1973 (4) TMI 42 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of remittances made by a "resident but not ordinarily resident" individual.
2. Determination of profits for tax purposes.
3. Applicability of Section 4(1)(b)(ii) and Section 4(1)(b)(iii) of the Indian Income-tax Act, 1922.
4. Interpretation of legislative intent and statutory provisions.

Issue-wise Detailed Analysis:

1. Taxability of Remittances Made by a "Resident but not Ordinarily Resident" Individual:
The assessee, a "resident but not ordinarily resident," carried on business in real properties in Penang and made several remittances to taxable territories during the year. The Income-tax Officer held that the entire sum brought into taxable territories was taxable under the second proviso to Section 4(1) of the Indian Income-tax Act, 1922. The Appellate Assistant Commissioner initially sided with the assessee, stating no surplus was available for remittance if the deductions claimed were allowed. However, the Tribunal overruled this, stating that unless it is shown that the remittances were from borrowed monies, the presumption is that they were from available profits.

2. Determination of Profits for Tax Purposes:
The assessee argued that profits from the sale of estates could only be ascertained after all estates were sold. This contention was rejected, as it would imply that income assessment could only be made after the business was wound up, contrary to the Income-tax Act provisions. The revenue is concerned with income, gains, or profits earned during the year of account, regardless of whether all assets have been sold.

3. Applicability of Section 4(1)(b)(ii) and Section 4(1)(b)(iii) of the Indian Income-tax Act, 1922:
The assessee contended that only remittances from profits accrued prior to the accounting year are taxable under Section 4(1)(b)(iii). The revenue argued that for a "resident but not ordinarily resident," income accruing or arising outside taxable territories is assessable if brought into or received in taxable territories during the year under Section 4(1)(b)(ii) read with the second proviso. The court noted that Section 4(1)(b)(ii) read with the second proviso could bring such remittances to charge, even if they cannot be taxed under Section 4(1)(b)(iii).

4. Interpretation of Legislative Intent and Statutory Provisions:
The court examined various judgments, including those from the Bombay High Court, which held that remittances of profits are possible only when profits have been ascertained and are available for remittance. The court also considered the legislative history and amendments to Section 4(1). It concluded that Section 4(1)(b)(ii) provides for the levy of tax on income accrued outside taxable territories during the year of account, while Section 4(1)(b)(iii) deals with past profits. The second proviso to Section 4(1) imposes conditions for taxing income accrued outside taxable territories for a "resident but not ordinarily resident."

Conclusion:
The court upheld the Tribunal's view that Section 4(1)(b)(ii) read with the second proviso could bring the remittances to charge, provided there were available profits at the time of remittances. The reference was answered in the affirmative and against the assessee, with costs awarded to the revenue.