COMMISSIONER OF INCOME-TAX Vs. VNADIMUTHU PILLAI

JUDGEMENT

(1.) The assessee derives income from immovable property, trade in cloth, money- lending h and other sources existing within the jurisdiction of the Income-tax Officer, Tanjore Circle. He is also the owner of considerable house property in Saigon in Indo China. For some years he has kept an account with the Saigon branch of the Banque Franco-Chinoise and has the right to overdraw it to the limit of $50,000. On 1 April, 1935, his overdraft amounted to $20,149. It is unnecessary to embark on an inquiry into the purposes for which the $20,149 was used, but it is common ground that it was used in part for paying for repairs to the assessee's properties in Saigon and meeting taxes levied thereon. The period of account was the year from the 1 April, 1935, to the 31 March, 1936, and the assessee's net income from his Saigon properties during that year was $18,414. As the result of payments into his account of the income from these properties he had reduced his overdraft to $12,165 by the 30 November, 1935. On the 7th December, 1935, while the overdraft still stood at that9 figure, he withdrew from the account a further sum of $5,719 the equivalent of Rs. 10,000. The $5,719 represented a remittance which he made to British India, and the question which the Court is called upon to decide is whether this remittance represents a remittance of profits derived from his Saigon properties. After making the remittance the assessee continued to draw on the account for various purposes and to make payments in from the rents he received in Saigon. The payments in the account from the 7 December, 1935, to the end of the financial year amounted to $11,570 and the year closed with his overdraft standing at the figure of $9,441. It is conceded by the assessee that the $11,570 has been rightly treated as being net income. The assessee says, however, that the payments into his banking account both before and after the 7 December, 1935, should be treated as payments in reduction of the overdraft. He contends that inasmuch as throughout the year he was still overdrawn, in spite of his payments into the account from the income from his properties, the Income-tax authorities are bound to treat the remittance of $5,719 on the 7 December, 1935, as being a remittance of borrowed money. In the course of his argument Mr. Venkatarama Sastriar admitted that if the overdraft had been completely discharged by payments in of further profits after the new financial year commenced the position would have been different but the overdraft had not been paid off. On the other hand, the income-tax authorities say that the true position cannot be gathered by treating the payments into the account and the withdrawals as being entirely separate transactions. They maintain that the net result of the assessee's payments in and his withdrawals from the account is that he has reduced his overdraft by $12,695 and has remitted the balance of his total profits ($18,414 less $12,695) to British India.

(2.) I am unable to accept as being correct the contention of the assessee that payments into the account from his profits must be treated as separate transactions and regarded in toto as payments in reduction of the overdraft. I consider that the income-tax authorities are right in saying that the account must be examined as a whole and that when this is done the remittance cannot be treated merely as a remittance of the proceeds of a loan. The principles which govern this case are in my opinion to be found in the decisions in V.V.R. Firm v. Commissioner of Income-tax Madras (1932) 6 I.T.C. 54, Commissioner of Income- tax Madras V/s. S.K.M.S.P. Meyappa Chettiar (1940) 1 M.L.J. 543 : 8 I.T.R. and Fellowes Gordon V/s. Commissioners of Inland Revenue (1935) 19 Tax Cases 683.

(3.) In V.V.R. Firm V/s. Commissioner of Income-tax, Madras (1932) 6 I.T.C. 54, a Bench of three Judges of this Court considered the case of a Nattukottai Chetty firm which was carrying on a banking business in Rangoon and Saigon with headquarters at Karaikudt in the Madras Presidency. The assessee firm received in Rangoon, which was then in British India, a sum of Rs. 1,00,000 from its agent in Saigon. The agent had been instructed by the Office at headquarters to borrow and remit that amount to the Rangoon branch. The remitted sum was made up of borrowings amounting to $59,000 and the realisation of outstanding loans. The question was whether the $59,000 represented a remittance of foreign profits. It was found that the Saigon branch had accumulated profits which were more than sufficient to cover the remittance and that it had repaid the whole of the borrowed amount within 28 days. It was held/that the $59,000 represented in these circumstances a remittance from profits and not from capital. In Commissioner of Income-tax, Madras V/s. S. K. M.S.P. Meyappa Chettiar (1940) 1 M.L.J. 543 : 8 I.T.R. 20, this Court applied the same principle.