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2. The assessee is a partnership firm consisting of two partners, who are father and son. They belong to Mandvi, a town in the then native State of Kutch. The head Office of the firm is at Bombay, but at Bombay income earned is very small consisting of some commissions and interest which amount to a few hundred rupees only. The bulk of the income of this firm is derived from its business at Parbhani and Latur, which are places in the then native State of Hyderabad. The business carried on there is of ginning and pressing factories. The books of account of the head office are maintained according to the Samvat year. The relevant previous year to the assessment year 1945-46 is Samvat year 2000 (from October 30, 1943, to October 17, 1944) and for the assessment year 1946-47, the relevant previous year is Samvat year 2001 (October 18, 1944, to November 4, 1945). The accounting year at Latur is one ending with 31st August and that at Parbhani is one ending with 31th June of each year. Though some account books are maintained at Mandvi, no business is at all done there. The accounting year at Mandvi is also according to the Samvat year. For the purpose of working the ginning factories at Latur and Parbhani, the firm had to make large purchases of stores and other goods at Bombay and make payments for these purchase at Bombay. Similarly, the assessee used to defray certain expenses incurred for working these two factories also at Bombay. Monies used to be often sent by Latur and Parbhani to Bombay either through their respective current accounts in Bombay or in their account called kutch-Mandvi account. It is not in dispute that all the monies remitted by Parbhani and Latur either to Bombay or to Mandvi were received at Bombay. As already stated, the questions referred to this court for both the years are identical in terms. We do not, therefore, consider in necessary to give details of the state of accounts between Latur and Parbhani and Bombay for both the years. We feel and the parties also agree that it would be sufficient to give an analysis of the accounts for one year and we propose to give the analysis of the accounts for the Samvat year 2000, the relevant accounting year for the assessment year 1945-46.

   Latur            Description              Parbhani
Rs.                                        Rs.
40,632           Cash sent to               21,071
16,717           Cost of goods sent and
                 other expenses defrayed
                 on behalf of branches       3,672
-----------                                ------------
57,349                                      24,743
-----------                                ------------
 
 

4. In addition to the transactions between the branches and the head office at Bombay, Latur and Parbhani branches also sent to Bombay Rs. 25,000 and Rs. 34,501 (each on a single occasion) through Kutch-Mandvi account and there is no dispute that these two amounts were also ultimately received in Bombay. The total remittances from Latur and Parbhani to Bombay either directly or through Kutch-Mandvi amounted to Rs. 1,53,697. The income-tax authorities have computed the total profits of the business for the Samvat year 1999 at Rs. 97,368. The assessee in the first instance disputed the computation of the profits at this figure. According to the assessee two items ought to have been taken into account and given credit before computing his total profits. In the first instance the assessee's contention was that the loss incurred by the assessee in the years prior to April 1, 1943, should have been set off against the said amount of Rs. 97,398 and in the second instance it was contended that depreciation on the fixed assets admissible under section 10(2) of the Act should have been excluded from the said amount of Rs. 97,398. According to the assessee, therefore, the amount of profits for the Samvat year 1999 would not amount to Rs. 97,398 but amount to a figure reduced by setting off the amount of losses and the amount of depreciation therefrom. In the second alternative, it was contended on behalf of the assessee that at any rate even assuming that the profits for the Samvat year 1999 have been correctly computed at Rs. 97,398, they were not available in the Samvat year 2000 for being remitted to Bombay. According to the assessee, profits of the Samvat year 1999 amounting to Rs. 90,000 had already been remitted to Bombay in the assessment year 1999 itself and, therefore, the amount of profits which could be available for being remitted in the Samvat year 2000 was at any rate not more than Rs. 7,398. In the further alternative it was contended that at any rate there being remittances both from Bombay and Mandvi to Parbhani and Latur and from Latur and Parbhani to Bombay and Mandvi only the excess of remittances from Prabhani and Latur to Bombay and Mandvi could be the amount of profits brought to India and it is only that amount which was taxable in the hands of the assessee. According to the assessee, having regard to the accounts the excess of remittances would amount to only Rs. 18,033 during the Samvat year 2000 and that alone was the taxable income. The Income-tax Officer, holding that the profits for the Samvat year 1999 amounted to Rs. 97,398, held that the entire amount was available for being remitted to Bombay in the Samvat year 2000. He however held that the amount of profits that could be said to have been brought from Parbhani and Latur to Bombay would only be the excess of remittances in the account between Bombay on the one hand and Parbhani and Latur on the other hand and the amounts sent by Prabhani and Latur through Mandvi. On these findings he determined the amount of profits brought to Bombay at Rs. 87,100. The assessee appealed against the said order of the Income-tax Officer to the Appellate Assistant Commissioner, who first remanded the case to the Income-tax officer and after receipt of the report from the Income-tax Officer, held that the amount of profits for the assessment year (Samvat year 1999) amounted to Rs. 97,398; the entire amount was available for being remitted to Bombay, and in fact had been remitted to Bombay, and in this view of the matter brought to tax the entire amount of Rs. 97,398 in the hands of the assessee under section 4(1) (b) (iii). The further appeal filed by the assessee before the Tribunal failed.

