VEERASWAMI J. - The petitioner in the status of a non-resident was assessed to income-tax for the assessment years 1951-52 and 1952-53 on his share of profits accruing in a partnership firm carrying on business in Ceylon. For the first year, his foreign income was determined to be Rs. 10,540 and for the second year, Rs. 6500. Demands were made on the petitioner in respect of the two years on April 30, 1953. Subsequently, coercive proceedings have been taken against the petitioner for the recovery of the arrears of tax. This petitioner is to quash those proceedings, the petitioner relying on the second proviso to section 45.
It seems to us that, so far as arrears of tax for the two years referable to the petitioners foreign income are concerned, the petitioner is entitled to rely on that proviso. It is not disputed that there is prohibition or restriction in Ceylon in respect of bringing money from there is into the taxable territories. The proviso shows that, so long as such prohibition or restriction continues, the Income-tax Officer shall continue to treat the assessee as not in default in respect of such part of the tax as is on his foreign income not brought into the taxable territories. Learned counsel for the revenue, however, refers us to the Explanation to the proviso read with the Explanation shows that, if the petitioner had been negligent in taking steps to get his share repatriated into the taxable territories, it will make a difference to the validity of the coercive proceeding. We find no force in this contention. It is not the case for the revenue that in Ceylon there is no prohibition or restriction in force through the period subsequent to the assessment years. There is no proof that the assessee has utilised his share of income for the two years or could have utilised the same for any expenditure actually incurred in Ceylon. We cannot, therefore, say that there is constructive remittance into the taxable territories of any part of his foreign income. Nor is the case where the assessee is shown to have brought into the taxable territories any part of such income. The explanation to section 45 is therefore not attracted. So far as the proviso is concerned, as the prohibition or restriction has been and is still in force, the assessee is entitled to the benefit of it. Our attention was invited to Muthuwappa v. First Additional Income-tax Officer. But no negligence or fraud on the part of the assessee is given alleged.
The petition is allowed and there will be a direction that the Income-tax officer shall continue to treat the petitioner as not in default in respect of the arrears of tax on his foreign income for the two years so long as the prohibition or restriction in Ceylon against or in bringing money into the taxable territories continues. No order as to costs.