1969 (3) TMI 28 - HC - Income Tax

Assessee is a resident company - sale proceeds of securities which were converted in foreign countries and remitted into India - such remittances are not taxable u/s 4(1)(b)(iii)

Summary

Issues Involved:
1. Reopening of assessment under Section 34 of the Indian Income-tax Act, 1922.
2. Taxability of remittances under Section 4(1)(b)(iii) of the Indian Income-tax Act, 1922.
3. Characterization of income versus capital assets.
4. Validity of remittances as income or capital.

Issue-wise Detailed Analysis:

1. Reopening of assessment under Section 34 of the Indian Income-tax Act, 1922:
The Income-tax Officer reopened the assessment for the year 1959-60, initially completed on October 30, 1959, under Section 34 of the Indian Income-tax Act, 1922, after discovering that the assessee had remitted profits amounting to Rs. 90,000 from the United Kingdom to India. The reassessment aimed to include these remittances in the assessee's total income.

2. Taxability of remittances under Section 4(1)(b)(iii) of the Indian Income-tax Act, 1922:
The crux of the matter was whether the remittance of Rs. 90,000 constituted income, profits, or gains brought into India within the meaning of Section 4(1)(b)(iii). This section includes in the total income all income, profits, and gains accrued or arisen outside the taxable territories and brought into India by a resident during the relevant assessment year.

3. Characterization of income versus capital assets:
The assessee argued that the income accrued in the UK was capitalized by purchasing securities, and the sale proceeds of these investments, brought into India, should not attract the provisions of Section 4(1)(b)(iii). The Tribunal found that the investments were not temporary and were not a device to avoid tax. The investments were held as capital assets, and their sale proceeds were remitted to India.

4. Validity of remittances as income or capital:
The Tribunal ruled that the remittances were the sale proceeds of capital assets and not income. It relied on precedents such as Commissioner of Income-tax v. Ahmedabad Advance Mills Ltd., where it was held that income converted into capital and subsequently brought into India does not attract tax under Section 4(2) of the Indian Income-tax Act. Similarly, in Commissioner of Income-tax v. J. M. Muhammed Ismail Rowther, the Madras High Court held that the conversion of profits into capital through the purchase of bonds did not change their character, and the remittance of such capital to British India was not taxable.

Conclusion:
The Tribunal concluded that the remittance of Rs. 90,000 was not liable to be included in the assessee's total income, as it represented the sale proceeds of capital assets. The High Court affirmed this view, stating that income, once capitalized and subsequently brought into India, does not attract tax under Section 4(1)(b)(iii). The question referred to the court was answered in the negative, and the Commissioner of Income-tax was ordered to pay the costs of the reference to the assessee.

Separate Judgment:
SANKAR PRASAD MITRA J. agreed with the judgment delivered. The question was answered in the negative.