Remittance restriction on foreign income shields non-resident from coercive tax recovery under the proviso to section 45.

Second proviso to section 45 of the Income-tax Act, 1922 protected a non-resident against coercive recovery of arrears attributable to foreign income while a continuing prohibition on remittance from Ceylon remained in force. On the facts stated, there was no proof that the income had been brought into the taxable territories or constructively remitted so as to attract the Explanation to the proviso. The proviso required the Income-tax Officer to treat the assessee as not in default during the subsisting restriction, and negligence was not established or relevant on the findings recorded.

---

---

Issues: Whether, in respect of arrears of tax attributable to foreign income, the assessee could invoke the second proviso to section 45 of the Income-tax Act, 1922 to resist coercive recovery proceedings, and whether the Explanation to that proviso was attracted.

Analysis: The assessee was a non-resident assessed on his share of profits arising in Ceylon. A continuing prohibition or restriction existed in Ceylon against bringing money into the taxable territories, and there was no proof that the assessee had brought any part of the income into the taxable territories or had constructively remitted it by using the income in Ceylon in a manner that would take the case outside the proviso. On these facts, the Explanation to section 45 was not attracted. The proviso required the Income-tax Officer to treat the assessee as not in default so long as the prohibition or restriction continued, and negligence was neither established nor relevant on the facts found.

Conclusion: The assessee was entitled to the protection of the second proviso to section 45, and the coercive recovery proceedings could not be sustained in respect of the tax attributable to his foreign income while the restriction on remittance continued.

---