N RENGASWAMI PILLAI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a "resident but not ordinarily resident" person. He carried on business in real properties in Penang. In the previous year ending on December 31, 1957, he sold two rubber estates for $ 14, 89, 980 as against his actual cost of $ 13, 00, 000, leaving a gross surplus of $ 1, 89, 980. He had made the following remittances to the taxable territories during the year Date AmountRs27-4-1957 15, 470.253-5-1957 15, 029.7512-5-1957 15, 000.0012-6-1957 15, 000.0025-6-1957 15, 400.0014-8-1957 500.0016-9-1957 30, 950.0018-9-1957 8, 625.001, 62, 400.00 or$ 1, 04, 774THE assessee contended that the above remittances were not taxable, as they were not remitted out of profits and that the profit on sales of the estates could be ascertained only when all the estates purchased by him had been completely sold. THE Income-tax Officer rejected these contentions holding that there was actually a surplus of $ 1, 43, 754 by the sale of the two rubber estates after setting off of $ 46, 226, the loss sustained by the assessee in the working of the gardens and that in terms of the second proviso to section 4(1) of the Indian Income-tax Act, 1922, the entire sum of $ 1, 04, 774 brought into or received in the taxable territories are taxableTHE assessee appealed to the Appellate Assistant Commisioner contending that there was no profit available for remittance and that having regard to the nature of the business it cannot be said that there was profit on the sales of the estates on the dates of remittances. Agreeing with the assessee's contention, the Appellate Assistant Commissioner held that the remittances were not taxable as there was no surplus available as revenue profits for remittence if the deductions claimed by the assessee had been allowed. He, however, did not accept the assessee's other contention that no amount could be considered as profits on the sale of the estates in the year of accountTHE revenue took the matter in appeal to the Income-tax Appellate Tribunal contending that the Appellate Assistant Commissioner had gone wrong in working out the available surplus for remittance having regard to the dates of each out going Before the Tribanal the assessee's contention was that profits could arise or accrue after the close of the year, and that the remittances during the year could not be remittances of profits as such. THE assessee placed reliance on the decision of the Bombay High Court in Commissioner of Income-tax v. R. M. Raja and of the Kerala High Court in Malayalam Plantations Ltd. v. Commissioner of Income-tax.

(2.) THE Tribunal however did not accept the assessee's contention but held that the Appellate Assistant Commissioner was in error in holding that there were no available surplus for remittance, and that unless it is shown that the remittances were actually out of borrowed monies, the presumption always is that the remittances were from and out of the available profits. According to the Tribunal in working out the available surplus the Appellate Assistant Commissioner has wrongly deducted the outgoings incurred after the various dates of remittances, and for ascertaining the available funds all those outgoings before the dates of remittances whether allowed under the Income-tax Act or riot would alone require to be deducted. In that view the Tribunal directed the Income-tax Officer to modify the assessment on the basis of a fresh computation of the available profits on the dates of remittancesAt the instance of the assessee the following question has been referred to this court for decision"Whether, on the facts and in the circumstances of the case, the sum of $ 54, 011 was rightly assessable as amounts brought into the taxable territories during the previous year, relevant for the assessment year 1958-59 ?" *THE assessee's first contention is that the profits of his business in real estate could properly be calculated only after all the estates bad been sold. This is without any force. If such a contention is accepted, the assessment of income can only be made after an assessee finally winds up his business in real estates. Obviously, this cannot be the position under the provisions of the Income-tax Act. Whether an assessee ultimately makes a profit in his business is not a matter which is the concern of the revenue. THE revenue is concerned with the income, gains or profits earned during the year of account, and even if all the assets of the business had not been sold, the assessee could be taxed on such of those profits as computed under the provisions of the Act in the year of accountIt is next contended before us on behalf of the assessee that only the remittances from profits accrued prior to the accounting year are taxable under section 4(1)(b)(iii) of the Indian Income-tax Act, 1922, and that the assessee cannot be said to have remitted any part of the profits before the close of the accounting year when alone the profits of the business have to be worked out after allowing for the statutory deductions.

(3.) THE following observations of the Supreme Court are pertinent"In the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss on such dormant profit or loss undoubtedly taxable profits, if any, of the business will be computed. But dormant profits cannot be equated with profits charged to tax under sections 3 and 4 of the Income-tax Act. THE concept of accrual of profits of a business involves the determination by the method of accounting at the end of the accounting year or any shorter period determined by law. If profits accrue to the assessee directly from the business the question whether they accrue de die in diem or at the close of the year of account has at best an academic significance, but when upon ascertainment of profits the right of a person to a share therein is determined, the question assumes practical importance, for it is only on the right to receive profits or income, profits accrue to that person. If there is no right, no profits will be deemed to have accrued." *On a reading of the various clauses in section 4(1) it is clear that section 4(1)(a) in terms is not unlike section 4(1)(b) or (c) confined in its application to any particular category of assessees. Section 4(1)(a) is general and applies to a resident as well as a non-resident person. THE second proviso to section 4(1), although it relates to the case of a person not ordinarily resident, indicates that income, profits and gains which accrue or arise to such a person without the taxable territories in the previous year can be included in his total income if they are brought into or received in the taxable territories and become chargeable to tax under section 3 read with section 4(1)(a).