25. The Tribunal, in rejecting the aforesaid contention of the assessee in its appellate order, observed :

"Relying upon the principle laid down by the Punjab High Court in Jankidas Kaluram's case, it is submitted on behalf of the assessee that since there is flow of funds in both the directions, the net reduction in the debit balance in the case of each branch should be taken as the excess remittances and the same treatment should be accorded to the Kutch-Mandvi account. On this basis, according to the assessee, there would be excess remittances of Rs. 18,033 for 1945-46 through three accounts Latur, Parbhani and Kutch-Mandvi. Mr. Sankara Narayana did not seriously dispute that that much amount would be taxable under section 4(1) (b) (iii) provided the profits to that extent were available for being remitted. In our opinion, the correct manner to decide whether any remittance falls within section 4(1) (b) (iii) is to take a particular or individual remittance and to find out the purpose for which it was made and whether there were sufficient profits available at the time when the remittance was made to cover it. But, unfortunately in this case, the assessee specifically expressed its inability to produce any correspondence between the head-office and the branches which would throw light on the remittances made by the branches to Bombay as and when they were made. Hence, the income-tax authorities adopted the second best method, which is certainly only a rough and ready method to find out the quantum of remittances.... The Appellate Assistant Commissioner also found that the total profits available for remittance from Latur and Parbhani together amounted to Rs. 97,398 and as that amount was less than the amount of excess remittances from the branches, he considered Rs. 97,398 as taxable under section 4(1) (b) (iii)."

31. The Tribunal has held that the initial presumption had not been rebutted by the assessee, because he has failed to produce the correspondence relating to each of the remittances. We find it difficult to agree with the Tribunal that the only manner in which the assessee could rebut the presumption was by producing the correspondence. The assessee has, however, produced the books of account. The assessee has shown that the Bombay head-office was incurring expenditure for Parbhani and Latur by making purchases of stores for Parbhani and Latur and by making payments at Bombay on behalf of Latur and Parbhani. The assessee having established these facts, in our view, the assessee has been successful in rebutting the initial presumption and getting it limited only to the excess of remittances. Latur has further remitted an amount of Rs. 25,000 to Kutch-Mandvi and that amount in due course had been brought to Bombay. Similarly, Parbhani had remitted Rs. 34,501 to Kutch-Mandvi, and that amount also has been brought to Bombay. It is the assessee's case that these two remittances also should be treated on the same footing as remittances from Parbhani and Latur to Bombay, and only the excess of remittances from Parbhani and Latur to Kutch-Mandvi over the remittances from Kutch-Mandvi to Latur and Parbhani should be taken as profits remitted. On the facts found it is not possible for us to accept this contention. It has not been shown that Kutch-Mandvi was incurring any expenditure for the purpose of the business carried on at Parbhani or Latur. On the other hand, the statement of case says : "No business at all is done at Mandvi." That being the position, it is not possible to hold that any part of the remittances made from Parbhani and Latur to Kutch-Mandvi were in repayment of any expenses incurred by Mandvi for the purpose of the business at Parbhani and Latur.