ACHHRU RAM, J. - This reference arises out of an assessment on a firm carrying on business under the name and style of Messrs. Jankidas Kaluram in the town of Rewari in Gurgaon district for the year 1943-44, the accounting year ending on December 9, 1942.
It appears that this firm has got a one-half share in another firm carrying on business in Jaipur State under the name and style of Messrs. Jankidas Kaluram, Sambar Lake. From the facts stated at the Bar, the correctness whereof was not disputed on the respondents behalf, it appears that the account of the Rewari firm is to be found in the account books of the Sambar Lake concern under four different heads. There is first a current account in the name of Jankidas Kaluram, Rewari, regarding goods and cash received from and sent to Rewari. There is secondly an account in the name of Arjan Singh-Kirpa Ram, Arjan Singh being the father of Jankidas. This is a capital account which has not been operated upon for a considerable period and is being carried forward from year to year. There is thirdly an account in the name of Arjan Singh-Kirpa Ram which seems to have been opened during the accounting period, the account being of a new branch established under the above-mentioned name and style at Rewari. The fourth account is in the name of Kirpa Ram Rewariwala, in which a sum of Rs. 26,115 was credited to the said Kirpa Ram Rewariwala on account of the assessees done-half share of the profits in the Sambar Lake business.
The first account showed remittances of sums aggregating to Rs. 1,34,590 from the Sambar Lake firm to the Rewari firm as against sundry receipts amounting to Rs. 1,05,632. The third account showed remittances aggregating to Rs. 24,770 against cash receipts aggregating to Rs. 121,42-1-6. In the first account in addition to the sundry receipts Rs. 25,895 were credited to the Rewari firm on account of the old balance and Rs. 272 on account of interest. The remittances in the first account were Rs. 2,791 in excess of the total amount of the items shown to the credit of the Rewari firm and the remittances in the third account were Rs. 3,627-7-6 in excess of the receipts. Taking both the accounts into consideration the remittances from Sambar Lake exceeded the receipts and other sums credited to the Rewari firm by Rs. 7,162.
The assessees share of the profit in the Sambar Lake business was determined at the end of the accounting year at Rs. 43,531.
The Income-tax Officer, in making an assessment on the assessee firm, held that a sum in excess of the aforesaid sum of Rs. 43,531 having been remitted by the Sambar Lake concern to the assessee firm during the relevant period it should be deemed that the entire profit of the share of the assessee firm had been received in British India and was, therefore, assessable to tax. On an appeal by the assessee the Appellate Assistant Commissioner held that the Incomes-tax Officer was not justified in holding that the profit of Rs. 43,531 had been remitted or brought into British India, and allowed the appeal. The Department filed an appeal to the Income-tax Appellate Tribunal against the decision of the Appellate Assistant Commissioner. The Tribunal upheld the decision of the Assistant Commissioner and dismissed the appeal professing to follow the view expressed in Ramaswami Pillai v. Commissioner of Incomes-tax, Madras. On an application by the Commissioner of Income-tax presented under Section 66 of the Indian Income-tax Act the Appellate Tribunal has stated a case and has referred the following question of law to this Court for decision :-
'Whether on the facts proved or admitted in the case, the sum of Rs. 43,531 determined as profit of the assessee for the relevant accounting period in the Sambar Lake firm has been remitted to the assessee in the relevant account year and is consequently taxable under Section 4(1)(b)(ii) read with Section 14(2)(c) ?'
In arguing this reference Mr. Sarv Mittar Sikri, the learned counsel for the Commissioner of Income-tax, has advanced three main contentions before us. He has contended in the first instance that the view of law expressed in Ramaswami Pillai v. Commissioner of Income-tax, Madras, is not correct and that in any case the Appellate Tribunal should not have followed it in view of the change in the law that has taken - place since the judgment in the above case was delivered. He has contended in the next place that it had to be presumed that the remittances received from Sambar Lake in so far as they did not exceed the amount of the assessees share of the profits of the business carried on there consisted of and represented his share of the profits and that the onus was on the assessee to show that the remittances to that extent were not on account of his share of the profit. It was urged that in the absence of any rebuttal of the presumption the assessee was liable to be taxed on the sum of Rs. 43,531 out of the remittances received by him. It was contended lastly that in any case it ought to have presumed that the sum of Rs. 7,162 representing the excess of the remittances to the assessee over the receipts from him had been remitted to him out of his share of the profit and that in the absence of any rebuttal of this presumption the assessee was certainly liable to be taxed on the remittances to the extent.
