1957 (3) TMI 60 - HC - Income Tax

Summary

Issues:
Interpretation of provisions of the Indian Finance Act, 1942 and the Finance Act of 1946 regarding excess profits tax refund distribution and taxation.

Analysis:
The judgment by the Bombay High Court dealt with the interpretation of provisions related to excess profits tax refund distribution and taxation under the Indian Finance Act, 1942, and the Finance Act of 1946. The case involved an assessee company incorporated in the United Kingdom, carrying on business in India. The company made a representation to the Taxing Department in 1946, stating it was liable to excess profits tax in the UK, thereby avoiding a compulsory deposit under the Finance Act, 1942. Subsequently, the excess profits tax refund received by the company in 1952 was brought to tax as income for the assessment year 1953-54. The company contended that the refund should be distributed to various charging periods, while the Taxing Department argued it should be treated as income of the year in which the repayment was made.

The court highlighted the significance of the company's representation to the Taxing Department, which allowed it to escape the obligation of a compulsory deposit under the Finance Act, 1942. The company's change in stance regarding its liability to excess profits tax in the UK when it came to the taxation of the refund was questioned. The court emphasized that the company should not be allowed to deny the truth of its earlier representation, which influenced the Taxing Department's decision and benefited the company.

The court considered the interpretation of the term "liable to assessment" in the context of excess profits tax provisions. The company argued that the possibility of being assessed to excess profits tax should be considered, not the actual assessment. The court noted that both the Finance Act of 1942 and the Finance Act of 1946 used similar language emphasizing liability to be assessed, not the fact of assessment itself. Therefore, the court concluded that the company's liability to excess profits tax in the UK remained consistent under both Acts.

Ultimately, the court held that the excess profits tax refund should be treated as income for the assessment year 1953-54 and not distributed to the respective chargeable accounting years. The decision favored the Taxing Department's position, emphasizing the importance of the company's initial representation and the consistent interpretation of the relevant provisions across Acts.

In conclusion, the judgment provided clarity on the treatment of excess profits tax refund for the assessee company, highlighting the legal significance of representations made to tax authorities and the consistent interpretation of tax provisions across relevant Acts.