1949 (3) TMI 32 - HC - Indian Laws

Summary

Issues:
1. Entitlement of the assessee bank to benefit under Rule 5 of Schedule I of the Excess Profits Tax Act.
2. Method of computing the average amount of capital under Rule 5 of Schedule II of the Act.

Analysis:

Issue 1: Entitlement to Benefit under Rule 5 of Schedule I
The judgment addresses the question of whether the assessee bank is entitled to the benefit conferred under Rule 5 of Schedule I of the Excess Profits Tax Act. The court examines the provision of Rule 5, which exempts certain loans or debentures from deduction in arriving at the capital employed in the business. The court highlights that Rule 5 applies only if a company has a standard period, as indicated in Section 6 of the Act. Since the assessee bank did not have a standard period due to commencing business after a specific date, it could not avail itself of the exception in Rule 5. Therefore, the court concludes that the assessee was not entitled to the benefit set out in Rule 5.

Issue 2: Method of Computing Average Capital under Rule 5 of Schedule II
The judgment further delves into the method of computing the average amount of capital employed in a business under Rule 5 of Schedule II of the Act. The court explains that this rule deems profits or losses to have accrued evenly throughout a period, resulting in a corresponding increase or decrease in the capital employed. The court clarifies that the term "profits or losses" in this rule must be construed as "statutory profits" as defined in the Act, not actual profits. The court emphasizes that the legislative framework provides for an artificial method of determining profits and capital increase, subject to rebuttal by the Income Tax Department. The court discusses a specific case where the Excess Profits Tax Officer calculated profits differently from the statutory profits, highlighting the need to show that the entire amount did not increase the capital employed. The court upholds the directions given by the Tribunal members regarding the proper interpretation of profits under Rule 5 of Schedule II.

In conclusion, the court answers the questions posed in the judgment, denying the assessee bank's entitlement under Rule 5 of Schedule I and affirming the method of computing average capital under Rule 5 of Schedule II. The judgment provides a detailed analysis of the legal provisions and their application to the specific case at hand, ensuring clarity and adherence to the statutory framework.