1969 (9) TMI 14 - HC - Income Tax

Assessee went to Thailand - compensation given by Thiland govt. to assessee against assets - such amoutn represents the accumulated profits - therefore sum was assessable to tax u/s 4(1)(b)(iii), being the accumulated profits of the assessee s business in Thailand

Summary

Issues Involved:
1. Taxability of compensation received under section 4(1)(b)(iii) of the Indian Income-tax Act, 1922.
2. Applicability of exemption under the second proviso to section 4(1)(b)(iii).
3. Validity of reassessment proceedings under section 34(1) of the Act.

Issue-wise Detailed Analysis:

1. Taxability of Compensation Received Under Section 4(1)(b)(iii):

The primary issue was whether the sum of Rs. 92,873 received by the assessee as part of the compensation from the Government of Thailand was taxable under section 4(1)(b)(iii) of the Indian Income-tax Act, 1922. The Tribunal found that the compensation represented the accumulated income earned by the assessee after 1933. The amount was received in India in 1952, making it taxable for the assessment year 1953-54. The Tribunal concluded that the compensation was a part of the sale price of the foreign assets, reconverted into cash, and had the character of income earned outside the taxable territories. The court upheld this view, stating that the remittance from a foreign country represents profit earned by the assessee in that country, and in the absence of evidence to the contrary, the presumption stands that the remittance includes the profit earned by the assessee. Therefore, the sum of Rs. 92,873 was assessable to tax under section 4(1)(b)(iii).

2. Applicability of Exemption Under the Second Proviso to Section 4(1)(b)(iii):

The assessee claimed exemption under clause (ii) of the fourth proviso to section 4(1)(b) of the Act, which required that half of the amount received be invested in Government securities through the Reserve Bank of India and kept with the bank for at least two years. The Tribunal found that the National Savings Certificates purchased by the assessee were not acquired through the Reserve Bank of India nor kept with the bank for custody. The certificates were purchased from the post office and remained in the assessee's custody. Consequently, the assessee was not entitled to the exemption claimed under the proviso.

3. Validity of Reassessment Proceedings Under Section 34(1):

The assessee challenged the validity of the reassessment proceedings initiated under section 34(1) of the Act. The court noted that the assessee had not submitted any return for the compensation received, and the assessment year 1953-54 had expired. Therefore, the foreign income had escaped assessment, necessitating the reassessment under section 34(1). The court found this contention without merit and upheld the validity of the reassessment proceedings.

Conclusion:

The court concluded that the sum of Rs. 92,873 was taxable under section 4(1)(b)(iii) for the assessment year 1953-54. The exemption claimed under the second proviso to section 4(1)(b)(iii) was not applicable due to non-compliance with the conditions. The reassessment proceedings under section 34(1) were valid. The question referred by the Tribunal was answered in the affirmative and against the assessee, with costs of Rs. 200 awarded to the Commissioner of Income-tax.