COMMISSIONER OF INCOME TAX Vs. J M MUHAMMAD ISMAIL ROWTHER

JUDGEMENT

(1.) THE assessees is a resident of Kuthanallur in the Tanjore District in the Madras Presidency. He derives income from immovable properties which he possesses in British India and in Saigon in Indo -China and from a business which he carries on in partnership in Saigon. For the year 1937 -38 he was assessed to income -tax in this country on a total income of Rs. 62,599. This amount included a sum of Rs. 62,006 which the Income -tax Officer held represented a remittance to British India of profits made in Saigon during the year of account. THE assessee objected to the assessment. He contended that he had been over assessed to the extent of Rs. 60,000. For the two years which ended with 31st March 1936 the assessees profits in Saigon amounted to Pounds 59,290. Of this he remitted Pounds 39,834 during the year of account to the Bank of Mysore, Mysore City and there purchased Mysore Government Bonds of the face value of Rs. 60,000. THE actual price paid for these bonds was Rs. 69,416. THE whole of this amount was paid out of the moneys remitted from Saigon. For two months the bonds remained in the custody of the Bank of Mysore, but in January 1937 the assessee caused them to be sent to the Madras branch of the Imperial Bank of India for safe custody. Subsequently, he arranged with the Kumbakonam branch of the Imperial Bank of India for an overdraft for the purpose of purchasing immoveable property worth Rs. 33,000. THE security consisted of the Mysore Government bonds which the assessee had purchased out of the remittance from Saigon. THE assessee says that the Income -tax authorities have no right to treat the bonds as representing a remittance of profits, and at his request the Commissioner of Income -tax has referred to this Court for decision the following question of law :

(2.) IF the first question is answered in favour of the assessee the second question does not arise. THE reference was made by the Commissioner on the 4th September 1938, but at the suggestion of the learned counsel engaged in the case the hearing was postponed until the Privy Council had decided an appeal which was then pending from the Judgment of the Bombay Presidency v. Ahmedabad Advance Mills Limited of Bombay (1938 I.T.R. 31). THE Judicial Committee has now delivered Judgment does not decide the question which arises for decision in the present case, but there are observations in it which are helpful to the Court. In the case referred to the assessee was a limited company and had lying in London a sum of Rs. 18,000 which it had received as income on certain sterling in London. THE assessee company invested this income in the purchase of stores and machinery which it shipped to Bombay and utilized in its business in British India. THE question was whether the stores and machinery could be regarded as income brought into British India within the meaning of Section 4 (2) of the Indian Income -tax Act, 1922, and therefore taxable. THE Bombay High Court held that the bringing of stores and machinery into British India did not represent a remittance of profits made abroad. THE purchase had resulted in the capitalization of the profits received in England. It was pointed out by Beaumont, C.J., that foreign income might be received in sterling or francs or dollars, and might be brought into India in the form of rupees, or be remitted to India by means of a bankers draft and in this connection referred to the Judgment of Lord Brampton in Gresham Life Assurance Society v. Bishop (1902 A.C. 287), where it was said that income might be received in specie or in any form known to the commercial world for the transmission of money from one country or place to another, the implication being that it could not be received in any other form. THE learned Chief Justice went on to say that in order to attract income -tax in India what is brought into this country must be income, profit and gains, and if the assessee has converted income received abroad into capital, and then brings that capital to India, he is not bringing into India income, profits or gains. It was not suggested in that case that the stores and machinery were brought into India for the purpose of being sold and the proceeds applied as income, but it was apprehended that if an assessee converted foreign income into some form of capital, for instance bonds, and having realized the assets in this country had applied the proceeds as income the Court would hold that what had been brought into this country was in fact income and not capital.

(3.) THE decision of the Bombay High Court was approved by the Judicial Committee and in delivering the Judgment of the Board Lord Romer quoted the remarks of Lord Lindley in Gresham Life Assurance Society Limited v. Bishop (1902 A.C. 287) where he said : A sum of money may be received in more ways than one, for example, by the transfer for a coin or a negotiable instrument or other document which represents and produces coin, and is treated as such by business men. THE Privy Council however retained from deciding the question whether the purchase of bonds out of profits made abroad would represent a remittance of profits if the bonds were brought into British India and realized as that question did not arise in the case. It was left to be decided if and when the occasion arose. It arises in this case, but on facts very different from those contemplated in the Judgment of Beaumont, C.J. In the present case the bonds were not bought in Mysore for the purpose of being brought into British India and sold here. On the facts started in the reference it must be taken that the assessee bought them as a permanent investments. He has still got the bonds, and the fact that he has deposited them by way of security for an overdraft does not change their character. It is conceded on behalf of the Income -tax authorities, and rightly conceded, that where a person invests profits in bonds and no question of remittance of profits arises the bonds will constitute capital assets. In my opinion, the investment of the moneys remitted to Mysore by the assessee must in the light of the surrounding circumstances be held to be a conversion of profit into capital, and nothing more.