TaxTMI 
TaxTMI 
1945 (4) TMI 14
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....rom ginning factories in British India and from property, interest on securities and dividends. Puduvayal is in British India; Moulmein is in British Burma, which was part of British India until 31st March, 1937, while Penang, Klang and Saigon have at all times been outside British India. 3. For the assessment year 1937-38 now in question the assessee returned an income of Rs. 21,118 from all sources. After calling for accounts and documents and examining those that were produced, the Income-tax Officer determined the assessee's total income at Rs. 2,11,793, which included a sum of Rs. 2,03,823 under the head "Business". The Appellate Assistant Commissioner reduced the figures by Rs. 18,234 on appeal, the reduction being entirely in the income from business. The details of the assessment are as follows:- As determined by the Income-tax Officer. As ordered by the Appellate Assistant Commissioner. Rs. Rs. (1) Remittances of profits from Klang and Penang business to British India 1,22,177 1,18,118 (2) Remittances of profits from Moulmein to head quarters in British India 13,247 13,247 (3) Headquarters income (Puduvayal) by es....
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....y draft on Chartered Bank " 18,000 10th Thai: (28-1-37) By draft on Chartered Bank " 11,000 $ 118,000 (b) FROM PENANG TO MOULMEIN: Dhatu: 30th Vaikasi: (12-6-36) By draft on Rangoon Mercantile Bank (Rs. 20,000 at 155 1/8 exchange) $ 12,893 27th Avani: (11-9-36) By draft on Rangoon Mercantile Bank (Rs. 10,000 at 155 exchange) " 6,441 4th Purattasi: (19-9-36) By draft on Rangoon Mercantile Bank (Rs. 1,25,000 at 1551/8 exchange) " 80,580 $ 99,914 = Rs. 1,55,000 (c) FROM MOULMEIN TO PUDUVAYAL: Dhatu: OLD ACCOUNT. 4th Chithrai: (16-4-36) By draft on Madura Imperial Bank Rs. 10,000 OLD ACCOUNT. 31st Chithrai: (13-5-36) Amount realised at headquarters on decree debt " 490 C.O Rs. 10,490 NEW ACCOUNT. 12th Ani: (26-6-36) By draft on Madura Imperial Bank " 20,000 13th Purattasi: (28-9-36) By telegraphic transfer through S.R.M. CT. M. Madras " 1,25,000 26th Purattasi: (11-10-36) By amount realised at headquarterson decree debt " 500 17th Panguni: (30-3-37) By telegraphic transfer through Madura Imperial Bank " 20....
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....the assessee consists of a few inward letters and telegrams received by him at Puduvayal from Moulmein during the previous year and throws no light whatever on the character of the remittance now in question. No other correspondence between the various business centres has been produced. The accounts produced consist of (i) original ledgers of the Moulmein business from Sidharthi (1919-20) to Angirasa (1932-33) and compiled ledgers from Srimukha (1933-34) to Dhathu (1936-37) without any day books except a day book for Krodhana (1925-26); (ii) original ledgers for Klang and Penang businesses from (1919-20) onwards without any day books; and (iii) headquarters (Puduvayal ledger for Yuva (1935-36) and the day book for Easwara (1937-38), it being the assessee's case that the accounts of earlier years do not exist for headquarters. The assessee himself has not appeared to explain the entries but has sent a representative or employee. The representative too who appeared with the old ledgers was not concerned in the preparation of these ledgers and was naturally not in a position to throw any light. He also said that even the assessee could throw no further light as he was not persona....
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.... 44,754 10,500 75,484 4th Karthigai, Krodhana (19-11-25); Balances of Klang folio transferred to Penang folio -44,754 -10,500 44,714 10,500 1,20,238 10,500 8th Karthigai Krodhana (23-11-25): Amount deposited with P.M.A. Rangoon on 9th and 17th Karthigai by Debit to Expenditure account now adjusted towards Moulmein Books Penang Folio Dr. Cr. Rs. Rs. B. F. 1,20,238 10,500 the losses in Penang and Klang (Rs. 30,172-5-9 plus Rs. 30,246-10-3) ... ... 60,419 Interest debits for Rudhrothkari (1923-24) to Bhava (1934-35). ... 70,243 ... 3rd Avani, Yuva (19-8-35) Amount received from RM. PL. R. through headquarters ... ... 775 Interest for 1935-36 ... 3,929 ... Net debit balance at the beginning of Dhathu (1939-37) ... 1,22,716 Rs. 1,94,410 1,94,410 Debit balance at the beginning of the "previous year" (Dhathu-1936-37) ... 1,22,716 5th Ani, Dhathu (1....
