LEACH, C.J. - On the 16th August 1935 the assessee received from Penang remittance of Rs. 22,837 which the Income-tax authorities have treated as being a remittance out of the profits made by the assessee during the period from the 1st April 1932 to the 21st July 1933 and have assessed him to income-tax on this amount in respect of the year 1935-36. The assessee says that this remittance cannot be treated as a remittance out of the profits made during this period as the evidence clearly shows that it is not. The Commissioner of Income-tax having refused to state a case, he was directed to do so under the provisions of section 66(3) of the Income-tax Act. The question referred is this :
'Is there any evidence to support the finding of the Income-tax Officer that the sum of Rs. 22,837-4-10 received on the 16th August 1935 represents profits earned or accrued abroad within the years 1932-33, 1933-34 and 1934-35'.
It is admitted that the sum could not represent profits accrued after the 21st July 1933. Therefore, we have not got to consider anything that happened in the years 1933-34 and 1934-35.
The assessee is a partner in a money-lending firm carrying on business in Tebing Tinggi, Sumatra. The book of the firm contain a personal account which opened on the 5th September 1931 with a credit balance in guilders of 36,723.24 which amount was described as being 'surplus capital'. On the 10th September 1931 a sum of 10,738.75 guilders was credited to this account as being the assessees share of profits according to the old account. On the 19th September 1931 he was credited with 2,773.15 guilders and this amount was described as the assessees 'share of bonus in the old account with interest thereon'. The last credit entry in the account is dated the 2nd August 1932, when a sum of 4,108.72 guilders was entered and described as 'salary'. On the 31st January 1932 a sum of 14,750 guilders was debited to this account and remitted to British India. It is common ground that this remittance represented a remittance of profits and was taxed here as such. This left less than 3,000 guilders standing to the assessees credit as profits. On the 21st July 1933, 13,389 guilders were remitted from Tebing Tinggi to the Hongkong Bank at Penang. At first the amount was credited in the banks books to the assessees firm but on the 7th October 1933 it was credited to the assessee. It is quite clear that this remittance was a remittance by the assessee from the moneys standing to his credit in his personal account. The amount remained to his credit with the bank in Penang until August 1935 when he remitted it to Madras. It is this remittance which is now in question.
This Court had held that when money is remitted from a business abroad where profits have been made there is a presumption that the remittance is a remittance out of the profits, but the presumption is a rebuttable one. The question which we have to decide here is whether the presumption has been rebutted. The Income-tax authorities say it has not been; but in our opinion the presumption has been fully rebutted. It has been shown and taken to be the case in an order passed by the Assistant Commissioner that the profits of the assessees firm have not been ascertained since the end of 1931. Therefore the remittance from Tebing Tinggi on the 21st July 1933 cannot be taken to be a remittance of profits made after the commencement of the year 1932. Even if the assessee had drawn the money from the general account of the firm, the remittance could not be treated as being a remittance of profits. A partner may draw against anticipated profits but profits may never be made; and if the overdraws his account he will, when there is a settlement, have to make a refund. But in this case it is quite clear that the money which was remitted came from his personal account and the moneys standing in this account as profits represented moneys which had been received prior to the 1st April 1933.
Treating the remittance to Penang as including the sum of 4,108.78 guilders standing to the credit of his account as salary the remittance cannot be treated as a remittance of taxable profits even to this extent. The proviso to sub-section (2) of Section 4 of the Act states : '...nothing contained in this sub-section shall apply to any income, profits or gains so accruing or arising prior to the 1st 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'. The main part of this sub-section states that all income, profits and gains accruing abroad are taxable when brought into British India, but before the 1st April 1933, the sub-section only related to profits and gains of a business and that is why the proviso relates to income, profits and gains of a business. Salary does not come within this category.
In our opinion the evidence proves affirmatively that this remittance was not a remittance out of profits made during the three years commencing from the 1st April 1932 and this is the answer to the reference. The assessee having succeeded, be will he entitled to the usual costs Rs. 250 and refund of the deposit.