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Haridwar Dubey Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 284 of 1963
Judge
Reported in[1970]75ITR704(All)
ActsIncome Tax Act, 1922 - Sections 4(1)
AppellantHaridwar Dubey
RespondentCommissioner of Income-tax
Appellant AdvocateR.K. Gulati, Adv.
Respondent AdvocateShanti Bhushan, Adv.-General and ;R.R. Misra, Adv.
Excerpt:
- - the government of india merely passed it on to the assessee and other claimants like him. in the absepce of any indication to the contrary and in the absence of any explanation by the assessee, the income-tax authorities may well start with the presumption that the remittances either represent the profit earned by the assessee or at least include the profit earned by him......his assets including the stock-in-trade of the business and, therefore, the compensation which the assessee received was really a part of the sale price of his foreign assets in addition to what he had already received. in other words, according to the tribunal, the assessee had received a sum of 4,300 in 1943 by the forced sale of the assets and stock-in-trade of his business and the balance of rs. 3,28,449 was received by him in the year 1952 from the government of thailand through the government of india as compensation for the loss on the forced sale, etc. the tribunal, therefore, concluded that during the period between 1925 and 1948 the assessee had earned considerable profits from the business, part of which had been temporarily converted into capital assets in the shape of saw.....
Judgment:

Mukerjee, J.

1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922, hereinafter referred to as 'the Act', The material facts are as follows : The assessee, who is the applicant in the case, went to Thailand in 1913 and was employed there as watchman on a salary of Rs. 25 per mensem. He gave up that job and started a timber business in 1936 and set up a saw mill in 1937. Following the invasion of Thailand by the Japanese in World War II the applicant and his wife were arrested as enemy nationals in 1941, but were released after detention for sixteen days. The appellant thereafter continued to carry on his timber business up to the year 1943. Subsequently, however, restrictions were imposed regarding the booking of railway wagons for transporting timber and the applicant had to close down his business and sell away the assets and stock-in-trade for nominal amounts in 1943. The applicant was again arrested in 1944 but he was released after a period of 120 days. He returned to India in June, 1948.

2. The assessee had claimed compensation from the Government of Thailand as follows :

(a) Loss on sale of saw mill, machinery,etc........ .....

29,682

(b) Loss on forced sale of thestock-in-trade such as timber, charcoal, etc.

11, 582

(c) For wrongful arrest, personal prejudiceand loss of income.

1,094

3. The applicant was allowed an amount of 27, 257 towards his claim under items Nos. (a) and (b) above and a sum of 113 under item No. (c).

4. On the 25th October, 1952, the applicant received a sum of Rs. 3,28,449 from the Custodian of Enemy Property, Government of India as compensation for damage to property and for personal prejudice. On receipt of this information, the Income-tax Officer initiated proceedings under Section 34 of the Act after obtaining the sanction of the Commissioner of Income-tax, U.P. The Income-tax Officer held that out of Rs. 3,28,449 received by the applicant, the sum of Rs. 92,873 was liable to tax under Section 4(1)(b)(iii) of the Act. This amount was worked out by the Income-tax Officer as below :

(1) Amount received on account of loss of income due to arrest and restraint on liberty for 142 days--80

(2) Compensation for loss on forced sale of stock-in-trade of the business--7,651

5. The Income-tax Officer allowed a deduction of ten per cent. for legal charges and held that the balance amounting to 6,958, equivalent to Rs. 92,873, was taxable under Sections 4(1)(b)(iii) of the Act.

6. The applicant preferred an appeal against the assessment before the Appellate Assistant Commissioner and contended that no part of the compensation given to the assessee by the Government was taxable under Section 4(1)(b)(iii). It was also contended that the proceedings under Section 34(1) were illegal and void. The Appellate Assistant Commissioner, rejected the applicant's contentions and confirmed the assessments.

