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B.S. Heera Vs. Commissioner of Income-tax, Bombay City-i - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 103 of 1963
Judge
Reported in[1971]81ITR140(Bom)
ActsIncome Tax Act, 1922 - Sections 4(1)
AppellantB.S. Heera
RespondentCommissioner of Income-tax, Bombay City-i
Appellant AdvocateH.G. Advani, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
.....had no business in india during previous year of assessment year 1958-59 - during previous year assessee had two accounts in india - one with his son 'a' and another in name of firm - between 20.04.1957 to 17.12.1970 various amount aggregating to rs. 3957525 credited to assessee's account with 'a' by various draft received from singapore - on 16.01.1958 sum of rs. 18700 was credited in assessee's firm's account draft received from singapore - appellant tribunal ordered aggregate of these two amounts being rs. 5827525 in hands of assessee was chargeable to tax under sections (4) (1) (b) (ii) read with its second proviso - when assessment is made on remittances of profits and profits are of current year - previous year relevant to particular assessment year - it cannot be said that..........would apply in this case to the assessee if the said amount sought to be brought to tax was his income, profits or gains which accrued or arose to him without the taxable territories during the said previous year ending on 31st march, 1958. the provisions of the second proviso would be available in this case to the assessee for excluding the said amount even if it was includible under section 4(1)(b)(ii) if they were brought into or received in the taxable territories by the assessee during the said previous year ending on 31st march, 1958. now the contention of the assessee was and is that the amounts of the said drafts were not remittances out of any income or profits of his business carried on in any non-taxable territories, that even if they be held to be out of the profits of.....
Judgment:

Mody, J.

1. The Income-tax Appellate Tribunal has held that a sum of Rs. 58,275 in the hands of the assessee was chargeable to tax under section 4(1)(b)(ii) read with its second proviso. At the instance of the assessee the Tribunal has made this reference under Section 66(1) of the Indian Income-tax Act, 1922.

2. The assessee is an individual. The assessment year relevant to this reference is 1958-59, the corresponding previous year being the year ended on 31st March, 1958. During thus previous year the assessee as 'resident but not ordinarily resident'. The assessee had no business in India during this previous year. During this previous year the assessee had two accounts in India. One of the accounts was with his son, Mulchand Heera, and the other was with Messrs. Heera Traders Private Ltd. Between 20th April, 1957, and 17th December, 1957, various amounts aggregating to Rs. 39,575.25 were credited to the assessee's account with Mulchand by various drafts from Singapore. On 16th January, 1958, a sum of Rs. 18,700 was credited in the assessee's account with Messrs. Heera Traders Private Ltd., being a draft received from Singapore. The aggregate of these two amounts being Rs. 58,275.25 has been brought to tax under the the order of the Tribunal.

3. The question of law referred is :

'Whether, on the facts and in the circumstances of the case, the sum of Rs. 58,275 was chargeable to tax under section 4(1)(ii) read with the second proviso for the assessment year 1958-59 ?'

4. An affidavit of the assessee dated 14th March, 1958, appears to have been filed during the assessment proceedings and a copy thereof is annexed as annexures 'F' to the statement of the case and forms part of it. It may be stated that the order of the Tribunal is with regard to the assessee's assessment for the two assessment years 1953-54 and 1958-59. This reference, however, concerns only the latter year and well will omit any reference to the former. This affidavit concerns both the said assessment years. The affidavit states that the assessee left India in 1915 and had been a resident of Hongkong since then, that he used to do business in Hongkong up to 1939 and that his capital and assets in Hongkong, even at the date of the affidavit, were Rs. 2,00,000 to Rs. 3,00,000. The affidavit further states that in about 1948, he started business in New York in the name of Heera Trading Inc., in which he had been having a controlling interest. The affidavit further states that from 1948 onwards he was not interested in any business save and except the business of Heera Trading Inc., New York. We have referred to this affidavit simply to show that were the contentions urged before the Tribunal and in what background the Tribunal has made its order. The Tribunal's order does not show that any evidence other than this affidavit was produced either by the assessee or by the department.

