1. This is a rule obtained by an assesses against the Commissioner of Income-tax Punjab to show cause why a case should not bo stated under Section 66 (2), Income-tax Act.
2. The matter relates to the assessment year 1944-15. During the account year 1942-43 the asses-see made one sale on credit in Jubbal State amounting to Rs. 1,91,000/- to one person in one lot. During the account period 1943-44, he realised from the buyer Rs. 1,57,000/- out of Which Rs. 1,25,000/-were realised in Jubbal State, Rs. 29,000/- was paid by the buyer to the assessee in British India and Rs. 3,000/- was paid by the buyer to a third per-son who was a creditor of the assessee. This was also in British India. This amount was squared up, it is so alleged upon the assessee's instructions to his constituents in Jubbal State. The total received in British India was thus Rs. 32,000/- and the proat earned in the account year was found by the Income-tax Appellate Authority to be Rs. 18,766/-.
3. Upon these facts the assessee asked the Appellate Tribunal to state the following five questions of law:
'(i) Whether in the circumstances of the case there is any material for the finding that instead of direct remittance the assessee has chosen to Instruct a debtor in Jubbal state to discharge a part of his debt by making the payment of Rs. 32,000/- in British India.
(ii) Whether in the circumstances of the case the receipt of Rs. 32,000/- has been correctly held to be a constructive remittance from Jubbal State to British India.
(iii) Whether in the circumstances of the case it has been correctly held that the assessee remitted the entire profits of the account year 1942-43 in the sum of Rs. 32,000/-.
(iv) Is there any evidence to support the finding of the Appellate Tribunal that the sale proceeds of Rs. 32,000/- received in British India include entire profits earned or accrued in Jubbal State in the account year 1942-43.
(v) Whether there is any material on the record to justify a conclusion that sum of Rs. 32,000/-received in British India was 'income' and therefore liable to be taxed.'
But by their order dated 7-8-1950 the Appellate Tribunal held that by choosing to realise the sale proceeds in British India rather than in Jubbal State the assessee made constructive remittances of money to British India and it 'may conceivably give rise to a question of law', but they were of the opinion that the answer was so obvious that it was useless making reference. They also said that the finding that the sum of Rs. 32,000/- included the available profits is a 'conclusion of fact' from which no question of law can be raised and this conclusion was arrived at upon an examination of the magnitude and requirements of the business carried on by the assessee.
4. The assessee then moved this Court with an application under Section 63 (2), Income-tax Act and the rule was issued by a Division Bench of this Court on 2-8-1951. The questions which the assessee wants to raise for the statement of the case are contained in para. 9 of the petition and are--
'1. Whether in the circumstances of the case there is any material for the finding that instead of direct remittance the assessee has chosen to instruct a debtor in Jubbal State to discharge a part of his debt by making the payment of Rs. 32,000/- in British India.
2. Whether in the circumstances of the case the receipt of Rs. 32,000/- has been correctly held to be a constructive remittance from Jubbal state to British India.
3. Whether in the circumstances of the case it has been correctly held that the assessee remitted the entire profits of the account year 1942-43 included in the sum of Rs. 32,000/-.
4. Is there any evidence to support the finding of the Appellate Tribunal that the sale proceeds of Rs. 32,000/- received in British India include entire profits earned or accrued in Jubbal state in the account year 1942-43.
5. Mr. Tek Chand for the assessee in the first place contended that Rs. 18,766/- which was taken to be the profit of Jubbal business was in fact no profit at ail as the total receipts by the assessee on this account were less than the total amount Invested by him. But this question has never been raised at any stage of the proceedings and does not arise out of the order of Appellate Tribunal, nor is it covered by any of the questions whether sought to be raised before the Appellate Tribunal or here and therefore we have not allowed this question to be raised,
6. The other question which has been sought to be raised is that although Rs. 32,000/- was received in British India only the proportionate profit which should be deemed to have accrued from this sum could be computed for the purposes of profit and loss account. This question again does not, in my opinion, arise from the questions which are in para. 6 or para. 9 of the petition. The purport of the questions which were asked to be stated is really confined to the question whether the sum of Rs. 32,000/- included the entire profits which were made by the assessee in the account period in this account.
