KANAGASABAPATHI PILLAI S Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee, at the relevant time, was a working partner in the firm of V.T.V. Dharmaperumal Pillai, which carried on business at No. 72 Fourth Cross St. Colombo. He was also a partner in another firm, S.K. Kanagasabapathi Pillai and Co., having its head office at Dindigul and branch offices at Tuticorin and Colombo. He has been assessed in the status of an individual and as a resident and ordinary resident. For the assessment year 1955-56 corresponding to the accounting year ended February 1, 1955, he was assessed on a total income which included Rs. 10253, as foreign income after deducting the statutory allowance under the Third Proviso to Sec. 4(1) of the Income-tax Act 1922. THE total foreign income consisted of Rs. 2400 as salary and the balance, as working share of the assessee's of profits. In the firm of V.T.V. Dharmaperumal Pillai, the Income-tax Officer noticed that a sum of Rs. 15,000 had been credited to the assessee's personal account in the books of the Tuticorin branch of S.K. Kanagasabapathi Pillai and Co., by debit to the Colombo branch account, which was traced to a credit entry for that sum received from V.T.V. Dharmaperumal Pillai and Co., through the other firm at Colombo. This was taken to be a remittance on the view that it was an accretion to the assessee's balance arising out of the debit in the books of V.T.V. Dharmaperumal Pillai and Co. Nevertheless, as there was a large accumulation of taxed profits referable to a period prior to the accounting year, the computation of the foreign income for the assessment year was restricted to Rs. 10253, after deducting the statutory allowance. it is thus clear that the assessment of the foreign income was on accrual basis under Sec. 4(1)(b)(ii), the Income-tax Officer being of the view that the assessee would be entitled to the benefit of the third proviso. THE proceedings before the Appellate Assist. Commr. of Income-tax as well as the Tribunal, however, concentrated on the question whether, in view of the book entries, there was a remittance of Rs. 15000 of the assessee's foreign income to India during the assessment year. THE Appellate Assistant Commissioner, with whom the Tribunal concurred, found that the effect of the book entries was that the assessee acquired a right to draw the sum of Rs. 15000 in India against a loan given by him at Colombo, and he having thus secured the right to draw the amount in India from S.K. Kanagasabapathi Pillai and Co., at his own will, at Tuticorin, this was a remittance. THE Tribunal added that his was not a case of mere book entries treated as remittance, but a clear-cut case of transfer of assets of India. It was of the view that so far as this remittance was concerned, it was not different from a clear-cut case of transfer of a foreign bank account of an assessee to a branch of the Bank in India. THE Tribunal made its order on 17-8-1957 dismissing the assessee's appeal. On 28-12-1956, as is seen from the statement of the case submitted to this Court, there was an order under Sec. 35, the effect of which was the whole of Rupees 14753 was treated as fully remitted and the statutory allowance that had been granted was withdrawn. It does not appear, in fact, the Tribunal says so, that this fact was brought to its notice while it disposed of the appeal. At the instance of the assessee, the following question has been, under Section 66(2), referred to this Court:--

(2.) IN our view, the question so framed does not precisely bring out the real point in issue. IN fact, it is nobody's case that the assessee, during the according year, made a foreign profit of Rs. 15000. As we mentioned, the entire basis of the assessment was under Sec. 4(1)(b)(ii). This was but right, as the assessee's system of account was mercantile. This was the basis also on which he had been assessed in the previous years, and in each of the years he was granted statutory allowance under the third proviso to Sec. 4(1). On what basis the original order of the INcome-tax Officer granting such allowance for the assessment year in question was revised under Sec. 35, is not clear. But we are of the view that so far as Rs. 10253 that was brought to tax by the INcome-tax Officer is concerned, there can be no doubt that the charge should in any case be sustained on the accrual basis. The controversy, therefore, must necessarily centre round the grant of the statutory allowance. We would, therefore, reformulate the question for our consideration as under: