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Issues Involved:
1. Whether the starting of a business in an Indian State is a transaction within the meaning of section 10A. 2. Whether in view of the provisions of the third proviso to section 5 of the Excess Profits Tax Act, the Tribunal was justified in holding that section 10A does not apply to the case. Issue-Wise Detailed Analysis: Issue 1: Whether the starting of a business in an Indian State is a transaction within the meaning of section 10A. The Tribunal had to determine if starting a business in an Indian State qualifies as a "transaction" under section 10A of the Excess Profits Tax Act. Section 10A allows adjustments to counteract the avoidance or reduction of liability to excess profits tax through certain transactions. The court noted that the word "transaction" has a very wide meaning and can be applied to any particular act done in the carrying on of a business. The court cited several precedents where various acts such as splitting a firm, starting a new firm, partial partitioning of a joint Hindu family, shifting a business temporarily to another place, and appointing joint general managers were considered transactions under section 10A. Based on these precedents, the court concluded that starting a business in an Indian State is indeed a transaction within the meaning of section 10A. Therefore, the first question was answered in the affirmative. Issue 2: Whether in view of the provisions of the third proviso to section 5 of the Excess Profits Tax Act, the Tribunal was justified in holding that section 10A does not apply to the case. The second issue revolved around the interaction between the third proviso to section 5 and section 10A. The third proviso exempts profits accruing in Part B States from being taxed under the Excess Profits Tax Act. The Tribunal had held that this proviso made section 10A inapplicable in the present case. However, the court clarified that the third proviso and section 10A are entirely different provisions dealing with different matters. The third proviso exempts profits accruing in Part B States, while section 10A allows adjustments in the profits of a business carried on in a taxable territory to counteract avoidance or reduction of liability due to certain transactions. The court elucidated that section 10A does not tax the profits of the branch in a Part B State but adjusts the profits in the taxable territory as if the branch had not been opened. This adjustment is aimed at counteracting the avoidance or reduction of liability to excess profits tax. The court emphasized that the adjustment under section 10A is not barred by the third proviso, as the third proviso does not prevent adjustments of profits in a taxable territory. Consequently, the court answered the second question in the negative, indicating that the Tribunal was not justified in holding that section 10A does not apply to the case. Conclusion: The court concluded that starting a business in an Indian State is a transaction within the meaning of section 10A, and the Tribunal was not justified in holding that section 10A does not apply due to the third proviso to section 5. The judgment highlighted that section 10A allows for adjustments to counteract avoidance or reduction of liability to excess profits tax, even when profits accrue in a Part B State. This adjustment is aimed at ensuring that the profits in a taxable territory are appropriately taxed, irrespective of the location of the new branch. The Commissioner was awarded costs of Rs. 500 for the reference.
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