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Commissioner of Income-tax (Central), Bombay Vs. Pestonji Hormusji Contractor - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 8 of 1962
Judge
Reported in[1965]58ITR24(Bom)
ActsIncome Tax Act, 1922 - Sections 14(2)
AppellantCommissioner of Income-tax (Central), Bombay
RespondentPestonji Hormusji Contractor
Appellant AdvocateG.N. Joshi, Adv.
Respondent AdvocateF.N. kaka, Adv.
Excerpt:
direct taxation - rebate - section 14 (2) of income tax act, 1922 and part b states (taxation concessions) order, 1950 - whether tribunal justified in holding that assessee entitled to rebate of sums of rs. 14,319 and rs. 28,097 under order of 1950 - two items accrued to assessee in part b states - items cannot be regarded as income, profits and gains received or deemed to be received or brought into taxable territories in previous year by assessee - items exempted under section 14 (2) (c) - question answered in affirmative. - maharashtra scheduled castes, scheduled tribes, de-notified tribes (vimukta jatis), nomadic tribes, other backward classes and special backward category (regulation of issuance and verification of) caste certificate act (23 of 2001), sections 6 & 10: [s.b. mhase,.....v.s. desai, j.1. this reference arises out of the assessment made upon the assessee for the assessment year 1951-52 and the question which has to be considered is whether the assessee was entitled to the concession under the part 'b' states (taxation concessions) order, 1950, in respect of the sum of rs. 14,319 and rs. 28,097, which were included in the computation of his total income. the assessee, who has been assessed in the status of an individual, derived income from his personal business as well as partnership business in rajpipla, which is a merged territory and also in several part 'b' states, such as rajasthan, saurashtra and madhya bharat. one of such partnership business, which the assessee was carrying on, was as a partner in the registered firm of pestonji hormusji & sons,.....
Judgment:

V.S. Desai, J.

