Horace Owen Compton Beasley, Kt., C.J.
1. The following question has been referred to us, viz., 'Whether from the circumstance that the 59,000 dollars borrowed by the Saigon branch and transferred to Rangoon to the Rangoon branch were re-paid by the Saigon branch to the lenders before a re-transfer of the amount from Rangoon, the Income-tax Commissioner should have drawn the inference that the 59,000 dollars were a remittance from capital rather than from profits.'
2. The facts are that the petitioners carry on banking business in Rangoon and also in Saigon. In January, 1927, there was a run in their business at Rangoon and it was necessary to raise funds for the purpose of discharging their liabilities at that place. Large sums of money were borrowed in British India, but these were insufficient to fully meet the petitioners' liabilities; and the petitioners accordingly instructed their agent in Saigon to borrow money and remit $1,00,000 to their Rangoon agent agreeing to re-pay the amount to the Saigon business within one month. At that time the Saigon business had a cash balance of $6,000 only but it was in a sound financial condition and had considerable accumulated profits. But these were naturally not retained as fluid cash in the firm's coffers. The profits and original capital were all mixed up and out of these mixed up funds only a sum of $6,000 happened to be in the cash chest at the time and the balance had been lent out to various persons. Upon the receipt of instructions from the petitioners the Saigon agent raised the money necessary partly by collecting some of the debts due to the business, such of them as could be collected readily, and partly by borrowing from local Nattukottai Chettis and Chinese money-lenders.
3. The amount borrowed from the Nattukottai Chettis and Chinese money-lenders was $59,000. This together with the balance making up the $1,00,000 was duly remitted to Rangoon. Within one week of the borrowing of the $59,000 the Saigon agent re-paid the lenders $42,000 and the remaining amount a short time afterwards. The whole of the amount was re-paid within 28 days so that the whole of the debt owing to these persons was re-paid within a month of the money having been lent to the Saigon business. The order of the Commissioner of Income-tax which upheld the Assistant Commissioner's order on appeal which upheld the Income-tax Officer's order, was that the $59,000 were assessable to income-tax as being a remittance to the Rangoon business out of the profits of the Saigon firm. The petitioners' contention here is that this was a remittance of money borrowed, that money borrowed is not profits but represents capital and that it was, therefore, a remittance of the Saigon firm's capital to Rangoon and not liable to assessment to income-tax. Ordinarily that contention that borrowed money is not a profit may be a perfectly sound one but the facts in this case show that this was a remittance, as the Income-tax Commissioner has found, not of capital but of profit. There were large sums in the Saigon business, the accumulated profits, more than sufficient to meet the demand made from Rangoon and though they were not actually in the till, they were easily realisable. What really happened was that these were short-term borrowings from money-lenders in Saigon and the sums borrowed were re-paid as before mentioned within a month not by means of any remittance back from Rangoon to Saigon but out of the accumulated profits at Saigon. I say out of the accumulated profits because there were accumulated profits more than sufficient to meet the Rangoon demand; and the, legal presumption is that any payments made were made out of those profits and not out of capital; and that presumption has arisen in this case and has not been rebutted by any evidence on the side of the petitioners. The net result of this transaction is that whereas there were sums in the shape of accumulated profits of more than the amount of $59,000 after the repayment of the sums borrowed from the local money-lenders the accumulated profits were reduced by the amount of $59,000 re-paid to the lenders. Under these circumstances, in my view, this was clearly a remittance from Saigon of profits of the Saigon business and as such was liable to assessment to income-tax. Under the circumstances the answer to the question referred must be that the $59,000 were a remittance from profits and not capital. Costs of the respondent Rs. 250.
4. I agree.
5. I agree.