1958 (3) TMI 89 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 25(4) of the Indian Income-tax Act.
2. Nature of the repayment of excess profits tax under Section 11(11) of the Indian Finance Act, 1946.
3. Classification of the repayment as business income or statutory income.

Detailed Analysis:

1. Applicability of Section 25(4) of the Indian Income-tax Act:
The firm claimed the benefit of Section 25(4) of the Indian Income-tax Act, contending that no tax was payable on its profits for the period from April 1, 1944, to March 24, 1945. The Department initially accepted this claim. However, the controversy arose when the Department sought to tax the repayment of excess profits tax under Section 11(11) of the Indian Finance Act, 1946. The Tribunal had ruled in favor of the assessee, but the Commissioner of Income-tax challenged this decision.

2. Nature of the Repayment of Excess Profits Tax under Section 11(11) of the Indian Finance Act, 1946:
The court examined the provisions of the Excess Profits Tax Act and the Finance Acts of 1942 and 1946 to understand the nature of the repayment. The Excess Profits Tax Act allowed for adjustments and refunds based on the standard profits over different years. Section 11(11) of the Finance Act, 1946, deemed any sum repaid as excess profits tax to be income for the purposes of the Indian Income-tax Act, 1922, and treated it as income of the previous year in which the repayment was made.

3. Classification of the Repayment as Business Income or Statutory Income:
The court noted that Section 11(11) introduced a legal fiction by deeming the repayment as income but did not explicitly categorize it as business income. The court emphasized that the repayment was not a result of business activity but a statutory concession. The repayment was considered a statutory income arising from the obligation of the State to refund part of the tax due to the deposit made by the assessee. The court rejected the argument that the repayment retained its character as business income, stating that it should be treated as statutory income and fall under the residuary head in Section 12 of the Indian Income-tax Act.

Conclusion:
The court concluded that the repayment of excess profits tax under Section 11(11) of the Finance Act, 1946, is not business income but statutory income. Consequently, Section 25(4) of the Indian Income-tax Act does not apply, and the repayment is taxable under the provisions of the Indian Income-tax Act. The Commissioner of Income-tax's appeal was upheld, and the question was answered in the negative, with costs awarded to the Commissioner.