1. This reference arises out of the assessment made upon the assessee for the assessment year 1951-52 and the question which has to be considered is whether the assessee was entitled to the concession under the Part 'B' States (Taxation Concessions) Order, 1950, in respect of the sum of Rs. 14,319 and Rs. 28,097, which were included in the computation of his total income. The assessee, who has been assessed in the status of an individual, derived income from his personal business as well as partnership business in Rajpipla, which is a merged territory and also in several Part 'B' States, such as Rajasthan, Saurashtra and Madhya Bharat. One of such partnership business, which the assessee was carrying on, was as a partner in the registered firm of Pestonji Hormusji & Sons, carrying on business at Jamnagar in Saurashtra. The previous year for the source of the assessee's income from the business of Bhawani Mandi was the financial year ending on 31st March, 1951, while for the business at Jamnagar in Saurashtra, the previous year was the year ending on the 31st of August, 1950. In the assessment of the assessee for the assessment year 1951-52, the Income-tax Officer included a sum of Rs. 26,590 as the assessee's income from the Bhawani Mandi business and Rs. 75,525 as the income from the business in Jamnagar in Saurashtra. Out of the sum of Rs. 26,590, which was included as the income from the Bhawani Mandi source, a sum of Rs. 14,319 was taken as remittance of the income, profit and gains of the current year and the balance of Rs. 12,271 as remittances out of the past accumulated profits. Similarly, in respect of the sum of Rs. 75,525 included as income from the Jamnagar source, a sum of Rs. 28,097 was treated as remittances of the profits of the current year, while the remaining amount of Rs. 47,428 as remittances of past profits. In the present reference we are concerned with the sum of Rs. 14,319 from the Bhawani Mandi business and Rs. 28,097 from the Jamnagar business. In respect of these items, the assessee claimed that he was entitled to the benefit of the Part 'B' States (Taxation Concessions) Order, 1950. The claim, however, was disallowed by the Income-tax Officer, who brought these two sums to tax at the full Indian rate in spite of the concessional rate prescribed by the said Taxation Concessions Order, 1950, on the ground that although the two sums represented income that had accrued or arisen to the assessee in the Part 'B' States, the said income has not remained in the Part 'B' State but had been during the accounting year remitted to the taxable territories and, therefore, was not entitled to concession. Now, it appears that in the previous assessment year, i.e., in the assessment year 1950-51, similar items had been claimed by the assessee as entitled to the benefit of the Taxation Concessions Order. The said claims were disallowed by the departmental authorities but the Appellate Tribunal in the second appeal had sustained the said claims, relying on the authority of the decision of this court in Shankar Gumdel v. Commissioner of Income-tax. When the assessee appealed to the Appellate Assistant Commissioner against the present assessment order for the assessment year 1951-52, the Appellate Assistant Commissioner, following the Tribunal's decision for the previous assessment year, allowed the appeal and held that the assessee was entitled to the concession as claimed by him. The department went in appeal to the Income-tax Appellate Tribunal. It was urged in that appeal on behalf of the department that the sums of Rs. 14,319 and Rs. 28,097, which represented the assessee's share of profits in certain firms in the Part 'B' States, were liable to be taxed at the full Indian rate and not at the concessional rate as provided by the Part 'B' States (Taxation Concessions) Order, 1950. It was also contended that there were sufficient profits available at any rate at Jamnagar for being remitted within the meaning of section 4(1)(b)(iii) to the taxable territories other than Saurashtra State so that so far as the remittance from Jamnagar was concerned, the entire amount could have been regarded as remittances of past profits within the meaning of section 4(1)(b)(iii). The Tribunal negatived both these contentions and upheld the order passed by the Appellate Assistant Commissioner. According to the Tribunal, the amounts of Rs. 14,319 and Rs. 28,097 could not be treated as remittances of profits or gains because at the point of time when they were remitted, they could not be said to have been profits or gains of the assessee. The profits, which could be considered as assessable on the ground of their being remitted to the taxable territories are those which come within the provisions of section 4(1)(b)(iii) and the sums remitted could not fall within that provision by reason of the decision of this court in Shankar Gumdel v. Commissioner of Income-tax. According to the Tribunal, these items could only be brought to tax on the ground that they had accrued to the assessee, who was a resident in the taxable territories and, therefore, in respect of them the substantive part of paragraph 6 of the Part 'B' States (Taxation Concessions) Order, 1950, applied and the assessee was entitled to the concession under the said paragraph. With regard to the other contentions raised on behalf of the department, the Tribunal agreed with the conclusion arrived at by the Appellate Assistant Commissioner that there were no accumulated profits of the past years out of which the amount of Rs. 28,097 could be taken to have been remitted. It accordingly rejected the said contention of the department and dismissed the department's appeal. An application under section 66(1) of the Indian Income-tax Act, 1922, was made by the department requesting the Tribunal to refer questions of law, which arose out of its order relating to both the contentions, which has been raised by the department before the Tribunal. The Tribunal was of the view that the question of law relating to the first contention of the department arose out of its order, which could be referred to the High Court, while no question of law arose as regards the second contention. It accordingly allowed the department's prayer to refer the question of law relating to the first contention and rejected its prayer with regard to the question concerning the second contention and drew up a statement of the case and referred the following question to this cour :

'Whether the sums of Rs. 14,319 and Rs. 28,097 representing the income that accrued or arose to the assessee in Part B States during the previous year relevant to the assessment year 1951-52 are caught by the provisions of section 4(1)(b)(iii) read with Explanation 4 to section 4(1) of the Income-tax Ac ?'

2. The department has taken out a notice of motion praying that the Tribunal should be directed to refer some more questions of law to this court. The notice of motion also prays for the reframing of the question, which the Tribunal has referred to this court. The notice of motion in so far as it relates to further questions of law is clearly beyond time and cannot be entertained, and in so far as the other prayer contained in it is concerned no notice of motion is necessary for the purpose of reframing the question because if we find that the question as framed does not bring out the real question in dispute or the controversy between the parties, we have ample jurisdiction to reframe the question so as to have the real question necessary to be decided being considered by us. The notice of motion has also not been pressed by the department and we, therefore, do not make any order on the notice of motion.

3. Before proceeding to consider the question, which has been referred to us, we think it will be necessary to reframe it because the real question involved in the case has not been brought out by the question as framed by the Tribunal.

