Alfred Henry Lionel Leach, C.J.
1. The assessee is a resident of Koothanalloor, in the Tanjore District in the Madras Presidency. He derives income from immovable properties which he possesses in British India and in Saigon in Indo-China, and from a business which he carries on in partnership in Saigon. For the year 1937-38 he was assessed to income-tax in this country on a total income of Rs. 62,599. This amount included a sum of Rs. 62,006, which the Income-tax Officer held represented a remittance to British India of profits made in Saigon during the year of account. The assessee objected to the assessment. He contended that he had been over-assessed to the extent of Rs. 60,000. For the two years which ended with 31st March, 1936, the assessee's profits in Saigon amounted to $59,290. Of this he remitted $39,834 during the year of account to the Bank of Mysore, Mysore City, and there purchased Mysore Government bonds of the face value of Rs. 60,000. The actual price paid for these bonds was Rs. 69,416. The whole of this amount was paid out of the moneys remitted from Saigon. For two months the bonds remained in the custody of the Bank of Mysore, but in January 1937 the assessee caused them to be sent to the Madras branch of the Imperial Bank of India for safe custody. Subsequently, he arranged with the Kumbakonam branch of the Imperial Bank of India for an overdraft for the purpose of purchasing immovable property worth Rs. 33,000. The security consisted of the Mysore Government bonds which the assessee had purchased out of the remittance from Saigon. The assessee says that the Income-tax authorities have no right to treat the bonds as representing a remittance of profits, and at his request the Commissioner of Income-tax has referred to this Court for decision the following questions of law:
(i) Whether there was any material before the Assistant Commissioner to justify his conclusion that that the Mysore Government bonds purchased by the petitioner in Mysore did not represent his capital?
(ii) If the answer to the above question is in the affirmative whether under a proper construction of Section 4(2) of the Act a sum of Rs. 60,000 representing the face value of the bonds was liable to be assessed or only the amount of Rs. 33,000 which the petitioner had obtained on an overdraft against the security of the bonds.
2. If the first question is answered in favour of the assessee the second question does not arise.
3. The reference was made by the Commissioner on the 4th September, 1938, but at the suggestion of the learned Counsel engaged in the case the hearing was postponed until the Privy Council had decided an appeal which was then pending from the judgment of the Bombay High Court in the case of the Commissioner of Income-tax, Bombay Presidency v. The Ahmedabad Advance Mills, Ltd., of Bombay I.L.R. (1938) Bom. 171. The Judicial Committee has now delivered judgment in that case Since reported in (1940) 1 M.L.J. 137. The judgment does not decide the question which arises for decision in the present case, but there are observations in it which are helpful to the Court. In the case referred to, the assessee was a limited company and had lying in London a sum of Rs. 18,000 which it had received as income on certain sterling bonds of the Government of India, the interest on which was paid in London. The assessee Company invested this income in the purchase of stores and machinery which it shipped to Bombay and utilised in its business in British India. The question was whether the stores and machinery could be regarded as income brought into British India within the meaning of Section 4(2) of the Indian Income-tax Act, 1922 and therefore taxable. The Bombay High Court held that the bringing of stores and machinery into British India did not represent a remittance of profits made abroad. The purchase had resulted in the capitalisation of the profits received in England. It was pointed out by Beaumont, C.J., that foreign income might be received in sterling or francs or dollars, and might be brought into British India in the form of rupees, or be remitted to India by means of a banker's draft and in this connection referred to the judgment of Lord Brampton in Gresham Life Assurance Society v. Bishop (1902) A.C. 287, where it was said that income might be received 'in specie or in any form known to the commercial world for the transmission of money from one country or place to another', the implication being that it could not be received in any other form. The learned Chief Justice went on to say that in order to attract income-tax in India what is brought into this country must be income, profits and gains, and if the assessee has converted income received abroad into capital, and then brings that capital to India, he is not bringing into India income, profits or gains. It was not suggested in that case that the stores and machinery were brought into India for the purpose of being sold and the proceeds applied as income, but it was apprehended that if an assessee converted foreign income into some form of capital, for instance, bonds, and having realised the assets in this country had applied the proceeds as income the Court would hold that what had been brought into this country was in fact income and not capital.
