1. This is a reference under Section 66(3) of the Indian Income-Tax Act (XI of 1922), by the Commissioner of Income-Tax stating a case and the following questions of law for determination of this Court.

2. The assessee, Govind Ram Tansukh Raj carries on business at Ujhani in Budaun District in British India and at Sambhar in the Jodhpur State. This usiness is carried on under different names and at Sambhar it is earned on under wo names, viz., Sri Narain Har Bilas and Govind Ram Tansukh Raj. For the assessment year 1934-35 and for the accounting period Sambat 19;9-90 correspond to November, 1932, to October, 1933, the assessee originally was taxed on total income of Rs. 16,272; subsequently supplementary assessment proceedings were started by the Income-Tax Officer of Budaun under Section 34 of the Act pith a view to assess certain income which had escaped assessment and a fresh assessment was made by him on a total income of Rs. 29,506. This figure deluded a sum of Rs. 12,405 found to be the profits of the two businesses mentioned above carried on outside British India by the assessee and remitted to British India during the accounting year within the meaning of Section 4(2) of he Income-Tax Act. Against this assessment an appeal was made but the assistant Commissioner maintained the assessment and on a combined application by the assessee under Sections 33 and 66(2) of the Act, the Commissioner modified the assessment by holding that the profits received in British India were only Rs. 8,895 but he declined to state the case or any questions of law for the consideration of this Court. On the application of the assessee under Section 66(3) this Court directed the Commissioner to state the case and to refer he following questions to this Court:—

(1) Whether the income, profits and gains of Sambat 1989-90 equivalent to 933-34, can be presumed to have been brought into British India in that year? of not, can they be taxed in the assessment year 1934-35?

(2) On whom does the onus lie when a question arises as to whether a articular sum of money remitted into British India represents capital or profits?

(3) In the circumstances did the sum of Rs. 12,405 represent profits 01 capital?

3. The profit and loss of the assesses at its foreign business at Sambhar bat been determined by the Department and its statement is as follows:—

Profit or loss accruing or arising out of British India during the respective years Govind Ram Tansukh Raj, Sambhar. Sri Narain Har Bilas, Sambhar. Final result Rs. Rs. Rs (1) 1986-87 (1929-30) Loss 2202 Profit 2042 Loss–160 (2) 1987-88 (1930-31) Profit 937 Profit 4873 Profit 5810 (3) 1988-89 (1931-32) Loss 2574 Profit 1266 Loss 1308 (4) 1989-90 (1932-33) Profit 3348 Profit 1205 Profit 4553 Net Profit 8895

4. The remittances made by the foreign firm at Sambhar to the home firm a Ujhani have also been determined by the Department and their statement is a follows:—

Sambat Remittance Rs. 1986-87 15,475 1987-88 13,911 1988-89 4,070 1989-90 42,852 Total 76,308

5. Admittedly in Sambhat 1989-90 which is the accounting year of the assesses in dispute the remittance was made of Rs. 42852 by the foreign business of the assesses to the home business. There is also no diputeas to the profit and lose which the assesses bad made in his foreign business during the past four yean from Sambat 1986 to 1990 and the main controversy in the case is whether there is any presumption that the alleged profits were included in the remittance of Rs. 42,852 which was made in the Sambat year 1989-tO. The contention of the Department is that in two of these four years there was a loss and in the other two years there was a profit and after setting off the loss against the profits then was a net profit of Rs. 8,895 available to the assessee for transmission in the accounting year. The presumption therefore in law is that this profit was in eluded in the remittance and for this contention reliance is placed upon S.A.S Subbiah Iyer v. Commissioner of Income-Tax, Madras 1930 4 I.T.C 360., P.L.S.E.R Firn v. Commissioner of Income-Tax, Madras 1930 5 I.T.C 55., V.V.R Firm v. Commissioner of Income-Tax, Madras 1933 6 I.T.R 54., A.V.K.B.M Kasinathan Chettiar v. Commissioner of Income-Tax, Madras 1935 8 I.T.C 96, 3 I.T.R 89., L.C.T.S.P Subramanyam Chettiar v. Commissioner of Income-Tax, Madras 1935 9 I.T.C 47, 3 I.T.R 346., Chunnilal Nahtmal v. Commissioner of Income-Tax Central Provinces and Berar 1931 5 I.T.C 221., B.B Seth Bansilal Abirchand v. Commissioner of Income-Tax, Central Provinces and Berar 1931 5 I.T.C 347., Tara Chand Pohi Mal v. Commissioner of Income-Tax, Punjab, N.W.F and Delhi Provinces 1936 9 I.T.C 256, 4 I.T.R 312, and M.R.A.R.P.L Family v. Commissioner of Income-Tax, Burma 1935 9 I.T.C 158.. These cases are undoubtedly an authority for the proposition that if the proved or admitted profits of a particular assessee in his foreign business-exceeded the remittances made by the assessee to the home office there is a presumption that remittances made by him included the profits. But the problem in this case is a somewhat different one. The profits of the coreign firm for the accounting year 1989-90 which were a sum of Rs. 4,553 could not be determined till the expiration of the year and, therefore, they could act be included, in law, in the remittances which were made during the pendency and in the course of the year. Under Section 3 of the Act, which is the charging section, tax is levied on income, profits and gains of the previous year and under Section 2, clause (11), ‘previous year’ is defined as “the twelve months ending an the 31st day of March next preceding the year for which the assessment is to be made.” Clause (2) of Section 4 which deals with the taxation of foreign income, provides that income, profits and gains accruing or arising without British India to a person resident in British India shall, if they are received in or brought into British India, be deemed to have accrued or arisen in British India and to be income, profits and gains of the year in which they are so received jr brought notwithstanding the fact that they did not so accrue or arise in that year.” It is obvious that foreign income, profits and gains must accrue or arise without British India before they can be received or brought into British India md the receipt of a trader in the course of a year though ultimately it might result into a profit cannot be treated as profit before the determination of the year. It follows that the sum of Rs. 4,553 which represents the profit of 1989-90 Sambat could not be included in the remittance of Rs. 42,852 made in the course of the Sambat year 1989-90 and the view of the Department that there was any presumption about its inclusion is legally incorrect.