4. Mr. Kaka for the assessee has argued that it is not necessary to reframe the question because the question properly reflects what has been argued by the department before the Tribunal. Mr. Kaka says that the only ground on which the department contended that these items were liable to be taxed at the full Indian rate was that they fell within the ambit of section 4(1)(b)(iii) and that contention was negatived by the Tribunal on the authority of Shankar Gumdel v. Commissioner of Income-tax, which directly applied to that contention. According to Mr. Kaka it was not contended by the department that even if the items did not fall under section 4(1)(b)(iii), the assessee would still not be entitled to the benefit of the Concessions Order because his case did not fall within the scope of the concession as contained in paragraph 4 of the Order. There was no dispute, says Mr. Kaka, that of the assessee came within the scope of the concession. The only contention of the department was that paragraph 6 of the Concessions Order did not apply because the income, which had accrued or arisen in the Part B State, had been remitted to the taxable territories within the meaning of section 4(1)(b)(iii). We are not inclined to agree with the submission of Mr. Kaka and, in our opinion, the question has got to be reframed. The contention of the department before the Tribunal was that, although the two sums represented income that had accrued or arisen to the assessee in the Part B State, they had not remained there during the account year, but had been remitted to the taxable territories. It is no doubt true that in examining this contention the provisions of section 4(1)(b)(iii) have been considered but that does not mean that the department's contention was that these items fell under section 4(1)(b)(iii). The contention of the department whether these two items were liable to be taxed at the full Indian rate or at the concessional rate has got to be considered with reference to the relevant provisions of the Income-tax Act and the Taxation Concessions Order. What has got to be considered is whether the assessee was entitled to the concession as claimed by him in respect of these two items under the Concessions Order. The proper form, therefore, in which the question for consideration could be framed is as under :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to rebate in respect of the sums of Rs. 14,319 and Rs. 28,097 under the Part B States (Taxation Concessions) Order.'

5. We reframe the question accordingly and proceed to answer the same.

6. Before the 1st April, 1950, the Indian Income-tax Act was not made applicable to the Part 'B' States, which were composed of the erstwhile Indian States. From the 1st of April, 1950, the Income-tax Act was made applicable to almost all these States. Now, in several of these States, there was either no income-tax charged or the rate at which it was charged was much lower than the rate under the Indian Income-tax Act. The Income-tax Act having been made applicable to all these areas, assessees who had their business in these States were likely to be subjected to a larger burden of tax. It was, therefore, thought desirable to give such persons some concession in taxation and it was for that reason that the Taxation Concessions Order, 1950 was passed. Now, under section 4 of the Indian Income-tax Act, all income, which was received or deemed to be received by the assessee in the taxable territories, was liable to be taxed whether the person was a resident or a non-resident of the taxable territories. Where, however, a person was a resident in the taxable territories and had his income in the taxable territories and outside the taxable territories, his total income under the Indian Income-tax Act would include all income, which accrued or arose, or deemed to accrue or arise to him in the taxable territories and all income, which arose or accrued or arise to him in the taxable territories during the year of account as also all income which has arisen to him outside the taxable territories during proper years and which was brought into the taxable territories during the account year. Although all these incomes were liable to be included in the total income under section 14(2)(c), it was provided that no tax was payable by the assessee in respect of any income, profits or gains accruing or arising to him in Part 'B' States unless such income, profits or gains were received or deemed to be received in or were brought into the taxable territories in the previous year on behalf of the assessee. It would thus be seen that until the Income-tax Act was applied to the Part 'B' States and the said States also became part of the taxable territories, the assessee having income, profits or gains accruing or arising to them in the Part 'B' States were not required to pay tax on such income, profits or gains unless they were received or deemed to be received or were brought by the assessees to the taxable territories in the previous year. From the 1st of April, 1950, the Indian Income-tax Act became applicable to the Part 'B' States, which from that day onwards became taxable territories. Section 14(2)(c), therefore, ceased to have any application and was accordingly deleted as from that date. In order, however, to give concession to the assessees, who were deprived of the exemption, which was granted to them so far under section 14(2)(c), paragraph 4 of Taxation Concessions Order, 1950, provided that the provisions of paragraphs 5, 6, sub-paragraph (1) of paragraph 11, 12 and 13 of the Taxation Concession Order will apply in the case of an assessee, who was a resident in the previous year in the taxable territories other than Part 'B' States, to so much of his income, profits and gains included in his total income as would have been exempt under clause (c) of sub-section (2) of section 14 of the Act, if it had not been extended to Part 'B' States. In view of this provision, the income of the assessee, which qualified for exemption under section 14(2)(c) was now entitled to be treated at the concessional rates provided by the Taxation Concessions Order. In order to find out whether the assessee in the present case will be entitled to be charged at the concessional rate under the Taxation Concessions Order, what is required to be seen in whether the income in respect of which he has claimed the said concession is income, which qualified for exemption under section 14(2)(c) of the Income-tax Act.