5. We will summarise the contentions of the assessee urged before the Tribunal and also before us. The contentions arose in view of the provisions of section 4(1)(b)(ii) read with its second proviso. There is no dispute that the assessee being a resident the provisions of section 4(1)(b)(ii) would apply and he also being not ordinarily resident, the provisions of the second proviso are also capable of applying. The provisions of section 4(1)(b)(ii) would apply in this case to the assessee if the said amount sought to be brought to tax was his income, profits or gains which accrued or arose to him without the taxable territories during the said previous year ending on 31st March, 1958. The provisions of the second proviso would be available in this case to the assessee for excluding the said amount even if it was includible under section 4(1)(b)(ii) if they were brought into or received in the taxable territories by the assessee during the said previous year ending on 31st March, 1958. Now the contention of the assessee was and is that the amounts of the said drafts were not remittances out of any income or profits of his business carried on in any non-taxable territories, that even if they be held to be out of the profits of such business they were not the profits of the said previous year and that in any event such remittances could not be said to be profits of such business of the said previous year because the remittances were in the previous year itself and therefore they could not be said to be any profits of his business till after the year had ended. The second contention of the assessee was and is that the amounts of the drafts which aggregate to the said sum of Rs. 58,275.25 were not brought into or received in the taxable territories by the assessee himself.

6. As regards the said first contention, the assessee had contended that what had been remitted was either capital accumulated in the past or failing that the profits which had accrued to him in the years earlier than the said previous year. He further contended, relying on the said affidavit, that during the said previous year he had considerable capital and assets in Hongkong and he had no business except the one in New York and that the department had let no evidence to establish any link between the remittances and the source of income in New York. He further contended that profits of a business in their very nature cannot be remitted in the very year in which they arose and that the remittances could not, therefore, be said to be remittances of profits of the said previous year. The assessee also contended that the amounts were not received or brought into the taxable territories by the assessee himself.

7. As regards some of the assessee's contentions, and particularly as regards his contention about he himself not having brought into or received the said amounts in the taxable territories, Mr. Advani, the learned counsel for the assessee, invited our attention not only to the said affidavit and the order of the Tribunal, but also to the order of the Income-tax Officer and the Appellate Assistant Commissioner, as also to the copies of the two accounts mentioned earlier in which the amounts of the said drafts have been credited as stated earlier, copies of all these documents being annexed to and form part of the statement of the case. Mr. Joshi, the learned counsel for the revenue, contended that in view of the frame of the question referred to us this court is not entitled to gather facts from the order of the Income-tax Officer or the order of the Appellate Assistant Commissioner or to look at any other evidence or even to come to its own conclusion as to facts, but must rely upon the findings of facts as have been made in the order of the Tribunal. In support of his contention he relied upon the judgment of the Supreme Court in Hooghly Trust (Pvt.) Ltd. v. Commissioner of Income-tax. That judgment lays down the principle that in the absence of a proper question about the validity of the findings of fact arrived at by the Tribunal, it is not open to a High Court to accept the findings of the Appellate Assistant Commissioner or to come to any independent conclusion itself on affidavits. We will, therefore, content ourselves by referring only to the order of the Tribunal to ascertain the necessary facts as found by the Tribunal. We may, however, state that during his later arguments Mr. Joshi did state that in the case before us in view of the fact that the Tribunal refers to the order of the Appellate Assistant Commissioner and confirms it on the basis of the reasons given by the Appellate Assistant Commissioner, we can, in this case, refer to and make use of the order of the Appellate Assistant Commissioner. It is unnecessary for us to decide whether we can or we cannot refer to the order of the Appellate Assistant Commissioner for gathering facts, because we feel that it is really not necessary to refer to it, even to the limited extent that Mr. Joshi has admitted that it is possible for us to refer to it. It is unnecessary because what is stated in the order of the Appellate Assistant Commissioner is not really necessary for us in view of the statements made in the order of the Tribunal itself.

8. We will first deal with the assessee's contention that in any event the said amount of Rs. 58,275 is not liable to tax because the amount was not the profits of the said previous year ended 31st March, 1958, during which year the said amount was brought into or received in the taxable territories. In support of his contention the assessee contended that it is well-settled law that when an assessment is made on remittances of profits and the profits are of the current year, i.e., the previous year relevant to the particular assessment year, it cannot be said that the remittances were made out of profits because 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 and that it was possible to remit profit only of the past years because the profits have been made, ascertained and are available for remittance. In support of his contention reliance was placed on the judgment of a Division Bench of this High Court in Shankar Iranna Gumdel v. Commissioner of Income-tax. Mr. Joshi has not disputed this proposition of law as laid down in this case and it is therefore not necessary for us to consider it in detail. That proposition has been laid down in that case and it was a case dealing with the profits of a business. In the case before us the contentions are to be judged, as we will see later, on the basis of the remittances being out of profits of a business and we therefore do not deal with certain contentions urged by Mr. Joshi as to whether the principle laid down in this judgment can apply when the source of income is income or profits or gains other than profits of a business. For example, Mr. Joshi had pointed out that the ratio of that judgment would not apply to income by way of dividends from companies or interest on securities or rents of an immovable property. We are not required even to express any opinion as to whether the said principle can or cannot apply to income, profits or gains other than profits of a business.

9. Mr. Joshi has, however, contended that it has not been found as a fact that the amounts of remittances by way of drafts were of profits of a business. Now, it must be stated that the statements as to its findings of facts contained in the order of the Tribunal are scanty and even so they are not very clearly stated. Its findings are contained in paragraph 8 of its order, which read :

'With regard to the next year, the department's case stands on a stronger footing. There is nothing to show that the drafts were handed over to the creditor or his representative outside the taxable territories, although that was the contention put forward on behalf of the assessee before the Income-tax Officer, before the Appellate Assistant Commissioner and before ourselves in respect of Rs. 35,412 credited to the account of the assessee in the books of his son. The bare facts are that the drafts amounting to Rs. 58,725 have been sent from Singapore to India and they have been utilised partly in extinguishing the assessee's liability to his son and partly in creating a credit balance in favour of the assessee in the books of M/s. Heera Traders Pvt. Ltd. In the absence of any other data the department, in our opinion, was justified in holding that they represented profits accruing to the assessee outside the taxable territories during the year of account received in or brought into the taxable territories by him in the year of account itself. We may point out that Mr. Justice Sarkar of the Supreme Court of India in the case of Commissioner of Income-tax v. Dharamdas Hargovandas, while giving a concurring judgment, referred to a case of the kind before us at page 438 as under :

'Suppose again, he had put the income originally received by him at Bhavnagar in a bank there had then he obtained a draft from the bank payable in Bombay and brought the draft from Bhavnagar to Bombay and cashed it there. Again, there would be little doubt that he had, by this process, brought the income into Bombay.' In the case before us all that we know is that the assessee got some drafts at Singapore and these drafts were cashed in Bombay and he was given credit for the amounts by two parties in the taxable territories. We are, therefore, of the view that the department was justified in treating the amount of Rs. 58,275 as chargeable to tax under section 4(1)(b)(ii) read with the second proviso to the same section.'

