Banking remittances as stock-in-trade, not profits, when made in the ordinary course of banking business and assessed by their original character.

Remittances credited into accounts maintained for a banker's banking business were treated as stock-in-trade rather than taxable profits, because the legal character of the remittance depends on the purpose and course of the banking business itself. Later transfer of the credited sums to another account, or temporary idleness of the funds, did not change the original character of the remittance. The Tribunal erred by focusing on subsequent movement of the money instead of determining whether the remittance was made in the ordinary course of banking business. On that basis, remittances of this kind were not to be taxed as remittances of accumulated profits under section 4(1)(b)(iii) of the Income-tax Act, 1922.

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Issues: Whether remittances from the native State to the taxable territories, credited through the assessee's banking accounts and ultimately transferred to another business account, were liable to tax as remittances of profits under section 4(1)(b)(iii) of the Income-tax Act, 1922.

Analysis: The remittances were made into bank accounts maintained for the assessee's banking business, and the existence of other non-banking activities did not change the character of those transfers. For a banker, money is stock-in-trade, and remittances made in the ordinary course of banking business are not to be treated as profits merely because they are later moved to another account or used for other purposes. The fact that the credited sums remained idle for periods or were subsequently transferred to the Raja Oil Mills account was not decisive on the question whether the original remittances were in the course of banking business. The correct legal approach required determination of the character of the remittance itself.

Conclusion: The Tribunal misapplied the law in treating the remittances as taxable profits under section 4(1)(b)(iii). The question was answered in the affirmative in favour of the assessee on the issue of legal error.

Ratio Decidendi: Where remittances are made in the ordinary course of a banker's business into accounts maintained for that banking business, they are to be treated as stock-in-trade and not as remittances of accumulated profits unless the department establishes otherwise on the character of the remittance itself.

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