Foreign income converted into capital assets abroad is not taxable as income brought into British India.

Foreign income converted abroad into machinery and stores before entry into British India was not treated as income received in or brought into British India under the deeming provision. The decisive question was whether what entered India retained the character of income; once the money had been transformed into a capital asset, the asset brought in was capital, not income. The fact that the asset was purchased out of foreign income was immaterial where only the capital asset, and not income, entered British India. The amount was therefore not taxable as income brought into British India.

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Issues: Whether income received abroad, when converted into machinery and stores before being brought into British India, could be treated as income received in or brought into British India and taxed accordingly.

Analysis: The relevant deeming provision applied only where income, profits or gains accrued or arose outside British India but were received in or brought into British India. Money received abroad could be brought into India in another monetary form, but the decisive question was whether what entered India retained the character of income. Where the foreign income had been converted into capital asset, the asset brought into India was capital and not income. The fact that the capital asset was purchased out of foreign income was immaterial if the asset itself, and not income, was what was brought into British India.

Conclusion: The amount invested in machinery and stores was not taxable as income received in or brought into British India, and the answer to the reference was in the negative.

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