7. Now, what is exempted under section 14(2)(c), as we have already stated, are income, profits and gains accruing or arising in the Part 'B' States unless they are received or deemed to be received or brought into the taxable territories within the previous year. It is not disputed that the two items with which we are concerned are items of income, profits and gains, which have accrued or arisen to the assessee in the Part 'B' State in the relevant previous year in the case of each of them. The department, however, contends that they are not entitled to exemption under section 14(2)(c) because they have not remained in the Part 'B' States during the previous year, but have been remitted by the assessee to the taxable territories during the said year. The assessee, on the other hand, contends that the remittance of the amounts of Rs. 14,319 and Rs. 28,097 are not remittances of profits and gains from the Part 'B' States to the taxable territories. The argument of the assessee is that at the time when these amounts were remitted, they could not be predicated as profits because the profit and loss could be ascertained not during the currency of the year but only at the end of the year. What is excluded from the exemption granted under section 14(2)(c) is income, profits and gains, which are remitted from the Part 'B' States to the taxable territories. They must, therefore, at the time when they are remitted, be profits and gains. The mere circumstance that the sums that were remitted may ultimately be regarded as parts of the profits because the profits at the end of the year exceeded the amounts remitted, will not make the amounts remitted profits at the time when they were remitted. The department, on the other hand, contends that income, profits and gains are capable of being remitted even during the currency of the account year and under section 14(2)(c) the exemption is granted only in respect of income, profits and gains, which have accrued or arisen in the Part 'B' States and remained in the Part 'B' States without being remitted to the taxable territories throughout the year of account. It is argued by the department that it is undisputed in the present case that the two items constitute profits and gains from the business in the State. If the items are admittedly profits and there can be no denying that they were transmitted during the course of the current year they must, according to the department, be excluded from the exemption granted under section 14(2)(c). If these items were not entitled to the exemption under section 14(2)(c), they are not entitled to the concessional rates under the Part 'B' States (Taxation Concessions) Order, 1950.

