L.C.T.S.P. Subramaniam Chettiar vs The Commissioner of Income Tax

Madhavan Nair, J.—The question referred to us is "" whether the sum of Rs. 13,730 paid by the Penang firm at Penang to a creditor of the

Tinnevelly firm be treated as a remittance of foreign profits in British India"".

The question arises with reference to the inclusion in the additional assessment made upon the petitioner for the year 1932-1933 (previous year

13th April, 1931 to 12th April, 1932) of this sum which is the amount paid by the petitioner''s Penang shop in respect of two hundis drawn by him

in the following circumstances. In or about July, 1931, the trustee of a patasala at Kunnakudi deposited certain moneys with the Tinnevelly shop of

the assessee. The Trustee carries on money-lending business outside India at Penang, Rangoon and Thonze. When he applied for repayment of the

money the petitioner issued two hundis on his Penang shop for the amount due with interest, namely Rs. 13,730. The Penang shop paid these

amounts on 9th October, 1931. The transactions relating to the discharge of the debt and the payments were recorded in the Penang folio of the

Tinnevelly books and in the Tinnevelly folio of the Penang books as mentioned in the reference. The petitioner did not dispute before the Income

Tax Officer that the profits in Penang were sufficient to cover the remittances.

The point for determination is whether the amount in question was received in British India in the year of account within the meaning of Section

4(2) of the Income Tax Act. The petitioner contends that it was not so received relying on the authority of the decision in Hall v. Marians (1933)

18 Tax Cases 148 That case is clearly distinguishable. In that case a lady who had overdrawn her account in the National Bank of India in London

instructed that Bank to transfer the loan to her current account with its Colombo branch and this was carried out by cross entries in the books of

the two offices. A small credit balance in Colombo was thereupon converted into a debit balance and a few weeks afterwards the overdraft and

the interest accrued thereon were discharged out of the proceeds of the sale in Colombo of certain Indian bonds held by her. It was held that the

proceeds of the sale of bonds had not been received in the United Kingdom within the meaning of Rule 2 of Case V. On the facts, the present case

is altogether different from this case. The petitioner''s indebtedness to the trustee of the Patasala was not transferred to Penang as it was in the

English case. What happened here was that the indebtedness in British India was discharged by the issue of a hundi drawn on the Penang shop.

Discharge of a debt by issuing hundis is well-known in commercial circles as the discharge of a debt. In the circumstances of the case the debt

remained an Indian debt and it was discharged by the issue of a hundi in India. What the petitioner did was to use in British India monies available

to him in Penang and this, in our opinion, amounts to a receipt in India by the assessee of his gains outside India. It was argued that it must be

understood that the parties had agreed to have the debts discharged out of India and that therefore there was no constructive receipt of the monies

in question in India. The idea of a special arrangement between the parties should be excluded because of the fact that a hundi was issued in India

in discharge of the debt.

It was then argued that in order to come within the meaning of the term ''received'' as used in Section 4 of the Income Tax Act there must be an

actual transfer of the money in question and the receipt of the sum in India. No authority in support of that contention has been cited to us. The

decision in Commissioners of Inland Revenue v. John Bloot (1919) 8 Tax Cases 148 having regard to the facts of the case, does not support this

contention.

We would therefore hold that the sum of Rs. 13,730 mentioned in the reference should be treated as a remittance of foreign profits in British

India. We answer the question accordingly. The Commissioner will get Rs. 250, for costs from the assessee.

Stone, J.

I agree.

King.

I agree.