Remittance of foreign profits was found where an Indian debt was discharged by hundis issued on an overseas shop.

A sum paid at Penang by an assessee's shop to a creditor of an Indian firm was treated as a remittance of foreign profits received in British India under section 4(2) of the Income-tax Act, 1922. The transaction was not viewed as a mere foreign transfer of indebtedness; rather, the Indian debt was discharged by issuing hundies on the Penang shop, so in commercial substance it amounted to the use in British India of funds available outside India. The distinction from the cited foreign authority was that this involved discharge of an Indian debt by a hundi issued in India, not a simple book adjustment. The amount was therefore treated as remitted foreign profit.

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Issues: Whether the sum paid at Penang by the assessee's shop to a creditor of the Indian firm could be treated as a remittance of foreign profits received in British India under section 4(2) of the Income-tax Act, 1922.

Analysis: The amount was not regarded as a mere transfer of indebtedness abroad. The debt in British India was discharged by issuing hundies on the Penang shop, and the transaction was treated in commercial substance as the use in British India of funds available outside India. On that footing, the sum was held to have been received in India as profits earned abroad. The distinction drawn from the cited foreign authority was that, unlike a mere book transfer of liability, the present transaction involved discharge of an Indian debt by a hundi issued in India.

Conclusion: The sum of Rs. 13,730 was held to be a remittance of foreign profits received in British India, in favour of the Revenue.

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