The facts of Ramaswami Pillai v. Commissioner of Incomes-tax, Madras, were that the assessee who was a partner in a money-lending firm carrying on business in Tebing Tinggi (Sumatra) had a personal account in the account books of that firm opened on the September 5, 1931, with a credit balance of guilders 36,723.24, which amount was described as being surplus capital. On the September 10, 1931, a sum of guilders 10,738.75 was credited to this account as being the assessees share of profits according to the old account. On the September 19, 1931, he was credited with guilders 2,772.15 and the amount was described as the assessees share of bonus in the old account with interest thereon. The last credit entry in the account was dated the August 2, 1932, when a sum of guilders 4,108.72 was entered and described as salary. On the January 31, 1932, a sum of guilders 14,750 was debited to this account and remitted to British India, it being common ground that this remittance represented a remittance of profits and it was taxed as such in British India. This left about guilders 3,000 standing to the assessees credit as profits. On July 21, 1933, guilders 13,389 were remitted from Tebing Tinggi to Hongkong Shanlghai Bank at Penang. At first the amount was credited in the banks books to the assessees firm. On October 7, 1933, it was credited to the assessee personally. The amount remained to his credit with the bank in Penang until August, 1935. On August 16, 1935, the assessee received from Penang a remittance of Rs. 22,837 which the Incomes-tax authorities treated as being a remittance out of the profits made by him during the period from April 1, 1932, to July 21, 1933, and they assessed him to income-tax on this amount in respect of the year 1935-36. Under orders of the High Court the Commissioner of Incomes-tax stated a case land referred the following question to the High Court for decision :-
'Is there any evidence to support the finding of the Income-tax Officer that the sum of Rs. 22,837-4-10 received on the August 16, 1935, represents profits earned or accrued abroad within the years 1932-33, 1933-34 and 1934-35.'
The question was answered by the Court in favour of the assessee. One of the grounds on which their Lordships based their answer was that the presumption that the remittance was a remittance out of the profits was a rebuttable presumption and had in their opinion been fully rebutted. The second ground on which they based their answer had reference to the language of the proviso to sub-section (2) of Section 4 of the Indian Incomes-tax Act as it then existed. Of course, this second ground can no longer be said to be a live ground by reason of the rastic change in the provisions of the Incomes-tax Act. However, the first ground still remains land we cannot see any reason to differ from the view taken by the learned Judges as to the presumption arising from the fact of a remittance as to the same being out of profits being a rebuttable one. Whether the learned Judges were right in holding that in the particular case the presumption had been fully rebutted is not a question on which it is necessary for us to express any opinion.
The presumption adverted to in the above-mentioned judgment in certainly not a presumption of law but is quite obviously a presumption of fact such as is contemplated by Section 114 of the Indian Evidence Act. Where an assessee having business connections abroad which any result in profit has received remittances from out of the funds of the business carried on by him or on him behalf in the foreign country and he is unable to show or explain that the remittance was not out of his share of the profit, a presumption may will be made that it represented wholly or in part such share. Section 106 of the Indian Evidence Act provides that the on us of proving a fact which is especially within the knowledge of any party lies on such party. Where an assessee has been receiving remittances from out of the assets of a business carried on by him or on his behalf abroad, it is he and he alone who can explain the nature of these remittances and it is quite reasonable that, as against the Income-tax Department, which is entitled to charge income-tax on profit received by him in this country, he should be called upon to show that the remittance received by him does not represent the profit earned by him abroad. It will be quite unreasonable to expect the Department to prove affirmatively that a remittance actually represented the profit earned by the assessee. It is in the circumstances understandable that the fact of a remittance being received by an assessee from abroad should be taken as presumptive proof of his having received the profit of his foreign business in the country. The strength of the presumption must, however, vary according to the circumstances of each case. There may be cases in which in view of the surrounding circumstances the presumption may be very particularly strong so that it would require evidence of a specially cogent nature to rebut it. There may, on the other hand, be cases in which presumption may be exceedingly weak and may be rebutted by a vary small amount of evidence and even without any extraneous evidence and by the attendant circumstances alone. A case in which there have been remittances only from abroad to the assessee may fall within the first description. A case in which remittances have been received on both sides but the remittances to the assessee from abroad are very much in excess of the remittances made by him may be regarded as a case of the middle type. A case in which remittances on both sides are almost equal is a case falling within the third category in which the presumption in favour of the remittance representing the profit earned by the assessee in the foreign business must be considered to be very weak and in some cases almost negligible.
