Remittance taxation principle: profits cannot be presumed before year-end, and the assessee must rebut the presumption of taxable profits.

Profits of an accounting year could not be presumed to have been brought into British India before the year closed, because income becomes taxable only when received or brought in and profits are not legally ascertained until the accounting year ends. Where a remittance is alleged to be out of capital rather than profits, the burden lies on the assessee to rebut the ordinary presumption arising from the facts. On the stated facts, the disputed sum of Rs. 12,405 was treated as not representing remitted profits of the foreign business, and the broader presumption that the remittance consisted of taxable profits was displaced by the factual explanation.

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Issues: (i) Whether profits of the accounting year could be presumed to have been brought into British India in that same year and taxed in the relevant assessment year; (ii) on whom the burden of proof lay where a remittance into British India was said to represent capital or profits; (iii) whether the sum of Rs. 12,405 represented profits or capital.

Issue (i): Whether profits of the accounting year could be presumed to have been brought into British India in that same year and taxed in the relevant assessment year.

Analysis: Under the charging scheme, tax is attracted to income of the previous year, and foreign income becomes taxable when it is received or brought into British India. Profits of the accounting year do not exist as profits until the year ends, and therefore remittances made during the year cannot be presumed to include profits not yet ascertained in law.

Conclusion: The presumption was negatived and the sum could not be taxed on that basis in the relevant assessment year.

Issue (ii): On whom the burden of proof lay where a remittance into British India was said to represent capital or profits.

Analysis: Where a remittance is shown and the question is whether it is out of capital or profits, the person asserting that it is not profits must rebut the ordinary presumption arising from the facts. The assessee had to establish that the remittance was not from taxable profits.

Conclusion: The burden of proof lay upon the assessee.

Issue (iii): Whether the sum of Rs. 12,405 represented profits or capital.

Analysis: The figures showed that the profit of the later accounting year could not have formed part of the remittance made during that year, and earlier profits had already been absorbed by a subsequent remittance and intervening loss. On the facts, the assessee had accounted for the substantial remittance and rebutted the inference that the disputed amount was remitted profits.

Conclusion: The sum of Rs. 12,405 did not represent the profits of the foreign business.

Final Conclusion: The reference was answered substantially in favour of the assessee, with the court rejecting the Revenue's presumption that the disputed remittance consisted of taxable profits.

Ratio Decidendi: Profits of an accounting year cannot, before the year closes and the profits are ascertained, be presumed to have been included in remittances made during that year, and the presumption that a remittance is out of profits may be displaced by a sufficient factual explanation showing that the amount was not remitted profits.

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