7. The assessee then appealed to the Tribunal. The Tribunal found that the assessee had begun his career in Thailand with practically nothing in hand and he returnd to India in 1948. During his stay abroad, he carried on business in timber and saw mill, earned considerable profits and with such profits he acquired assets of considerable value. The assessee, however, had to sell away all his assets, etc., in the year 1943 for the nominal sum of only 4,300. The assessee's claim against the Government of Thailand was mainly on account of the loss which he had incurred by the forced sale of his assets including the stock-in-trade of the business and, therefore, the compensation which the assessee received was really a part of the sale price of his foreign assets in addition to what he had already received. In other words, according to the Tribunal, the assessee had received a sum of 4,300 in 1943 by the forced sale of the assets and stock-in-trade of his business and the balance of Rs. 3,28,449 was received by him in the year 1952 from the Government of Thailand through the Government of India as compensation for the loss on the forced sale, etc. The Tribunal, therefore, concluded that during the period between 1925 and 1948 the assessee had earned considerable profits from the business, part of which had been temporarily converted into capital assets in the shape of saw mill, machinery, etc., but upon sale thereof, forced and voluntary, they were reconverted into cash. In the opinion of the Tribunal the whole of the amount of the sale proceeds 'had the character of income earned outside the taxable territories'. The Tribunal noticed that under Section 4(1)(b)(iii) foreign income earned before the 1st of April, 1933, was exempt but it held that the assessee could not have earned much before that date, because until 1925 the assessee was serving only as a watchman on a petty salary and the timber business must have been started on a small scale. It was only in the year 1937 that the assessee expanded his business and set up the saw mill. The assessee had not produced any documentary or other evidence to show what was the amount of income earned by him before 1933. In the view taken by the Tribunal, the sum of Rs. 92,873, which has been assessed in the hands of the assessee, is only a small portion of the total amount received by him and the whole of it was attributable to income earned after the year 1933 and taxable under Section 4(1)(b)(iii) of the Act.

8. On behalf of the assessee exemption under the second proviso to Section 4(1)(b)(iii) was claimed. The Tribunal negatived the claim on the ground that there had been no compliance with the conditions of that proviso. The Tribunal also rejected the assessee's contention that the proceedings under Section 34(1)(a) of the Act were illegal. In the result the Tribunal dismissed the appeal and confirmed the assessment.

9. At the instance of the assessee the Tribunal has referred the following question for the opinion of this court :

' Whether, on the facts and in the circumstances of the case, the sum of Rs. 92,873 was liable to assessment under Section 4(1)(b)(iii) ?'

10. The provisions of Section 4(1)(b)(iii) of the Act are reproduced below :

'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--...

(b) if such person is resident in the taxable territories during such year,-- ..

(iii) having accrued or arisen to him without the taxable territories before the beginning of such year and after the 1st day of April, 1933, are brought into or received in the taxable territories by him during such year.'

11. Under Clause (b)(iii) of Section 4(1) quoted above the income which has accrued without the taxable territories after the 1st April, 1933, and before the beginning of the previous year is chargeable to tax if it is received in or brought into the taxable territories during the accounting year. Under this provision the entire foreign income of an assessee accumulated during the years before commencement of the year of account is taxable in the year of remittance. In the present case, the Tribunal has found that the amount ,of Rs. 92,873 out of the compensation received by the assessee represents the accumulated income of the assessee earned after the year 1933. The amount was received by the assessee on the 25th October, 1952. The Tribunal, therefore, held that the amount was taxable for the assessment year 1953-54.

12. On behalf of the assessee it was contended that Section 4(1)(b)(iii) of the Act was not applicable in this case as the amount in question was received by the assessee from the Custodian of Enemy Property in Bombay and not from the Government of Thailand. It was urged that the income had accrued in Bombay where the Custodian awarded the compensation to the assessee. This contention is without substance. It is admitted that the compensation had been claimed by the assessee from the Government of Thailand for loss sustained by him on account of the forced sale of the assets including the stock-in-trade of the business he was carrying on in that country. It is also common ground that compensation was paid by the Government of Thailand to the Government of India for distribution amongst various claimants similarly circumstanced. The Government of India merely passed it on to the assessee and other claimants like him. It is, therefore, futile to contend that the income had accrued to the assessee in Bombay and that the amount in question was not a remittance to him from a foreign country.

