Capitalisation of foreign income into assets prevents later sale proceeds from being taxed as remitted income.

Foreign income genuinely capitalised into shares and securities held as capital assets loses its character as income when later realised on sale; the remittance of those sale proceeds into India is not taxable as brought-in profit under section 4(1)(b)(iii) of the Indian Income-tax Act, 1922. The investments were found to be longstanding, not temporary, and not a device for tax avoidance or disguised remittance. On that basis, the sale proceeds represented capital realisation rather than income, and the reference was answered in the negative.

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Issues: Whether the amount of Rs. 90,000, representing sale proceeds of shares and securities acquired out of foreign income, was a remittance of profit chargeable as income brought into India under section 4(1)(b)(iii) of the Indian Income-tax Act, 1922.

Analysis: The foreign income had been invested over a number of years, the investments were not of a temporary character, and the revenue accepted that the income had been converted into shares and securities held as capital assets. The investments were not found to be a device for avoiding tax or for effecting a disguised remittance. Once the foreign income had been capitalised, the shares and securities represented capital, and the sale proceeds were realisation of capital rather than income. A remittance of such capital proceeds did not attract section 4(1)(b)(iii).

Conclusion: The amount of Rs. 90,000 was not taxable as remitted profit or income brought into India; the answer to the reference was in the negative and the assessee succeeded.

Ratio Decidendi: Foreign income, once genuinely capitalised into capital assets and thereafter realised on sale, ceases to retain the character of income and its remittance into India is not taxable as brought-in profit under section 4(1)(b)(iii) of the Indian Income-tax Act, 1922.

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