7. The question reduces itself to this; whether the Rs. 32,000/- which was received in British India should be presumed to include the profits, that is the sum of Rs. 18,766/-.
8. The learned Advocate-General submits that this question is covered by an authority of this Court in -- 'Commissioner of Income-tax, East Punjab and Delhi Provinces v. Messrs. Jankidas Kaluram', AIR 1951 P&H; 393 , where it was held that where remittances have been received by an assessee in British India from any business which is being carried on outside British India, it is always a question of fact whether the remittances received represent the profit earned in such business and in the absence 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 represent the profit earned by the assessee or at least include the profits earned by him and can legitimately regard the remittances as representing profit, and this is not a presumption of law but is one of fact and its strength may vary according to the circumstances of each case.
In that case the assessee was carrying on business in British India but was a partner in a firm carrying on business in an Indian State. During the account period remittances were received from and were sent to the Indian State business but the former exceeded the latter by Rs. 7,162/-. The profit of that year was determined at Rs. 43,531/-which the Income-tax Officer assessed as remittances of profits received in British India. This finding was reversed by the Appellate Tribunal which held that this could not be taken as a remittance of the assessee's share of profits earned in an Indian State and the question was whether this was taxable under Section 4(1) (b) (ii) read with Section 14 (2) (c), and it was held that it was a pure question of fact and it could not be said that on the facts admitted or proved the Tribunal could not take the view that it had taken.
9. In several cases this question has been raised and decided by the Courts. The first one is -- 'Ramaswami Pillai v. Commissioner of Income-tax, Madras' : 7ITR40(Mad) (B), where it was held that the presumption that where money is received from a business abroad where profits have been made, is a remittance out of profits is a rebuttable one. But the presumption in that case had rebutted.
10. The next case is -- 'Sonaram Nihal Chand v. Commissioner of Income-tax' AIR 1935 Lah 727, where it was held that it is open to the Income-tax Officer to assume that the amount remitted to British India from the branch of the business outside British India represents profits made in such branch, in spite of the fact that the total amount of such remittances is less than what has been sent from British India to such branch. In this case the assessee failed to produce his account books and led no other evidence to show that the amount received by him did not represent the profit. The Court held that the assessing authority having made a presumption which was one of fact no redress could be given to the assessee on the ground that it could not be said that such a presumption could not be raised by the assessing authorities.
11. In 'Re Murugappa, Chettiar' AIR 1926 Mad 767 , money was remitted to the headquarters of a firm in British India from a branch situate in a foreign country. This was presumed to be profits and not capital and thus assessable to Income-tax unless the assessee could prove the contrary. The learned Judges said at page 768 :
'The presumption that the Commissioner made in this case, viz., that 'prima facie' all remittances were to be regarded as profits and that the burden of proof was cast upon the assessee to show the contrary, seems to be amply warranted by the authority of that case -- 'Scottish Provident Institution v. John Allan', 1903 AC 129 . As the Commissioner did not misdirect himself the only questions in the case that remain are purely questions of fact and so long as he has approached them without any misconception in his mind as to how they should be dealt with, his findings are conclusive.'
12. In -- 'S. A. Subbiah Ayyar v. Commr'. of Income-tax, Madras', AIR 1930 Mad 449 , it was held that the ordinary presumption that money remitted from a foreign business and received in British India by an assessee is out of profits and not out of capital is one which can be rebutted by the assessee, and reliance was placed in this case as indeed in the last Madras case on -- '1903 AC 129 (E)'.
13. In -- '1903 AC 129 ', 1,500,000/- had been sent to Australia for investment and after making the remittance in question there were still more than 1,800,00/- in investment there. The Australian branch office of the company in order to escape Income-tax sent with each of the disputed remittance a letter saying that it was towards particular advances most of them made several years previously. On these facts the Lord President of the Court of Exchequer held that under the circumstances indefinite remittances to this country must be presumed to consist of interest and not of capital. Lord Mclaren similarly said that the source of the fund remitted, in the absence of evidence to the contrary must be determined according to the ordinary course of business in dealing with uninvested funds.
