1967 (1) TMI 29 - HC - Income Tax

Statutory allowance - foreign income - third proviso to s. 4(1) of Indian Income Tax Act, 1922

Summary

Issues:
1. Assessment of foreign income on accrual basis under section 4(1)(b)(ii).
2. Determination of remittance of Rs. 15,000 of the assessee's foreign income to India.
3. Inclusion of the sum of Rs. 4,500, originally allowed as a statutory deduction, in the total foreign income chargeable to tax.

Analysis:
The High Court of Madras addressed the issue of the assessment of foreign income on an accrual basis under section 4(1)(b)(ii). The assessee, a working partner in two firms, was assessed as an individual and a resident for the assessment year 1955-56. The total foreign income, including salary and profits, was assessed at Rs. 10,253 after deducting the statutory allowance. The court found that the assessment was correctly based on the accrual basis, and the controversy centered on the grant of the statutory allowance under the third proviso to section 4(1).

Regarding the determination of the remittance of Rs. 15,000 of the assessee's foreign income to India, the court analyzed the book entries and transactions between the firms involved. The court concluded that although no cash was physically transmitted, the credit entry in the accounts allowed the assessee to operate on and draw the amount, constituting a remittance. The court cited legal precedents to support the view that a transfer by book entries could result in a remittance, even without the physical transfer of cash.

In the context of including the sum of Rs. 4,500 in the total foreign income chargeable to tax, the court examined the application of the third proviso to section 4(1). The court held that the revenue's reliance on the receipt of Rs. 15,000 to deny the benefit of the statutory allowance was not sustainable. The court emphasized that the amount brought into the taxable territories should be referable to income accrued during the accounting year and that the revenue failed to rebut the presumption that the remittance was from a fund that had already suffered tax.

Ultimately, the court rephrased the question at issue and ruled in favor of the assessee, concluding that the revenue could not rely on the receipt of Rs. 15,000 to exclude the assessee from the statutory allowance entitled under the third proviso to section 4(1). The court awarded costs and counsel's fee in favor of the assessee.