Frederick William Gentle, C.J.
1. This is a reference at the instance of the Commissioner of Income-tax by the Income-tax Appellate Tribunal, Madras, under Section 66(1) of the Indian Income-tax Act. The assessee Mr. S.P.S. Subramania Chettiar, derived income from outside British India, with which income this reference is solely concerned.
2. The assessment year is 1941-42 and the year of account is 1940-41, During that year of account the assessee's accrued foreign income was derived from four sources and aggregated Rs. 44,079 in respect of which he remitted Rs. 24,978 into British India ; with regard to one of those sources, the accrued income was Rs. 3,350 but the assessee remitted Rs. 4,750, the excess of Rs. 1,400 was accrued income derived from the same source during an earlier accounting year. Including the sum of Rs. 1,400, the total-remittance into British India was a sum of Rs. 26,378 during the relevant year. The Income-tax Officer included in the assessment the above sum of Rs. 1,400 as unassessed profits of previous years. The assessee contended that that sum should not have been separately and additionally assessed and the assessment should be reduced accordingly. On appeal by the assessee, the Appellate Assistant Commissioner agreed with the assessee's contention and upon appeal by the Commissioner the Tribunal upheld the decision of the Appellate Assistant Commissioner.
3. Learned counsel for the Commissioner and the assessee agreed that the question referred by the Tribunal did not correctly raise what is required to be answered by this Court, upon the facts of the case, and the question was re-stated with agreement of counsel. It now reads:
Whether the sum of Rs. 1,400 assessed under Section 4(1)(b)(iii) of the Income-tax Act in this case, can be included in the amount brought into British India within the meaning of the third proviso to Section 4(1) and for the purpose of calculating the excess of the accrued income that should not be included in the assessment of the income of that year.
Before taking this course we were referred to two cases before the Judicial Committee, Commissioner of Income-tax, Bombay v. Sarangpur Cotton . (1938) 1 M.L.J. 1 : L.R.65 IndAp 1 : I.L.R. (1938) Bom. 239 (P.C.) and Commissioner of Income-tax, Bengal v. Shaw, Wallace & Co. .
4. The assessee's contention arises out of the provisions of Sub-section (1), Clause (b) and the third proviso of Section 4 of the Income-tax Act which, so far as material, provides as follows:
4. (i)...the total income of any previous year of any person includes all incomes profits and gains from whatever source derived which...
(b) If such person is resident in British India during such year.
(ii) accrue or arise to him without British India during such year, or
(iii) having accrued or arisen to him without British India before the beginning of such year ...are brought into or received in British India by him during such year...
Provided further that if in any year the amount of income accruing or arising without British India exceeds the amount brought into British India in that year there shall not be included in the assessment of the income of that year so much of such excess as does not exceed four thousand five hundred rupees.
Summarised, the meaning and effect of the above enactment is that the income of a resident in British India in a year of account (to be assessed in the year of assessment) includes income accrued to him without British India during such year or having accrued to him without British India before the beginning of the year of account is brought by him into British India during such year. Both of those sources of income are subject to assessment and tax but the proviso gives relief in respect of income accrued abroad in the year of account which is not brought into British India during that year. When during the year of account, a less amount than the accrued income is brought into British India, the difference, subject to a maximum of Rs. 4,500 is not taxed. This relief applies only to income which remains abroad; there is no relief in respect of remittances into British India.
5. The argument for the assessee was based upon the meaning of the words in the proviso ' amount brought into British India in that year.' On his behalf it was contended that ' amount' does not relate to the words ' the amount or income accruing ' elsewhere in the proviso and the word ' amount' has general application, so that a remittance into British India from any source not confined to the accrued income of the year is covered by the proviso. While the sum of Rs. 1,400, brought into British India during the accounting year 1940-41, was not part of the income which accrued during that year, nevertheless it is covered by the word ' amount' and should therefore escape assessment.
6. Whether the word ' amount' bears the meaning for which the assessee contends or whether it relates solely to the income accruing during the year, as contended by the Commissioner, nevertheless every remittance of income into British India is subject to assessment for tax. The proviso affords relief solely with respect to accrued income which remains abroad and is not brought into British India. All income, accruing abroad before the year of account and brought into British India during that year falls within Section 4(1)(b)(iii) and becomes subject to assessment in its entirety; the relief given by the proviso has no application to such remitted income.
