TMI Blog1937 (5) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... e work is done in Kashmir. The Jhelum depot is financed from Lahore also. Accounts are kept in Lahore in the winter but the books are taken to Srinagar in Kashmir in the summer, where some or all of the partners spend the hot weather. During the accounting period with which we are now concerned, July 1931 to June 1932, the firm made a profit of more than three lakhs in British India and ₹ 67,095 in Kashmir. There is no dispute about the assessment of the profits in British India. The contest is about the Kashmir profits, which the Commissioner of Income Tax has taxed holding, on the reasoning made clear below, that the whole of these profits were received in India. The amount assessed to tax by the Income Tax Officer in the first instance included a sum of ₹ 20,102 in addition to the ascertained profits of the firm arising in British India. The Income Tax Officer calculated this sum as follows : He found that ₹ 11,17,765 had been remitted to Kashmir to cover working expenses including royalty payable to the Kashmir State, and that the timber imported had been sold at Jhelum for ₹ 11,00,867. At a time when there was money in excess in Kashmir a sum of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Officer, that in any case the timber imported was not profits imported but capital, and that the Kashmir profits were not ascertained when the timber was brought into British India. During the hearing of the appeal the Commissioner asked the assessee to furnish further figures. From his appellate order it appears that what he asked for were figures showing the remittances sent of Kashmir for working expenses as distinct from the money sent to the forest managers from the Kashmir office. The figures were sent to the Commissioner by the assessees auditor who, in a covering letter dated 14th May, 1936, a portion of which is quoted in the Commissioners order of reference (appendix paragraph 7) noticed that the figures showed an apparent inward excess of about a lakh in the difference between outward remittances from British India and the cost price of the timber brought into British India, which was taken to be ₹ 8,34,000. From the figures supplied the Commissioner conclued and (this is common ground) that the remittances from British India to Kashmir amounted to ₹ 7,37,488. On these figures the excess inwards was prima facie ₹ 96,512. Here I may mention tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners counsel took objections in a letter addressed to the Commissioner. The Commissioner after hearing Mr. Sethi refused to entertain the objections but added to this statement an appendix incorporating this letter and giving his reasons for rejecting the objections. Counsels submissions were that the figurs on which the Commissioner had relied in estimating the cost price of the timber for the purpose of deciding whether there had been an excess inwards were incomplete. It was explained that including in the cost price of the timber at the date of its sale was a sum of ₹ 1,22,000 which had been spent in British India on working expenses at the Jhelum depot, that the cost price of the timber when it entered British India was, therefore, not ₹ 8,34,000 but ₹ 8,34,000 minus ₹ 1,22,000 or ₹ 7,12,000 that is to say considerably less then the remittances from British India to Kashmir which remittance according to the auditors figures, accepted by the Commissioner, amounted to ₹ 7,37,488. The letter also asked that the facts and figures given by the auditor in his letter of the 14th May might be printed. This request the Commissioner has ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hmir. That this is so is obvious from his statement of the case where he remarkes that he attaches no particular significance to this back remittance. See also para 2 at page 2 and para 10 of his printed order under Section 32. It is admitted by counsel for the Income Tax Commissioner that it is to the remittance of ₹ 37,000 that the words back remittance refer. Much more than this sum, I may note, was subsequently remitted to Kashmir for working expenses and we may take it that so far as this sum is concerned the assessee ultimately discharged to the satisfaction of the Commissioner the onus of proving that it was not a profit received in British India. Having cleared the grounmd with these observation I return to the Commissioners statement and objections pressed on behalf of the assessee. That the Commissioner was entitled in the absence of any proof to the contrary to presume that the remittance of ₹ 37,000 was a remittance of profits is, as I have already indicated, not disputed, but as the Commissioner has made it clear that he does not now base his assessment on such a presumption the question whether the presumption arose in respect of this remittance was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is an unascertained portion of the value of he imported timber, it having been presumed that the timber represented at least ₹ 67,000 of profits made in Kashmir. The Commissioners decision in his order under Sec. 32 that the timber imported comprised the Kashmir profits was based partly on the evidence of the accounts showing that the cost value of the timber when it came to British India exceeded the amount of the remittance to Kashmir and showing that the Kashmir profits were distributed among the partners in the account books in British India, partly on the contents of the Auditors letter of the May 14, 1936, and partly on a purely theoretical presumption that because the timber was worth more than the Kashmir profits (₹ 67,000) and the assessee had failed to establish that its value did not include those profits - those profits are assxessable as received in British India. In his statement of the case which is before us, of which the appendix must, I think, be regarded as in general part the Commissioner first seeks to justify his order under Sec. 32 on the ground that the full facts were not before him when he passed the order, while there was, on the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 96,000 (para 7 of the appendix). In his statement he goes on, however, to remark This does not enable me to say that there was not an excess inwards or to say what the excess really was. But if the admission in the Auditors letter be excluded, what evidence is there that three was an excess ? I can find none and neither can counsel for the Income Tax Commissioner. It is remarkable that, even in his order under Sec. 32 the Commissioner himself, somewhat inconsistently, discounts the importance of the question whether there was or was not any excess (para 23 - Thus, I look on the excess detail as only one of the various considerations in evidence in support of the assessees attempt to show that what came did not comprise profits. ) and that in the beginning of his order he makes it quite clear that the conclusion as to what the excess was is not based on any evidence other than the Auditors admission (para 2 at page 2). He did not find it necessary to come to any finding of what the respective outwards and inward totals were. It seems obvious, then, that if the assessees figures are correct (the Commissioner has accepted them and their genuineness is not disputed before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into an equivalent for interest on investments in another. The profits stayed in Kashmir. No use was made of them in British India and the ₹ 67,000 was not made a debit entry in the Lahore books. Standard Life Assurance Co. v. Allan (4 T.C. 446), the next case cited, appears to me to go against the Commissioner. No doubt it was remarked in his judgment by Lord Trayner (p. 457) that it is not necessary that what is brought in must be in forma specifica before it can be treated as profit for purposes of Income Tax and these words are authority for the proposition that profits may be received in other forms than in cash. But the question still remains whether this profit of ₹ 67,000 was brought into India in the shape of timer. Nor can I see how the judgment in Californian Copper Syndicate v. Harris (5 T.C. 159) referred to by Counsel for the Income TAx Commissioner helps him. That merely decided that where there is a company whose business is the organising and selling of mining property, and a sale of such property is made at a profit, the price being received in shares, the difference in the exchange is assessable to Income Tax. Chidambaram Chettiar v. Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh and moneys worth which the Assessee able and undisputed. This, however, is not the case. The assessee in suggesting question No. 1 joined issue with the Commissioner on the existence of this presumption and in my view, therefore, the principal point for determination is, whether in the circumstances of the case before us, it is possible to raise a legal presumption against the Assessee that what he received in British India in the shape of saleable timber, was as a whole or in part profits, gains or income, liable to be assessed to Income Tax. This is what question No. 1 seeks decide. Whatever is laid down in other decided cases and however permissible the presumption may be in different circumstances, I am definitely of opinion that on the facts of the present case, it is not possible to hold that such a presumption arises. The Commissioner himself has stated unequivocally that the attches no importance to the cash remittance of ₹ 37,000. In sub-para 1 of para 10 of the appellate order, he says : As below I do not think the cash really comes into any separate consideration. If it stood alone in the middle of a year with general cash consignment outwards, nobody would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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