9911796707
TMI Blog1987 (3) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... business transaction was maintained in the books of M/s Biharilal Balkishan in the account styled " Kalyanmal Phoolchand ". The assessee-firm had taken a jungle on lease for this purpose and had extracted katechu from October, 1940, to September, 1941. The sales of katechu extracted were effected from May 30, 1941, to September 29, 1941. Thereafter another jungle was taken on lease in November, 1942, and katechu was extracted from November 23, 1942, to November 6, 1944. The sales in this case were effected between July 26, 1943, and April 4, 1944. The High Court divided the entire period of manufacture and sale as follows : 1. October 28, 1940, to March 31, 1941, falling in the financial year ending March 31, 1941 : Katechu was manufactured but there was no sale. 2. April 1, 1941, to September 29, 1941, falling in the financial year ending March 31, 1942: Sales took place from May 30, 1941, to September 29, 1941. 3. November 23, 1942, to March 31, 1943, falling in the financial year ending March 31, 1943: Katechu was manufactured but there was no sale. 4. April 1, 1943, to March 31, 1944, falling in the financial year ending March 31, 1944 : Sales took place from July 26, 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the period April 1, 1941, to September 29, 1941. He allowed such deficiency of Rs. 5,600 only. So far as the deficiency pertaining to the period November, 1942, to March 31, 1943, was concerned, the facts were that the manufacturing operations started in Nepal on or about November 23, 1942, and the sales of katechu started at Kanpur on July 26, 1943. Katechu produced in Nepal from November 23, 1942, to March 31, 1943, remained in stock till the last date of the chargeable accounting period, namely, March 31, 1943, and no part of it was sold. As the assessee did not maintain any books of account, the provisions of section 13 of the Indian Income-tax Act, 1922, as applied to the Act, vide section 21 of the Act, were applicable. The Revenue, therefore, valued the stock-in-trade at cost and held that there could be no profit or loss during the chargeable accounting period. In appeal, the assessee had urged that deficiency in profits pertaining to the chargeable accounting periods from October, 1940, to March 31, 1941, and November 23, 1942, to March 31, 1943, should be allowed a set off in computing the excess profits for the year under consideration. It was submitted that there were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in our opinion rightly, that there were several stages in business activities before profits could be realised. The High Court observed that profits realised were not of the sale alone. The profits were attributable to the manufacturing operations as well. The High Court referred to certain decisions, to which our attention was also drawn, where, under the Act, as to the place where the profits arose, the courts had enquired into the place where the manufacturing took place and where the sales took place. This contention is no longer relevant to the controversy before us. It was accepted before us that a manufacturing process may begin in one year and result in sale in another year and also that a manufacturing process may take at one place and sale at another place. For the purpose of computing the profit of a certain operation, it is true, as the High Court noted, that manufacture and sale might take place in two different years. The High Court held that though the chargeable levy was an annual charge and generally for the purpose of the levy of the annual charge, the profits of the year preceding the year of charge are taken into consideration, if the manufacturing activity l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ending March 31, 1941, and March 31, 1943, were occupied with manufacturing activity alone and there was no sales, therefore, no part of the profits realised upon the sales could be apportioned to those chargeable accounting periods and consequently that it could not be said that there was any deficiency of profits during those periods. The question referred to the High Court was answered in the affirmative. In order to appreciate the real controversy in this matter, it is appropriate to refer to the observations of Kania J., as the Chief justice then was, in the decision in the case of CIT v. Raipur Manufacturing Co. Ltd. [1946] 14 ITR 725, 733 (Bom). It was observed as follows: " The Excess Profits Tax Act as shown by the preamble itself is legislation to impose tax on excess profits arising out of certain businesses. The Income-tax Act is the principal legislation which imposes a tax on the income of a person. Section 6 divides the income under five heads which are chargeable to tax. The fourth head is profits and gains of business, profession or vocation. Out of that a certain portion is carved out by the Legislature for the purpose of imposing the excess profits tax. am un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de in any chargeable accounting period, the amount of the loss added to the amount of the standard profits. Section 4 defines "charge of tax" as follows: "4. Charge of tax.-(1) 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 ending on or before the 31st day of March, 1941, be equal to fifty per cent. of that excess and shall, in respect of any chargeable accounting period beginning after that date, be equal to such percentage of that excess as may be fixed by the annual Finance Act: Provided that any profits which are, under the provisions of subsection (3) of section 4 of the Indian Income-tax Act, 1922, exempt from income-tax, and all profits from any business of life insurance shall be totally exempt from excess profits tax under this Act : Provided further that in the case of any business which includes the mining of any mineral, any bonus paid by or through the Central Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the period from September 1, 1939, to March 31, 1946. But each year's excess profit and loss must be computed in the manner contemplated in section 2(1) of the Act. So if there was any deficiency of profits in any particular period, it must be determined on that basis. In order to work out the scheme of the Act, there must be proper dovetailing of the concept of "accounting period", "chargeable accounting period " and the basic scheme of the Income-tax Act, bearing in mind that excess profits are excess of profits which were intended to be mopped up during the war period and intended to be taxed separately and differently; This view finds support in the decision of the Allahabad High Court. In the case of Haji Rahmat Ullah and Co. v. CIT [1966] 59 ITR 109, the High Court of Allahabad held that a payment received in any year subsequent to a chargeable accounting period is not liable to be treated as the profits of that period, merely because the work which occasioned that payment was done during that period. The " profits during the chargeable accounting period " are those profits respecting which a right to receive had accrued or arisen during that period. If the right to receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined independently under the Act. The position of the Excess Profits Tax Act was explained by Lord President Clyde in Edward Collins & Sons Ltd. v. Commissioners of Inland Revenue [1924] 12 TC 773, 780. The Lord President emphasised that subject to certain modifications, those profits had to be determined in the same way and on the same principle as a trader's profits and gains have to be computed for the purposes of the Income-tax Act. It is a general principle, in the computation of the annual profits of a trade or business under the Income-tax Acts, that those elements of profit or gain, and those only, enter into the computation which are earned or ascertained in the year to which the enquiry refers ; and in like manner, only those elements of loss or expense enter into the computation which are suffered or incurred during that year. The same principle, in our opinion, would be applicable to the facts of this case. The decision of this court in CIT v. Ahmedbhai Umarbhai & Co. [1950] 18 ITR 472, related entirely to a different context where certain part of the activities occurred at Raichur and the sales took place in Bombay, and the question was whether the activity which ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
