Law: Income Tax Act (XI of 1922)

Section: 4

Income tax Act (XI of 1922)-----   ---- S. 4(1)(b) (iii) Foreign profits Remittance Mysore securities brought to taxable territories solely for sale and reinvestment in other securities Remittance of capital not profits.   N and S were the partners of a firm which had its head office at Madras in British India and a branch at Trivandrum outside British India. Out of the accumulated profits earned and accumulated at Trivandrum N and S purchased Mysore securities and held them at Trivandrum. As they desired to change the investment to Travancore securities, in form, they sold the securities to the firm on August 6, 1947, at Trivandrum under what were styled as broker's contracts. On August 7 the firm entered into a contract at Madras to sell the Mysore securities to a broker in Bombay at the price at which it had bought them from the partners and, on August 8 the firm entered into a contract for the purchase of Travancore securities of the same face value as the Mysore securities. The Mysore securities were brought to Madras later on August 21, and were forwarded to the buyer at Bombay. N and S were credited on August 23 respectively with the sums of Rs. 37,006 and Rs. 32,652 being the sale proceeds of the Mysore bonds. The Income-tax Officer held that these transactions constituted remittances to British India of unassessed foreign profits under section 4 (1) (b) (iii) of the Income tax Act, 1922. On a reference :   Held, that, even if bringing the Mysore securities to Madras constituted a remittance, the securities represented capital, as the accumulated unassessed foreign profits had been capitalised when they were invested in the purchase of those securities. There was no device to bring in money for use in British India : there was only a substitution of securities which were ultimately held outside British India. There was only a remittance of capital. The sums of Rs. 37,006 and Rs. 32,652 could not, therefore, be brought to tax under section 4 (1) (b) (iii) of the Income tax Act, 1922.   Commissioner of Income tax v. Muhammad Ismail Rowther (1910) 8 I T R 150 applied.   Walsh v. Randall (1940) 23 T C 55 distinguished.  …