Bona fide proof of foreign remittance restriction is essential to avoid default under income-tax recovery rules.

To claim protection under the second proviso to section 45 of the Indian Income-tax Act, 1922, an assessee had to show that remittance of taxed income was prevented solely by a legal prohibition or restriction in the foreign jurisdiction. The Court found that the attempts to obtain permission for remittance from Ceylon were incomplete and not satisfactorily bona fide, and the correspondence with exchange control authorities did not establish with reasonable certainty that all possible steps had been taken. On that basis, the proviso could not be invoked and the assessee remained liable to be treated as in default for recovery proceedings.

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Issues: Whether the assessee had established that remittance of funds from Ceylon to India was prohibited or restricted so as to attract the second proviso to section 45 of the Indian Income-tax Act, 1922 and prevent treatment as a defaulter for recovery proceedings.

Analysis: The assessee was required to show that the inability to remit the taxed income was due solely to a legal prohibition or restriction in Ceylon. The Court found the efforts made to secure remittance to be incomplete and not satisfactorily bona fide. The correspondence with the Ceylon exchange control authorities did not establish with reasonable certainty that the assessee had taken all possible steps to obtain permission for remittance. The explanation to section 45 and the surrounding circumstances did not justify invoking the protection of the proviso.

Conclusion: The assessee was not entitled to the benefit of the second proviso to section 45, and the revenue was entitled to proceed with recovery as the assessee could be treated as being in default.

Ratio Decidendi: To invoke the protection of the second proviso to section 45 of the Indian Income-tax Act, 1922, an assessee must prove by bona fide and complete efforts that remittance was prevented solely by a legal prohibition or restriction; an inadequate or inconclusive attempt does not exclude default.

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