22,000 spent in British India, making the actual cost price Rs. 7,12,000, which was less than the remittances, thus negating any excess inwards.

4. Legal Presumption of Profits in Imported Timber:

The Commissioner presumed the timber imported into British India comprised the Kashmir profits, as the firm failed to prove otherwise. The firm contended that the timber was stock in trade, and profits were made upon its sale in India, not upon its import. The court found no judicial authority supporting the presumption that stock in trade is profit unless proven otherwise.

Judgment Analysis:

Taxation of Kashmir Profits:

The court noted that the assessment was based on the firm's accounts, which were accepted as properly maintained. It was agreed that the figures adopted by the Commissioner were correct. The court found no evidence that any part of the Kashmir profits was brought into India by the partners, and the Commissioner did not tax the Rs. 37,000 remittance as profits. The court concluded that the profits stayed in Kashmir and were not received in British India.

Remittance of Rs. 37,000:

The court observed that the Commissioner did not base his assessment on the presumption that the Rs. 37,000 remittance was profits. The court held that there was no legal presumption that the remittance was profits, especially since the Commissioner did not tax this amount.

Calculation of Excess Inwards:

The court found that the Commissioner's calculation of excess inwards was based on erroneous figures. The firm's figures, showing that Rs. 1,22,000 was spent on the timber in British India, were accepted. This meant there was no inward excess. The court concluded that there was no evidence proving an inward excess.

Legal Presumption of Profits in Imported Timber:

The court rejected the Commissioner's presumption that the imported timber comprised the Kashmir profits. It held that the timber was stock in trade, and profits were made upon its sale in India. The court found no judicial authority supporting the presumption that stock in trade is profit unless proven otherwise. The court concluded that the evidence established the firm's case that the timber was capital.

Conclusion:

The court answered the first question in the negative, stating that no legal presumption arose that the remittance or the timber comprised profits. The second question was answered in the affirmative, concluding that no profits were received in British India. The Commissioner was ordered to pay the costs of the reference.