In the House of Lords the Lord Chancellor referred to the instructions and letters above referred to as 'mere nicknaming the sum received' and said that the right of the Crown could not be defeated thereby. He also observed at page 134:
'My Lords so far as I am concerned I think this is really a question of fact. The question is what inference can properly be drawn from the facts as stated by the Commissioner.'
Lord Shand at page 136 observed:
'The question.......is entirely one of fact.'
Lord Davey was also of the opinion that the question was one of fact and he said at page 137:
'The mere calling it capital for the purpose of the inland Revenue Department will not make into capital that which is essentially and to truth profit.'
Lord Robertson at page 138 observed:
'The inference from these facts is that the moneys remitted were in fact profits, and, in the absence of anything to the contrary, profits of the year in which they were remitted.'
14. The Lahore High Court in -- 'Tara Chand Pohu Mal v. Commissioner of Income-tax, Punjab' AIR 1936 Lah 836 , following the two Madras cases, also held that the ordinary presumption to that the money remitted to the headquarters of a firm in British India from a branch situate in a foreign country is presumed to be profit and not capital unless the assessee proves to the contrary.
15. On a review of all these cases Achhru Ram, J., in -- 'AIR 1951 P&h; 393, said :
'In the absence 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 and may be within their limits in assessing him on the remittances to the extent to which they can legitimately be regarded as representing the profit. However, this is by no means a presumption of law and its strength must vary according to the circumstances of each case. There may even be circumstances in which it may legitimately be said that even initially no such presumption should be raised.
In every case it is a question of fact to be determined with reference to the circumstances of the particular case whether or not to raise such a presumption and whether or not the presumption if initially raised has been rebutted.'
16. I am in respectful agreement with the opinion of Achhru Ram, J., particularly as it is supported by the judgments of the Madras High Court and of the House of Lords.
17. Mr. Tek Chand drew our attention to several cases, but I cannot see how they are applicable to the facts of this case. The first case he has relied on is -- 'Vadilal Lallubhai v. Commissioner of Income-tax, Bombay' (1934) 3 ITR 152, where it was held that even where frivolous questions are raised before the Appellate Tribunal they should be stated by the Tribunal to the High Court and if they are found to be frivolous the assessee will pay costs.
18. The next case he referred to was -- 'Commissioner of Income-tax, Burma v. Bhagwandas-Bagla', 1942-10 ITR 35 (Rang) (I), where it was held that where a sum of money remitted in return for commodity exported is less than the costs price of that commodity, the sum remitted can not be a profit on the sale thereof. But this question doss not arise in the present case.
19. Mr. Tek Chand strongly relied on a Judgment of the Supreme Court in -- 'Turner Morrison & Co., Ltd. v. Commissioner of Income-tax, West Bengal' : 23ITR152(SC) . But that ease is in my opinion not applicable to the facts of this case. There was no question of remittance of money from outside India into India. Turner Morrison & Co., Ltd. were agents of a Salt Association in Egypt and they consigned to Turner Morrison & Co. salt for sale in India. These sales were effected in India by Turner Morrison & Co. through brokers and Turner Morrison & Co. received certain commission on all sales the proceeds of which were collected by them and credit-ed to the account kept in their own name with a bank and after deducting the expenses including their commission they remitted the balance to the Association in Egypt. They were assessed to income-tax as agents of a non-resident association under Section 4 (1) (a) or s. 4 (1) (c), and it was held that the income, profits and gains derived from the sale of salt in British India were assessable to tax under Section 4 (1) (a) as being income etc., received in British India by the company on behalf of the Association.
This case has really no application to the facts of the present case, but Mr. Tek Chand referred to a passage at page 143, where Das, J., observed:
'Of course, if on the taking of accounts it be found that there was no profit during the year then the question of receipt of income, profits and gains would not arise but if there were income, profits and gains, then the proportionate part thereof attributable to the sale proceeds received by the Agents in India were income, profits and gains received by them at the moment the gross sale proceeds were received by them in India and that being the position the provisions of Section 4(1) (a) were immediately attracted and the income, profits and gains so received became chargeable to tax under Section 3 of the Act.'
But this question of proportionate profits does not arise in the present case.
20. I am, therefore, of the opinion that no question of law arises in this case and I would, therefore, dismiss this petition and discharge the rule with costs. Counsel's fee Rs. 150/-.
21. I agree.