The decisions to which out attention has been drawn by Mr. Sikri do not seem to go beyond what has been said above. In Sonaram Nihalchand v. Commissioner of Income-tax, the Bench simply held that under certain circumstances it is open to the Income-tax Officer to assume that the amount remitted to British India from the branch of the business outside British India represents profits made in such branch, sin spite of the fact that the total amount of such remittances is less than what has been sent from British India to such branch. This decision was give by their Lordships in view of the peculiar circumstances of the case before them. The assessee in that case failed to produce his books. He led no other evidence to show that the amount received by him did not represent the profit. From the mere circumstance of the remittances made by him being very much in excess of the amount received by him no necessary inference could be drawn that the latter was not the profit earned by him in the business carried on by him abroad. It might well be that the exigencies of the business required capital far in excess of the profits earned. It might further be that either this discovery was made by the foreign representatives or agents of the assessee after having remitted to him the amount of the profits, or otherwise, on grounds of convenience or for the clarity of accounts, they preferred to keeps the profits separate from the capital and remitted the former to him although at the same time asking for more capital. The assessee had the means of clarifying the position by the production of his accounts which he failed to do. The Bench held that the assessing authority having made a presumption which was essentially one of fact, in view of the circumstances of the case they could not give any redress to the assessee, it not being possible for them to hold that the presumption could not have been raised by the Income-tax authorities on the materials before them.
In In re A. V. P.M. R. M. Murugappa Chettiar, the question related to money remitted to the headquarters of a firm in British India from a branch situated in a foreign country. In this case the remittances were only one way. There were no remittances from the headquarters in British India to the foreign branch. It was held that in the circumstances it would be legitimately presumed that the money remitted to the headquarters in British India from the foreign branch represented profits of the business carried on by that branch and was accordingly assessable to incomes-tax. The following observations sin the judgment of the Bench are worthy of note :-
'The second paragraph of his order was on the face of it capable of the construction that he had held in the circumstances of this case that where any sum of money passed from a foreign business to the headquarters of the firm in British India it must be regarded as profits and that no evidence was admissible to show that in fact it was something else. We are satisfied that the Commissioner did not mean to say that, but merely meant to say that he thought that where money was remitted from abroad to the headquarters in British India, the natural inference would be that such remittances came out of profits rather than capital until the contrary was shown by the assessee.
The claim here was that a large portion of the amount remitted from Siranda to Karaikudi was a repayment of capital lent long years before, or at any rate was profits outside the three years limit which would not under the law be assessable in British India. The Commissioner heard this contention and was to satisfied that the assessee had made out his case and he was entitled to take that view.'
At the end of the judgment their Lordships observed :-
'The presumption that the Commissioner made in this case, viz., that prima facie all remittances were to be regarded as profits and that the burden of proof was cast upon the assessee to show the contrary, seems to be amply warranted by the authority of that case. As the Commissioner did not misdirect himself the only questions in the case that remain are purely questions of fact and so long as he has approached them without any misconception in his mind as to how they should be dealt with, his findings are conclusive.'
In Scottish Provident Institution v. John Allan also the remittances were only one way. The facts of the case as given in the judgment were that a large amount of money had been sent to England from investments made by the assessee in Australia. The surveyor of taxes in the absence of any evidence to show that the remittances were out of the capital or could be appropriated to the capital held them to be assessable to tax. Earl of Halsbury, L.C., delivering the judgment of the House of Lords, observed :-
'I cannot appropriate, nor do I think the parties probably could appropriate, without the assistance of an actuary, the exact amount earned by each particular investment, and say what should be properly applied to capital and what to income. The Commissioners had the matter before them, and they have come to the conclusion that such and such and such an amount is the amount which they would appropriate to the interest which has been received. It appears to me that we are rather misplacing the burden of proof. A large amount out of profits has been remitted to this country. If that remittance is all profit, then income-tax is payable upon it. If the parties would be liable to show that some part of it ought to be appropriated to the capital, and if they could make it apparent that the money which was received in this country was not at all profit, but was simply a repayment of capital, I think it is for them to show that'.
We do not consider that these observations of his Lordship lay down any proposition of law different from the one stated by us in an earlier part of the judgment.
