TMI Blog1962 (6) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... at Bombay income earned is very small consisting of some commissions and interest which amount to a few hundred rupees only. The bulk of the income of this firm is derived from its business at Parbhani and Latur, which are places in the then native State of Hyderabad. The business carried on there is of ginning and pressing factories. The books of account of the head office are maintained according to the Samvat year. The relevant previous year to the assessment year 1945-46 is Samvat year 2000 (from October 30, 1943, to October 17, 1944) and for the assessment year 1946-47, the relevant previous year is Samvat year 2001 (October 18, 1944, to November 4, 1945). The accounting year at Latur is one ending with 31st August and that at Parbhani is one ending with 31st June of each year. Though some account books are maintained at Mandvi, no business is at all done there. The accounting year at Mandvi is also according to the Samvat year. For the purpose of working the ginning factories at Latur and Parbhani, the firm had to make large purchases of stores and other goods at Bombay and make payments for these purchase at Bombay. Similarly, the assessee used to defray certain expenses inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 10(2) of the Act should have been excluded from the said amount of ₹ 97,398. According to the assessee, therefore, the amount of profits for the Samvat year 1999 would not amount to ₹ 97,398 but amount to a figure reduced by setting off the amount of losses and the amount of depreciation therefrom. In the second alternative, it was contended on behalf of the assessee that at any rate even assuming that the profits for the Samvat year 1999 have been correctly computed at ₹ 97,398, they were not available in the Samvat year 2000 for being remitted to Bombay. According to the assessee, profits of the Samvat year 1999 amounting to ₹ 90,000 had already been remitted to Bombay in the assessment year 1999 itself and, therefore, the amount of profits which could be available for being remitted in the Samvat year 2000 was at any rate not more than ₹ 7,398. In the further alternative it was contended that at any rate there being remittances both from Bombay and Mandvi to Parbhani and Latur and from Latur and Parbhani to Bombay and Mandvi only the excess of remittances from Prabhani and Latur to Bombay and Mandvi could be the amount of profits brought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under the Income Tax Act. Losses incurred in the previous years cannot be said to be an item of expenditure of the year of which the income is to be determined. It is true that the Income Tax Act enables the assessee to adjust the previous years losses against the profits of the year, but if the assessee does not choose to do so and bring forward the losses of the prior years in the books of account of the current year, there is no obligation on the Income Tax authorities to allow the losses of prior years as a deduction in computing the profits of that year. In dealing with a similar contention in Sarupchand Hukumchand v. Commissioner of Income Tax, the learned Chief justice observed at page 218 : Now I can well understand the position where an individual or a firm carries forward losses from year to year and in any particular year the profits of that year may be set off against the losses which have been carried forward to that year. However, it may be that an individual or a firm may adjust at the end of each year its profit and loss and transfer it to the accounts of the partners and the profit and loss of the next year may be determined irrespective of what the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d tear. We are, therefore, of the opinion that the Tribunal was justified in reflecting the claim of the assessee in this respect. 9. Our answer to the aforesaid question (c) is that the Tribunal was right in no allowing the applicant the loss suffered in earlier years as well as the depreciation allowable under the Indian Income Tax Act as deductions in the computation of available profits, if any. 10. Question (b) is in the following terms : Whether, on the facts and in the circumstances of the case, the sum of ₹ 90,000 (Rupees ninety thousand) has been rightly included in the total amount of available profits which could be remitted to the taxable territories, if any ? 11. To appreciate the contentions raised before us, it would be necessary to state a few more facts. The statement of account submitted by the department and which is annexure I to the statement of case, shows that the business of the assessee was running more or less at loss up to the year 1936-37, and the profits earned by it from 1937-38 to 1941-42 were nearly sufficient to wipe off the loss incurred by the concern in the years 1932-33 to 1936-37. The account thus shows that there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount could not be brought to tax. As already stated, in the instant case, the assessee has raised a contention that though the determined profits for the assessment year 1944-45 were ₹ 97,398, the entire amount was not available for being remitted to Bombay inasmuch as ₹ 90.000 out of it had already been remitted during the course of the assessment year 1944-45. In rejecting this contention the Tribunal in its appellate order observed : As regards the plea of ₹ 90,000 having been sent in S. Y. 1999 from Latur to Bombay, there is really no substance in it. For the assessment year 1944-45 the department sought to tax the said amount of ₹ 90,000 under section 4(1) (b) (iii) and the matter ultimately went to the High Court. In the judgment of March 31, 1952, their Lordships of the Bombay High Court have held that when the sums of ₹ 85,000 and ₹ 5,000 were remitted on the 6th May, 1943, and the 17th May, 1943, these were not remittance of profits and they could not be remittances of profits because no profits though there were remittances to the extent of ₹ 90,000 they were not on account of profits. Hence we think that the assessee cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead evidence to the contrary and no evidence having been led by the assessee to the contrary, the assessee is not entitled to claim that the amount of ₹ 90,000 formed part of the profits of the business. 