8. Now, under section 3 of the Indian Income-tax Act income-tax is charged in respect of the total income, which means total amount of income, profits and gains referred to in section 4(1) computed in the manner laid down in the Act. Section 4 defines the range of total income. Section 6 classifies it under different heads and section 7 to 12 provide for computation of the total income under the several heads. Sections 14 to 16 provide for exemptions and the exclusions in the matter of payment of tax. Section 14(2)(c) is one of the provisions relating to the exemption from the payment of tax on certain income out of the total computed income of the assessee. In order to see, therefore, whether the two items in the present case are capable of being exempted from the payment of tax thereof, it would be necessary to see whether they fall in the first place within the range of total income under section 4. Now, under section 4, as we have already pointed out, in clause (a) of sub-section (1) thereof, all incomes, which are received or deemed to be received in the taxable territories within the relevant previous year are included in the total income irrespective of whether the assessee is a resident or a non-resident of the taxable territories. It must, however, be remembered that the inclusion of this income is on receipt basis and, as is well settled, relates to the first receipt of the income in the taxable territories. The clause of sub-section (1) of section 4 obviously does not relate to remittances of profits. Under clause (b), which applies to residents in the taxable territories, all income, which accruing, arising or deemed to accrue or arise in taxable territories as well as all income, which accrues or arises to him without the taxable territories during the relevant previous year is included in his total income. In addition to that, accumulated income of the prior years in non-taxable territories if it is brought into or received in the taxable territories during the relevant previous year is also included in the total income. It would thus be seen that in respect of the income of the current previous year it is included on the basis of accrual while in respect of the income of the prior years, it is included on the basis of remittance. There is no provision in this clause, which includes income of the current previous year in non-taxable territories on the basis of its having been remitted or brought into the taxable territories during the course of the current year. Confining ourselves, therefore, to the provisions of section 4(1)(a) and (b) it appears that the income of a person, who is resident in the taxable territories from sources outside the taxable territories, is included in the total income either on the basis of first receipts or on the basis of accrual or on the basis of remittances but the income, which is included on the basis of remittance of income not of the current year but of the previous years unless perhaps such remittances qualify for being included on the basis of first receipts of the income. The provision of section 14(2)(c), which relates to the exclusion of the income from the total income, has got to be understood with reference to the provisions of section 4(1)(a) and (b), which define the range of the total income. Now, section 14(2)(c) states that income, profits or gains accruing or arising to the assessee in the Part 'B' State will be excluded as received or deemed to be received or brought into the taxable territories in the previous year by or on behalf of the assessee. The expressions 'received or deemed to be received' and 'brought into the taxable territories in the previous year' when understood with reference to section 4(1)(a) and (b) will be received or deemed to be received under section 4(1)(a) or brought into the taxable territories under section 4(1)(b)(iii). In other words, the income, which has been excluded from the exemption granted under section 14(2)(c) would be such income of the relevant previous year, which will be received or deemed to be received by the assessee on the basis of the first receipts of the income in the taxable territories or such of the accumulated income of the prior years, which has been remitted to or brought into the taxable territories during the relevant previous year. Excepting these categories of incomes, all income, profits or gains, which have accrued or arisen to the assessee in the Part 'B' States is required to be excluded under section 14(2)(c). Now, the two items in the present case are items, which obviously do not form the first receipts within section 4(1)(a), nor is it contended on behalf of the department that they come under section 4(1)(a). They also do not come under section 4(1)(b)(iii) because they are, so far as the question before us is concerned, not from accumulated profits of prior years. Their inclusion in the total income could only be on the basis that they have accrued or arisen to the assessee outside the taxable territories during the previous year. In our opinion, therefore, these two items fall within the exemption granted under section 14(2)(c) and the assessee, therefore, came within scope of paragraph 4 of the Taxation Concessions Order.

