1. The assessee in the year of account carried on extensive business in oil, oil-crushing and banking, at Junagadh, Veraval and Shahpur all of which were India States at the relevant date. He also carried on business in Bombay an oil mill also carried on business in Bombay and he owned in Bombay an oil mill known as the Raja Oil Mills. The Tribunal has found as a fact that in the course of the banking business in the year of account there was a large flow of money to the tune of Rs. 30,00,000 in both directions, and the net result of this flow was that there was an excess of Rs. 2,907 in British India. The Income-tax Officer considered individual items of remittances from the Indian States into India, and he came to the conclusion that four items totalling to Rs. 1,85,000 were liable to be included in the total incomes of the assessee under section 4 (1) (b) (iii). In appeal the Appellate Assistant Commissioner held, following the case reported in Commissioner of Income-tax v. Jankidas Kaluram Rewari that in view of the fact that remittances into India and remittances out of India into Indian States were more or less equal there was no presumption that any amount was sent from Indian States into India out of the profits of the business carried on in India States and therefore he held in favour of the assessee. The Tribunal took the same view and the matter has was now come before us on this reference.
2. Now, let us first of all try and understand the principle underlying section 4 (1) (iii) and how that principle is applicable to the facts of this case. What is liable to tax under that sub-section are the profits accruing to an assessee in an Indian State; but the profits are only liable provided they are brought into the taxable territories. Therefore, before section 4 (1) (b) (iii) can have any application profits must be accumulated profits of year prior to the previous year, because it could not be said of the year of account that in that were any profits in an Indian States which could be remitted into the taxable territories, as profits cannot be determined till the end year of account. Now, if the remittances are made from an Indian State into the taxable territories and if it is established that were available profits in the Indian state, then a presumption would readily arise that the remittance were out of the profits and it would be for the assessee to rebut the presumption. There may be another case where there May be remittances both into the taxable territories and out of the taxable territories into Indian State and the there may be an excess of remittances from India states into the taxable territories, in which case also the presumption may readily arose in respect of the excess. But the third case may be - and that is the case we are dealing with - where the flow in both the directions may be even and equal, with the result that there is no excess either way, in which case if a presumption arises at all, it would be a very weak or negligible presumptions. That is the principle of the decisions of the Punjab High Court which has been accepted both by the Appellate Assistant Commissioner and the Tribunal in Jankidas's case. But there is one circumstances in this case which was not present in Jandkidas's case and which has a peculiar significance with regard to the question that we are considering. As already pointed out, the assess did banking business and it has been found as a fact that this flow of money was in the course of the banking business. Now, money to a banker is a stock-in-trade. In the case of other business or profits accruing in other ways, the question of presumption becomes or profits accruing in other ways, the question of presumption becomes important, because what the Court has to decide is whether the remittances was from profits or from capital. But in the case of a Banker who remits money in the course of his banking business, we start with this that what he is remitting is his stock-in-trade and he is remitting it for his business and for the purpose of carrying on his business. There is no conflict in this case between capital and profits. It May be that even a banker may remits profit from an Indian State into the taxable territories, but in the case of banker there would be no presumption that when he remits any amount in the courses of his banking business, he has remitted profits out of accumulated profits. Therefore in this case we start with this that on the facts established there was no presumption into the taxable territories by the assessee in the year of account was remitted out of accumulated profits. Therefore if the Department wanted to establish that any part of this remittances was not a part of the stock-in-trade which was sent into the taxable territories but was part of profits the banker had made in his banking business, then undoubtedly it was for the Department to establish that fact. Now, in this case the Income-tax Officer, has not even proved that profits were available for remittances to British India. The Advocate-General says that we must remand the matter so that the Income-tax Officer can give the necessary finding. But even if were to remand the matter and the income-tax Officer was to find that profits were available, the difficulty would still remain whether the remittances was out of the profits or the remittances was as part of the stock-in-trade of the banking business and with regard to that the Department can only rely on the presumption that once available profits are established, the remittances must be out of those profits. But as we have just pointed out, in the present case that presumption cannot arise.
3. The Advocate-General also wanted to argue that there is not evidence to establish that this remittance was in the course of banking business of the assessee. Now, we have before us an agreed statements of the case, and the fact that the remittances was made in the course of banking business appears in the statement of the case. Therefore, this is a fact which is not contested either by the assessee or by the Department. It is difficult to understand how we can permit the Advocate-General to challenge finding.
4. The Advocate-general then says that the Income-tax officer has referred to the four items which aggregate to Rs. 18,5,000 and these items have been set out in the statement of the case and therefore we must examine these items. Now, the question of the Examination of these items could only arise if we held that there is a presumption which arise in favour of the Department. But if we accept the principle of Jankidas's case, fortified as it is in this case by the fact that the assessee was remitting this amount in the course of a banking business, then no questions of examining those items arises. But, if we want to go into the merits of these four items, then the matter would have to be remanded, so that a supplementary statements of the case arise because of what we have just stated.
5. We will re-formulate the question submitted to us in paragraph 12 :
'Whether on the facts and in the circumstances of the case, all or any one or more of the four items of Rs. 10,000, Rs. 50,000, Rs. 50,000 and Rs. 75,000 constituted remittances of profits to British India for the purpose of section 4 (1) (iii) of the Act ?',
and answer that in the negative. The other question raised by the assessee do not survive.
6. The commissioner to pay the costs of the reference.
7. Reference answered accordingly.