Foreign earnings converted into capital assets retain capital character on remittance and are not taxable as income.

Where foreign earnings are genuinely converted into capital assets and later realised, the remitted sale proceeds retain their capital character and are not assessable as income merely because they originated from profits. The assessee had earned income in Fiji, invested it in house property and other assets, and later remitted the proceeds after realisation; the Department failed to show any temporary investment or device to disguise income as capital. On those facts, the remittances were traceable to capital, not unassessed business profits, and were held to be non-taxable receipts.

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Issues: Whether the remittances brought into the taxable territories represented business profits assessable as income or merely sale proceeds of assets into which the assessee had capitalised his foreign earnings.

Analysis: The assessee had earned income in Fiji, acquired house property and other assets out of that income, enjoyed those assets for a substantial period, and later realised them and remitted the proceeds to India. The Department failed to establish that the assets were only temporary investments or that there was any device to bring income into India in another form. On the facts, the conversion of income into assets was real and effective, and the subsequent realisation of those assets did not restore the original character of the money as income. The remittances were therefore traceable to capital and not to unassessed business profits.

Conclusion: The remittances were capital receipts and not taxable income; the answer to the question was in favour of the assessee.

Ratio Decidendi: Where foreign earnings are genuinely converted into capital assets and later remitted on sale of those assets, the remitted amount retains the character of capital and cannot be assessed as income merely because it originated from profits.

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