1. The assessee is a 'resident but not ordinarily resident' person. He carried on business in real properties in Penang. In the previous year ending on December 31, 1957, he sold two rubber estates for $ 14,89,980 as against his actual cost of $ 13,00,000, leaving a gross surplus of $ 1,89,980. He had made the following remittances to the taxable territories during the year :
27-4-195715,470.25 3-5-195715,029.7512-5-195715,000.0012-6-195715,000.0025-6-195715,400.0014-8-1957 500.0016-9-195730,950.0018-9-1957 8,625.00
1,62,400.00 or$ 1,04,774
2. The assesses contended that the above remittances were not taxable, as they were not remitted out of profits and that the profit on sales of the estates could be ascertained only when all the estates purchased by him had been completely sold. The Income-tax Officer rejected these contentions holding that there was actually a surplus of $ 1,43,754 by the sale of the two rubber estates after setting off of $ 46,226, the loss sustained by the assessee in the working of the gardens and that in terms of the second proviso to Section 4(1) of the Indian Income-tax Act, 1922, the entire sum of $ 1,04,774 brought into or received in the taxable territories are taxable.
3. The assessee appealed to the Appellate Assistant Commissioner contending that th re was no profit, available for remittance and that having regard to the nature ot the business it cannot be said that there was profit on the sales of the estates on the dates of remittances. Agreeing with the assessee's contention, the Appellate Assistant Commissioner held that the remittances were not taxable as there was no surplus available as revenue profits for remittance if the deductions claimed by the assessee had been allowed. He, however, did not accept the assessee's other contention that no amount could be considered as profits on the sale of the estates in the year of account.
4. The revenue took the matter in appeal to the Income-tax Appellate Tribunal contending that the Appellate Assistant Commissioner had gone w ong in working out the available surplus for renittance having regard to the dates of each on going. JB^lore the Tribunal the assessor's contention was that profits could arise or accrue after the close of the year, and that the remittances during the year could not be remittances of profits as such. The assessee placed reliance on the decision of the Bombay High Court in Commissioner of Income-tax v. R. M. Raja and of the Kerala High Court in Malayalam Plantations Ltd. v. Commissioner of Income-tax. TheTribunal however did not accept the assessee's contention but held that the Appellate Assistant Commissioner was in error in holding that there were no available surplus for remittance, and that unless it is shown that the remittances were actually out of borrowed monies, the presumption always is that the remittances were from and out of the available profits. According to the Tribunal in working out the available surplus the Appellate Assistant Commissioner has wrongly deducted the outgoings incurred after the various dates of remittances, and for ascertaining the available funds all those outgoings before the dates of remittances whether allowed under the Income-tax Act or not would alone require to be deducted. In that view the Tribunal directed the Income-tax Officer to modify the assessment on the basis of a fresh computation of the available profits on the dates of remittances.
5. At the instance of the assessee the following question has been referred to this court for decision :
'Whether, on the facts and in the circumstances of the case, the sum of $ 54,011 was rightly assessable as amounts brought into the taxable territories during the previous year, relevant for the assessment year 1958-59?'
6. The assessee's first contention is that the profits of his business in real estate could properly be calculated only after all the estates had been sold. This is without any force. If such a contention is accepted, the assessment of income can only be made after an assessee finally winds up his business in real estates. Obviously, this cannot be the position under the provisions of the Income-tax Act. Whether an assessee ultimately makes a profit in his business is not a matter which is the concern of the revenue, The revenue is concerned with the income, gains or profits earned during the year of account, and even if all the assets of the business had not been sold, the assessee could be taxed on such of those profits as computed under the provisions of the Act in the year of account.
