1959 (3) TMI 4 - SC - Income Tax

Whether on the above facts and circumstances of this case the Tribunal was right in holding that the sum of ₹ 2,31,009 was income of the assessee during the assessment year under consideration and was liable to be assessed under the Indian Income-tax Act ? Held that - The amount received as repayment of excess profits tax must be deemed to be income for the purposes of the Indian Income-tax Act and for assessment it must be treated as income of the previous year. The answer to question given by the Calcutta High Court was thus correct. Appeal dismissed.

Summary

Issues Involved:

1. Whether the sum of Rs. 2,31,009 received as repayment of excess profits tax in England was income of the assessee during the assessment year 1947-1948 and liable to be assessed under the Indian Income-tax Act.
2. Whether this amount could be taken into consideration for determining the residence of the assessee under section 4A(c)(b) of the Indian Income-tax Act.

Issue-wise Detailed Analysis:

1. Whether the sum of Rs. 2,31,009 received as repayment of excess profits tax in England was income of the assessee during the assessment year 1947-1948 and liable to be assessed under the Indian Income-tax Act:

The company, incorporated in the United Kingdom, did business in India and was required to pay excess profits tax in both countries. For the assessment year 1947-1948, the company received a repayment of Rs. 2,31,009 from the excess profits tax paid in England. The Income-tax Officer included this sum in the taxable profits of the company under section 11(14) of the Indian Finance Act, 1946. The company's appeals to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were dismissed, leading to a reference to the High Court at Calcutta, which answered the first question in the affirmative.

The company's contention was that section 11(14) of the Finance Act could not be applied to the assessment year 1947-1948, as it was not incorporated into the Indian Income-tax Act or repeated in subsequent Finance Acts. However, this argument was not seriously pressed. The High Court construed section 11(14) as creating a liability proprio vigore, as if it was a charging section. The repayment was deemed to be income for the purposes of the Indian Income-tax Act and treated as income of the previous year during which the repayment was made.

The court compared this with the English rule under Cases I and II of Schedule D of the Income Tax Act, 1918, which also treated repayments of excess profits duty as profits of the year in which the repayment was received. The English courts had interpreted this rule to create a liability irrespective of general income-tax law provisions. The court cited several cases, including Eglinton Silica Brick Co., Ltd. v. Marria and A. & W. Nesbitt Ltd. v. Mitchell, to support this interpretation.

The court concluded that the intention underlying the Indian and English provisions was the same, and the language was substantially similar. The repayment of excess profits tax was to be treated as income for the purposes of the Indian Income-tax Act, and for assessment, it was to be treated as income of the previous year. The court agreed with the High Court's interpretation that the sub-section created a charge by itself, making the amount received as repayment of excess profits tax liable to tax by its own force.

2. Whether this amount could be taken into consideration for determining the residence of the assessee under section 4A(c)(b) of the Indian Income-tax Act:

The High Court at Calcutta answered the second question in the negative, and no appeal was filed on behalf of the Department regarding this question. Therefore, this issue was considered finally settled in this case.

Conclusion:

The Supreme Court upheld the High Court's decision, affirming that the sum of Rs. 2,31,009 received as repayment of excess profits tax in England was income of the assessee during the assessment year 1947-1948 and liable to be assessed under the Indian Income-tax Act. The appeal was dismissed with costs.