Horace Owen Compton Beasley, Kt., C.J.
1. The question referred to us is -
Whether on the facts of this case any presumption as to the receipt of profits can be raised and, if it can, whether the presumption has not been rebutted.
2. The facts of the case which can be stated quite shortly are as follows : The assessee carries on a business in Rangoon; and in Ipoh he is the sole proprietor of a business, which at the material times it is alleged by the assessee earned no profit at all, and he is also a partner in another money-lending business with other persons which did result in a profit at the material times. In 1926 sums of money amounting to Rs. 4,10,000 were sent from Ipoh to Rangoon to the petitioner there, the last sum being a sum received in December, 1926. In the Rangoon books there is a ledger account for Ipoh and in Ipoh there is a ledger account for Rangoon and money passing, from one place to the other is set out in the respective ledger accounts. The Income-tax authorities assessed that sum of Rs. 4,10,000 received from Ipoh by the petitioner in Rangoon to income-tax as being a remittance of foreign profits to British India and levied an income-tax of Rs. 91,262 odd upon it. The matter came before the High Court on a reference and the reference was answered against the petitioner (the same petitioner here) apparently not upon the merits but for some other reason; so that that assessment remains and a sum of Rs. 91,262 odd has been paid by the petitioner to the Income-tax authorities; and the question before us is, where did that sum of money come from?
3. Now it appears and it is quite plainly proved from the assessee's own books that in February and March, 1927, a large sum of money very nearly equivalent to the sum sent by Ipoh to Rangoon the previous year was sent by Rangoon to Ipoh, the total amount being Rs. 4,08,662. In order to pay the income-tax levied by the'Income-tax authorities the assessee sent from Ipoh Rs. 91,262-14-0 by telegram from the Chartered Bank on the 27th April, 1928, and the receipt of that sum was duly entered in the Rangoon books as a credit on the 28th April, 1928, and as a debit to the suspense account on the 9th May, 1928. The petitioner's case here is that tax having been paid on the Rs. 4,10,000 sent from Ipoh to Rangoon in 1926 that was a tax-free fund and that tax-free fund or amount was sent back to Ipoh where there was that tax-free fund or, tax-paid fund in the hands of the assessee and in addition to that there was another fund which was a profit fund which of course would be liable to income-tax. We are not deciding here whether the money sent from Rangoon to Ipoh was in fact the money sent from Ipoh to Rangoon the previous year. We are dealing with this reference merely on the assumption that it was. The assessee's endeavour here and before the Income-tax Commissioner was to show that the Rs. 91,262 odd sent from Ipoh to Rangoon with which to pay the income-tax levied came out of the tax-paid or tax-free fund in his hands at Ipoh. Had he been able to prove any such thing as that, then, in our .opinion, he would have been entitled to maintain that, as the fund had already been taxed, this sum of Rs. 91,262 odd could not be taxed again because that sum has been assessed to income-tax by the Income-tax Commissioner as a remittance received in British India out of profits of the foreign firm at Ipoh. We are asked to say that the presumption that a remittance is out of profits has been rebutted here, the ordinary presumption being that, when money is received in British India from another country, the remittance is out of profits. The assessee however contends that an overriding presumption in their favour has been raised and that is that where there are two funds at the disposal of a person, one a fund upon which income-tax has been levied and another fund which is still liable to income-tax the presumption is that the former will be drawn upon to make payments and not the latter and that this presumption has not been rebutted in this case. What do the entries in the assessee's account books at Ipoh show? The Income-tax Commissioner has found that the whole of the money sent from Rangoon to Ipoh, namely, Rs. 4,08,662, was, when it was received in Ipoh, re-invested with constituents and that, that being so, the assessee cannot be heard to say that the Rs. 91,262 odd remitted by him from Ipoh to Rangoon for the purpose of paying income-tax came out of that fund. The following are the entries to be found in the books of the assessee : On the 17th February, 1927, a sum of Rs. 77,250,, equivalent to $50,000, was remitted by the Rangoon business to the Ipoh business; on the 26th February, 1927, a sum of Rs. 1,00,912, equivalent to $65,000, was remitted; on the 4th March, 1927, a sum of Rs. 93,000, equivalent to $60,000, was remitted; on the 11th March, 1927, a sum of Rs. 77,500, equivalent to $50,000, was remitted; and finally on the 28th March, 1927, a sum of Rs. 60,000, equivalent to $38,799, was remitted, making a total of Rs. 4,08,662. Let us see how these sums of money were dealt with and the dates upon which they were. On the 17th February, 1927, the same date on which the sum of $50,000 was received, an identical sum was advanced to a constituent; on the 26th February, 1927, the date on which the sum of $65,000 was received, similarly an identical sum was lent out to somebody in Penang; on the 4th March, 1927, the same date on which the sum of $60,000 was received, a sum of $59,000 was advanced to a constituent and a sum of $1,000'was advanced to another, making a total of $60,000; on the 11th March, 1927, the same date on which the sum of $50,000 was received, an identical amount was lent out to a constituent in Penang; and on the 28th March, 1927, the same date upon which the sum of $38,799 was received, a sum of $38,803 was advanced to another constituent; so that, with the exception of a very small amount, the whole of the Rs. 4,08,662 was by the 28th March, 1927, re-invested with other constituents and was no longer in the hands of the assessee. We have got to consider again the date upon which the remittance in order to pay income-tax took place. That was on the 27th April, 1928. At that time according to the books the whole of the money received from Rangoon was still invested with the constituents of the assessee's firm. Therefore, upon the assessee's own showing and by reason of the entries made in his own books, presumably made upon instructions by the agent who was carrying on the business there, none of the Rs. 91,262 odd ever came out of the fund remitted from Rangoon to Ipoh. That being so, it is obvious that it did not come out of the fund upon which income-tax had already been paid. But in spite of these very clear entries which are admissions completely destructive of the assessee's case, we are asked to say that they cannot be taken as evidence of the fact that this sum of money received from Rangoon was not intact in the hands of the assessee and that the Rs. 91,262 odd did not come out of it. In support of this contention a passage in the judgment of the Lord Chancellor, Lord Haldane, in Sugden v. Leeds Corporation 6 T.C. 211, was relied upon. The passage referred to is at page 253 and it is as follows:
If the annual payments would properly have been payable out of profits, but the person bound to make them has chosen to defray them out of some other source of income, this does not affect his right to retain the amount of tax he has deducted.
4. We are told that in that case the Leeds Corporation in their books of account had shown that sums of money had been paid out of certain sources of income, that they had the right to make the payments out of another fund or another source of income and that in spite of their accounts showing that they had made these payments out of a certain source, they were entitled to say thereafter that the payments were made out of another fund. Whatever may be the facts of that case, I cannot for one moment think that that observation of the Lord Chancellor can have any application to the facts of this case. It is argued, of course, that here there is the certain presumption, that is to say, that where a person has a fund in his hands which has already been subjected to income-tax and another fund in his hands which is liable to income-tax, if he is called upon to make any payment in the course of his business or otherwise, he is much more likely to make the payment out of the fund which has already been taxed rather than out of the fund which remains to be taxed. That may be a reasonable presumption to draw but, in my view, this is not a case at all of drawing any presumption. No presumption of the kind suggested by the assessee arises here, in view of the fact that we have got the book entries of the assessee himself which clearly show that the remittance of of Rs. 91,262 odd was not made out of a fund which had already been subjected to income-tax. There were profits in the Ipoh business and the ordinary presumption arises therefore that there being profits more than sufficient or sufficient to cover the amount of the sum remitted, the remittance of Rs. 91,262 odd was a remittance from the profits of Ipoh business. To allow the contention of the assessee here would be to say that where a person has two funds in his possession, one of them being a fund which has been subjected to income-tax and the other being a fund which remains to be taxed, the presumption that any remittance he makes is out of the one already subjected to tax can never be rebutted, or it is an irrebuttable presumption. That of course cannot possibly be the law. In this case even if that presumption had arisen, it would be clearly rebutted by the book entries of the assessee himself. In what other way can the Income-tax authorities rebut such a presumption? If they are not to be allowed to pray in aid the book entries made by the assessee himself or by his agent, it is very difficult to see how they can possibly rebut the presumption which is sought to be raised in aid of the assessee here.
5. Another case, namely, the Quilon case, Subbiah Aiyar v. The Commissioner of Income-tax, Madras : (1930)58MLJ602 , was referred to. There the facts that book entries had been made by the assessee, that the payments made from Quilon to British India were out of current account, that the book entries made by the assessee in his British India books showed that the remittance was of capital and that the genuineness of those entries was not challenged were taken as circumstances rebutting the ordinary presumption which arose that the remittance from Quilon to British India was a remittance out of profits. It is an amazing contention that though an assessee can avail himself of book entries in order to rebut such a presumption, the income-tax authorities are not similarly entitled to rely upon book entries to rebut any other presumptions which may arise or which may be raised in favour of an assessee.
6. Under these circumstances, our answer to the question referred to us must be in favour of the Income-tax Commissioner. Costs Rs. 250 to the Commissioner.
Sundaram Chetty, J.
7. I agree.
8. I agree.