Decided on June 26,1962

Kalyanji Ukka And Co Appellant

Cited Judgements :-



TAMBE, J. - (1.)ON a requisition made by this court under sub -section (2) of section 66 of the Income -tax Act (hereinafter referred to as the Act), the Income -tax Appellate Tribunal has drawn up a statement of the case and referred three questions for each of the assessment years 1945 -46 and 1946 -47. The questions for these two years are identical in terms. The questions that fall for consideration in substance relate to the Principle of computing income, profits and gains within the meaning of sub -clause (iii) of clause (b) of sub -section (1) of section 4 of the Act and determination of its quantum available for remittance in these two years.
(2.)THE assessee is a partnership firm consisting of two partners, who are father and son. They belong to Mandvi, a town in the then native State of Kutch. The head Office of the firm is at Bombay, but at Bombay income earned is very small consisting of some commissions and interest which amount to a few hundred rupees only. The bulk of the income of this firm is derived from its business at Parbhani and Latur, which are places in the then native State of Hyderabad. The business carried on there is of ginning and pressing factories. The books of account of the head office are maintained according to the Samvat year. The relevant previous year to the assessment year 1945 -46 is Samvat year 2000 (from October 30, 1943, to October 17, 1944) and for the assessment year 1946 -47, the relevant previous year is Samvat year 2001 (October 18, 1944, to November 4, 1945). The accounting year at Latur is one ending with 31st August and that at Parbhani is one ending with 31th June of each year. Though some account books are maintained at Mandvi, no business is at all done there. The accounting year at Mandvi is also according to the Samvat year. For the purpose of working the ginning factories at Latur and Parbhani, the firm had to make large purchases of stores and other goods at Bombay and make payments for these purchase at Bombay. Similarly, the assessee used to defray certain expenses incurred for working these two factories also at Bombay. Monies used to be often sent by Latur and Parbhani to Bombay either through their respective current accounts in Bombay or in their account called kutch -Mandvi account. It is not in dispute that all the monies remitted by Parbhani and Latur either to Bombay or to Mandvi were received at Bombay. As already stated, the questions referred to this court for both the years are identical in terms. We do not, therefore, consider in necessary to give details of the state of accounts between Latur and Parbhani and Bombay for both the years. We feel and the parties also agree that it would be sufficient to give an analysis of the accounts for one year and we propose to give the analysis of the accounts for the Samvat year 2000, the relevant accounting year for the assessment year 1945 -46.
Latur Description ParbhaniRs. Rs.1,64,928 Opening debit balance 46,72568,030 Credits during the year 26,43657,349 Debits during the year 24,7431,54,247 Closing debit balance 45,03310,681 Reduction in the debitbalance 1,692

Included in the credits of Rs. 68,030 in the Latur branch, there are credits amounting Rs. 67,100 on five different occasions. Similarly, the credits in the Parbhani branch are on eight different occasions. The total debits of Rs. 57,349 in the Latur account consist of 74 different debits and the total debits of Rs. 24,743 in the Parbhani account consist of 31 debit items. The analysis of these debits in the two branch accounts is as follows :

Latur Description ParbhaniRs. Rs.40,632 Cash sent to 21,07116,717 Cost of goods sent andother expenses defrayedon behalf of branches 3,672 - - - - - - - - - - - - - - - - - - - - - - -57,349 24,743 - - - - - - - - - - - - - - - - - - - - - - -

(3.)IN addition to the transactions between the branches and the head office at Bombay, Latur and Parbhani branches also sent to Bombay Rs. 25,000 and Rs. 34,501 (each on a single occasion) through Kutch -Mandvi account and there is no dispute that these two amounts were also ultimately received in Bombay. The total remittances from Latur and Parbhani to Bombay either directly or through Kutch -Mandvi amounted to Rs. 1,53,697. The income -tax authorities have computed the total profits of the business for the Samvat year 1999 at Rs. 97,368. The assessee in the first instance disputed the computation of the profits at this figure. According to the assessee two items ought to have been taken into account and given credit before computing his total profits. In the first instance the assessee's contention was that the loss incurred by the assessee in the years prior to April 1, 1943, should have been set off against the said amount of Rs. 97,398 and in the second instance it was contended that depreciation on the fixed assets admissible under section 10(2) of the Act should have been excluded from the said amount of Rs. 97,398. According to the assessee, therefore, the amount of profits for the Samvat year 1999 would not amount to Rs. 97,398 but amount to a figure reduced by setting off the amount of losses and the amount of depreciation therefrom. In the second alternative, it was contended on behalf of the assessee that at any rate even assuming that the profits for the Samvat year 1999 have been correctly computed at Rs. 97,398, they were not available in the Samvat year 2000 for being remitted to Bombay. According to the assessee, profits of the Samvat year 1999 amounting to Rs. 90,000 had already been remitted to Bombay in the assessment year 1999 itself and, therefore, the amount of profits which could be available for being remitted in the Samvat year 2000 was at any rate not more than Rs. 7,398. In the further alternative it was contended that at any rate there being remittances both from Bombay and Mandvi to Parbhani and Latur and from Latur and Parbhani to Bombay and Mandvi only the excess of remittances from Prabhani and Latur to Bombay and Mandvi could be the amount of profits brought to India and it is only that amount which was taxable in the hands of the assessee. According to the assessee, having regard to the accounts the excess of remittances would amount to only Rs. 18,033 during the Samvat year 2000 and that alone was the taxable income. The Income -tax Officer, holding that the profits for the Samvat year 1999 amounted to Rs. 97,398, held that the entire amount was available for being remitted to Bombay in the Samvat year 2000. He however held that the amount of profits that could be said to have been brought from Parbhani and Latur to Bombay would only be the excess of remittances in the account between Bombay on the one hand and Parbhani and Latur on the other hand and the amounts sent by Prabhani and Latur through Mandvi. On these findings he determined the amount of profits brought to Bombay at Rs. 87,100. The assessee appealed against the said order of the Income -tax Officer to the Appellate Assistant Commissioner, who first remanded the case to the Income -tax officer and after receipt of the report from the Income -tax Officer, held that the amount of profits for the assessment year (Samvat year 1999) amounted to Rs. 97,398; the entire amount was available for being remitted to Bombay, and in fact had been remitted to Bombay, and in this view of the matter brought to tax the entire amount of Rs. 97,398 in the hands of the assessee under section 4(1) (b) (iii). The further appeal filed by the assessee before the Tribunal failed.

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