7. It is common ground, and there is no dispute, that the sum of Rs. 1,400, brought into British India during the year of account, was income which had accrued in a previous year or previous years. Since it had accrued; abroad and had not been brought in o the country during the year of accrual, that income (whether or not it was part of a larger income) was subject to the relief given by the proviso. During the year of account it was brought into British India, the provisions of Section 4(1)(b)(iii) applied to it and it became subject to assessment and to tax.
8. The proviso, as above stated!, relates solely to unremitted income accruing abroad and it does not apply to remitted income. Is provisions are read for the purpose of ascertaining the relief due in respect of the former income. If the amount of income which remains abroad is Rs. 4,5oo or more than that sum, tax is not payable upon Rs. 4,500 of that income; if the amount of income remaining abroad is less than Rs. 4,500, no income-tax at all is payable on that amount. The proviso is then enhausted and has no relevance or application thereafter.
9. Even if the word 'amount' in the proviso bears the meaning for which the assessee contended, it does not afford any relief to him in regard to the income of Rs. 1,400 accrued abroad prior to the year of account and brought into British India during that year. It is income which is covered by Section 4(1)(b)(iii) and, as such, is liable to be included in the assessment for the year 1941-42.
10. In my opinion this is sufficient to dispose of the reference. The Commissioner of Income-tax is entitled to his costs, Rs. 250.
Patanjali Seisin, J.
11. I agree and would only add that the assessee's contention throughout appears to have proceeded on the misconception that the third proviso to Section 4(1)(b) is a charging provision, that is to say, that it brings under charge the excess of the income accruing or arising outside British India in any year over '' the amount brought into British India in that year'. His attempt, accordingly, was to increase the latter amount by including therein remittances out of the untaxed income of earlier years retained abroad so as to reduce such ' excess,' but, in truth, the proviso operates only to exempt from the charge the excess referred to subject to a maximum of Rs. 4,500. Any attempt, therefore, to reduce such excess can, in no circumstances, benefit the assessee but may, in certain events, tend to his prejudice. Suppose, for instance, the foreign income in the previous year was Rs. 30,000 instead of Rs. 44,079. If out of it Rs. 26,378 was to be deducted as claimed by the assessee, the balance of Rs. 3,622 only would be the exemption allowable, whereas, if the sum of Rs. 1,400 representing the remittances out of earlier untaxed profits were not included in the ' amount' to be deducted to arrive at the ' excess,' the assessee could claim the maximum exemption of Rs.' 4,500. As, however, the difference between the amount retained abroad and the amount remitted to British India,-the ' excess ' of the proviso-in whichever way the latter amount is calculated, happens in this case to exceed the maximum exemption allowed, the point raised by the assessee and much debated at the bar becomes academic, and will perhaps never arise as, according to the Crown, ' the amount brought into British India ' includes only remittances out of the income accruing abroad in the year of account, while it would not be to the assessee's interest, as already explained, to swell that amount.
12. If the true function of the proviso as an exempting provision is kept in view, the assessment of the foreign income in the present case becomes very simple and scarcely admits of controversy. Under Section 4(1)(b)(ii) the whole income accruing abroad, namely, Rs. 44,079 is taxable. But, whether the amount brought into British India is taken as Rs. 24,978 according to the Crown or Rs. 26,378 as contended for by the assessee, inasmuch as the difference between the income earned abroad and the amount remitted to British India exceeds Rs. 4,500 the latter sum, by virtue of the proviso, ' shall not be included in the assessment.' That is to say, the income taxable under Section 4(1)(b)(ii) read with the proviso is Rs. 39,537.
To this has to be added the sum of Rs. 1,400 remitted out of earlier untaxed profits retained abroad, as the assessee's learned counsel rightly conceded that it is taxable under Section 4(1)(b)(iii). Thus the aggregate foreign income in respect of which the assessee is taxable is clearly Rs. 40,979, as claimed by the Commissioner of Income-tax.