Non-resident taxation and unexplained investments: foreign remittances were not taxable in India, and additions under sections 68 and 69 failed.

Section 68 applies only where a sum is credited in books of account maintained by the assessee; where no reliable books were shown to exist, the provision could not be invoked. Section 69 can apply to unexplained investments without books, but the assessee had traced the Indian investments to NRE account deposits supported by foreign inward remittance certificates, so the source was adequately explained and the addition failed. For a non-resident, section 5(2) taxes income only if received, accrued, or deemed to accrue in India; remittances from the assessee's own foreign bank account were first received outside India and did not become taxable in India merely by transfer into India.

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Issues: (i) Whether section 68 could be invoked where no books of account were shown to have been maintained by the non-resident assessee; (ii) Whether section 69 could be applied to the investments and whether the assessee had discharged the onus of explaining the source of funds; (iii) Whether inward remittances from the assessee's own foreign bank account constituted income received in India within the meaning of section 5(2) of the Income-tax Act, 1961.

Issue (i): Whether section 68 could be invoked where no books of account were shown to have been maintained by the non-resident assessee.

Analysis: Section 68 applies when a sum is found credited in the books of account maintained by the assessee for the relevant previous year. On the record, there was no reliable evidence that the assessee maintained books of account in India, and the assumption to that effect was not supported by evidence. In the absence of books, the foundational requirement for section 68 was not met.

Conclusion: Section 68 was inapplicable and the addition could not be sustained under that provision.

Issue (ii): Whether section 69 could be applied to the investments and whether the assessee had discharged the onus of explaining the source of funds.

Analysis: Section 69 is not conditioned on the existence of books of account and can apply where investments are made and the source is not explained. Here, the investments in India were traced to deposits in the NRE account, and those deposits were supported by foreign inward remittance certificates. The assessee therefore explained the source of the investments, and no material was brought to rebut that explanation.

Conclusion: The assessee discharged the onus under section 69 and the addition was not sustainable under that provision.

Issue (iii): Whether inward remittances from the assessee's own foreign bank account constituted income received in India within the meaning of section 5(2) of the Income-tax Act, 1961.

Analysis: For a non-resident, taxability under section 5(2) depends on receipt in India, accrual in India, or deemed accrual in India. The remittances were found to have been made from the assessee's own foreign bank account, so any income, if at all, was first received outside India. Mere transfer of funds into India did not amount to a fresh receipt of income in India, and the charging provision could not be enlarged by the deeming provisions of sections 68 or 69.

Conclusion: The remittances were not income received in India under section 5(2) and were not taxable on that basis.

Final Conclusion: The statutory deeming provisions did not enlarge the scope of non-resident taxation under section 5(2), and the assessee's foreign inward remittances were not taxable in India on the facts found, while the revenue's addition could not be sustained under sections 68 or 69.

Ratio Decidendi: Deeming provisions governing unexplained credits or investments can shift the burden of explanation, but they cannot expand the scope of a charging provision so as to tax a non-resident's foreign receipts in India unless the income is shown to have been received, accrued, or deemed to accrue in India.

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