Patna High Court
Commissioner Of Income-Tax, Bihar And ... vs Ramachandra Keshardeo. on 9 April, 1948
Equivalent citations: [1948]16ITR150(PATNA), AIR 1949 PATNA 181
JUDGMENT
MANOHAR LALL, J. - These are two references by the Income-tax Tribunal under Section 66 (1) of the Indian Income Tax Act at the instance of the Commissioner of Income-tax, Bihar and Orissa, inviting us to give our opinion on the questions which are similar in each case. It is desirable to state the facts of each case separately.
Assessment year 1943-44. - The assessees are residents and ordinarily residents in British India having arhat and gram business at Mokamah in British India and also money-lending business at Mandraila in Jaipur State, an Indian State. The previous year for the assessment is the year 1998-99 Sambat corresponding to the 21st October, 1941, to the 7th November, 1942. The Income-tax Officer found from the examination of the personal account of Jaliram Ramchandra in the books of the British Indian business at Mokamah that a sum of Rs. 5,810-2-0 was remitted from British India to Mandraila, and in the same period a sum of Rs. 5,522-15-3 was remitted from Mandraila to British India. The Income-tax Officer called upon the assessees to explain the source and nature of the receipts from Mandraila. The assessees admitted in writing that they were carrying on a money-lending business at Mandraila but when called upon to produce the account books of the money-lending business, they denied the existence of any account book. In these circumstances, the Income-tax Officer concluded that the amount remitted from Mandraila to British India, namely Rs. 5,523 in round figures, was the assessees income from the money-lending business carried on at Mandraila. Accordingly, he added this sum to the assessable income of the assessees. In appeal, the assessees sought to produce the account books of the money-lending business at Mandraila but the Assistant Commissioner refused to admit the books of account in evidence because "the existence of this very evidence was categorically denied at the assessment stage." He agreed with the Income-tax Officer that the entire sum sent from Mandraila to British India must be treated as income accruing outside British India but brought into British India within the account year under consideration. Before the Income-tax Tribunal no attempt was made to produce the books of account.
Before the Tribunal it was contended on behalf of the assessee that the money sent out from British India was the stock-in-trade of the business of the assessees and the British Indian business was entitled to claim repayment of the same from the Mandraila branch which was in the position of a debtor; and it was urged, therefore, that only the difference between there admittances from British India and those from outside British India could be brought under assessment, but as the sum sent out to Mandraila was more than the sum received from Mandraila, nothing could be taxed in this year. The Income-tax Tribunal relying upon the a case of Multanchand Jahurmul v. Commissioner of Income-tax, Bengal, accepted this contention.
At the instance of the Commissioner of Income-tax the following question has been referred to us for our opinion :-
"Whether, in the circumstances of the case, the Tribunal could properly come to the conclusion that no amount of profits of the Mandraila business was brought into British Indian so as to be assessable to income-tax under Section 4 (1) (b) (ii), read with Section 14 (2) (c), of the Act ?"
It is argued on behalf of the assessees that the remittances from Mandraila in the accounting year could not be treated as profits from the money-lending business carried on in that year because the profits can only be determined at the end of the year when it may turn out that instead of making a profit the Mandraila business has made a loss.
On the other hand, it has been argued by the learned standing counsel for the Income-tax Department that the statement of the account year, Exhibit A, will show that up to the 30th June, 1942, the assessees sent out roughly a sum of Rs. 2,700 only to Mandraila, and in the same period the Mandraila office sent to British India a sum of about Rs. 5,400. He, therefore, contends that as the amount received as more than the amount sent out from British India the difference must be treated as the profits of the money-lending business in the absence of any account books produced by the assessees. The statement of the account, however, further shows that a sum of Rs. 3,000 was sent from British India in July 1942. I am unable to see how the account of an assessee can be dissected into convenient periods at the option of Income-tax Department. The argument is unsound and is not entitled to succeed. Moreover, the duty of the Income-tax Officer is to find the income and not to calculate the receipts of the assessee. (See the Privy Council case of Maharaja of Darbhanga). The real question then is whether the amount sent from Mandraila to British India is the profit or income of the assessees from the foreign business.
It has been clearly pointed out in the case of Govind Ram Tansukh Rai that the profits of a foreign business cannot be determined till the expiration of the year, and, therefore, they cannot be included in law, in the remittances which were made during the pendancy and in the course of the year. The learned Judges of the Allahabad High Court drew attention to Section 3, Section 2 sub-clause (11), and section 4 sub-clause (2), of the income-tax Act, and observed that "it is obvious that foreign income, profits and gains must accrue or arise without British India before they can be received or brought into British India and the receipt of a trader in the course of a year, though ultimately it might result into a profit, cannot be treated as profit before the determination of the year." I respectfully agree with these observations which are in accord with the general custom and the practice prevailing amongst commercial people; the Income-tax Department is to determine the profits in the sense that a commercial man would understand it unless the statute directs other wise.
For these reasons, it follows, in my opinion, that the sum of Rs. 5,523 could not be treated as the profits received by the assessees from the money-lending business in Mandraila. In this view of the matter it is not necessary to consider the applicability or the true import of the case of Multanchand Johurmul which was relied upon by Tribunal. I have arrived at the same conclusion as the Income-tax Appellate Tribunal, though for different reasons.
I would answer the question in the affirmative.
