MANOHAR LALL, J. -
(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.
Before the Tribunal it was contended on behalf of the assessee that the money sent out from British India was the stock-in-trade of the business of the assessees and the British Indian business was entitled to claim repayment of the same from the Mandraila branch which was in the position of a debtor; and it was urged, therefore, that only the difference between there admittances from British India and those from outside British India could be brought under assessment, but as the sum sent out to Mandraila was more than the sum received from Mandraila, nothing could be taxed in this year. The Income-tax Tribunal relying upon the a case of Multanchand Jahurmul v. Commissioner of Income-tax, Bengal, accepted this contention.
At the instance of the Commissioner of Income-tax the following question has been referred to us for our opinion :-
Whether, in the circumstances of the case, the Tribunal could properly come to the conclusion that no amount of profits of the Mandraila business was brought into British Indian so as to be assessable to income-tax under Section 4(1)(b) (ii), read with Section 14(2)(c), of the Act
It is argued on behalf of the assessees that the remittances from Mandraila in the accounting year could not be treated as profits from the money-lending business carried on in that year because the profits can only be determined at the end of the year when it may turn out that instead of making a profit the Mandraila business has made a loss.
On the other hand, it has been argued by the learned standing counsel for the Income-tax Department that the statement of the account year, Exhibit A, will show that up to the 30th June, 1942, the assessees sent out roughly a sum of Rs. 2,700 only to Mandraila, and in the same period the Mandraila office sent to British India a sum of about Rs. 5,400. He, therefore, contends that as the amount received as more than the amount sent out from British India the difference must be treated as the profits of the money-lending business in the absence of any account books produced by the assessees. The statement of the account, however, further shows that a sum of Rs. 3,000 was sent from British India in July 1942. I am unable to see how the account of an assessee can be dissected into convenient periods at the option of Income-tax Department. The argument is unsound and is not entitled to succeed. Moreover, the duty of the Income-tax Officer is to find the income and not to calculate the receipts of the assessee. (See the Privy Council case of Maharaja of Darbhanga). The real question then is whether the amount sent from Mandraila to British India is the profit or income of the assessees from the foreign business.
(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.
For these reasons, it follows, in my opinion, that the sum of Rs. 5,523 could not be treated as the profits received by the assessees from the money-lending business in Mandraila. In this view of the matter it is not necessary to consider the applicability or the true import of the case of Multanchand Johurmul which was relied upon by Tribunal. I have arrived at the same conclusion as the Income-tax Appellate Tribunal, though for different reasons.
I would answer the question in the affirmative.