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Issues:
1. Interpretation of provisions under Excess Profits Tax Act and Income-tax Act for computing profits during the standard period. 2. Determining the standard profits based on Indian and foreign profits of a company. 3. Application of Section 4A of the Income-tax Act in determining the residency status of a company. 4. Compliance with Rule 1 of Schedule I of the Excess Profits Tax Act for computing business profits during the standard period. Analysis: The judgment by the Calcutta High Court involved a reference under Section 21 of the Excess Profits Tax Act, 1940, regarding the inclusion of London profits in the computation of profits for the standard period under Schedule I of the Act. The key question was whether the London profits for the 1936-37 income-tax assessment should be included in the standard profits calculation. The case revolved around the residency status of the company based on its Indian and foreign profits, as well as the proper method of computing profits for the standard period. The Tribunal, in this case, had consolidated five appeals covering different accounting periods with a common issue. The company, a limited company with its head office in London and branches in India, had chosen the previous years 1936-37 and 1938-39 as the standard period for assessment. The Excess Profits Tax Officer had excluded London profits while computing standard profits, arguing that the company was nonresident in 1936-37 due to higher foreign profits. The company contended that Indian and foreign profits should be totaled for the standard period calculation. The court analyzed the relevant provisions of the Income-tax Act, particularly Section 4A, which defines the residency status of a company based on control and management location and income sources. It emphasized the computation of business profits under Section 10 and the application of Rule 1 of Schedule I for determining profits during the standard period. The court highlighted that the status under Section 4 and Section 4A should be considered after determining business profits under Section 10. Moreover, the court referred to the definition of the standard period under Section 6 of the Excess Profits Tax Act and concluded that the Excess Profits Tax Officer erred in considering the company's residency status while calculating standard profits. The court upheld the Tribunal's decision that the London profits should not be ignored in the standard profits calculation, as per Rule 1 of Schedule I. The judgment affirmed that the Excess Profits Tax Officer's approach was incorrect, and the London profits should be included in determining standard profits for the company. In conclusion, the Calcutta High Court answered the reference question affirmatively, emphasizing the correct application of provisions under the Excess Profits Tax Act and the Income-tax Act for computing standard profits, particularly regarding the inclusion of foreign profits in the calculation. The judgment underscored the importance of following the prescribed rules and principles while determining business profits during the standard period.
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