In S. A. S. Subbiah Ayyar v. Commissioner of Income-tax, Madras, the facts were that the petitioner who was a resident of Tinnevelly was carrying on money-lending business in that place and various other places outside British India of which Quilon in the Travancore State was one. The Income-tax Officer found that a sum of Rs. 69,473 had been received by the assessee by way of remittances from the foreign places including Quilon. The profits of the petitioners foreign business for the year were found to amount to Rs. 1,99,185. The Income-tax Officer in the circumstances held that the sum of Rs. 69,753 which the petitioner had received by way of remittances from abroad should be regarded as remittances out of profits and accordingly liable to income-tax. On a reference being made to the accordingly liable to income-tax. On a reference being made to the High Court as to whether there was any justification for treating the entire amount of the remittances received as profits earned abroad and imported into British India the bench held that the ordinary presumption that money remitted from a foreign business and received in British India by an assessee is out of profits and not out of capital is one which can be rebutted by the assessee, and in the particular case their Lordship held that the presumption to have been amply and adequately rebutted by the entire is in the books of the account of the assessee himself and by the manner in which the accounts had been kept. The following observations in the judgment of Krishnan Pandalai, J., appearing at page 530 of the report, are worth quoting in extenso :-
'In any case, I cannot accede to the contention that, even when it is shown that the assessee, who has borrowed in British India and carried on a business with such borrowed capital in foreign parts, wants to return his borrowed capital and for that purpose remits that capital to British India and has deliberately and honestly maintained his books in the usual course to show what he has done, there is still a presumption that the source from whence he repays his debt in his foreign profit and not the borrowed capital. So long as it is open to a man to keep his foreign profits abroad, it is not for the Commissioner or any one ease to compel him to do what he is not bound to do by law. After all, a man can remit any particular amount of capital form foreign parts into British India only once and further remittances unless there were fresh capital sent out which could be returned must be from profits. The order in which a man must dispose of his capital and profits is for himself to determine, and where, as in this case, he has determined that order, and there is nothing to suspect his bona fides or to show that his books are intended to conceal his real purpose, we cannot by resort to a presumption hold that he has done what he had not done and what he has cannot be compelled to do.'
The judgment of the Division Bench of the High Court of Lahore in Tarachand Pohumal v. Commissioner of Income-tax also simply lays down that where money has been remitted to the headquarters of a firm in British India form a branch situated in a foreign country it can be presumed to be profit unless the assessee proves the contrary. In this case the difference between the money received form the Bikaner shop and the amount sent there was taken to be profits accruing in British India. The case for the assessee was that they had been taking the capital out of the shop in Bikaner into British India had leaving the profit there to be converted into capital in the State. The assessees books were found to be unreliable and designed to prevent a proper determination of their income. It was held that in the circumstances it could not be said that the Income-tax authorities were not justified in arguing on the facts found that the difference between the money received from the Bikaner shop and the amount sent there represented profits earned in the Bikaner shop and remitted to British India.
Mr. Tek Chand for the respondent has tried to show that from the mere circumstances of remittances having been received from the funds of a business carried on outside British India no presumption can at all and in any circumstances be made as to the amount received being profits earned in the foreign business. This contention we find ourselves unable to accept, and in our view it does not find any support form the two authorities relied on by him. He relied in the first instance on a judgment of the King Bench Division in Kneen v. Martin. The facts of that case were that the assessee was a lady who had been residing in England for a number of years. She had bought property at Sunningdale where she resided. She was assessed in respect of sum of 5,000 for each of the financial years ending in April, 1932, and in 1933, being remittances received by her form abroad. She was the widow of a citizen of the United States and although she was residing in England her domicile was American. The law prescribing the circumstances under which and the extent to which such person could be subject to income-tax in respect of profits and gains derived from property abroad at the material time was that the annual profits or gains arising or accruing to any person residing in the United Kingdom from any kind of property whatever were to be taxed if received within the United Kingdom. The position initially taken on behalf of the Crown in that case was that the measure of liability to income-tax in respect of income arising form possessions out of the United kingdom was the full amount actually received in the United Kingdom. It was contended that the relevant rule enabled the Crown to charge to tax the full amount of the sums received form a capital source but remitted to and received in the United kingdom and that it was not necessary to enquire whether that was income; it being money received in the country the full amount received was to be taxed. This contention, however, was negatived by the Commissioner and was not pressed before the Kings Bench Division. The contention of the Attorney-General there was that in as much as in the particular case there was money received in the United Kingdom an enquiry had to be made as to the income that arose to the assessee in America and was available for remittances and that to the extent to the amounts found to have been earned as income in America the remittances received in the United Kingdom were liable to income-tax and the assessee could not be permitted to show that the remittances included wholly or part of the capital sums. The contention of the Attorney-General in effect and in substances was the accepting that there had been a remittances of capital the rule enable the Crown to hold a chargeable to tax the income ascertained in the United States in respect of which, so to speak, the sum received in the United Kingdom was to be held by way of pledge. This contention was repelled by the Bench. In developing his argument the Attorney-General contend that the Commissioner had wrongly assumed that in the absence of evidence to the contrary there was a presumption although rebuttable that to the extent to which there was income arising in any country remittances received from that country were income and came within the charge to tax. He urged that there was no such presumption and even went to the length of saying that if there was any presumption at all it would only be in favour of the subject and not in favour of the Crown. He made use of this argument to support his next contention that unless the constriction which he was seeking to place on the rule was accepted it would put an impossible obligation on the Crown and make a very complicated investigation before the Commissioner in any particular case necessary to ascertain whether the remittances were capital or not. Slesser, L. J., in dealing with this contention of the Attorney-General observed :-
'I am inclined to agree with him that there is no such presumption arising one way or the other, but I disagree entirely with the conclusion that, because there is no presumption-at any rate, no presumption that this income-therefore, it follows that his construction is the right one.'
