1945 (3) TMI 17 - HC - Income Tax

High Court decision: Taxable income includes sale profit. Balance profit not taxable. Parties bear costs.

RAM LAL BECHAIRAM Versus COMMISSIONER OF INCOME-TAX

The High Court held that the Income-tax Officer correctly included the profit on the sale of goods priced at Rs. 65,203-13-9 in the taxable income under ... - Issues Involved:1. Whether the Income-tax Officer rightly included in the income liable to tax the profit on the sale of goods priced at Rs. 65,203-13-9.2. Whether the Income-tax Officer was justified in assuming that the balance profit of Rs. 3,545 was brought into British India and hence taxable.Issue-wise Detailed Analysis:1. Inclusion of Profit on Sale of Goods Priced at Rs. 65,203-13-9:The court addressed whether the Income-tax Officer (ITO) rightly included the profit on the sale of goods priced at Rs. 65,203-13-9 in the income liable to tax. The ITO had assessed the profit based on the entries in the Semohi books but did not accept the Bhadohi books, making a best judgment assessment. The ITO concluded that the profit earned by the Bhadohi shop was Rs. 9,573, and since the whole invoiced purchase price was not transmitted by the Semohi shop to the Bhadohi shop, the balance of Rs. 6,028 was considered profit brought into British India under Section 4(2) of the Indian Income-tax Act (XI of 1922).The Appellate Assistant Commissioner (AAC) held that no money had been transmitted from Bhadohi to Semohi; only goods were sent, and the sum of Rs. 6,028 represented the price of goods unpaid by Semohi. Relying on the Privy Council decision in Commissioner of Income-tax, Bombay v. Ahmedabad Advance Mills Ltd., the AAC concluded the amount was not taxable and allowed the assessee's appeal, excluding the Rs. 9,573 from assessment.The Tribunal, however, distinguished this case from the Ahmedabad Mills case, holding that the goods brought into British India were 'stock-in-trade' meant for resale, not a capital asset, and restored the ITO's order, making the sum of Rs. 9,573 taxable under Section 4(2) as profits made outside British India and brought into British India.The High Court concluded that the ITO rightly included the profit on the sale of goods priced at Rs. 65,203-13-9 in the income liable to tax. The court clarified that these goods, though brought from Bhadohi, were actually sold by the Semohi shop, and the entire sale price was received in Semohi. Thus, the profit was taxable under Section 4(1) of the Act, as it stood before its amendment in 1939, because the Bhadohi and Semohi shops were not separate legal entities but belonged to the same assessee firm.2. Assumption of Balance Profit of Rs. 3,545 Brought into British India:The second issue was whether the ITO was justified in assuming that the balance profit of Rs. 3,545 was brought into British India. The ITO presumed that the whole profit earned outside British India was received in British India, as the assessee had not provided satisfactory information about the whereabouts of Rs. 3,545.The High Court found no evidence to support the ITO's presumption that the balance profit of Rs. 3,545 was brought into British India. The court emphasized that there is no presumption, either of fact or law, that a person carries all his money with him wherever he goes. The ITO could not assume that this amount was brought into British India and could not assess income-tax on it under Section 4(2) of the Act, as it stood before its amendment in 1939. The court concluded that the ITO's presumption was not justified under Section 114 of the Indian Evidence Act.Conclusion:The High Court answered the reference by stating that the ITO rightly included in the income liable to tax the profit on the sale of goods priced at Rs. 65,203-13-9 under Section 4(1) of the Income-tax Act. However, the ITO was not justified in assuming that the balance profit of Rs. 3,545 was brought into British India and hence taxable. The court directed that the parties bear their own costs and sent a copy of the judgment to the Tribunal and the Commissioner of Income-tax.