6. In the Sambat year 1987-88 undoubtedly there was a profit of Rs. 5,810 to the assessee and if nothing else had been known about the disposal of this sum it may well have been presumed that this sum remained in the hands of the assessee undisposed of and was included in the remittance which was made in the year 1939-90 of Rs. 42,852. But we know that in the year 1988-89 the next year following the year when the profit was made there was a remittance by the assessee of Rs. 4,070 and the presumption is that this remittance was made out of the profits and it absorbed the profits of Rs. 5,810 to the limit of Rs. 4,070 leaving a balance of Rs. 1,740 and we also know that in the year 1988-89 there was a loss of Rs. 1,308 to the foreign firm with the result that the balance of the profit of Rs. 1,740 was absorbed by the loss of Rs. 1,308 and there remained only a figure of Rs. 432 available for transmission. The assessee has failed to account for this sum of Rs. 432, but in a case where he has accounted for a sum of Rs. 42,420 out of a remittance of Rs. 42,852 and when he sets up a case that the whole remittance came out of capital and the previous profits were all absorbed in expenditure at the foreign office the assessee has rebutted the presumption which stood against him of the remittance coming out of the profits md there was no presumption in the circumstances of the case that any portion of the profits were included in the remittance.

7. A contention has been raised on behalf of the Department that the questions now raised before us were not raised before the Assistant Commissioner in appeal and before the Commissioner in revision. A further contention has been raised that question No. 3 set out above is not in proper form. The assessee contended both before the Assistant Commissioner and the Commissioner that the alleged profits of Rs. 12,405 were not included in the remittance of Rs. 42,852 and the Commissioner granted to him relief to a certain extent by reducing the profits included in the remittance from Rs. 12,405 to Rs. 8,895. It is true that the precise ground upon which he has succeeded before us namely that the sum of Rs. 8,000 odd is made substantially of two items one of which could not be deemed, in law, to be the profit in the year of accounting and can only be deemed to be the profit in the following year and the other sum was included in an earlier remittance and was absorbed by the next year's loss was not put forward in so many words before the Assistant Commissioner or the Commissioner but it is not necessary that all legal arguments in support of a contention should be put forward before the Assistant Commissioner or the Commissioner so long as the contention itself is substantially put forward and variation is permissible in regard to legal arguments in support of the contention provided they clearly and properly arise on the facts found and on the contention raised by the assessee. In any case, the stage of taking this objection is now passed in view of the decision of a Bench of this Court at a previous hearing in this case by which the Department's contention was overruled and the Commissioner was directed to state the case under Section 66(3) of the Indian Income-Tax Act. We are now bound by the previous proceedings and must proceed to answer the questions. No doubt the question No. 3, as formulated above, is somewhat defective in form but the two preceding questions deal with income, profits and gains and sums of money having been brought into British India or remitted into British India. Similarly in question No. 3, it is to be understood that the question implies that the sum of Rs. 12,405 represents profits or capital transmitted, received or brought into British India. The third question should, therefore, read as follows:—

(3) In the circumstances did the sum of Rs. 12,405 represent profits or capital received into British India?

8. Our answer to the first question set out above is in the negative, to the second is that the burden of proof is upon the assessee and to the third question is that in the circumstances of the case, the sum of Rs. 12,405 did not represent the profits of the foreign business.

9. The asseessee will have his costs from the Department which we assess at Rs. 250 and the Department will bear its own costs and we fix the fee of Mr. Malik, counsel for the Department, at Rs. 200.

Reference answered accordingly.