Foreign branch remittances: taxable profit depends on accounting proof, and withheld books may justify a presumption of income.

Foreign-branch remittances are taxable as profits only when they can properly be identified as income brought into British India on a commercial accounting basis. For 1943-44, the remittance could not be dissected into periods or treated as profit before the year's results were ascertained, and in the absence of account books it was not regarded as taxable profit. For 1944-45, the assessee again withheld the books, so a presumption arose that the remittance represented profit rather than capital; with no rebuttal, the amount was treated as taxable income. The references were thus answered differently for the two years.

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Issues: (i) Whether, for the assessment year 1943-44, the amount remitted from the foreign branch to British India could be treated as profits brought into British India and taxed as income. (ii) Whether, for the assessment year 1944-45, the amount remitted from the foreign branch to British India could be treated as profits brought into British India and taxed as income.

Issue (i): Whether, for the assessment year 1943-44, the amount remitted from the foreign branch to British India could be treated as profits brought into British India and taxed as income.

Analysis: The remittances received during the accounting year could not, on the facts, be dissected into convenient periods so as to infer profit before the year's profits were ascertained. The duty of the taxing authority is to determine income, not merely receipts, and profits of a foreign business must be determined on a commercial basis at the end of the accounting year. In the absence of the books of account, the Court held that the sum received could not be treated as profits brought into British India.

Conclusion: The answer on this issue was in favour of the assessee and against the Revenue.

Issue (ii): Whether, for the assessment year 1944-45, the amount remitted from the foreign branch to British India could be treated as profits brought into British India and taxed as income.

Analysis: For the second year, the assessees again failed to produce the books of account. In such circumstances, a presumption could be drawn that the remittances represented profits rather than capital, and the assessee carried the burden of showing that the amounts were not profits. As no such proof was furnished, the taxing authorities were justified in treating the remitted amount as taxable profit brought into British India.

Conclusion: The answer on this issue was against the assessee and in favour of the Revenue.

Final Conclusion: The references were answered differently for the two years, with the assessee succeeding in one reference and the Revenue succeeding in the other, and no order as to costs was made.

Ratio Decidendi: Remittances from a foreign branch are not taxable as profits unless they can properly be treated, on the facts and accounting basis, as profits brought into British India, but where the assessee withholds the books and fails to rebut the inference, the taxing authority may presume the remittance to be profit rather than capital.

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