JUDGMENT

BHARGAVA, J. - The assessee in this case is a Hindu undivided family carrying on business under the name and style of Ram Lal Bachai Ram. The head office of the assessee with a cloth shop was situated at Samohi in the district of Jaunpore in British India and it also ran a branch cloth shop at Bhadohi in the erstwhile Banaras State during the year of account corresponding to the assessment year 1940-41. Cloth worth Rs. 77,469 was sent in the year of account from Bhadohi to Samohi and cash and cloth to the extent of Rs. 65,931 was sent from Samohi to Bhadohi. There was an excess remittance of Rs. 11,538 from Bhadohi to Samohi, it was an admitted fact that profits were available at Bhadohi for remittance to the place of residence of assessees family at Samohi in British India. In these circumstances, the Income Tax Appellate Tribunal, Allahabad Bench, held that this balance of Rs. 11,538 represented profits earned by the firm at Bhadohi outside British India and that, by these transactions entered into in the year of account, this amount had been received in British India by firm. The assessee contended that this amount did not represent profits of the Bhadohi firm received in British India and was, therefore, not liable as such to Income Tax. On these facts, the following question has been referred to us by the Income Tax Appellate Tribunal, Allahabad Bench :-

"Whether, in the circumstances of the case, when admittedly old unassessed profits were available for remittance to Samohi (in British India) from Bhadohi (outside British India), the excess remittance of stock-in-trade from the latter shop (outside British India) to the former shop (in British India) over cash and goods sent from the Samohi shop to the Bhadohi shop was rightly treated as profit brought into British India and so rightly included in the assessees total income of the year in question u/s 4(1)(b)(3) of the Indian Income Tax Act (after its amendment in 1039 ?")

A very similar case of this firm relating to the assessment year 1938-39 came up before this Court and the opinion delivered by this Court in that case has been reported in Ram Lal Bachai Ram v. Commissioner of Income Tax. In that case also it had been held that cloth worth Rs. 65,203-13-9 had been sent from the Bhadohi shop of this joint family firm to the Samohi shop whereas in the course of that year sums amounting to Rs. 59,175-13-0 only had been remitted to the Bhadohi branch by the Samohi shop. This left a credit balance of Rs. 6,028 in favour of Bhadohi shop in the Samohi books. This Court, when delivering its opinion, held that this balance of Rs. 6,08 could not be treated as a remittance of the profits of the Bhadohi branch brought into British India. In facts, the view of the Court was that this amount could not be treated as a remitane at all. In that case, the invoice price of the cloth sent from the Bhadohi shop to the Samohi shop had been shown as Rs. 65,203-13-9 but this invoice price was not the cost price of the goods sent from the Bhadohi shop. It included a margin of profit equal to the profit that the Bhadohi shop would or might have derived from its customers in Banaras State. It was held that, looking to the substance of the transaction, the Bhadohi shop and the Samohii shop could not be accepted as two different legal entities, one able to earn a profit from the other; nor could it be accepted that there was any legal liability on the part of the Samohi shop to pay the amount to its Bhadohi branch. In an open and current account kept for the facility of accounting between the two shops belonging to the same proprietor, it is a matter of chance as to what is the balance that may remain due at any given moment from one to the other. It may vary from time to time and from day to day, and it is always a matter within the discretion of the head office when, if at all, the balance shall be adjusted. It does not even follow that it will ever be adjusted since there can be no legal