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....e day a sum of $ 15,313 was debited to that account being the assessee's share of the capital contributed for the business. That there was need for the working capital of $ 13,810 in addition to the formal share of capital of $ 15,313 is evident from the fact that the third partner did not actually contribute in cash towards his capital. His capital account was credited by contra debit to another personal account in his name and the latter was gradually wiped out from his salary. Thus as the business did not start with the capital equal to the nominal capital subscribed by the three partners, it was necessary for the assessee who was the senior partner, to bring in extra money by way of additional working capital. In fact there was another account in the name of the assessee in the Klang books which opened with a credit of $ 60,098 when the business was started. Subsequently the balance in this account was mostly transferred to "O.S.V." account and later to "AL.S.V." account, two new accounts showing assessee's own money. Thus though the amount shown as capital contributed by the assessee was only $ 15,313, the actual amount put in was nearly $ 90,000. The E.M. Moulmein fol....
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.... business and with this end in view they opened a new capital account and credited to it $ 22,500 in favour of the assessee and $ 7,500 in favour of the partner by contra debit to the profit and loss account. As already stated above, the profit and loss account had shown at that time a huge debit balance on account of loss which was partially off-set by appropriation of the credits in the original capital account. To enable this new capital of $ 30,000 to be recreated from out of the said profit and loss account the latter account was first credited with $ 44,888 by debit to the exchange account folio with Penang. In the Penang books the amount was debited to Moulmein and credited to Klang; but 4 months later (6th Panguni Akshaya 19-3-1927) these entries were reversed both in Penang and in Klang books but in the latter, the debit was to O.S.V. folio which as already explained represents assessee's own account. On 8th Karthigai of Krodhana (23-11-1925) there appears a credit of Re. 60,419 in favour of Penang in the Moulmein books, the corresponding debit being to Rangoon P.M.A, Thavanai account; but there is no corresponding entry in the Penang books debiting Moulmein on this da....
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....ying invested in the business far exceeded the amount of the initial capital and working capital sent there. KLANG BUSINESS:- On 13-4-1936. Value of assets consisting of lands and gardens, cash balance and loans due from customers, less amounts due to sundry outside creditors. $ 3,19,450.34 Deduct amount due to Penang business on current account. " 75,838.51 Net value of assets at the beginning of the account year. $ 2,43,611.83 KLANG BUSINESS:- On 12-4-1937. Value of assets consisting of gardens, lands, loans to customers and cash, less amounts due to sundry outside creditors, $ 1,53,708.85 Less amount due to Penang business on current creditors. $ 15,328.29 Net value of asset at the end of the account year. $ 1,38,680.56 8. I now come to the Penang ledgers. The business at Penang was started as a partnership also in 1919, with one A.S.A.S. Shanmughanadhapuram, with a share capital of $ 12,250 allocated between the assessee and his partner in the ratio of $ 10,500 to $ 1,750 (i.e., 6 to 1). On receipt of the remittance of $ 47,393 (which was the then equivalent of Rs. 50,000) in 1919, it was....
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....0,419 which appeared in the Penang folio in Moulmein books, and in this view the assessee's belated action in cancelling the said credit entry in the Moulmein books during the previous year is only a belated attempt on his part to gain support for his present claim, and confuse the issue. The facts concerning the debit of $ 19,500 are as follows: The Penang business, like the Klang business suffered loss in the early years, the cumulative amount of the said loss up to 27th Masi, Rudrothkari (10-3-24) being $ 35,000. A part of this loss amounting to $ 12,250 was written off against the share capital account of $ 12,250, and the remainder of the loss was $ 22,750, out of which the assessee's 6/7th share was $ 19,500. This share of the assessee's loss was debited to Moulmein account as shown above. After the share capital account was wiped out, the balance in that account naturally disappeared from the two subsequent ledger volumes. But the account reappeared intact in the third subsequent ledger volume (May-August 1928). It is surmised that something similar to the case of Klang has happened and that the capital was recreated out of the assets transferred to the 4th ledge....