9. It was contended on behalf of the department that income, profits and gains even of the previous year in a non-taxable territory were capable of being remitted to or brought into the taxable territories during the currency of the previous year and when they were so remitted or brought into the taxable territories were not entitled to exemption under section 14(2)(c) by reason of the latter part of the said section. Mr. R. J. Joshi, learned counsel appearing on behalf of the department, has invited our attention to certain cases in support of his submission that income, profits and gains of the current year are capable of being remitted as such during the course of the current year and that profits, which are so remitted, are not entitled to the exemption under section 14(2)(c). The first case to which he has invited our attention is Dharamdas Hargovandas v. Commissioner of Income-tax. It has been observed in that case that under sections 4 and 14(2)(c) of the Indian Income-tax Act, 1922, if income which had accrued or arisen in a Part 'B' State is brought into the taxable territories by the assessee in the very year in which it accrues or arises then that income becomes liable to tax even though it may have been received in the taxable territories indirectly or constructively by the assessee. The observation, no doubt, prima facie appears to support the submission of Mr. Joshi. It will, however, be seen on going through the said decision that the said observation has no reference to the remittance of the profits but to the receipt of the profit as first receipts falling under section 4(1)(a). Facts of the case were that the assessee had a sum of Rs. 1 lakh deposited with the Mahalaxmi Silk Mills Ltd., Bhavnagar, in the joint account of the assessee and the brother. The assessee and his brother purported to lend the said sum of Rs. 1 lakh to two persons, who were their benamidars and obtained promissory notes executed by those benamidars in favour of the assessee and his brother. On the very day the Mahalaxmi Silk Mills Ltd., Bhavnagar, debited the sum of Rs. 1 lakh to the account of the assessee and his brother and at the same time the New Mahalaxmi Silk Mills in Bombay credited the amount of Rs. 1 lakh in the name of the benamidars of the assessee and his brother. The transaction in substance was that the assessee and his brother has asked the Mahalaxmi Silk Mills Ltd., Bhavnagar, to transfer the sum of Rs. 1 lakh which stood to their credit to the account of the New Mahalaxmi Silk Mills, Bombay, and the evidence in the case showed that the Bhavnagar Mill sent the said amount to the Bombay Mills as directed by the assessee and his brother by a cheque drawn in favour of the Bombay mills. The question that arose for consideration on these facts was whether the assessee had become liable to pay tax on his half share of the said sum, viz., the sum of Rs. 50,000. The departmental authorities has taxed the said sum on the basis of that it fell under section 4(1)(b)(iii) of the Income-tax Act. It was argued on behalf of the assessee that the item did not fall under section 4(1)(b)(iii) because what comes within that provision is the income, which is brought into or received in the taxable territories by the assessee himself and it was contended that if the assessee does not bring his income into the taxable territories but accumulates it in the Part 'B' State, then unless he directly receives or directly brings that amount to the taxable territories in the subsequent years, the income is not liable to tax. This contention of the assessee was accepted on the basis of the difference in the language between section 4(1)(a) and 4(1)(b)(iii). It was pointed out that income, which was made taxable under section 4(1)(a) could be received indirectly or constructively while income, which was made taxable under section 4(1)(b)(iii) was made so taxable only on the basis of its being directly brought into or received by the assessee into the taxable territories. It will thus be seen that the case, which was under consideration, was not one in which income, profits and gains accruing or arising in the current year were remitted during the course of the current year. The amount, which was deposited in the Mahalaxmi Silk Mills Ltd., Bhavnagar, was only the accumulated income of the assessee in the previous years. The only question before the court was whether there was a remittance or the bringing in of total income to the taxable territories within the current year within the meaning of section 4(1)(b)(iii). The question whether the profits of the current year could be remitted as such during the course of the coming year did not arise for consideration in that case, nor was it considered therein. As a matter of fact, the question came for consideration in a later case in Shankar Gumdel v. Commissioner of Income-tax before this court during the course of which this case was also cited before the court.

10. Now, in Shankar Iranna Gumdel v. Commissioner of Income-tax the submission, which has been urged by Mr. Joshi, that the profits of the current year are capable of being remitted as such during the course of the said year came directly for consideration. The assessee in that case was a Hindu undivided family carrying on adat business at Sholapur and a commission agency business in Sirailla in the Hyderabad State at the material time. In the account year Shake 1867-68, which extended from the 5th November, 1945, to 24th October, 1946, and which was the relevant previous year for the assessment year 1947-48, a sum of Rs. 33,039, which the assessee has received from Sholapur in Hyderabad was included in the total income of the assessee by the Income-tax Officer as remittance from an Indian State and liable to tax. It appears that in the account year, which was prior to the relevant account year, the assessee had made a profit of Rs. 10,788 in the Hyderabad business and in the relevant account year his profit in Hyderabad business was Rs. 15,872. The assessee contended that out of the sum of Rs. 23,039 which has been remitted from Hyderabad to Sholapur in the relevant account year, an amount of Rs. 10,788 could only be regarded as remittance of past profits and liable to be brought to tax, but with regard to the balance of Rs. 12,251 it could not be regarded as a remittance of past profits and, therefore, not liable to be included in the taxable income. The department on the other hand contended that as a matter of fact the Hyderabad business in the relevant account year had yielded a profit of Rs. 15,872 and the sum of Rs. 12,251 could be regarded as a remittance of profits and, therefore, liable to tax. This court negatived the contention of the department holding that the amount of Rs. 12,251 could not be regarded as a remittance of profits. It was observe :

'In their very nature, profits cannot be remitted in the very year in which they have arisen because it cannot be predicated of a business that it has made any profits till the year has been completed.'

