Foreign profits invested in bonds treated as capital, not remitted income, where held as a permanent investment.

Foreign profits remitted and invested in Mysore Government Bonds as a permanent investment were treated as capital, not as a remittance of profits under section 4(2) of the Indian Income Tax Act, 1922. Because the bonds were not brought into British India for sale, realization, or as an ordinary mode of remitting income, their later deposit as security for an overdraft did not change their character. The result was that the bonds were held to represent a conversion of profit into capital, and the question was answered in the negative in favour of the assessee.

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Issues: Whether the Mysore Government Bonds purchased out of remitted foreign profits represented capital or a remittance of profits within section 4(2) of the Indian Income Tax Act, 1922.

Analysis: The funds were remitted from Saigon to Mysore and used to purchase bonds as a permanent investment. The bonds were not brought into British India for sale or realization as income, and their subsequent deposit as security for an overdraft did not alter their character. On these facts, the investment amounted to a conversion of profit into capital, not a receipt of income in British India. The second question did not arise once the first was answered in the assessee's favour.

Conclusion: The bonds did not represent a remittance of profits and were capital assets. The question was answered in the negative in favour of the assessee.

Ratio Decidendi: Where foreign profits are remitted and used to acquire bonds as a permanent investment, the bonds constitute capital unless they are brought into British India as an ordinary form of remittance or as a means of realizing income there.

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