LEACH, C.J. - This reference arises out of an assessment of an undivided Hindu family the members of which are M. S. S. Chidambaram Chettiar and Meyappa Chettiar. The assessees are partners in various money-lending firms in the Federated Malay States and in Burma, and carry on the same kind of business at Karaikudi where they have their headquarters. One of their foreign firms does business at Ipoh in the Federated Malay states. Owing to the financial depression which existed there this firm was compelled to take over in satisfaction of debts due to it immovable properties which had been mortgaged as security for debts. The values of these immovable properties were treated as representing in part the return of capital and in part profits. The total profits of the firm were calculated and it was found that they amounted to dollars 1,27,806 of which dollars 74,570 was represented by land. the assessees share in the sum of dollars 74,570 was dollars 53,264. During the year of account (1933-34) the assessees remitted from Ipoh to Rangoon, which was then in British India, sums amounting in the aggregate to Rs. 99,279. These remittances the Income-tax authorities treated as being remittances of profits. The assessees objected to this, their objection being that the profits represented by immovable properties were not capable of remittance. The Court directed the Commissioner of Income-tax under Section 66(3) of the Act to refer the following question for decision :-
'The total profits of the assessees for the years 1930-31 to 1933-34 having been found to be dollars 1,19,647 of which dollars 74,570 represent immovable properties taken over by the assessees from their debtors, should the Income-tax Officer in computing the profits available for remittance from the Ipoh firm have excluded the sum of dollars 74,570?'
The Commissioner of Income-tax rightly points out that there is an error in the wording of the question. The sum of dollars 74,570 was the total interest of the firm in immovable properties and the assessees share, as I have already said, was only 53,264 dollars.
In our opinion the question referred must be answered in the negative. The assessees cannot be allowed to withdraw money from the firm and treat their interest in the immovable properties of the firm as representing their profits. They accumulated profits to the extent of 1,19,647 dollars and out of the common funds of the firm they made the remittances. The withdrawals from the firm must therefore be treated as withdrawal of profits. The effect was to turn the immovable properties representing such profits not capital assets. The case comes within the principle stated by the House of Lords in Scottish Provident Institution v. Allan.
As the answer is against the assessees they must pay the costs of the Commissioner of Income-tax, Rs. 250.
Reference answered against of the assessee.