11. It was further observed that the remittance of Rs. 12,251 could not come under section 4(1)(b)(i). Its inclusion in the total income could only be on the basis of section 4(1)(b)(iii), but under section 14(2)(c) income, which was included under section 4(1)(b)(iii) was exempted unless it fell under section 4(1)(b)(iii). Referring to Dharamdas Hargovandas v. Commissioner of Income-tax, which was cited before the court, it was observe :

'That judgment makes clear the scheme of section 4(1)(a), section 14(2)(c) and section 4(1)(b)(iii), and there is nothing in that judgment which militates against the view that we have taken with regard to the basis of taxation when the taxation is on remittance and not on receipt.'

12. It would, therefore, appear that the observation in Dharamdas Hargovandas v. Commissioner of Income-tax on which Mr. Joshi seeks to rely, is in the context of the position under section 4(1)(a) and has reference to the first receipt of income and not with regard to the remittance of profits of the current year.

13. Another case to which Mr. Joshi has invited our attention of Thakural Poddar v. Income-tax Officer, Ratlam. Therein again it is observed that if the assessee brought the income into the taxable territories other than the Part 'B' States in the very year in which it accrued or arose that income would be liable to be taxed according to the Indian rate of tax irrespective of the part of the taxable territories in which the assessee was resident in the relevant previous year. The observations, no doubt, appear to imply that income could be brought into the taxable territories from outside in the very year in which it accrued or arose. We do not, however, think that the said observation could be interpreted to mean that the income of profits could be remitted as income or profits from outside to the taxable territories in the very year in which it accrued or arose. As we have already pointed out, bringing in of income from outside into the taxable territories in the current year itself is possible in the process of the first receipts of the income in the taxable territories. We are, however, not concerned with the case of first receipts. What we are concerned with is the remittance of profits and since profits are not capable of being predicated in the course of the year, remittance during the course of the year will not be as of profits, though ultimately the profits of the year could be found to exceed the remittances. As has been pointed out in Shankar Gumdel v. Commissioner of Income-tax profits to be included in the assessable income must be profits at the time when they are remitted and not remittances, which in a retrospective sense could be considered as profits. The main question for consideration in Thakural Poddar v. Income-tax Officer, Ratlam was whether the order for the recovery of rebate, which was allowed to the assessee during the previous year was correct or not. The contention of the assessee was that since at the time when the remittance was made by the assessee the petitioner was not a resident in any taxable territories other than Part 'B' State, no order under the second proviso to paragraph 6 of the Part 'B' states (Taxation Concessions) Order, 1950, could be made by the Income-tax Officer for the recovery of the rebate. We do not, therefore, think that Mr. Joshi will be able to press into service the observation on which he has relied in support of his case.

14. Another case, to which he has invited our attention is Kalyanji Ukka & Co. v. Commissioner of Income-tax. The observation on which reliance is placed from this case i :

'It is true that the profits accruing to an assessee are ascertained or get ascertained at the end of the year, but that would not mean that no part of the profits of a business located outside the taxable territories could be received in the taxable territories during the course of the year.'

15. We do not see how this observation helps Mr. Joshi. As we have already pointed out, it is quite possible that income, profits and gains of the current year in the non-taxable territories are capable of being received in the taxable territories on the basis of first receipts. On the other hand, we find that on the question before us, the view taken in this case is not in any way different or in consistent with the view taken in Shankar Gumdel v. Commissioner of Income-tax, which, as we have already pointed out, is the direct decision on the question with which we are concerned.

16. In our opinion, therefore, the two items, which are admittedly from the income, profits or gains, which have accrued or arisen to the assessee in the Part 'B' States cannot be regarded as income, profits and gains received or deemed to be received or brought into the taxable territories in the previous year by the assessee so as to disentitle him to the exemption under section 14(2)(c) of the Act. The items, therefore, being such as would have been exempt under section 14(2)(c) of the Act, if the Income-tax Act had not been extended to the Part 'B' States (Taxation Concessions) Order, 1950, as held by the Tribunal.

17. Our answer, therefore, to the question arising on this reference in the form in which we have reframed it, is in the affirmative. The department will pay the costs of the assessee.

18. Question answered in the affirmative.


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