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Issues Involved:
1. Whether the amount of Rs. 5,39,057/- was rightly disallowed under Rule 12(1) of Schedule 1 of the Excess Profits Tax Act for the chargeable accounting period 1945. 2. Whether the amount of Rs. 1,28,743/- was rightly disallowed under Rule 12(1) of Schedule 1 of the Excess Profits Tax Act for the chargeable accounting period 1946. 3. Whether the decision in a previous reference operates as res judicata in the present case. Detailed Analysis: 1. Disallowance of Rs. 5,39,057/- under Rule 12(1) of Schedule 1 of the Excess Profits Tax Act for 1945: The assessee, a public limited company, calculated commission for its Directors and Managers based on net profits without deducting excess profits tax (EPT). The Excess Profits Tax Officer (EPTO) recalculated the commission by deducting EPT from the net profits, labeling the original calculation as unreasonable and unnecessary under Rule 12(1). This rule mandates that no deduction shall be allowed for expenses exceeding what the EPTO considers reasonable and necessary considering the requirements of the business and the actual services rendered. The Tribunal upheld the EPTO's decision, noting that the commission percentages were set before the EPT Act was enacted. The EPTO's rationale was that the commission should be calculated after deducting EPT to prevent Directors and Managers from benefiting excessively from war-time profits, aligning with the Act's objective to share excess profits between the business owner and the State. 2. Disallowance of Rs. 1,28,743/- under Rule 12(1) of Schedule 1 of the Excess Profits Tax Act for 1946: Similar to 1945, the EPTO disallowed the commission calculated without deducting EPT for the chargeable accounting period of 1946. The Tribunal dismissed the assessee's appeal, reiterating that the commission paid was both unreasonable and unnecessary. The Tribunal emphasized that no additional material was presented to justify a different calculation method for 1946, thereby supporting the EPTO's reliance on previous assessment orders. The Tribunal noted that the assessee's resolutions, which dictated the commission calculation method, did not bind the EPTO. The EPTO's duty was to determine the reasonableness and necessity of the expenses, independent of the company's resolutions. 3. Res Judicata: The assessee argued that a previous decision by Bhargava and Mehrotra, JJ., which answered a similar question in the negative, should operate as res judicata. However, the Court distinguished the present case from the earlier one. The previous decision was based on assumptions and did not address the merits of the necessity and reasonableness of the payments. The earlier decision was not binding as res judicata because the chargeable accounting periods and sums involved were different. The Court also discussed the broader principle that decisions in tax matters for one year do not operate as res judicata for subsequent years. This principle was supported by various authorities, including the Supreme Court and the Judicial Committee, which held that tax assessments are inherently temporary and subject to change based on new facts or circumstances. Conclusion: The Court affirmed the disallowance of both amounts under Rule 12(1) of Schedule 1 of the Excess Profits Tax Act for the chargeable accounting periods of 1945 and 1946. The decision in the earlier reference did not operate as res judicata in the present case. The Commissioner of Income Tax was awarded costs of Rs. 400/-.
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