7. It is next contended before us on behalf of the assessee that only the remittances from profits accrued prior to the accounting year are taxable under Section 4(1)(b)(iii) of the Indian Income-tax Act, 1922, and that the assessee cannot be said to have remitted any part, of the profits before the close of the accounting year when alone the profits of the business have to be worked out after allowing for the statutory deductions. The revenue, however, contends that the assessee being a resident but not ordinarily resident, the income accruing or arising to him outside the taxable territories would be assessable if it is brought into or received in the taxable territories during such year under Section 4(1)(b)(ii) read with the second proviso thereto.
8. In Shankar Iranna Gumdel v. Commissioner of Income-tax Chagla C.J., speaking for the Bench, expressed the view that when an assessment is made under Section 4(1)(b)(iii) of the Indian Income-tax Act, 1922, it is an assessment on remittance of profits and as such a tax cannot be levied on profits of the current year and that in their very nature profits cannot be remitted in the very year in which they have arisen, for it cannot be predicated of a business that it has made any profits till the year is over. According to the learned Chief Justice remittances of profits are possible only when the profits have been ascertained and are available for remittance, and, therefore, an assessment on remittance basis can only be of past year's profits. In Commissioner of Income-tax v. Pestonji Hormusji Contractor another Bench of the Bombay High Court also took the same view. It was held in that case that where sums are remitted in the course of the year in which they accrue or arise without the taxable territories, they cannot be said to be out of profits, because profits can be ascertained not during the currency of the accounting year but only after the close of that year.
9. In Sarupchand Hukumchand v. Commissioner of Income-tax the assessee made a profit in the accounting year 1935-36, though it had suffered losses in the earlier two years. Certain remittances had been made during that year into British India. The question was whether the remittances were out of profits of the assessee. The assessee did not dispute that there were profits in the year of account and that there were remittances in that year attributable to those profits. But what he contended was that the losses of the earlier two years should have been adjusted against the profit of the year and if so done, there would have been no profits available for remittance to British India and that the remittances made during the year could only be taken as being out of capital and not out of profit. It was found that the losses of the earlier years had not been carried forward and set off against profits of the year of account. While holding that the remittances in the year of account out of profits of that year could be taxed under the old Section 4(2) the court expressed :
'Now under the old Section 4(2) what was taxable was not income, profits and gains, but the remittances, and for the purposes of remittances the relevant year was the 'previous year'. But I see no reason why for the purposes of income, profits and gains the relevant years should be the ' previous years'. Any income, profits or gains whether earned in the previous year or years prior thereto would become taxable provided they were remitted in the 'previous year' and, therefore, it cannot be stated that the income-tax authorities are precluded by law from considering thetrue state of affairs by looking into the financial position of the assessees of the years prior to the previous year.'
10. Section 4(2), before its amendment in 1939, taxed the remittances of foreign profits notwithstanding that they did not accrue in that year. Section 4(2), before its amendment, was as follows:
'4. (2) Income, profits and gains accruing or arising without British India to a person resident in British India shall, if they are received in or brought into British India, be deemed to have accrued or arisen in British India and to be income, profits and gains of the year in which they are so received or brought, notwithstanding the fact that they did not so accrue or arise in that year :
Provided that nothing contained in this sub-section shall apply to any income, profits or gains so accruing or arising prior to the first day of April, 1933, unless they are income, profits or gains of a business and are received in or brought into British India within three years of the end of the year in which they accrued or arose.'
11. The first limb of the main part of the said sub-section was held to attract the income accrued or arisen even during the year of account outside the taxable territories if they are received in or brought into the taxable territories. The revenue points out that regard must be had to the legislative history, and Section 4(1)(b) in its amended form should be considered in that light and there being no material to show that the legislature intended in fact to bring about a change and gave up the tax on remittances of profits during the year of account the legal position should be taken to continue. It is urged by the revenue that the assessee's contention that there cannot be remittances of profits in the year of account, as no profit could be said to have been earned before the close of that year is accepted, the scope of Section 4(1)(b)(ii) will be practically cut down and that as such the said contention that there cannot be any remittance of profit during the year of account is unacceptable, for the accrual of income does not depend on the actual computation of profits which may take place after the close of the year of account. Therefore, the only question to be considered is as to whether the remittances made in the year of account can be brought to charge under Section 4(1)(b)(ii) read with the second proviso thereto, provided there were available profits in the business at the time of the remittances. We are inclined to agree that Section 4(1)(b)(ii) read with the second proviso will bring to charge such remittances, even though such remittances cannot be taxed under Section 4(1)(b)(iii).
