COMMISSIONER OF INCOME-TAX Vs. SKMSPMEYYAPPA CHETTIAR

JUDGEMENT

(1.) The assessee is a Nattukottai Chettiar whose headquarters are in Karaikudi. He is a partner with two other Chettiars in a money-lending business carried in Teluk Anson and at Kambar in the Federated Malay States. The Kambar business had resulted in considerable profits before the Teluk Anson business was started on the 12 December, 1936. On the 14th December, 1936, the partners borrowed from another Chettiar firm doing business in Teluk Anson the sum of Rs. 27,500. This money was divided between the partners and the assessee received as his share, Rs. 7,500, which" his agent in Teluk Anson then remitted to Karaikudi. To pay off the lender, the assessee and his partners transferred profits from the Kambar branch to the Teluk branch, and out of the remittance of profits, they fully discharged the loan. In the circumstances the Income-tax authorities have treated this remittance of Rs. 7,500 by the assessee as a remittance of profits in respect of the year of assessment, 1937- 38. The assessee contended that the order of the Income-tax authorities was wrong and asked the Commissioner of Income-tax to refer for the decision of this Court the following question: Whether under a proper construction of Section 4(2) of the Act, the sum of Rs. 7,500 was rightly included in the petitioner's assessment as a remittance of profits.

(2.) The Commissioner of Income-tax complied with the assessee's request for a reference, and the Court is now called upon to give the answer.

(3.) The answer must be in the affirmative. If it were otherwise, it would mean that a person who had made profits abroad could evade the provisions of Section 4(2) of the Income-tax Act by simply borrowing and repaying the loan out of the profits immediately he had remitted the proceeds of the loan to India. In such circumstances the remittance to India can only be regarded as a remittance of profits. The profits having been used in paying for the remittance, the remittance must necessarily represent the profits. On the facts of this case, there can be no doubt that the Rs. 7,500 did represent a remittance of profits.