TMI Blog1948 (3) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Excess Profits Tax Act. The assessee's contention was that the business fell under Section 12 being profits and gains from other sources and therefore the Excess Profits Tax Act had no application to this income, and the question of law that has been submitted to us is whether in the circumstances of the case the assessee's income of ₹ 20,005 is profits from business within the meaning of Section 2(5) of the Excess Profits Tax Act and therefore or otherwise liable to pay excess profits tax. The point really lies in a very narrow compass. If this particular income is the result of the assessee's business and can be considered to be the profits and gains of that business, then undoubtedly this income is liable to pay excess profits tax. On the other hand, if it is not the profits or gains of the assessee's business and is income derived from other sources and falls under Section 12 of the Income-tax Act, then the Excess Profits Tax Act cannot apply to this income. It is undoubtedly an income for the purpose of the Income-tax Act. The question is whether it is an income from the assessee's business for the purpose of the Excess Profits Tax Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchased a steam drifter for the purpose of using it in herring fishing and during the war it was commandeered by the Admiralty and put to an entirely different use namely a use which the Admiralty thought was essential in public interest for the purpose of prosecuting the war and the question was whether the hire that the assessee received from the Admiralty could be considered to be his income from the business and the Lord President in his judgment stated that when the assessee acquired the ship, he acquired her as an instrument, or, as the Lord Advocate phrased it, a commercial asset susceptible of being put to a variety of different uses in which gain might be acquired, and whichever of these uses it was put to by the appellant and profits earned, he was carrying on the same business, even although alterations were necessary on the vessel for the changed purpose, provided that each of these uses was one for which she as a ship was adapted. Therefore, to my mind the test that was applied in this case was that the ship was a commercial asset and if it was put to any use, then the income derived from such use would be the income of the assessee. It is important to note that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as entitled to the allowance claimed by him under Section 10. Here again the jute press was a commercial asset and the assessee instead of working it himself chose to have it worked by somebody else and received a rent himself and therefore the Court considered it to be an income from his business. There are two cases which have been relied on by the Advocate-General, both cases of the English Court, one case reported in Inland Revenue Commissioners v. Broadway Car Co. (Wimbledon) Ltd. [1946] 2 All ER 609 In that case the assessee company carried on the business of motor car agents and repairers on land held on a lease from 1935 to 1956 at an annual rent of 750. In 1940 the company sub-let for 14 years two-thirds of the land at an annual rent of 1,150. The Commissioners of Income-Tax held that the difference of 400 between the outgoing of 750 for the land retained and the incoming of 1,150 for the land disposed of was income received from an investment, and, the business not being one within the special categories mentioned in the Finance Act, held that 400 was not taxable, and the Court held that the amount was an investment. In this case it is important to note that ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... silk cloth. Attached to the mills there is a dyeing plant and this plant was used by the assessee for the purpose of dyeing silk yarn in connection with the manufacture of silk cloth in his mills. In the chargeable accounting period which was 1st January, 1943, to the 31st December, 1943, the assessee found that he could not work the dyeing plant owing to the difficulty of obtaining silk yarn on account of the war. As a result, the plant remained idle for some time ; but on the 20th August, 1943, that is almost eight months after the beginning of the accounting period, the assessee let out the plant to Messrs. E. Parekh Co. on a rental of Rs, 4,001 per month. During the accounting period the assessee received by way of rental a sum of ₹ 20,005. The Appellate Tribunal held that this amount was chargeable as income from business as defined in Section 2(5) of the Excess Profits Tax Act. It is the assessee's contention that this is not income from business but it is income from other sources, and the question referred to us for decision is whether it is income from business or from other sources. Reliance is in the first instance placed by the Advocate-General on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in which gain might be acquired, and whichever of these uses it was put to by the appellant and profits earned, he was carrying on the same business, even although alterations were necessary on the vessel for the changed purpose, provided that each of these uses was one for which she as a ship was adapted. The Lord President then proceeded to point out that fishing was in its nature a different industry from mine-sweeping, or patrolling, or watching a gap in a boom, or the like. He then proceeded to state:- It is the same piece of machinery, or implement, or commercial asset which is used to acquire profit. In short the business is that of the employment of a ship for gain in ordinary shipowning business. It is contended by the Advocate-General that the true ratio of this case is that the assessee had acquired a ship which could be used for any of the legitimate purposes for which a ship is used in the shipowning business. The acquisition of that ship, although compulsorily, by the Admiralty was under a charter-party ; and since such a use of the ship was an ordinary user in the shipowner's business, profits of such user were profits of the trade. With respect to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of profits gained by running the ship if it had been allowed to be run. But assuming that the case was rightly decided, it was decided on the footing that what was obtained by the company in this case were really freight charges which they would have earned if they had been allowed to do so ; and the ratio of this case must be found in the judgment of Sargant, L.J., at p. 1180. He there states :- It appears to me that on the facts of this case the Government substantially had the use and control of these two vessels for the periods in question, and that the sums paid to the company were sums paid in respect of that use and control, though arrived at by way of compromise of that claim and a number of other claims. The case seems to me to be one within the case of Sutherland v. Commissioners of Inland Revenue [1918] 12 Tax Cas 63, and accordingly the sum in question is a trade receipt, as the Commissioners have found, and is a trade receipt in respect of the period in question during which the vessel was under the control of the Government. The ratio of the case of Sutherland ( supra), which Sargant, L.J., referred to, is the ratio which I have attempted to state earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. In this case a company carried on business of motor car agents and repairers. For this purpose they had taken on lease land at an annual rent of 750 from 1935 to 1956. By the year 1940 the company's business had gone down owing to war conditions with the result that not more than one-third of the land was required for the needs of their business. The remainder was sub-let for 14 years at an annual rent and the question for determination was whether the rents received by the company were profits of a business. It was held that they were not and that they were investments within the meaning of the English Finance Act. The true ratio of this case is that to the extent of two-thirds, the land had ceased to be a commercial asset to the assessee. He then determined to get what he could out of it and what he got was held not to be business profits. In the present case the Tribunal has found that the dyeing plant could not be used by the assessee for the purpose of his own mill because of difficulties created by war, with the result that the plant had ceased to be a commercial asset to the assessee at all. The next case relied on by the Advocate-General is a case reported in Ile ..... X X X X Extracts X X X X X X X X Extracts X X X X
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