TMI Blog1954 (8) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... btained in the United Kingdom a repayment of a sum of ₹ 2,31,009 out of the excess profits tax paid there under the English Act. That repayment was made to them under section 28(1) of the Finance Act of 1941(4 5 Geo. 6, c. 30). The Income-tax Officer included the amount in the taxable profits of the assessees for the accounting year, purporting to do so under the provisions of section 11(14) of the Indian Finance Act, 1946; and upon adding that amount to the assessees' business income in Calcutta which was ₹ 4,03,928 and treating the whole of the total of ₹ 6,34,937 as their Indian income, he found that it exceeded their foreign income which was ₹ 4,29,620. Accordingly, the Income-tax Officer applied section 4A(c)( b) of the Indian Income-tax Act and held the assessees to be resident in British India and assessed them on the whole of their world income. The assessment was upheld successively by the Appellate Assistant Commissioner and the Appellate Tribunal. The assessees resisted the assessment on two grounds. They contended, in the first place, that the amount of the repayment was not chargeable to tax at all, because the only provision under w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There may, however, be and often are provisions of a general character which are of permanent operation and which are available for application, whenever circumstances are found to which they are; by their terms, applicable. It is not unoften that the Income-tax Act or some other Act is amended by a Finance Act or that some principle of taxation or computation of income is laid down in a Finance Act, which is intended to form part of the general law of the country. It is clear that section n, sub-section (14), of the Finance Act of 1946 is a provision of that character. The Act in which it occurs is still on the statute book as an operative enactment and it was continuing to say in 1947-48, as it js continuing to say even to-day, that all refunds of excess profits tax obtained in England, if they be of the kind mentioned, shall be treated for the purposes of the Indian Income-tax Act in the manner laid down. The very fact that such refunds could not be obtained only in the accounting year relative to the assessment year 1947-48 but might be obtained in other years in future, is sufficient to indicate that section 11(14) could not have been intended to be limited to the accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e National Defence Contribution also and since there was thus no necessary connection between the amount deducted in India as paid on account of the English excess profits tax and the amount repaid in England, the Legislature could not have intended that any amount refunded would ipso facto become liable to the Indian tax. I should like to dispose of the last small point first. Mr. Mitra was not right in contending that the repaymant which was to be taken as income under section 11(14) of the Finance Act was not repayment purely of excess profits tax. What is to be repaid under section 28(1) of the English Finance Act of 194 r is the amount by which the total sum paid by way of excess profits tax at the rate of one hundred per cent, and the National Defence Contribution would be reduced if, instead of one hundred per cent., the excess profits tax was paid at the rate of eighty per cent. The difference between the two sums, which is to be repaid, is thus the difference between excess profits tax at the rate of one hundred per cent, and the same tax at the rate of eighty per cent, and, therefore, wholly an amount of excess profits tax-the sum paid as National Defence Contribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted what was, in fact, a supplementary provision. Section 11(14) of that Act provides as follows :- Where under the provisions of sub-section (2) of section 12 of the Excess Profits Tax Act, 1940 (XV of 1940), excess profits tax payable under the law in force in the United Kingdom has been deducted in computing for the purposes of income-tax and super-tax the profits and gains of any business, the amount of any repayment under sub-section (1) of section 28 of the Finance Act, 1941(4 5 Geo. 6, c. 30), as amended by section 37 of the Finance Act, 1942 (5 6 Geo. 6, c. 21), in respect of those profits, shall be deemed to be income for the purposes of the Indian Income-tax Act, 1922, and shall, for the purpose of assessment to income-tax and super-tax, be treated as income of the previous year during which the repayment is made. The section was obviously enacted to meet the case where the assessee, having paid some excess profits tax in the United Kingdom, had an equivalent sum removed from his taxable profits and was not taxed thereon and would, when any part of the excess profit tax was refunded to him, escape Indian income-tax on that sum altogether, unless a provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a non-resident and the result would be that section 11(14) would be found to have wholly failed in its object in those cases and the position would be that though designed to bring refunds of excess profits tax to charge, it was, in fact, ineffective for doing so. I am not prepared to accept such a construction of the section unless the language used leaves no other course open. In my view, the language points to quite the opposite construction. A question of a similar nature has arisen in England more than once and it will be instructive to see how it has been decided there. The Finance (No, 2) Act of 1915 had a provision in section 35 to the effect that a person who had paid excess profits tax should be allowed, for the purpose of income-tax, to deduct the sum so paid in computing the profits or gains of the year which included the end of the accounting period. Then there was another provision contained in section 38 (3) which provided that where a trader could show that he had sustained a loss in his trade or business, he would be entitled to a refund of a corresponding amount paid by him as excess profits tax in respect of any previous accounting period or to set it off ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord Hanworth, M. R., explained that rule 4 merely brought back to charge an amount which was taxable profit at the time it had been deducted in the computation and that when it was repaid, it came back in its old taxable character and therefore it was not necessary that it should be shown to be capable of arising again as taxable profits in the year of repayment in order to be liable to tax. The previous taxability was sufficient to make it taxable and therefore when rule 4 said that it would be treated as the profit of the year of repayment, it meant that it would be dealt with as taxable profit, irrespective of any other circumstance. But in respect of what, observed his Lordship, is that payment made? It is not a legacy, it is not a sum which has fallen from the skies; it is a sum which is repaid, because there was too large a sum paid by the company to the Revenue Authorities over the whole period during which excess profits duty was paid . It comes back, therefore, not having lost its character but being still the repayment of a sum-too much, it is true,-but a sum taken out of the profits which were made by the company in the course of its trading, profits which at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illuminating and perhaps more pertinent to the present point were the observations of Lord Sumner. Referring to the last sentence in rule 4, he observed as follows :- The express mandatory terms of the sentence show, in carefully chosen language, that he is to submit to something by reason of his having previously enjoyed this advantage in the shape of repayment of an amount previously paid by way of excess profits duty. Something which is not a profit, but is only a money repayment, something which may not result in a profit, because although trading goes on there is so great a loss on the year that this repayment does not make up the deficit, something which may not be a trading profit, because trading has ceased altogether, nevertheless is to be treated as profit and as profit for the year. 'Treated' is a fresh word free from legal technicality. It is the widest word that could be chosen. The Legislature avoided saying 'shall be assessed as' or 'shall be brought into the computation of profit and loss,' and simply says that something which is not profit but mere payment shall be treated as profit, which it may or may not be, and as profit for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question was, therefore, rightly brought under assessment. The second question is whether the amount could be taken into consideration for determining the residence of the assessees under section 4A(c)(b ). The test laid down in section 4A(c)( b) is that the income arising in India should exceed the income arising outside India. As I have said, taken as an income amount, the income contemplated by section 11(14) is Sui generis. If it is related to anything at all, it is only related as to time to the year in which the repayment is received but otherwise it stands alone, unrelated to any place as the place of its accrual or arising and unrelated to any method or manner in which it is to accrue or arise. Section 11(14), while it says that the amount of repayment shall be deemed to be income for the purposes of the Income-tax Act and shall be treated as the income of the year in which the repayment was made, does not say that it is income arising in India or shall be deemed to be such income. Directly considered, the income does not satisfy the test laid down in section 4A(c)(b ). Mr. Meyer however contended that since the amount was virtually the amount which had been deducted fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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