1970 (1) TMI 20 - HC - Income Tax

Assessee carries on banking business in foreign country - Whether the Tribunal erred in law or acted without evidence in holding that all or any of the various items constituted remittance of profits to the taxable territories within the meaning of section 4(1)(b)(iii) of the Indian Income-tax Act

Summary

Issues Involved:
1. Whether the Tribunal erred in law or acted without evidence in holding that the sums of Rs. 4,80,000 and Rs. 1,70,000 constituted remittances of profits to the taxable territories under section 4(1)(b)(iii) of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Tribunal's Error in Law or Lack of Evidence:
The primary issue was whether the Tribunal erred in law or acted without evidence in holding that the sums of Rs. 4,80,000 for the assessment year 1948-49 and Rs. 1,70,000 for the assessment year 1946-47 constituted remittances of profits to the taxable territories within the meaning of section 4(1)(b)(iii) of the Indian Income-tax Act, 1922.

Facts and Background:
- The assessee, R. M. Raja, was assessed as an individual resident but not ordinarily resident in the taxable territories during the relevant accounting years.
- He conducted business in Junagadh, Veraval, and Shahpur, with the head office in Junagadh under the name "Kanji Lava" and branches at Shahpur and Veraval.
- The business involved banking, oil milling, and trading activities.
- The Hindu undivided family of the assessee also ran a significant oil manufacturing business in Bombay under the name "Raja Oil Mills."

Tribunal's Findings:
- The Tribunal noted frequent transfers of funds between the assessee's various bank accounts and his account with Raja Oil Mills.
- It concluded that the assessee's account with Raja Oil Mills was not exclusively related to his banking business but involved mixed activities.
- The Tribunal presumed that the remittances were profits made in the Indian State and liable to tax under section 4(1)(b)(iii), provided there were sufficient profits in Junagadh available for remittance.

Legal Principles Applied:
- The judgment referenced Commissioner of Income-tax v. R. M. Raja, which laid down principles for taxing remittances under section 4(1)(b)(iii).
- It was established that profits accrued in an Indian State and brought into taxable territories are taxable. If profits were available, a presumption would arise that remittances were out of those profits, placing the burden on the assessee to rebut this presumption.
- For a banker, money is stock-in-trade, and remittances in the course of banking business are presumed to be part of the stock-in-trade unless proven otherwise by the taxing department.

Assessment Years 1946-47 and 1948-49:
- For 1946-47, the sum of Rs. 1,70,000 was made up of five remittances from Junagadh to Bombay, which were later deposited in the assessee's account with Raja Oil Mills. The Tribunal found these were not exclusively for banking business and presumed them to be profits.
- For 1948-49, the sum of Rs. 4,80,000 comprised twelve specific remittances from Junagadh to Bombay, credited to various bank accounts and later transferred to Raja Oil Mills. The Tribunal applied the same reasoning as for the earlier year.

High Court's Analysis:
- The High Court noted that the remittances were credited into banking accounts related to the assessee's banking business, thus made in the course of his banking activities.
- It emphasized that the nature of the remittance, whether it was part of normal banking business, was crucial. The subsequent use of funds or their idle status was not directly relevant.
- The High Court concluded that the Tribunal failed to apply the correct legal principles and erred in law by not recognizing the remittances as part of the banking business.

Conclusion:
- The High Court answered the question in the affirmative, indicating that the Tribunal erred in law.
- The respondent was ordered to pay the applicant's costs of the reference.

Summary:
The High Court found that the Tribunal erred in law by not recognizing that the remittances of Rs. 1,70,000 and Rs. 4,80,000 were made in the course of the assessee's banking business. The Tribunal's presumption that these were profits remitted to taxable territories was incorrect. The High Court emphasized the importance of the nature of remittances in banking business and ruled in favor of the assessee.