ANANTANARAYANA AYYAR J. - This is a petition filed by Messrs. Ramdayal Ghasiram, Merchants, Hyderabad (Dn.) under section 82(2) of the Hyderabad Income-tax Act read with section 66(2), Indian Income-tax Act, Praying that this court may be pleased to require the Income-tax Appellate Tribunal, Madras 'A' Bench, to state a case and refer the same to this court regarding some points of law which are alleged to arise as follows :
'(i)(a) Whether in view of the fact that the Appellate Assistant Commissioner had held the debt in question, viz., the sum of Rs. 3,564 due from the debtor, Veerannah, had already become bad, the Appellate Tribunal could, in law, come to the conclusion that the debt in question was good at the beginning of the accounting year; and whether the said finding of the Tribunal is not inconsistent with the evidence and contradictory to it
(b) If the answer to question No. (i)(a) is against the petitioners whether the claim for bad debts is admissible under the provisions of section 12(2)(xi) of the Hyderabad Income-tax Act
(ii) Whether, in law, the remittance made from Bombay to Hyderabad during the accounting year could be treated to be the income of that very accounting year even before the close of that year and even before the quantifying of the profits at Bombay
(iii) Whether, in the facts and circumstances of the case, the Tribunal was justified in holding that the profits of Bombay were available for remittance to Hyderabad ?'
The relevant facts of the case are as follows :
The petitioner is a Hindu undivided family carrying on business at Hyderabad with several branches. The business within the State consists of purchase and sale of grains, oil seeds, banking business and business in shares. The petitioner carries on business at Bombay under different names. Besides, the petitioner derives income from interest on securities, house property and partnership concerns within the State. The Income-tax Officer, Hyderabad Circle, 'C' Ward, passed an order dated September 30, 1952, assessing the petitioner to tax. The petitioner filed an appeal before the Appellate Assistant Commissioner, Hyderabad, objecting to the assessment. The Appellate Assistant Commissioner passed an order on August 16, 1954, confirming the order of the Income-tax Officer regarding the points which are now concerned in the present petition, (a) regarding bad debts to the extent of Rs. 35,854, (b) regarding the addition of Rs. 81,484 treated as income remitted from Bombay. Against the order of the Appellate Assistant Commissioner, the petitioner filed an appeal before the Income-tax Appellate Tribunal, Madras Bench 'B', at Hyderabad. The Appellate Tribunal passed an order dated February 11, 1955, in I.T.A. No. 5153 of 1954-55 to the following effect :
'(a) disallowing Rs. 35,854 under bad debts (hereinafter referred to in this judgment as item No. 1); and (b) confirming the order of the Appellate Assistant Commissioner regarding remittance from Bombay to the extent of Rs. 64,409, I.G. equal to Rs. 75,144 H.S. as profits remitted from Bombay to Hyderabad (hereinafter referred to as item No. 2)' and holding as follows : 'As the remittances are, as found above, substantial and more than adequate for the present purposes, we have to hold that the entire profits of the Bombay business for the previous year in question found to be available for remittance in question have, in fact, been remitted.'
The petitioner filed a petition before the Tribunal under section 82(1) of the Hyderabad Income-tax Act, corresponding to section 66(1) of the Indian Income-tax Act, requesting the Tribunal to refer certain questions of law arising out of its order dated February 11, 1955. The Appellate Tribunal rejected the petitioners application setting forth the grounds for the rejection. Consequently, the petitioner filed this petition in this court.
We are dealing below with the grounds which were actually urged and the arguments which were advanced before us, regarding the only items about which the petitioner feels aggrieved.
Item 1. This amount relates to a decree debt due from Sri G. Veeriah under a decree which was several years old. The Tribunal rejected the petitioners claim regarding this item on the following ground;
'(2) Regarding the first contention, out of the four items of bad debts claimed, the largest for Rs. 35,854, due from Veeranna is admitted to be on a decree several years old, but the family clearly has not shown that the debt, was apart from its legal enforceability, in actual fact good and recoverable by itself as at the beginning of the previous year in question and that it became had during the year...'