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....t matter of the third question) arose to the assessee in Moulmein during the year Dhathu (1936-37). During the said accounting year Moulmein was a part of British India. 12. The third question raised by the assessee concerns the quantum of income arising to him in Moulmein. In computing the profits of the Moulmein business, the Income-tax Officer disallowed two items of interest of Rs. 1,218-7-3 each credited to the folios in the names of Parvathi and Sigappi who were respectively the assessee's unmarried sister and daughter. The Income-tax Officer held that the moneys to the credit of these two folios belonged to the assessee family. The assessee's contention was that the assessee's father the late Vishwanatha Chetty, as the Karta of the Hindu family, made a will whereby he directed that two sums of money should be set apart for the benefit of Parvathi and Sigappi, and utilized for their marriage expenses. This contention was overruled for the reasons given by the Income-tax Officer in his assessment order and the Appellate Assistant Commissioner in his appellate order (Annexures A and B). A copy of the will which is dated 27-10-34 is enclosed herewith as Annexure C....
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....n with the partnership had to pay in British India Rs. 10,500 towards his share of the loss, in addition to the adjustment of the balances in his account in Klang towards the loss. The fact that the firm had prospered and made such enormous profits as not only to recoup the lost amount of capital and surplus capital monies and leave a large margin of profit cannot alter the true nature of these moneys as profits. Assuming that the capital and surplus capital could be said to be still intact that, having regard to the financial needs of such large businesses and the necessity for retaining these funds there, at any rate the only reasonable inference is that what was remitted back came out of profits that were not required for the current needs of the businesses. The two businesses continued to exist at the end of the year of account in question, and the amount lying invested there far exceeds the amount of the initial capital sent out there. A kind reference to the abstract of the Moulmein account in the Penang books (page 320 ante) will show that at the time of the remittance of $ 80,580 (Rs. 1,25,000) on 19-9-1936, that folio had been credited with $ 52,373 on account of interest ....
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....e expenditure of the family. The fact that certain monies of the Hindu undivided family have been credited in separate folios in the vilasams of the ladies for meeting such a contingent and future liability does not divest the family of the ownership of such monies unless the attendant circumstances are such as to show that there has been an immediate gift. The occasions on which the gifts are to be made are to arise in future. In the circumstances the interest credited to the accounts of the two ladies does not represent payment of interest on any capital borrowed from the two ladies and utilised for purposes of the petitioner's business. It is merely interest on the family's own monies. The question should be answered in the negative." V. N. Veeraraghavan for Messrs. K. Rajah Ayyar and P. R. Srinivasan, for the assessee. C. S. Rama Rao Sahib, for the Commissioner. JUDGMENT (Judgment of the Court was delivered by Patanjali Sastri J.) This is a reference made by the Commissioner of Income-tax, Madras, in pursuance of an order of this Court dated the 26th April 1943 passed in O.P. No. 48 of 1943 under Section 66(3) of the Indian Income-tax Act, 1922,....
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....ssessee thereupon moved this Court under Section 66(3) of the Act to require the Commissioner to state the case and refer it and the Court by its order already referred to directed the said Officer to refer the following questions for its decision as points of law were considered to arise in respect of them: (1) Are there materials on the record which show that the remittance of $ 20,500 from Penang to Moulmein on the 19th September 1936 was a remittance of capital? (2) Was the Income-tax Officer entitled in law to assess the assessee on the sum of Rs. 13,247 remitted from Moulmein to Puduvayal in the year of account 1936-37? (3) Whether in computing the assessee's profits earned in Moulmein in the year 1936-37 he was entitled to include the interest which had accrued on the deposits standing in the names of his sister Parvathi and daughter Sigappi? In formulating question (1) the Court observed: "On the 19th September 1936 the Penang branch remitted to the Moulmein branch a sum of $ 80,500. The Income-tax authorities have regarded this remittance as one of profits and asse....
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....ourt cannot go into the correctness or otherwise of the finding of fact arrived at by the Commissioner but can only see if there is any evidence to support such finding. On the evidence reviewed by the Commissioner it cannot be said that there are no materials to support his conclusion on the point. We find the first point accordingly in favour of the Commissioner. On the second point, as pointed out by the Commissioner, although the Income-tax Officer has purported to assess the sum of Rs. 13,247, which is the assessee's share of profits of the E.M. Firm at Moulmein, as profits remitted to British India, no question of remittance of foreign profits to British India could arise as Moulmein was part of British India in the year of account 1936-37. The assessment, however, must stand as it has been held by this Court that income accruing or arising in British India in the "previous year" is assessable under the Income- tax Act though the place of accrual has ceased to be part of British India in the year of assessment (vide Commissioner of Income-tax, Madras v. Valliammai Achi* ). It was said that the E.M. Firm was taxed in respect of the whole of its profits in Burma for the ....