BEASLEY, C. J. - The question propounded is : 'whether on the facts and in the circumstances of this case, the sum of $ 20,000 could be held constructive remittance of profits in the year of account and assessable as such under Section 4(2) of the Act.'
The year of account is 1931-32; and in that year the assessee was assessed on a total income of Rs. 76,000 odd. The facts of the case are that the assessee was a partner in a business in Bassein and also in a business in Ipoh in the Federated Malay States. In 1928 the Ipoh business in which the assessee was partner advanced a sum in dollars equivalent to Rs. 31, 200 to the Bassein business and in the books of both those business it was set out as a loan by the Ipoh business to the Bassein business. In 1929-30 the Bassein business ceased to be a partnership and the assessee became its sole proprietor and in that situation the Bassein business, of which he was the sole proprietor, was the debtor to the Ipoh firm in which he was merely a partner. In 1931-32 however, the assessee became the sole proprietor of the Ipoh firm and by this the relationship of debtor and creditor ceased to exist as a man cannot be a debtor to, or creditor of, himself. But certain adjustments had to be made with regard to this previous indebtedness of the Bassein business and, as I understand it, entries were made as follows :- In the account books of the old business in Ipoh there was a crediting of the Bassein business with the amount which was previously lent to the Bassein business. In the books of the new Ipoh business there was a transfer of that Bassein indebtedness as I will call it to the new Ipoh business and then a transfer from the Ipoh business in its account books to Bassein of the identical sum. Thus by means of these book-entries, the sum which had been in Bassein in 1928 got back there again. In fact, of course, it had always remained there; what happened was that by reason of the assessee becoming the sole proprietor of both business the character of that money was changed, and instead of being a loan it became the assessees own money. It seems to me that the entries which appear in the old and new Ipoh business account books and in the Bassein account books were merely for the purpose of making adjustments and that there was in no sense an actual transfer of any money from Ipoh of Bassein nor was there even a constructive one if such a transfer as that can under the Indian Income Tax Act be recognised and as to which some doubts have been expressed. For these reasons in my view, the question propounded should be answered in the negative. Costs to the assessee Rs. 250. The deposit of Rs. 100 made by the assessee for reference will be refunded.
RAMESAM, J. - I agree.
KING, J. - I agree.
Reference answered accordingly.