TMI Blog1959 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... did so, it obtained deduction of the amounts from its profits and gains for purposes of the Indian Income-tax Act, under section 12(2) of the Indian Excess Profits Tax Act. In the assessment year 1947-1948 which corresponded to the accounting year of the company ending on October 31, 1946, it obtained a repayment of Rs. 2,31,009 out of the excess profits tax paid in England. This was under section 28(1) of 4 5, Geo. VI, Ch. 30. For purposes of the levy of the Indian income-tax, this sum was included in the taxable profits of the company by the Income-tax Officer. He purported to act under section 11(14) of the Indian Finance Act, 1946 (hereinafter called the Act). The income of the company in India was held to be Rs. 6,34,937 (including the sum of Rs. 2,31,009) while the income outside the taxable territory was held to be Rs. 4,29,620. Applying section 4A(c)(b) of the Indian Income-tax Act, the Income-tax Officer assessed the company on its total world income. The appeals of the company made successively to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were dismissed. The Tribunal, however, referred the following questions of law to the High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider where the income arose. Section 11(14) of the Finance Act reads 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, 194I (4 5, Geo. VI, c. 30), as amended by section 37 of the Finance Act, 1942 (5 6, Geo. VI, 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. " This section may be compared with rule 4(1) of the Rules which are applicable to Cases I and II of Schedule D of the Income Tax Act, 1918 (8 9, Geo. V, c. 40) : " Where any person has paid excess profits duty, the amount so paid shall be allowed as a deduction in computing the profits or gains of the year which included the end of the accounting peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty, and this income was assessed under Rule 4(1) above mentioned. The question was whether this was right. The case was considered by the Lords of the First Division, and they gave their opinion against the assessee firm. The Lord President (Clyde) with whom Lords Skerrington, Cullen and Sands agreed (Lord Sands dubitans), explained the two parts of the rule as follows : " The principle is obvious. It is that if a taxpayer has made profits assessable (directly, or indirectly through the operation of the three years' average) to income-tax, and the Revenue takes a share of those profits in the name of excess profits duty, it is only fair that the profits actually assessed to income-tax should suffer some corresponding deduction........ " The problem which arose in the case of repayment of excess profits duty was different. Nobody knew or could know how soon, or how late, repayment might fall to be made ; nor whether the business whose profits were assessed to excess profits duty would be in the same hands when repayment (if any) came to be made. By that time the business might have ceased to be in existence. Repayment might therefore have to be made to a person who was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as repayment in these words : " But in respect of what 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, and that sum means and is intended to represent a repayment of a sum which was paid by them in respect of the duty charged upon the excess profits of their trading. 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 time they were made were subject to income-tax and subject to excess profits duty, and that is the character of the repayment that has been made. " Dealing with the rule, the Master of the Rolls observed : " I have pointed out, this is a case where the company has received payment of an amount previously paid by way of excess profits duty and having that characteristic attaching to it ; and we are told by the statute that when such a sum is repaid it is to be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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. I think, therefore, that the word 'treated' is an apt word to impose a charge. " See also in this connection Olive and Partington Ltd. v. Rose. These cases were relied on by Chakravarti, C.J., and Lahiri, J., in the judgment under appeal, and the learned Judges pointed out that the addition of the words "for the purposes of assessment to income-tax and super-tax " rather strengthen the reasoning in its application to the words of the Indian statute. We agree with this statement. It is to be noticed that the sub-section creates two fictions. By the first fiction it makes the amount of any repayment " income " for the purposes of the Indian Income-tax Act, and goes on to say that that "income" shall be "treated" for purposes of assessment to income-tax and super-tax, as the income of the previous year. Mr. Mitra for the company contends that no doubt the amount may be treated as "income" for the purposes of the Indian Income-tax Act, but the Department is still under a duty to prove that the company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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