(The Judgment of the Court was delivered by the Honble the Chief Justice).
The Court required the Commissioner of Income-tax to refer the following question for decision under the provisions of Section 66 (3) of the Indian Income-tax Act, 1922 :-
'Whether there was any material on which the Commissioner could hold that the three sums Rs. 20,784-6-0, Rs. 13,646-6-0 and Rs. 27,188-5-0 were remittances of foreign business profits taxable under section 4 (2) of the Income-tax Act.'
When the application was made to the Court for an order directing the reference to be made it appeared to the Court that the Commissioner had been impressed by the fact that these moneys had been utilised by the assessee firm in its own business and pointed out that the mere investment of trust moneys in the business here would not change their character. In the case which the Commissioner has stated as the result of the Courts order the facts are fully set out and it is abundantly clear that there was ample material on which the Commissioner could hold that the three remittances were remittances of profits made abroad by the assessee firm.
The assessee firm has its headquarters at Karaikudi, and carries on a money-lending business in British India, in the Federated Malay States and in Burma. The year of assessment in this case was 1936-37 when Burma was part of British India. It is common ground that the trustees of three temples, namely, the Mattayanthidal Sivan Koil, Alagar Koil and Poyyalur Sivan Koil, invested trust moneys with assessee firm, the moneys being placed on deposit on terms of interest, the assessee firm having the right of utilizing them for the purposes of its own business. The assessee firm transmitted these moneys to Penang and used them in its business there. On the 23rd September 1935 the assessee firm remitted from Penang to Rangoon a sum of Rs. 20,000 and this amount was credited to the Mattayanthidal Sivan Koil in the Rangoon books of the assessee firm. On the 11th October 1935 a sum of Rs. 784-6-0 was remitted from Penang to Rangoon and similarly credited. These two sums make up the first of the amounts mentioned in the question referred. When these remittances were made, the Rangoon firm was in need of money. The Coleroon branch of the assessee firm was in similar need, it being heavily indebted to the O. RM. O. M. A. M. Firm, Madras, which was pressing for repayment of its debt and there was not sufficient money at the headquarters or at the Coleroon branch to meet the demand of the O. RM. O. M. A. M. Firm. In these circumstances, a sum of Rs. 40,000 was remitted to the O. RM. O. M. A. M. Firm in Madras from Penang on the 23rd September 1935 and the O. RM. O. M. A. M. Firm adjusted the amount against the debt due to it by the Coleroon branch of the assessee Firm. Of this sum Rs. 13,000 was debited to the Alagar Koil and Rs. 27,000 to the Poyyalur Sivan Koil, on the 11th October 1935 two further sums, namely Rs. 646-5-9 and Rs. 188-4-9 were remitted from Penang direct to the Coleroon branch. They represented the interest which had accrued on the amounts of the deposits made by these two temples. As the result of these transactions the temple accounts were eliminated from the Penang books and corresponding accounts were opened in Rangoon and Coleroon.
The Income-tax authorities refused to accept the contention of the assessee firm that these remittances from Penang represented remittances of trust funds and the reasons given are these :- (i) There were sufficient profits available at Penang to remit to Rangoon, Madras and Coleroon, (ii) the branches at Coleroon and Rangoon were in need of funds; (iii) the moneys had to be moved from Penang to Rangoon and Coleroon to meet the needs of these branches as the assessee firm had no funds at headquarters; (iv) funds were brought into British India; (v) remittances were made by the assessee firm and not by the trustees; (vi) the trust funds had not been separately invested at Penang in such a way as to enable the identical amounts to be withdrawn and consequently the remittances could not be identified with those funds; and (vii) the trusts themselves were not in need of funds and the funds were not in fact utilised for any of the purposes of the trusts but were utilized in full for the purposes of the assessees business. These facts appear remittances of profits which the assessee firm had made in Penang. The most important factors are that there was no separate investment of the trust funds, the moneys had gone into the general funds of the assessee firm and the trusts were not paid back out of the remittances.
Accordingly the question referred will be answered in the affirmative. The assessee firm must pay the costs, Rs. 250.
Reference answered in the affirmative.