VARADARAJA IYENGAR, J. - This is a reference by the Income-tax Appellate Tribunal, Madras Bench B under section 113(1) of the Travancore Income-tax Act, 1121, corresponding to section 66(1) of the Indian Act. The question referred is :
'Whether the remittance of Rs. 25,262 out of the profits made by the assessee in the years preceding the Samvat year 2003 as a resident of Bombay and (not as a resident of Travancore) could be included under section 4(1)(b)(iii) of the Travancore Income-tax Act in computing the total income of the year of account in which he commenced to be a resident of Travancore ?'
The assessment is for the year 1125 M. E. in respect of the accounting period, Samvat year 2004. The assessee became a resident in Travancore in Samvat year 2003. He had previously been carrying on business at Bombay, that is, outside the Travancore state and so made profits to the extent of Rs. 46,613 for the Samvat years 1999 to 20004. A sum of Rs. 45,000 out of this was remitted into the Travancore territory on September 20, 1948, in the year of account. On the Department seeking to include this sum of Rs. 45,000 in the total income of the assessee, he conceded that Rs. 15,000 out of it may be taxed as unremitted profit taken into account for rate purposes for the year 1124, M. E. and another sum of Rs. 4,738 which had accrued outside Travancore-Cochin State in the year of account. However in respect of the balance of Rs. 25,262 which is the amount mentioned in the order of reference, he raised the objection that the amount had accrued prior to Samvat year 2003, while yet he was not a resident of Travancore and the mere fact of remittance into Travancore in the year of account will not render the amount chargeable. The Income-tax authorities uniformly overruled this objection and hence this reference.
The question depends upon the proper construction of section 4(1)(b)(iii) of the Travancore Income-tax Act, 1121, corresponding to almost similar provisions in the Indian Act. Now section 4, sub-section (1) says :
Section 4(1).'Subject to the provision 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 received or are deemed to be received in Travancore in such year by or on behalf of such person, or
(b) if such person is resident in Travancore during such year, -
(i) accrue or arise or are deemed to accrue or arise to him in Travancore during such year,
(ii) accrue or arise to him without Travancore during such year, or
(iii) having accrued or arisen to him without Travancore before the beginning of such year are brought into or received in Travancore by him during such year; or
(c) if such person is not resident in Travancore during such year, accrue or arise or are deemed to accrue or arise to him in Travancore during such year.'
On the facts as found it appears clear that the essential conditions under clause (b)(iii) do exist, that it to say :
(1) the remittance was out of the income, profits or gains,
(2) the profits or gains accrued or arose without the taxable territories,
(3) they accrued or arose before the beginning of the accounting year.
(4) they were brought into taxable territories during the accounting year, and
(5) the bringing into the taxable territories was by the assessee.
But learned counsel for the assessee contends that there is one more essential which is not satisfied, viz., that the assessee should have been a resident during the years of accrual of the remitted profits. This requisite, it is said, is to be implied because of the principle underlying the whole section that chargeability of income depends upon the locality of accrual or receipt and so far as receipt is concerned it can occur only once. The argument is that the amount herein having been first received in Bombay by the assessee could not be said to be again received in Travancore. It is no doubt true that it is the first receipt that determines the year and the place of receipt for the purpose of taxation and a non-resident is taxed on his foreign income only if it is received in the taxable territory for the first time from the foreign source. If he has already received the income without the taxation territories he would not be chargeable when he remits or transmits it to the taxable territory : See Commissioner of Income-tax v. Mathias. But the charge on foreign income under clause (b)(iii) on remittances depends upon its being brought into or received in the taxable territories. These words 'brought into' cover the second or subsequent receipt. The objection raised by the learned counsel has therefore no force.
The exact question raised by learned counsel as to the necessity of residence for the purpose of attracting clause (b)(iii) arose for consideration before the Bombay High Court in Madanlal Dharnidharka v. Commissioner of Income-tax and it was held that residence during the year of accrual of the remitted profits was immaterial or the purpose of this sub-clause. Chagla, C.J., in the course of his order observed :
'It is also important to note that section 4(1)(b)(ii) deals with income of a resident in British India which accrues or arises without British India. Therefore in any particular year the total income of a resident in India would also include all income which accrued or arose to him without British India. As that was already taxed, if he brought that income into British India subsequently, it could not possibly be taxed again and therefore if Mr. Kolahs contention was right it was unnecessary and superfluous to enact sub-clause (iii) at all. Sub-clause (iii) is enacted, amongst other things, to deal with this particular case which we have before us which would not have fallen under sub-clause (ii :'
And Tendolkar, J., in a concurring order observed :
'Moreover, if such was the true intention of the Legislature, it is difficult to understand why sub-clause (ii) and (iii) should have exited side by side in respect of any year subsequent to the year when these sub-clauses were inserted in the Income-tax Act by the amendment of 1939. Income which accrues or arises to a resident in British India during any year is a part of his total income under section 4(1)(b)(ii). It could not have been.......... included in his total income in a subsequent year when it is received in British India.'
Learned counsel referred to some possible lacuna in the Travancore Act, because according to him it was inequitable that the Travancore authorities should treat the income made in Bombay by a non-resident as here and on which tax had been paid and brought into Travancore later, as liable to tax. It may or may not be so. Anyhow we are not concerned with the matter.
Learned counsel finally said that if residence during the period of accrual is ruled out, there would be an absence of territorial connection between the assessee and the taxing country which is required by the general principles of income-tax law. But this argument overlooks the fact that nexus is her constituted by the residence and remittance. The Connection is sufficiently real and the liability sought to be imposed is pertinent to that occasion. And nothing more is called for. See Kanga, page 8, Vol. I, 4th Edn.
6. It follows, therefore, that the reference is to be answered against the assessee and in the affirmative. The assessee is to pay the costs of this reference. Counsels fee Rs. 100.
Reference answered in the affirmative.