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TMI Blog1940 (12) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... me from his Saigon properties during that year was $ 18,414. As the result of payment into his account of the income from these properties he had reduced his overdraft to $ 12,165 by the 30th November 1935. On the 7th December 1935, while the overdraft still stood at that figure, he withdrew from the account a further sum of $ 5,719, the equivalent of ₹ 10,000. The $ 5,719 represented a remittance which he made to British India, and the question which the Court is called upon to decide is whether this remittance represents a remittance of profits derived from his Saigon properties. After making the remittance the assessee continued to draw on the account for various purposes and to make payments in from the rents he received in Saigon. The payments into the account from the 7th December 1935 to the end of the financial year amounted to $ 11,570 and the year closed with his overdraft standing at the figure of $ 9,441. It is conceded by the assessee that the $ 11,570 has been rightly treated as being net income. The assessee says, however, that the payments into his banking account both before and after the 7th December 1935 should be treated as payments in reduction of the ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question was whether the $ 59,000 represented a remittance of foreign profits. It was found that the Saigon branch had accumulated profits which were more than sufficient to cover the remittance and that it had repaid the whole of the borrowed amount within 28 days. It was held that the $ 59,000 represented in these circumstances a remittance from profits and not from capital. In Commissioner of Income-tax, Madras v. S.KM.SP. Meyyappa Chettiar [1940] 8 I.T.R. 20, this Court applied the same principle. The facts in the case of Fellowes-Gordon v. Commissioners of Inland Revenue [1935] 19 Tax Cas. 683, are very similar to the facts in the present case.The assessee there had plantations in Ceylon and during each of the years ending the 5th April 1928 and the 5th April 1931 was for more than six months resident within the United Kingdom. In the year ending the 5th April 1929 he received from his agents in Ceylon for the credit of his account with the National Bank of India, Limited in London, a total sum of $ 2,200, and in the year ending 5th April 1931 a total sum of $ 1,400. His income from his plantations in Ceylon during these two years was more than sufficient to meet the cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this country. But here the reasonable inference is that what was received in this country was not derived from some realisation of capital or from some capital account, but was in truth derived, from the income arising from possessions in Ceylon, and I think that the Commissioners, on the facts of the case, were entitled to arrive at the conclusion at which they did arrive, and that the appeal should be dismissed. As in that case the assessee in the present case had a debit balance with his bankers at the beginning of the period and a debit balance of lesser extent at the end of the period and it is not suggested, nor can it be, that the inference may here be drawn that the remittance was from the realization of capital. The assessee had made profits in Saigon far in excess of his remittance to British India. By merely increasing his overdraft to pay for the remittance does not mean that the remittance was in substance a remittance of borrowed money. Having made the remittance the assessee paid into the account out of his profits from the properties in Saigon far more than was necessary to meet the cost of the remittance. The Court must look at the substance of the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in Saigon and the remittance in question, in the sense that it was wholly or in part identifiable with those profits. But such identification is not necessary, if in substance the remittance is shown to have come out of the profits, and is traceable to that source. The only question, which is of course a question of law is whether the inference drawn can be said legitimately to follow from the facts found. The facts found are these: The assessee, a resident of the Tanjore District in this Province, owns extensive immoveable properties in Saigon, in French Cochin China, from which he derives income in the shape of rents. In connection with the properties, he has to incur expenses, for taxes, repairs etc. It also appears from the statement furnished by the Commissioner in response to the requisition contained in our Order dated 14-11-1938 that the assessee also lends and borrows moneys in Saigon. His monetary transactions are carried on through the agency of the Banque Franco Cinoise at Saigon which has allowed him an overdraft at first limited to $ 15,000 but subsequently increased to $ 50,000. Into his account with this Bank his receipts by way of income from his immoveab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to avoid the error pointed out by the Privy Council in Income-tax Commissioner, Bombay v. Ahmedabad Advance Mills Ltd., [1940] 8 I.T.R. 95 where machinery purchased in a foreign country with profits made in that country and imported into British India was held not to give rise a case of profits received within the meaning of Section 4(2) of the Act. The illustrations given in the last paragraph of their Lordships' Judgment are instructive, and indicate the danger of regarding traceability by itself as a conclusive circumstance. On the other hand, it is equally clear that the mere existence of an overdraft, cannot save foreign income from liability to taxation, as money paid out of the overdraft and remit- ted to this country is not necessary the money of the lender, and may be that of the recipient. It is easy to imagine cases where under cover of an overdraft, income might in truth be remitted and received as such. A man might so manipulate his dealings with a Bank, as to leave a permanent debit balance against himself, and yet be held liable to be taxed on his remittances if it appears that he took advantage of a banking facility as a convenient shield to conceal a receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry time of first borrowing and then utilizing his income for the repayment of the loan borrowed. The presumption underlying the decision in Scottish Provident Institution v. Allan [1901] 4 Tax Cas. 409 would come to the rescue of the department in such a case to pre- vent the Crown being cheated out of its revenue. If there are available profits more than sufficient to cover the remittance, the presumption to start with is that the remittance came out of the profits, though ultimately the question to a large extent is one of fact [1934] 19 Tax Cas. 41. If I followed Mr. Venkatarama Sastriar aright, his only point was that the conversion of what was originally a capital remittance into a remittance of profits takes place not when the remittance is made but when the profits are applied to the discharge of the loan borrowed and remitted. In my judgment it is the proposition conceded, which I think was rightly conceded, that furnishes the true ground of decision in this case. If we are to confine attention to the transactions of the assessee with the Banque Franco Chinoise during the year of account only, the answer to the reference should in my view be in favour of the assessee. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the year's income towards the debits prior to the remittance. On this footing there would be a total absence of profits from which the remittance could be deemed to have come. With very great respect, I am unable to agree that Fellowes Gordon's case furnishes a parallel governing the decision of the present case. It was proved and found in that case as in this, that the assessee had derived profits in Ceylon in the years there in question to an amount in excess of the remittances. The account produced there unlike in the present case was of a fragmentary character, showing the debit balances on the various dates of the remittances against the assessee with no information regarding the dealings in the intervening periods. It does not appear from the statement of account there produced, whether or not the whole of the opening balance on 27-4-1927 and 5-7-1930 would be wiped out if the revenue receipts for those years had been appropriated in accordance with the rule in Clayton's case, whereas in the present case it is quite clear, it is the other way about. This difference in fact strikes me as a material one capable of affording a legitimate ground of distinction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it will be difficult to reconcile the decision with what the Lord President himself stated lower down in his judgment where he pointed out that the existence of profits, and the fact of a remittance are by themselves insufficient. If the matter stood there, I should be prepared to answer the question referred in favour of the assessee. But the matter does not rest there. From the additional information furnished by the Commissioner it appears that in the year 1933-34, the assessee received a remittance of $ 8,000 from Saigon through his Bankers and out of this amount debited in the account, a portion only namely $ 1,680 or ₹ 2,300 had been taxed in 1934-35 as a remittance of profit, leaving a balance of $ 6,320 untaxed in that year. According to the proposition of law conceded by Mr. Venkatarama Sastri and referred to already, if this balance has been wiped out by the revenue receipts of the year 1935-36, it is automatically turned into a remittance from an income source though in origin it was from a capital source. The income during the account year was admittedly sufficient to discharge the whole of that balance and certainly to the extent of the whole of the remittanc ..... 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