COMMISSIONER OF INCOME TAX Vs. RAMACHANDRA KESHARDEO

JUDGEMENT

(1.) 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.

(2.) 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.

(3.) 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.