10. In order to appreciate the contents of this paragraph 8 it is necessary to bear in mind certain statements contained in the earlier paragraphs of the order as to what were the rival contentions of the assessee and the department before the Tribunal. In paragraph 5 of the order it is stated that it had been contended on behalf of the assessee that what had been remitted was either capital accumulated in the past or at worst profits accrued to the assessee in the earlier accounting years. In that connection the assessee's counsel hand referred to the said affidavit. The assessee had also contended that during the said previous year the assessee had no business except in New York and that the department had led no evidence to establish a link between the remittance and the source of income in New York. Paragraph 6 of the order shows that the departmental representative had contended that the exact nature of funds which were remitted was within the special knowledge of the assessee and that the onus was, therefore, on him to establish whether the amounts were remitted from the capital or from the profits which accrued to the assessee before the beginning of the said previous year.

11. The affirmative findings of fact of the Tribunal are contained towards the end of the said paragraph 8, where it is stated :

'In the case before us all that we know is that the assessee got some drafts at Singapore and these drafts were cashed in Bombay and he was given credit for the amounts by two parties in the taxable territories.'

12. The findings contained in this passage do not relate to the source or the fund out of which the remittances were made. But earlier in the paragraph occurs the passage :

'In the absence of any other data the department, in our opinion, was justified in holding that they represented profits accruing to the assessee outside the taxable territories during the year of account received in or brought into the taxable territories by him in the year of account itself.'

13. Amongst the findings contained in this passage there are two which are relevant to the point under consideration. The first finding is that the Tribunal confirms the findings of the Appellate Assistant Commissioner that the amount of remittances represented 'profits' and, secondly, that such profits accrued to the assessee during the said previous year ended 31st March, 1958. Now, the word 'profit' has been used simpliciter without anything more stated in paragraph 8 itself to show what profits were intended to be referred to. Even a reference to the order of the Appellate Assistant Commissioner does not improve the situation, but it is not at all difficult to known what it refer to. The only evidence produced was that contained in the said affidavit. The affidavit referred to only two sources, the first being the sum of Rs. 2,00,000 or Rs. 3,00,000 which the assessee had a Hongkong and the second being his business in New York. The contentions of the assessee all throughout had been that the amounts covered by the drafts were either out of capital or, if it not be upheld then, in the alternative, out of profits of his business bit the profits being of the years earlier than the said previous year and not of the previous year itself. It may be stated, but only as a matter of fact and not comment, that the department had itself led no evidence. The order of the Tribunal does not specifically refer to the said affidavit, but does not also reject any of the statements contained in that affidavit. The said three contentions of the assessee were based on that affidavit. The department had merely disputed those contentions of the assessee and sought to rely only on onus of proof and presumptions. The department's contention was that the assessee's contention that the remittances were out of capital should not be accepted and that the assessee's contention that the remittances were out of profits of years earlier than the said previous year should also be not accepted. The department then contended that, as the assessee had failed to show that the remittances were out of capital or even out of profits of earlier years, it must be resumed that they were out of the profits, i.e., the profits of the business of the previous year itself. It is in this background and in the light of the arguments on either side that the Tribunal has used the words 'profits'. In this context, therefore, in our opinion, the word 'profit' as used by the Tribunal, must mean 'business profits'. Mr. Joshi relied upon certain provisions of the Indian Income-tax Act to show that the word 'profit' cannot be construed necessarily to mean 'business profits' and can be referred to other items which would fall under 'income, profits and gains'. We are, however, not concerned with the meaning of the word 'profits' as occurring in the Income-tax Act. We are concerned with that word as used in paragraph 8 of the order of the Tribunal and, for the reasons stated earlier, that word must be construed to refer to business profits.

14. The position which, therefore, emerges is that it is findings of fact given by the Tribunal that the amounts of the drafts were remitted out of the business profits of the assessee and that the business profits were those which accrued or arose to the assessee during the said previous year itself. On the basis of the principle laid down in Shankar Iranna Gumdel's case such profits were not liable to be brought to tax. In view of this conclusion which we have reached, it is unnecessary for us to deal with the other contentions urged on behalf of the assessee and we do not, therefore, deal with the same. We, therefore, answer the question in the negative.

15. The Commissioner to pay the assessee's costs.

16. Question answered in the negative.


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