(The Judgment of the Court was delivered by the Honourable the Chief Justice.)
The assessee is a Nattukottai Chettiar whose headquarters are in Karaikudi. He is a partner with two other Chettiars in a money-lending business carried on in Teluk Anson and at Kambar in the Federated Malay States. The Kambar business had resulted in considerable profits before the Teluk Anson business was started on the 12th December 1936. On the 14th December 1936, the partners borrowed from another Chettiar firm doing business in Teluk Anson the sum of Rs. 27,500. This money was divided between the partners and the assessee received as his share, Rs. 7,500, which his agent in Teluk Anson then remitted to Karaikudi. To pay off the lender, the assessee and his partners transferred profits from the Kambar branch to Teluk Anson branch and out of the remittance of profits, they fully discharged the loan. In the circumstances the Income-tax authorities have treated this remittance of Rs. 7,500 by the assessee as a remittance of profits in respect of the year of assessment, 1937-38. The assessee contended that the order of the Income-tax authorities was wrong and asked the Commissioner of Income-tax to refer for the decision of this Court the following question :
'Whether under a proper construction of Section 4 (2) of the Act the sum of Rs. 7,500 was rightly included in the petitioners assessment as a remittance of profits.'
The Commissioner of Income-tax complied with the assessees request for a reference, and the Court is now called upon to give the answer.
The answer must be in the affirmative. If it were otherwise, it would mean that a person who had made profits abroad could evade the provisions of Section 4 (2) of the Income-tax Act by simply borrowing and repaying the loan out of the profits immediately he had remitted the proceeds of the loan to India. In such circumstances the remittance to India can only be regarded as a remittance of profits. The profits having been used in paying for the remittance, the remittance must necessarily represent the profits. On the facts of this case, there can be no doubt that the Rs. 7,500 did represent a remittance of profits.
The learned Advocate for the assessee has contended that this case is governed by the decision in Hall (H.M. Inspector of taxes) v. Marians. 18 Tax Cas. 148 and Multan Chand Johurmull v. Commissioner of Income-tax, Bengal 5 I.T.C. 154. The former case was considered by a Bench of this Court in Subrahmanyam Chettiar v. Commissioner of Income-tax, Madras 59 Mad. 171, where it was pointed out that it had no application in a situation like the present one. In Multan Chand Johurmull v. Commissioner of Income-tax, Bengal, the Calcutta High Court was dealing with a case where the assessee had a branch in Calcutta and one in Cooch Behar. It was not a question of bringing profits from Cooch Behar to Calcutta. The facts were altogether different.
The answer to the reference, as I have indicated, will be in the affirmative, and the assessee having lost, must pay the usual costs, Rs. 250.
Reference answered in the affirmative.