12. In Raghunath Madhavlal v. Commissioner of Income-tax it was held that in the case of a person resident but not ordinarily resident in British India, the income, profits and gains which had accrued to him before thebeginning of the accounting year and after first day of April, 1933, are assessable under Section 4(1)(b)(iii), if they are brought into or received in British India during the accounting year, and that in such cases the benefit given by the second proviso to Section 4(1) did not operate, The point considered therein was whether the second proviso to Section 4(1) qualifies Sub-clause (b)(iii) of that sub-section. After considering the various subsections, the Bombay High Court expressed the view that;
'By Sub-clause (iii) of dame (b) in the total income, there is included in the income of a resident person profits and gains having accrued or arisen to such person without British India before the beginning of the account year and after (he first of April, 1933, and brought into or received in British India by him during that year. Therefore, Sub-clause (iii) catches income which is brought into or received in British India by the assessee during the year. Although grammatically the second proviso must apply to Sub-clause (iii) there can never be a case in which it in fact gives relief to any taxpayer because under Sub-clause (iii) tax only attaches to a particular type of income, profits and gains, i.e., income, profits and gains brought into or received in British India during such year, i.e., the account year, and the benefit given by the second proviso is not to operate in certain events and one of those events is that if the income, profits and gains are brought into or received in British India during such year (the words used in Sub-clause (iii) of that clause and in the second proviso are similar); so that in effect the proviso can only give relief to taxation under sub- Clause (ii) of Clause (b),'
13. Commissioner of Income-tax v. Pestonji Hormusji Contractor also held that Section 4(1)(b)(iii) deals with the accumulated profits of the prior years and their inclusion in the total income could only be on the basis that they have accrued or arisen outside the taxable territories during the previous year, that section 4(1)(a) and 4(1)(b)(i) and (ii) deal with the income directly or constructively received in British India and that if the second proviso which confers benefit of exemption to an assessee in certain cases does not apply, the profit earned by him in the year of account could be taxed when there is either actual or constructive remittance.
14. E. I. Sassoon & Co. Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Ashokbhai Chimanbhai are relied on by the assessee for showing that the income cannot accrue until after the close of the year. In the first case the remuneration or commission payable by a company to its managing agents was made to depend on the completion of the performance of the services. It was, therefore, held that unless and until the managing agents earned the commission by doing service in the year ofaccount, the income cannot be said to have accrued to them in the course of the year. In Commissioner of Income-tax v. Ashokbhai Chimanbhai their Lordships of the Supreme Court expressed that the words 'accrue' and 'arise' are used to contradistinguish the word 'receive', that income can be said to have been received when it reached the assessee and that when the right to receive income becomes vested in the assessee, it is said to accrue or arise. The following observations of the Supreme Court are pertinent:
'In the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss; on such dormant profit or loss undoubtedly taxable profits, if any, of the business will be computed, But dormant profits cannot be equated with profits charged to tax under Sections 3 and 4 of the Income-tax Act. The concept of accrual of profits of a business involves the determination by the method of accounting at the end of the accounting year or any shorter period determined by law. If profits accrue to the assessee directly from the business the question whether they accrue de die in diem or at the close of the year of account has at best an academic significance, but when upon ascertainment of profits the right of a person to a share therein is determined, the question assumes practical importance, for it is only on the right to receive profits or income, profits accrue to that person. If there is no right, no profits will be deemed to have accrued.'
