Banking remittances and profit presumption fail where funds were not proved to be accumulated profits.

Remittances made by a banker in the ordinary course of banking business from Indian States into British India were not, on the facts found, proved to be remittances of accumulated profits chargeable under section 4(1)(b)(iii) of the Income-tax Act, 1922. Although a presumption that remittances represent profits may arise where profits accrued in an Indian State are sent into taxable territories, that presumption weakens where inflow and outflow are substantially equal. Money handled as part of banking business was treated as stock-in-trade, not capital, so the Department had to establish that the amounts were profits and not banking funds. That proof was not made, and the reference was answered in the negative.

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Issues: Whether remittances made in the course of the assessee's banking business from Indian States into British India could be treated as remittances of profits chargeable under section 4(1)(b)(iii) of the Income-tax Act, 1922.

Analysis: Profits can be brought to tax under the provision only when profits accrued in an Indian State are remitted into the taxable territories. A presumption that remittances represent profits may arise where available accumulated profits are shown and the remittances are from an Indian State into British India. But where the inflow and outflow are substantially equal, the presumption is weak. In the case of a banker, money handled in the ordinary course of banking is stock-in-trade, not capital, and remittances in that course do not by themselves justify a presumption that they are out of accumulated profits. The Department therefore had to establish that the remittances were profits and not merely banking funds. On the facts found, no such proof was made.

Conclusion: The remittances were not shown to be profits remitted to British India within section 4(1)(b)(iii), and the question was answered in the negative.

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