4. The decision of the Bombay High Court was approved by the Judicial Committee and in delivering the judgment of the Board, Lord Romer quoted the remarks of Lord Lindley in Gresham Life Assurance Society v. Bishop (1902) A.C. 287, where he said:
A sum of money may be received in more ways than one, for example, by the transfer of a coin or a negotiable instrument or other document which represents and produces coin, and is treated as such by business men.
5. The Privy Council, however, refrained from deciding the question whether the purchase of bonds out of profits made abroad would represent a remittance of profits if the bonds were brought into British India and realised as that question did not arise in the case. It was left to be decided if and when the occasion arose. It arises in this case, but on facts very different from those contemplated in the judgment of Beaumont, C.J.
6. In the present case the bonds were not bought in Mysore for the purpose of being brought into British India and sold here. On the facts stated in the reference it must be taken that the assessee bought them as a permanent investment. He has still got the bonds, and the fact that he has deposited them by way of security for an overdraft does not change their character. It is conceded on behalf of the Income-tax authorities, and rightly conceded, that where a person invests profits in bonds and no question of remittance of profits arises the bonds will constitute capital assets. In my opinion, the investment of the moneys remitted to Mysore by the assessee must in the light of the surrounding circumstances be held to be a conversion of profits into capital, and nothing more.
7. The decision in the case of the Scottish Widows' Fund Life Assurance v. Farmer (1909) 5 Tax Cases 502 is also helpful here. Lord Johnston, the Lord President there observed:
Either the money itself must be brought over in specie, or the money must be sent in the form which, according to the ordinary usages of commerce, is one of the known forms of remittance.
8. Later on, the Lord President went on to say:
Although the bearer bonds are marketable securities, that is, of course, surely neither here nor there, because in one sense everything is a marketable security at a price The fact that a bearer bond is a marketable security and easily marketable, and therefore a negotiable instrument, does not seem to me to touch for one moment the question whether it is an ordinary form of remittance. Nobody ever heard of remitting money by means of a bearer bond, for this very good reason; you could not possibly remit money by it and know exactly what you are doing because the price of bearer bonds fluctuates in the market every day, and a bond might start from New York at one price and arrive in London at a perfectly different one. It therefore is not at all in the same category with that way which modern arrangements have perfected, by which you may send money from one country to another in the form of hard cash consigned in a package or box, or, by means of a bank draft, which is, of course, simply a transaction of debtor and creditor between different persons on different sides of the Atlantic.
9. There is also the further factor that before securities can be bought or sold a commission is payable to a broker. In that case part of the revenue of a mutual life assurance society, carrying on business in the United Kingdom only, consisted of interest on foreign bearer bonds and other foreign securities. The securities were kept at the society's head office and the interest was included in its revenue account. When the interest fell due on the foreign bonds the coupons were sent from the society's head office to the agents abroad for the purpose of the collection of interest and out of the interest further foreign securities were brought. The further purchases were also sent to the United Kingdom. The question was whether the receipt of the foreign bonds at the head office represented a receipt of income within the United Kingdom. It was held that it did not.
10. The Court is not here concerned with the case where a person, in order to avoid the payment of Income-tax converts his foreign profits into foreign securities and then proceeds to realize them in British India. There is no suggestion of & device and the statements quoted from the judgments in Gresham Life Assurance Society v. Bishop (1902) A.C. 287 and Scottish Widows' Fund Life Assurance Society v. Farmer (1909) 5 Tax Cas 502 have direct application. For the reasons indicated, I would answer the first question in the negative. In these circumstances no answer need be given to the second question.
11. The assessee having succeeded is entitled to his costs, Rs. 250, and to the return of his deposit of Rs. 100.
12. I agree.
Krishnaswami Aiyangar, J.
13. I agree.