Assessment year 1944-45. - The facts in this year are similar to the facts which gave rise to the question for the assessment year 1943-44. In this year the previous year of the assessment was 1999-2000 Sambat, corresponding to the 8th November, 1942, to the 8th October, 1943. The remittances from British India to Mandraila in the year were Rs. 9,000, and the amount received from Mandraila in the same period was Rs. 11,002-13-0.
The Income-tax Officer added the whole amount of Rs. 11,002-13-0 in the assessable income of the assessees, and this finding was affirmed by the Appellate Assistant Commissioner. The Appellate Tribunal in accordance with the view which they had expressed for the assessment year of 1943-44 ordered that only the difference of the sum received from Mandraila and the sum sent out to Mandraila, that is to say, Rs. 2,002, can be deemed to be the profit of the money-lending business brought into British India. At the instance of the Commissioner of Income-tax, who was aggrieved by the decision, the following question has been referred to us for our opinion :-
"Whether, in the circumstances of the case, the Tribunal could properly come to the conclusion that a sum of Rs. 2,002 only and not Rs. 11,002 was the profit of the Mandraila business brought into British India and assessable as such under Section 4 (1) (b) (ii), read with Section 14 (2) (c), of the Act ?"
It would be noticed that this year was the second year in which the Mandraila money-lending business was being carried on. It was open to the assessees to show from their account books that the amount of Rs. 11,002 did not represent any part of the profits which were assumed to be made in Mandraila in this year. But the assessees have not produced any accounts and, therefore, there is a presumption which the Income-tax authorities can draw against them from this non-production of accounts. The leading case is the House of Lords case, Scottish Provident Institution v. Allan. In that case the Lord Chancellor in his speech observed :-
"Here is a large amount, putting these figures together, which to my mind must include, and obviously does include, a large amount of profits. I think it is for the company to show, if the fact be so, that that ought to receive a certain amount of deduction, because a good deal of it was repayment of that which was in truth the capital and not profit at all. No attempt has been made to do that......."
This case has been followed in numerous cases in India. It is enough to refer to M. Murugappa Chettiar v. Commissioner of Income-tax, Madras where it was held that the money remitted to the headquarters of a firm in British India from its branch outside British India is prima facie to be presumed as having come out of profits rather than a remittance of capital and is assessable to income-tax as profits until the contrary is shown by the assessee; the same view was taken in the case of Ramanathan Chettiar. (See also the case of Subbiah Iyer, the case of Meyyappa Chettiar, and Tarachand Pohumal). This view of the law was not and could not be seriously challenged on behalf of the assessees. But it was argued on their behalf that only the difference between the amount sent out from British Indian and the amount received from Mandraila to British India should be treated ex facie as the profit which would be taxed. This argument is completely met by the Lahore case of Sonaram Nihalchand where the facts are almost similar to the facts in the present case. The assessee in that case was carrying on a business at Peshawar and later on in 1929 he began to do business at Kabul. In the assessment year 1933-34 the assessee refused to produce the account books of the Kabul business. The accounts of Peshawar showed that there were remittances from Kabul to Peshawar and from Peshawar to Kabul, although there was no evidence to show that the Kabul business made any profits or that the remittances were made out of profits. It also appeared that the receipts of money and goods from Kabul to Peshawar were less than the remittances of money and goods from Peshawar to Kabul. In these circumstances, the Income-tax Officer assessed the assessee at Rs. 20,000, assuming that he had made so much profit during the three years ending with 1933-34, as the assessee had failed to produce his books of account. The following observations of Jailal, J., who delivered the judgment of the Division Bench, at page 491 are relevant :-
"It would be observed that it is not the case of the Commissioner that as a result of the calculations made of the remittances from and to Kabul it is proved that the assessee made a profit in the Kabul business. The assessing authority has made an assumption of this from the fact that the assessee has been carrying on business since 1929, and in spite of several opportunities having been given to him, has failed to produce his account books. He has also inferred that, assuming that the business in Kabul has been run on profit, the amount remitted to Peshawar represented profit also and that it was not wholly capital. In P. L. S. K. R. Firm v. Commissioner of Income-tax, it was held that under certain circumstances it is open to the Income-tax Officer to assume that the amount remitted to British India from a branch of the business outside British India represented profits made in such branch in spite of the fact that the total amount of such remittances is less than what has been sent from British India to such branch.
"So far as the total of remittances from Peshawar to Kabul and from Kabul to Peshawar are concerned they have been taken by the Income-tax Officer from the books of the assessee kept in Peshawar. There is, therefore, evidence on which the presumption made by the Income-tax Officer has been based and in my opinion he was entitled to make this assumption under the circumstances of the case and on the authority of the case cited above."
I respectfully agree with these observations. It is the assesses own fault if the amount assumed by the Income-tax authorities exceeds the actual amount of profits made by the assessees in Mandraila. He could have easily shown the account books and established that no part of Rs. 11,002 was profit and that it was wholly capital remitted back to the head branch.
It was also argued that it is impossible to believe, when the amount remitted from British India was small, that the assessees would have made in Mandraila such a large amount of profits. But this is really the same argument over again in another form. It may be that the assessees were able to invest other sums as capital in business by taking loans from Mandraila or that the assesses were able to invest the amount received from British India at a very high rate of interest.
For the reason given above, I would answer the question in the negative, and hold that the Income-tax authorities were right in treating Rs. 11,002 as the profit of the Mandraila business brought into British India and assessable as such.
As the assessees have succeeded in one reference and failed in the other, I would make no order for costs for the hearing of the two references in this Court.
MEREDITH, J. - I am in complete agreement with my learned brother.
References answered accordingly.