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TMI Blog1965 (4) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... e rates at which supplies were to be effected, and in the contracts entered into by the assessee with Messrs. Abdul Salam Brothers and by the latter with the sub-lessees it was expressly stipulated that supplies would be made at those specified rates. Inasmuch as the assessee was entitled to a commission at ₹ 600 per mensem only, the Income-tax Officer assessed its profits under the contract for the assessment year 1944-45 at ₹ 7,200. It seems that subsequently it was discovered that the contractual rates of supply were less than the cost of the supplies. The assessee made repeated representations to the military authorities for enhancing the rates. The first representation which was made on February 16, 1945, some months after the close of the chargeable accounting period during which the supplies had been effected was turned down by the military authorities on February 23, 1945, in the view that the fluctuation in the market rates since the submission of the tender by the assessee had been negligible in the case of chicken and there had been no increase in the price of eggs. Another representation made thereafter was rejected on May 31, 1945. The military auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion, and holding that these amounts could not be considered in that chargeable accounting period, he set aside the assessment. The Excess Profits Tax Officer appealed against the order of the Appellate Assistant Commissioner in the excess profits tax case. The Income-tax Appellate Tribunal allowed the appeal, holding that the amounts received by the assessee arose directly out of the performance of the contract during the chargeable accounting period ending March 31, 1944, and was, therefore, a trading receipt, and further that as the entire contract was executed during that chargeable accounting period and the payments received arose directly out of that contract, they fell to be taxed as the profits of that chargeable accounting period. The assessee then obtained a reference of the following question for the opinion of this court: Whether the sum of ₹ 62,009 received by the assessee in 1946 could be assessed to excess profits tax for the chargeable accounting period ending on March 31, 1944? The statement of the case refers to the sum of ₹ 62,009 as resulting from the enhancement of the rates, once in July, 1946, and then in May, 1947. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as referable to a term of the contract. In order to prove that the rates were enhanced by virtue of this clause, the department would have shown before the Appellate Tribunal that the revision was effected because the market rates fluctuated above 10% of the rates specified in the schedule. The clause could be invoked only if there was an increase of that order in the rates. Whether or not there was such increase is a matter pertaining to the realm of fact, and in the absence of any consideration devoted to it by the Appellate Tribunal we cannot proceed on the basis that the rates were enhanced pursuant to that clause. In the circumstances, upon the bare facts found by the Appellate Tribunal in appeal and contained in the statement of the case before us, it is not possible to hold that the payments in question were not ex gratia but arose consequent to a revision of the rates made obligatory under the contract. Can it be said that the payments were made because of any right in the assessee under the contract? The contract obliged the assessee to ensure the supply of goods and entitled it to receive payment at the scheduled rates. The contract in itself did not entitle the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is court in Kalicharan's case [1961] 41 I.T.R. 40 found itself unable to accept those decisions as laying down the law for this country and the Supreme Court entirely concurred with that view in Gajapathy Naidu's case*. It is contended for the department that Kalicharan's case and Gajapathy Naidu's case were decided on the provisions of the Income-tax Act, and that the instant case, which concerns itself with the Excess Profits Tax Act, falls to be decided on the view taken by the courts in England. We find it difficult to accept that contention. Section 4 of the Excess Profits Tax Act declares: Subject to the provisions of this Act, there shall, in respect of any business to which this Act applies, be charged, levied and paid on the amount by which the profits during any chargeable accounting period exceed the standard profits a tax (in this Act referred to as 'excess profits tax') which shall, in respect of any chargeable accounting period...be equal to fifty per cent. of that excess... Therefore, excess profits tax is attracted in respect of a business to which the Act applies when the profits during any chargeable accounting pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or vocation. Out of that a certain portion is carved out by the legislature for the purpose of imposing the excess profits tax. I am unable to accept the contention of the Commissioner that the Excess Profits Tax Act is an entirely independent legislation, which is connected with the Income- tax Act only to the extent it is expressly so stated in the Excess Profits Tax Act. The scheme of the two Acts clearly shows that the Excess Profits Tax Act is a legislation intended to tax the profits of certain businesses in excess of a certain limit as provided in that Act. It is therefore complementary to the Income-tax Act by its very nature. In this context, it would seem ex facie that if the profits earned during a certain period are taxable under the Income-tax Act, it is part of those very profits (the excess profits ) which is liable to excess profits tax. Whether the profits in the one case can be identified with the profits in the other can be determined by reference to the period in which they accrue or arise. It is apparently for this reason that throughout the Excess Profits Tax Act one finds provisions at various places which point to a correlation between that Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of certain principles, the same principles should, subject to such adjustments as the Excess Profits Tax Act requires, underlie the computation of the profits in respect of the other period. Inasmuch as the second proviso to rule 1 states that the profits during the standard period which have already been determined for the purpose of an income-tax assessment shall be the profits during that period for the purpose of excess profits tax, that is clear indication that the profits of the chargeable accounting period must also be determined on the basis on which they are determined under the Income-tax Act. Reference may also be made to rule 2 of the schedule which declares that the profits of a business during the standard period shall be computed on the same basis and in the same manner as the profits of that business are under the Income-tax Act, as amended by the Income-tax (Amendment) Act, 1939, computed for the chargeable accounting period, notwithstanding that the Income-tax (Amendment) Act, 1939, may not have been in force in the standard period. This provision also demonstrates that the computation of profits in a standard period and the profits of the chargeable accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made applicable to excess profits tax assessments. In E.D. Sassoon and Co. Ltd. v. Commissioner of Income-tax [1954] 26 I.T.R. 27; [1955] 1 S.C.R. 313 the Supreme Court had before it appeals arising under the Income-tax Act and under the Excess Profits Tax Act, and upon all those appeals one common question of law was considered by it and that question was decided on the basis that the profits must be related to the period in which the right to receive them accrued or arose. While taking this view, the Supreme Court did not draw any distinction between an income-tax assessment and an excess profits tax assessment. From a comprehensive appreciation of all these considerations, it appears to us that the profits during the chargeable accounting period are those profits respecting which a right to receive has accrued or arisen during that period. If the right to receive those profits has accrued or arisen subsequently then even though they have accrued or arisen by reason of work done during the chargeable accounting period, they are not liable, because of that circumstance, to be treated as the profits of that chargeable accounting period. The revenue has relied upon Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or gains under section 10(1) of the Income-tax Act. We were also referred to Turner Morrision and Co. Ltd. v. Commissioner of Income-tax, where the Supreme Court held that when goods were sold by the assessee as the agent of a foreign company, the gross sale proceeds received by it in India contained the income, profits and gains lying dormant or hidden or otherwise embedded in those sale proceeds. We have carefully considered these several cases, and are unable to see how they are relevant to the question before us. In none of the cases was the court called upon to decide whether a payment received subsequent to a chargeable accounting period was liable to be treated as the profits of that period merely because the work, which occasioned the payment, was done during that period. We are of the view that the sum of ₹ 62,009 received by the assessee did not constitute profits liable to be considered in its hands in the chargeable accounting period ending March 31, 1944, for the purpose of determining the excess profits tax for that period. The question referred to this court is answered in the negative. A copy of this judgment, under the seal of the court and the si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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