The contention of the petitioner is that the above ground on which the Tribunal has disallowed the claim is different from the ground on which the Appellate Assistant Commissioner made the disallowance namely, as follows :
'It is seen that in all these cases the decrees were obtained much earlier than the account year. In short, the debts became bad long before the year of account. Hence this is not an allowable claim...'
It is not disputed that, if the petitioner were to get the benefit of the claim to the amount as bad debt, it would have to show that the debt became a bad debt during the year concerned in the issue. In other words, it has to prove (i) that the debt was not a bad debt at the beginning of the year; and (ii) that the debt became a bad debt during the year. On both the points, the burden of proof was on the assessee. If he failed to prove either of the two points, his claim could not be allowed. The Tribunal found that he failed to prove both the points.
Nothing has been shown to us which would warrant an inference that the finding of the Tribunal is wrong. The mere fact that the Appellate Assistant Commissioner thought that the debt had become bad even before the year of account does not affect this fact.
Learned advocate for the department has relied on the decision is Kantilal Chimanlal v. Commissioner of Income-tax. In that case, the assessee, who was maintaining his accounts on the mercantile system, carried forward a debt as an asset bearing interest and paid tax on the interest credited in the accounts. Therein it was held as follows :
'The question whether a debt has become bad or not must be decided from the point of view of the possibility of the realisation of the debt. It does not depend upon the volition of the creditor to decide when a debt becomes a bad debt. It is not open to him merely by making an entry to convert a debt which might be a good debt into a bad debt, and entries in the books of account have little bearing on the question as to whether a particular debt has become a bad debt or not. Nothing that the creditor does either by making an entry with regard to interest or by paying tax on it can have much bearing on the fact which has got to be decided whether there was a possibility of realising the debt. That fact cannot be decided by act performed by the creditor.'
That decision shows that the department was not bound to accept the assessees contention as to when a debt became bad and that it was open to the department to come to a finding whether the debt had become bad and, if so, when. In this particular case, the Tribunal has come to the conclusion already referred to above.
It has been decided in Commissioner of Income-tax v. Seth Birdichand as follows :
'The question when a debt became bad is a question of fact to be determined by the Income-tax Department and no reference therefore lies against a decision of the income-tax authorities on the question when a particular debt became bad.'
Therefore, no question of law arises for reference as mentioned in the petition as regards item 1 and the contention of the learned advocate on this point is untenable.
Item 2. Remittances from the Bombay business. This is discussed in paragraph 6 of the Tribunals order. The following facts as stated by the Tribunal are beyond dispute :
'The assessee has a sole business in Bombay dealing in grains and receiving lease rents, etc., during the Samvat year 2004-5 the previous year for assessment year 1358F., the profit of which has been computed on the accrual basis at Rs. 64,409 I.G. As during the year, there were in all over Rs. 3 lakhs of net remittance into Hyderabad from Bombay business, the whole of the accrued profit aforesaid has been included in the assessment and is fixed at Rs. 75, 144 H.S. (Rs. 64,409 I.G.).'
It is contended on behalf of the petitioner that the Tribunal erred in holding that these remittances included profits. The contention of the petitioner is that the remittances were made out of capital and that the question of remittances out of profit for the year under appeal cannot arise, as the profit itself could be ascertained only at the end of the year. The Tribunal has dealt with this contention as follows :
'The net effectual position for the whole year reveals a substantial remittance of over Rs. 3 lakhs to Hyderabad from Bombay It is simple common sense that profits accrue to a business on each sale or transaction and, therefore, from time to time throughout the year. It is, therefore, idle to contend that in a sole proprietary concern, the closing of the books is necessary, as a condition precedent, to quantify profits before they can be considered for remittance...'
The relevant portion of section 4 of the Hyderabad Indian Income-tax Act (VIII of 1357 F.) runs as follows :
'4(1) Subject to the provisions of this Act the total income of any previous year of any person includes all income, profits and gains from whatever source derived which -
(a) are brought into or received or are deemed to be received in His Exalted Highness the Nizams dominions during such year by or on behalf of such person...'
This provision of law is substantially the same as was the provision in section 4(2) of the Indian Income-tax Act before amendment in 1939.