13. Another contention of the assessee was that the entire amount of compensation, viz., Rs. 3,28,449, was not sufficient to cover even the value of the capital assets of the business, namely, the saw mill, machinery, etc., which the assessee had to sell in Thailand for a nominal price under compulsion of events and hence no part of the compensation could be attributed to the value of the stock-in-trade of the timber business. It was pointed out in this connection that the assessee had claimed 29,682 as the value of the fixed assets and 11,582 as the value of the stock-in-trade of his business but the assessee was awarded only 27,257 which was much less than the value of the fixed assets. Hence, it was argued that the sum of Rs. 92,873 could not be treated as the price of the stock-in-trade of the business and taxed as such. This argument also cannot be accepted. In the first place, in such cases, claimants are apt to inflate their claims for compensation. Then there is the presumption that, in the absence of evidence to the contrary, a remittance from a foreign country represents profit earned by the assessee in that country. In the case of Commissioner of Income-tax v. Jankidas Kaluram, [1949] 17 I.T.R. 406 it was observed:

'Where remittances have been received by an assessee in British India from the funds of any business which he is either carrying on... .in a foreign country, it is always a question of fact whether the remittances received by him represent the profit earned by him in such country. In the absepce of any indication to the contrary and in the absence of any explanation by the assessee, the income-tax authorities may well start with the presumption that the remittances either represent the profit earned by the assessee or at least include the profit earned by him....'

14. The presumption would be rebutted if the assessee produces evidence to the contrary of sufficient cogency. In this case, however, the assessee has not produced any evidence in the shape of his books of account of his business, the balance-sheets, etc., to rebut the presumption. In the case of Kalyanji Ukka & Co. v. Commissioner of Income-tax, [1963] 49 I.T.R. 740 a Bench of the Bombay High Court held that in the absence of evidence to show that a remittance from a non-taxable territory came out of the assessee's fixed capital or borrowings, it is reasonable to assume that it came out of the trading receipts. Secondly, as the Tribunal has rightly pointed out, the assessee had, practically, no capital of his own when he started the timber business and all the capital assets of the saw mill business must have been acquired out of the accumulated profits of the timber business so that the compensation paid for these assets represents, in reality, the accumulated profits of that business. In the opinion of the Tribunal the entire amount of Rs. 3,28,449 was taxable. In our opinion, there is not the least doubt that the sum of Rs. 92,873 was assessable to tax under Section 4(1)(b)(iii) of the Act, being the accumulated profits of the assessee's business in Thailand,

15. The assessee claimed exemption under Clause (ii) of the fourth proviso to Section 4(1)(b) of the Act, which runs as follows (omitting the immaterial portions) :

' Provided further that, in the case of a person resident in the taxable territories .... so much of the income, profits and gains referred to in Sub-clause (iii) of Clause (b) as accrued or arose to him without India and were not chargeable under this Act, unless brought into or received in the taxable territories, shall not be included in his total income if--....

(ii) in any case where such income, profits and gains are brought into ot received in the taxable territories after the 2nd day of September, 1951, and before the 30th day of September 1954,half of the amount of such income, profits and gains is invested within three months of the receipt thereof in the taxable territories in securities of the Central Government or of a State Government purchased through the Reserve Bank of India and kept with the said bank for custody for a minimum period of two years.'

16. The exemption allowable under the above proviso would have been available to the assessee if half of the amount in question, namely, Rs. 92,873 had been invested within three months of the receipt thereof in the taxable territories in Government securities purchased through the Reserve Bank of India and kept in the custody of that bank for at least two years. In the instant case, it was claimed that the assessee had purchased National Savings Certificates of the face value of Rs. 1,20,000 in various names and held them till 1957 when they were sold. The Appellate Assistant Commissioner remarked that no evidence had been produced before him to prove when such National Savings Certificates were purchased and how long they were held by the assessee. The Tribunal found that, in any event, these National Savings Certificates were not purchased through the Reserve Bank of India, nor kept with that bank for custody. Before the Tribunal, the assessee appears to have admitted that he had purchased these certificates from the post office, and these certificates remained in his own custody.In the circumstances, the assessee was not entitled to the exemption claimed.

17. The last contention of the assessee related to the validity of the reassessment proceedings under Section 24(1) of the Act. It is admitted that the assessee did not submit any return in respect of the compensation received by him, or any part thereof, and when the Income-tax Officer issued the notice under Section 34(1) the assessment year 1953-54 had expired. It was, therefore, a case in which the foreign income of the assessee had escaped assessment and it could not be taxed except by resort to the procedure prescribed in Section 34(1). Hence, this contention, which was not seriously pressed, must also be rejected.

18. Our conclusion, therefore, is that the sum of Rs. 92,873 is taxable under Section 4(1)(b)(iii) of the Act for the assessment year 1953-54. We, therefore, answer the question referred by the Tribunal in the affirmative and against the assessee. The assessee will pay Rs. 200 as costs of this reference to the Commissioner of Income-tax.


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