This question whether the facts of an assessee having received remittances form his property or business abroad could in the absence of any indication that the remittance were out of the capital could be presumed to be income or profit earned by him in the foreign country did not directly arise before the Bench and no member of the Bench excepting Slesser, L. J., considered it necessary to express any opinion regarding it. The matter was raised only by the Attorney-General himself in order to support an otherwise untenable, although most ingenious, argument, and the observation of Slesser, L. J., made incidentally with reference to that argument cannot be regarded as otherwise than obiter dicta. Certainly, these observation do not embody the considered opinion of the Bench.
The next judgment relied on by the learned counsel was the judgment of the High Court of Rangoon in V. P. R. P. L. Family v. Commissioner of Income-tax. All that was held in that case was that in every case when the question is whether a particular sum is profit or capital the question is a question of fact to be determined upon the material before the Income-tax authorities and that if an assessee foreign business remits money to him in a country in which his profits form his business in that country are assessed to income-tax, the question whether the remittance is a from out of the profits of the foreign business or out of capital is a question of fact, to be determined with reference to the circumstances of each particular case. There can be no quarrel at all with this proposition. However, this judgment cannot be taken as any authority for the view that in appreciating the facts disclosed in a particular case it is not permissible to make a presumption one way or the other in the light of the rule embodied in Section 114 of the Indian Evidence Act.
After giving our careful though to the argument addressed to us by the learned counsel on both sides, and after a careful examination of the authorities cited at the Bar, the conclusion we have reached is that where remittances have been received by an assessee in this country form the funds of any business which he is either carrying on or is interested in as a partner or otherwise in a foreign country, it is always a question of fact whether the remittances received by him represent the profit earned by him in such country. In the absence of any indication to the contrary and in the absence of any explanation by the assessee, the Income-tax authorities may well start with the presumption that the remittances either represent the profit earned by the assessee or at least include the profit earned by him and may be within their limits in assessing him on the remittances to the extent to which they can legitimately be regarded as representing the profit. However, this is by no means a presumption of law and its strength must vary according to the circumstances of each case. There may even be circumstances in which it may legitimately be said that even initially no such presumption should be raised. In every case it is a question of fact to be determined with reference to the circumstances of the particular case whether or not to raise such a presumption and whether or not the presumption if initially raised has been rebutted.
In view of the particular facts of this case in which there were remittances on both sides-which remittances were almost equal in their extent-difference between them not being very appreciable-the Appellate Tribunal declined to held that the sum of Rs. 43,531 out of the remittances received by the assessee was his share of the profits earned by the business carried on in Jaipur State under the name and style of Messrs. Jankidas Kaluram, Sambar Lake. In our opinion, this was a pure question of fact and it cannot be said that of the facts admitted or proved the Tribunal could not take this view. We are accordingly of the opinion that no question of law really arises out of the order of the Tribunal. If the question referred to us could be held in the negative.
In so far as the last contention of Mr. Sikri is concerned we are of the opinion that it is not covered by the question referred to us. The only question which we are asked to consider is whether the sum of Rs. 45,351 determined as profit of the assessee for the relevant accounting period in their Sambar Lake firm had been remitted to the assessee in the relevant accounting year and is consequent taxable. We think that on the case as stated and in view of the question as formulated we are not called upon to decide and indeed have no power to decide, if the sum of Rs. 7,162 being the excess of the remittances received by the assessee over the remittances made by him can be regarded as profits received during the account period and liable to tax.
The respondents shall have his costs of this reference. We assessee counsels fee at Rs. 250.
HARNAM SINGH, J. - I agree.
Reference answered accordingly.