The learned advocate for the petitioner relies on the decision in In re Govind Ram Tansukh Rai, wherein it was held as follows 2 :
'But foreign income, profits and gains must accrue or arise without British India before they can be received in or brought into British India, and the receipt of a trader in the course of the year, though ultimately it mighty result into a profit, cannot be treated as profit before the determination of the year. Consequently, the income-tax authorities cannot treat remittances which were made during the pendency and in the course of the accounting year as remittances out of profits of the accounting year.'
In the present case, the Tribunal did not treat the entire remittances as remittances out of profits. It only acted on the basis that profits accrued on each sale or transaction and that, therefore, from out of the remittances of three lakhs, a sum of Rs. 64,409 I.G. should be treated as profits which had accrued. It is admitted by the learned advocate for the petitioner before us that such profits, namely, Rs. 64,409 were earned. But it is contended that those profits were computed by the income-tax authorities only later and not during the accounting year and that, at the time the remittances were made into Hyderabad, it could not be considered that profits had accrued. In In re Govind Ram Tansukh Rai, referred to above, it was held as follows :
'If the proved or admitted profits of an assessee in his foreign business exceeded the remittances made by him included the profits.'
In the present case, it is not contended on behalf of the petitioner that the profits did not amount to Rs. 64,409.
In Commissioner of Income-tax Ramachandra Keshardeo it has been held as follows :
'The money remitted to the headquarters of a firm in British India from its branch outside British India is prima facie to be presumed as having come out of profits rather than a remittance of capital and is assessable to income-tax as profits until the contrary is shown by the assessee.'
In the present case, on the facts and circumstances before it, after careful discussion, the Tribunal has come to a conclusion that certain amount of profit was remitted to Hyderabad State. It was purely a question of fact and we see no question of law such as alleged by the petitioner.
The petitioner has sought to rely on the decision in Ganeshilal and sons v. Commissioner of Income-tax, wherein it was decided as follows :
'... in determining the profits and gains accruing or arising to the assessee from the foreign business under section 4(2) of the Indian Income-tax Act, 1922, prior to its amendment in 1939, for assessment on the remittance basis such expenses as are admissible under section 10(2) of the Act are alone deductible from the gross profits. But for the purpose of determining the question whether the entire income chargeable under the Income-tax Act was available at the time of the remittance to British India, expenditure, although not admissible under section 10(2) of the Act, must be taken into consideration. The excess of profits and gains, as determined under the Income-tax Act, over the inadmissible expenditure, would represent the amount available for transmission to British India and this excess should be treated as a remittance of profits.'
On the basis of the above decision, it is sought by the learned advocate for the petitioner to make out that monies spent on investments in Bombay was spent out of the profits and, therefore, should not be treated as having been remitted to India. His contention is that the expenditure on investments came out of profits and that what was remitted to Hyderabad from Bombay consisted purely of capital. We are unable to accept this contention. The presumption that the remittances of three lakhs included profits of Rs. 64,409 applies in this case as mentioned in the decision in In re Govind Ram Tansukh Rai and the presumption has not been rebutted. In the circumstances of the present case, the finding of the Tribunal, that the remittances made in the course of the accounting year included profits, is justified.
The learned advocate for the petitioner has relied on the decision in Commissioner of Income-tax v. Ramachandra Keshardeo. This decision followed the decision of the Allahabad High court referred to above in In re Govind Ram Tansukh Rai. The Patna High Court held as follows :
'The profits of a foreign business in a year cannot be determined till the expiration of the year and, therefore, they cannot be included in law in the remittances which were made during the pendency and in the course of the year.'
The learned counsel for the department has, on the other hand, relied on the decision of the Madras High Court in Commissioner of Income-tax v. Nadimuthu Pillai and Commissioner of Income-tax v. Meyyappa Chettiar and for the position that the remittances of the profits of the accounting year itself could be assessed to tax. The Tribunal has, on the basis of certain special facts and circumstances mentioned by it, come to the conclusion that, in effect, profits of Bombay were available for remittance to Hyderabad and were included in the remittances which were made from Bombay to Hyderabad. In view of those special facts and circumstances, it cannot be said that the views of the Tribunal regarding this item is contrary to law or that any question of law arises such as mentioned by the petitioner in his petition. No point of law arises for reference as regards item No. 2 also.
In the result, this petition fails and is dismissed with costs. Advocates fee Rs. 100.