Deemed repayment as income is taxable, but it cannot automatically count as India-sourced income for residence tests.

A statutory provision deeming repayment of foreign excess profits tax to be income created a special chargeable amount for the year of repayment and made it assessable to income-tax and super-tax. The repayment was therefore taxable under section 11(14) of the Indian Finance Act, 1946. However, that deeming rule did not convert the amount into income arising in India. For residence computation under section 4A(c)(b) of the Indian Income-tax Act, 1922, the repayment could not be counted as Indian-source income because the statute gave no basis for attributing it to India.

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Issues: (i) Whether a repayment of foreign excess profits tax, deducted earlier under the Indian law, was liable to be assessed as income under section 11(14) of the Indian Finance Act, 1946; (ii) Whether such repayment could be taken into account for determining residence under section 4A(c)(b) of the Indian Income-tax Act, 1922.

Issue (i): Whether a repayment of foreign excess profits tax, deducted earlier under the Indian law, was liable to be assessed as income under section 11(14) of the Indian Finance Act, 1946.

Analysis: The repayment provision was treated as a continuing and operative statutory provision applicable whenever the prescribed repayment occurred. The section was read as a special charging provision intended to restore to tax an amount that had earlier escaped taxation because an equivalent deduction had been allowed in computing profits. The language deeming the repayment to be income, and directing that it be treated as income of the year of repayment for assessment to income-tax and super-tax, was held to go beyond mere computation and to create assessability.

Conclusion: The repayment was rightly brought to assessment and was assessable as income under section 11(14) of the Indian Finance Act, 1946.

Issue (ii): Whether such repayment could be taken into account for determining residence under section 4A(c)(b) of the Indian Income-tax Act, 1922.

Analysis: The statutory deeming provision treated the repayment as income for assessment purposes and as income of the year of repayment, but it did not deem it to be income arising in India. The residence test under section 4A(c)(b) depended on the comparative amount of income arising in India and outside India. The repayment, being a special statutory income of its own class, could not be mapped onto the place of accrual or arising, and the statute contained no warrant for using it to enlarge Indian income for residence purposes.

Conclusion: The repayment could not be taken into account for determining residence under section 4A(c)(b).

Final Conclusion: The amount of repayment was taxable as income, but it was not capable of being treated as income arising in India for the purpose of the residence test.

Ratio Decidendi: A statutory provision deeming a repayment to be income and directing that it be treated as income of the year of repayment creates a special assessable income chargeable for that year, but it does not, without express language, convert the amount into income arising in India for residence-related computation.

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