This is a reference made at the instance of the Commissioner of Income-tax by the Income-tax Appellate Tribunal, Madras branch, under Section 66(1) of the Income-tax Act. The assessees are the receivers of the estate of a deceased Nattukottai Chettiar named Rm. Ar. Ar. Rm. Arunachalam Chettiar. Before his death the deceased had carried on a money-lending business in Rangoon and after his death it was continued by the receivers of his estate. The income from the Rangoon business for the year of account 1940-41 was returned at Rs. 42,051. The remittances from Rangoon during that year far exceeded this sum. The Income-tax Officer placed the remittances into three categories. The first category consisted of remittances out of the income of the two previous years. The amount was Rs. 42,051. The second category represented remittances out of unassessed profits of former years. The amount here was Rs. 3,459. The third category represented remittances out of assessed profits of older years and out of capital, the amount being Rs. 1,80,469. The case is only concerned with the Rs. 3,459 which was remitted in the year of account out of unassessed profits of former years.
The Income-tax Appellate Tribunal held that his was not taxable because it represented income in respect of which there was an exemption by reason of the third proviso to Section 4 of the Act. The Commissioner asked the Tribunal to make the reference because he was of the opinion that the Tribunal had not appreciated the real effect of the proviso. At his request the Tribunal has referred the following question for the decision of this Court :-
'Whether in the circumstances of the case the sum of Rs. 3,459 was rightly assessed for the assessment year 1941-42.'
Section 4(1)(b) says that subject to the provisions of the Act, the total income of any previous year of a person includes all income, profits and gains from whatever source derived which if the person is resident in British India during the year (i) accrue or arise or are deemed to accrue or arise to him in British India during the year, or (ii) accrue or arise to him without British India during the year, or (iii) having accrued or arisen to him without British India before the beginning of the year and after the 1st April, 1933, are brought into or received in British India by him during the year. Therefore Section 4(1) (b) deals with income which has arisen in British India, income which has arisen outside British India and income made in previous years which has been brought into British Indian during the year of account. There are three provisos to Section 4, but we are only concerned with the third. It reads as follows :-
'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.'
The draftsman might have expressed the intention of the Legislature in more simple terms, but what it means is this. If the amount of foreign income of the year of account exceeds the amount of foreign income brought into British India in that year, the assessee shall not pay tax on his foreign income not brought into British India, if such income does not exceed Rs. 4,500. If such income exceeds Rs. 4,500, the excess is taxable.
The case for the assessee is that if the amount remitted out of the untaxed profits of former years is less than Rs. 4,500, it is not subject to taxation at all because the concession given in the third proviso having applied must be deemed to continue to apply. The Income-tax Appellate Tribunal accepted this view, but with great respect we consider that it ignores the direct provisions of Section 4(1)(b)(iii). That clause says in unambiguous language that if income which has accrued outside British India before the year of account is brought into British India in that year, it is subject to the tax. There is nothing in the third proviso which detracts from the effects of clause (iii). The proviso only says that in certain circumstances the assessee shall receive exemption from taxation in respect of foreign income up to and not exceeding Rs. 4,500 in a particular year, but it does not say that when the exempted income is brought into British India in a subsequent year, it shall not be taxable. The scheme of the Act is to tax all income made in British India and all income made abroad which is brought into British India, except, of course, income which is specifically exempted.
We hold that Section 4(1)(b)(iii) is not controlled by the third proviso, which means that the Income-tax authorities rightly assessed the assessees in respect of the Rs. 3,459 brought into British India in the year of account.
As the question referred has been answered in favour of the Commissioner of Income-tax, the respondent must pay the costs Rs. 250.
Reference answered accordingly.