14. Section 4(1) (b) (iii) is in the following terms : Subject to the provision of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which - .... (b) if such person is resident in the taxable territories during such year, - .... (iii) having accrued or arisen to him without the taxable territories before the beginning of such year and after the 1st day of April, 1933, are brought into or received in the taxable territories by him during such year. 15. Now to bring into operation the said provisions, the essential conditions which must be established are : (1) that the remittances should be out of income, profits and gains arising without the taxable territories. (2) the income, profits and gains should have accrued or arisen to the assessee : (3) they should have accrued or arisen after the 1st day of April, 1933; (4) they should have accrued or arisen before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the entire amount of ₹ 90,000 was liable to tax as remittances of profits. It was not then contended that in the said sum of ₹ 90,000 profits were embedded and those profits be taxed. The decision of the Supreme Court in Turner Morrison Co. Ltd. v. Commissioner of Income Tax, indicates that part of the profits of a business situated outside the taxable territories could be received in the taxable territories even during the currency of a year. The facts in that case were that the association incorporated in England carried on the business of manufacturing salt in Egypt. Part of the salt so manufactured was consigned by the association to a company for sale in India. All handling of the cargoes at Calcutta was done by the company and the company effected sales and received the sale proceeds. After deducting the expenses and commission the balance was remitted by the company to the association in Egypt. The Income Tax Officer treated the company as agents of the non-resident association and assessed them to Income Tax under section 4(1) (a) or alternatively under the first part of section 4(1) (c) of the Act. Two questions were raised before their Lordships ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulted in profits. Therefore, in the remittances of ₹ 85,000 and ₹ 5,000 received by Bombay from Latur were included profits attributable to them. 19. Mr. Joshi, however, argues that the aforesaid decision of the Supreme Court would have no application to the facts of the present case, as it deals with sales proceeds. There is no evidence that ₹ 90,000 remitted from Latur to Bombay were part of the sale proceeds of the business at Latur. According to Mr. Joshi, Latur might have sent ₹ 90,000 out of its fixed capital or out of its circulating capital or may have even remitted the money from its borrowings and in the absence of any proof tendered by the assessee that the sum of ₹ 90,000 was sent out of the sale proceeds trading receipts, it cannot be said that, at the time it was sent, it contained any profits. The assessee could have easily proved it and he having failed to discharge the burden which lay on him, it should not be held that the sum of ₹ 90,000 contained any profits attributable to it. It is indeed true that this decision would have application only if it is established that ₹ 90,000 were sent out of the sale proceeds or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pts of the assessee at Latur. On the authority of the Supreme Court decision referred to above, this amount of ₹ 90,000 would contain the proportionate profits attributable to those trading receipts. What that amount would be, would depend on the total turn over of the assessee of that year and that amount will have to be ascertained by the Tribunal in the light of the principle laid down by the Supreme Court in the aforementioned case. 21. Our answer to question (b) is that on the facts and in the circumstances of the case the entire amount of ₹ 90,000 has not been rightly included in the total amount of available profits, which could be remitted to the taxable territories, but the amount that could be included in the total amount of available profits is ₹ 90,000 minus proportionate profits attributable to the said amount of ₹ 90,000 computed in the light of this judgment. 22. The last question is in the following terms : Question (a) : Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the action of the Income Tax authorities, taxing the sum of ₹ 97,398 (Rupees ninety-seven thousand three hundred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well start with the presumption that the remittances either represent the profit earned by the assessee or at least include the profit earned by him and may be within their limits in assessing him on the remittances to the extent to which they can legitimately be regarded as representing the profit. However, this is by no means a presumption of law and its strength must vary according to the circumstances of each case. There may be cases in which in view of the surrounding circumstances the presumption may be very particularly strong so that it would require evidence of a specially cogent nature to rebut it. There may, on the other hand, be cases in which the presumption may be exceedingly weak and may be rebutted by a very small amount of evidence and even without any extraneous evidence and by the attendant circumstances alone. A case in which there have been remittances only from abroad to the assessee may fall within the first description. A case in which remittances have been received on both sides but the remittances to the assessee from abroad are very much in excess of the remittances made by him may be regarded as a case of the middle type. A case in which remittances on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the rough and ready method adopted was to deduct the expenses incurred in Bombay for purchase of stores only from the remittances from Latur and Parbhani in determining the excess. It is clear that the principle laid down in Jankidas Kaluram's case has not been followed by the Tribunal. On the other hand, it has taken the view that the correct manner to decide whether any remittances fall within section 4(1) (b) (iii) is to take a particular or individual remittance and find out the purpose for which it was made and whether there were sufficient profits available at the time when the remittances were made. The Tribunal then called upon the assessee to produce correspondence between the head-office and branches which could throw light on each of the remittances. On account of the failure on the assessee's part to produce the correspondence, the Tribunal has not taken the excess of remittances as the profit remitted to Bombay, but has held that the entire amount of ₹ 97,398 had been remitted, the total remittances being greater than the said amount. 27. In our opinion the reasoning adopted by the Tribunal in its entirety cannot be sustained on the facts of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r working the two factories also at Bombay. 30. These being the facts found, it can reasonably be assumed that the remittances said to have been made from Bombay to Parbhani and Latur represent the expenses incurred by Bombay in the year for the purpose of its business at Parbhani and Latur. Therefore, the initial presumption that the remittances from Latur and Parbhani either represent profits earned by the assessee or at least include the profits earned by the assessee would get limited only to the extent of the excess of remittances from Latur and Parbhani. The statement of case shows that the excess of remittances from Latur was ₹ 10,681 and the excess of remittances from Parbhani amounted to ₹ 1,692. 31. The Tribunal has held that the initial presumption had not been rebutted by the assessee, because he has failed to produce the correspondence relating to each of the remittances. We find it difficult to agree with the Tribunal that the only manner in which the assessee could rebut the presumption was by producing the correspondence. The assessee has, however, produced the books of account. The assessee has shown that the Bombay head-office was incurring exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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