Remittance taxation of current-year foreign profits upheld for a resident but not ordinarily resident assessee under income tax law.

Income remitted into taxable territories by a resident but not ordinarily resident was held taxable where it represented business profits accruing outside the taxable territories during the same accounting year. Section 4(1)(b)(ii) was read as taxing income accruing or arising outside the taxable territories in the year of account, while section 4(1)(b)(iii) covered earlier-year profits brought in during the year. The second proviso was treated as imposing conditions on taxability for such assessees, not as limiting remittance-based taxation only to past profits. The clauses were held supplementary rather than mutually exclusive, so current-year foreign profits brought into India remained chargeable.

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Issues: Whether remittances brought into the taxable territories during the previous year by a resident but not ordinarily resident assessee, out of business profits earned outside the taxable territories, were taxable under section 4(1)(b)(ii) read with the second proviso to the Indian Income-tax Act, 1922, even though the profits related to the same accounting year.

Analysis: The relevant scheme of section 4(1) distinguishes between taxation on accrual and taxation on remittance. Clause (b)(ii) was treated as covering income accruing or arising outside the taxable territories during the accounting year, while clause (b)(iii) dealt with earlier-year profits brought into or received in the taxable territories during the year. The second proviso was read as imposing conditions on the taxation of a resident but not ordinarily resident, but not as excluding current-year profits from charge where they accrued outside the taxable territories and were brought in during the year. The Court rejected the contention that only past profits could be taxed on remittance basis and held that the clauses were supplementary, not mutually exclusive.

Conclusion: The remittances were taxable and the question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: In the case of a resident but not ordinarily resident, income accruing outside the taxable territories during the accounting year is taxable when the statutory conditions are satisfied, and the remittance provisions do not exclude taxation of current-year profits brought into the taxable territories during that year.

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