Subbiah Iyer vs The Commissioner of Income Tax

Two questions have been referred to the High Court, viz.:

(1) ""Whether in the computation of foreign profits assessable u/s 4 (2) of the Income Tax Act, there is any presumption in law available to the

Income Tax authorities entitling them, in the absence of any specific facts or evidence, to appropriate the remittance of a sum of money as one

made successively from out of the assessee''s profits in the first, second or third year of the period of three years, specified in the section and

whether such allocation of the remittances to the earliest year of the said period based entirely on such a presumption of law is legal or whether the

remittance in any year should first be set against the profits of that year, the balance against the unassessed profit of the immediately preceding year

and so on"" and

(2) ""Whether a purchase of lands in British India by the assessee carrying on the money-lending business outside British India in satisfaction or part

satisfaction of a loan advanced out of British India by the foreign business amounts to a receipt or bringing in of foreign profits into British India

assessable under S, 4 (2) of the Income Tax Act.

Mr. Srinivasa Aiyangar stated that he was not in a position to argue the first question because the remittances from Quilon to the assessee are

not shown in the assessee''s books to be remittances of capital. There were profits of a greater amount than the remittances from Tinnevelly to

Quiloh earned in the Quilon business. The facts of this case are different to those in O.P. No. 180 of 1928 reported in 58 M.L.J. 581 but the

assessee is the same and in view of our observations during the course of the argument Mr. Srinivasa Aiyangar has accepted the position that the

burden of showing that the remittances were not from profits but from capital is upon him and that he is unable in this case to contend that he has

discharged that burden. Here again we think that the question referred has not been properly framed and we content ourselves with saying that if

there are profits in an assessee''s foreign business sufficient to cover remittances to British India during the year of assessment the presumption is

that the remittances were from profits and not from capital and that the onus of showing that they were from capital and not from profits lies upon

an assessee as also the onus of showing that they were profits earned more than three years before the date of the remittance or remittances.

With regard to Question (2), what happened was that the assessee in satisfaction of certain debts due to his Quilon shop took over lands of

debtors in British India. The Income Tax Commissioner held that this money had come into his possession in British India in the shape of land and

could only be construed as a remittance. With this contention we do not agree. In one case a mortgage had been taken as security for a loan to a

debtor and the mortgage was granted more than four years previous to the year of account. Clearly the interest received within the three years

previous to the year of account and remitted to British India is assessable to Income Tax. It is the profit earned by the loan and lending money is

the assessee''s business. The interest earned previous to the three years is not liable to Income Tax at all and the repayment of the loan and its

remittance to British India in that shape is a remittance of a repaid loan, namely, capital. Instead of remitting the repaid loan in the shape of money

the assessee was forced to take in satisfaction of his debt instead of money the lands of his debtors in British India. In our view, by so doing he did

not convert what, if it had been in the shape of cash, would have been a remittance from capital, into a remittance of profits by taking lands in

satisfaction instead of cash. The position is very different when an assessee invests profits made in the foreign business in lands or securities in

British India. That is an investment of profits, but that is not this case. If it can be shown that the foreign business has a debtor and that debtor is

unable to repay the foreign business''s debt and the assessee takes the debtor''s land in British India in satisfaction of his claim against his debt the

land so taken in British India is not taxable as foreign profits u/s 4 (2) of the Income Tax Act and this answers the second question referred to us.

No costs allowed to either party. Refund of Rs. 50 deposit.