Foreign remittance taxed as income where it reflected accumulated business profits and exemption conditions were not strictly met.

Remittance received in India was treated as taxable income where, on the facts, it represented accumulated business profits earned outside the taxable territories after the relevant statutory cut-off date, rather than a mere capital receipt. The claimed exemption under the proviso to section 4(1)(b)(iii) failed because the required investment and custody conditions were not strictly met; the amount was not invested through the prescribed channel or kept in the stipulated custody. Reassessment under section 34(1) was regarded as proper where no return had been filed and the income had escaped assessment.

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Issues: (i) Whether the sum of Rs. 92,873 received as part of compensation was taxable as income brought into the taxable territories under section 4(1)(b)(iii) of the Indian Income-tax Act, 1922; (ii) Whether the assessee was entitled to exemption under the relevant proviso to section 4(1)(b)(iii); (iii) Whether the reassessment proceedings initiated under section 34(1) were invalid.

Issue (i): Whether the sum of Rs. 92,873 received as part of compensation was taxable as income brought into the taxable territories under section 4(1)(b)(iii) of the Indian Income-tax Act, 1922.

Analysis: The amount received in India was held to represent accumulated profits earned by the assessee in Thailand after 1 April 1933. On the facts found, the remittance was treated as foreign income received in the taxable territories during the relevant year. The source and character of the compensation showed that it was not a mere capital receipt but a realised accretion of business profits.

Conclusion: The sum of Rs. 92,873 was taxable under section 4(1)(b)(iii) in favour of the Revenue.

Issue (ii): Whether the assessee was entitled to exemption under the relevant proviso to section 4(1)(b)(iii).

Analysis: The exemption depended on investment of half the amount within the stipulated period in Government securities purchased through the Reserve Bank of India and kept with that bank for custody for the prescribed minimum period. The materials showed that the National Savings Certificates were purchased through the post office and remained in the assessee's own custody, so the statutory conditions were not satisfied.

Conclusion: The assessee was not entitled to the claimed exemption, and the finding was against the assessee.

Issue (iii): Whether the reassessment proceedings initiated under section 34(1) were invalid.

Analysis: No return had been filed in respect of the compensation, and the income had escaped assessment. In those circumstances, reassessment under section 34(1) was the appropriate statutory route, and the challenge to its validity was not accepted.

Conclusion: The reassessment proceedings were held valid, against the assessee.

Final Conclusion: The reference was answered in favour of the Revenue, with the compensation receipt treated as taxable foreign income and the assessee denied exemption and relief against reassessment.

Ratio Decidendi: A remittance from abroad is taxable as income when, on the facts, it represents accumulated business profits earned outside the taxable territories after the statutory cut-off date, and exemption under a proviso is available only on strict compliance with its prescribed investment and custody conditions.

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