Book-entry remittance can count as transfer of foreign income, but timing and source presumptions control taxability.

A remittance through book entries can constitute a transfer of foreign income to India even without physical movement of cash, because a credit entry may give the assessee control over the amount. The timing of the credit is material: where the relevant credit falls outside the accounting year, it cannot support inclusion of the sum in that year's taxable foreign income. Where both taxed and untaxed foreign funds exist and the source of remittance is not identified, the remittance is presumed to come from the taxed fund, and that presumption must be rebutted by the revenue before denying the statutory allowance under the third proviso to Section 4(1) of the Income-tax Act, 1922.

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Issues: Whether the sum of Rs. 4,500 originally allowed as statutory deduction was liable to be included in the assessee's total foreign income chargeable to tax, on the ground that the amount of Rs. 15,000 credited through book entries amounted to a remittance to India during the relevant accounting year.

Analysis: The foreign income had been assessed on accrual basis under Section 4(1)(b)(ii) of the Income-tax Act, 1922, and the controversy centred on the third proviso to Section 4(1). The credit entry in the assessee's favour at Tuticorin gave him the right to operate on the amount, and a transfer through book entries could amount to remittance even without physical cash movement. However, the credit in the Tuticorin branch account was made only on 1 February 1955 and thus fell outside the accounting year. In addition, where both taxed and untaxed foreign funds existed and the source of remittance was not shown, the presumption was that the remittance came from the taxed fund, and that presumption was not rebutted.

Conclusion: The receipt of Rs. 15,000 could not be used to deny the statutory allowance under the third proviso to Section 4(1) of the Income-tax Act, 1922, and the sum of Rs. 4,500 was not liable to be included in the taxable foreign income.

Ratio Decidendi: A remittance may be effected through book entries, but it cannot be used to defeat a statutory deduction where the relevant credit falls outside the accounting year or where the remittance is presumed to have come from already taxed foreign income and that presumption remains unrebutted.

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