15. On a reading of the various clauses in Section 4(1) it is clear that Section 4(1)(a) in terms is not unlike Section 4(1)(b) or (c) confined in its application to any particular category of assessees, Section 4(1 Xa) is general and applies to a resident as well as a non-resident person. The second proviso to Section 4(1), although it relates to the case of a person not ordinarily resident, indicates that income, profits and gains which accrue or arise to such a person without the taxable territories in the previous year can be included in his total income if they are brought into or received in the taxable territories and become chargeable to tax under Section 3 read with Section 4(1)(a). The contention of the learned counsel for the assessee is that the income, profits or gains of a resident but not ordinarily resident can be brought to charge only if such income or profits or gains are received in the taxable territories and that Section 4(1)(b)(iii) having confined levy on remittances made of the past profits accrued or arising to him before the accounting year, and there being no provision for taxing the remittances out of the profits accrued or arising during the year of account, the remittances in this case cannot be taxed. We are, however, not in a position to agree with this contention. In our view Section 4(1)(b)(ii) provides for the levy of tax on income that accrued or arose to a residentwithout the taxable territories during the year of account and Section 4(1)(b)(iii) is a special provision intended to tax the income accrued or arising to him without the taxable territories in the earlier years when they are brought into or received in British India during the year of account. But for Clause (iii) it will be open to an assessee to contend that income, having accrued or arisen to him without the taxable territories in the earlier years, could not be brought to charge in the year of account. It is only to avoid such a contention so far as past profits are concerned, the remittance into the taxable territories has been taken as the basis or occasion for taxation under Clause (iii) while under Clause (ii) the profits of the year are made taxable on the basis of accrual. But certain conditions or fetters are imposed on the taxing power under Clause (ii) by the second proviso which says that in the case of a person not ordinarily resident, the income, profits and gains which have accrued outside the taxable territories shall not be so included unless, (1) the income is derived from a business controlled in or a profession or vocation set up in India, and (2) they are brought into or received in the taxable territories by him during such year. If the conditions set out in the second proviso are fulfilled, then there cannot be any objection for Clause (ii) being invoked for taxing an income which has accrued outside the taxable territories during the year of account. We cannot accept the assessee's contention that the intention of the legislature is only to tax the past profits earned, outside the taxable territories and not the profits earned during that year of account. Our duty in construing a statute such as this is to find out what the legislature must have really meant by the expression which it has used, without necessarily attributing to the legislature a precise appreciation of the technical appropriateness of its language. Selborne L.C. said in Caledonian Railway Co. v. North British Railway Co.:
'The more literal construction ought not to prevail, if it is opposed to the intentions of the legislature, as apparent by the statute; and if the words are sufficiently flexible to admit of some other construction by which that intention will be better effectuated.'
16. The learned counsel for the assessee points out that the fact that Clause (iii) imposes a charge on remittance basis only on the past profits alone, it must be assumed that the legislature intended only to tax past profits and not current profits on remittance basis. As pointed out by Commissioners of Inland Revenue v. Dowdall O' Mahoney & Co. Ltd., the beliefs or assumptions of those who frame acts of Parliament cannot make the law. Therefore, we have to actually construe the various clauses in Section 4(1) in the light of the object of the Act. Undoubtedly the Act imposes a tax on an assessee who is a resident on the income, profits andgains received or accrued to him in the taxable territories during the year of account. It cannot, therefore, be assumed that the legislature intended to exempt the income or profits or gains accrued to a resident but not ordinarily resident from tax in respect of the amounts accrued in the year of account and to impose tax only on the income earned or accrued in the prior years. The proper construction of Section 4(1) in our view would be to interpret clauses (ii) and (iii) as supplementing each other. Clause (b)(ii) is to be taken as covering the income of a resident accrued and remitted during the year and Clause (b)(iii) covering cases of accrual of income in the previous years but remitted in the taxable territories during the year. In this view we have to uphold the view of the Tribunal in this case.
17. The reference is answered in the affirmative and against the assessee.The revenue will have its costs. Advocate's fee Rs. 250.