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TMI Blog1987 (3) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed adjustments. If the income-tax assessment discloses nil profits, no separate profit can be determined independently under the 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. Appeal allowed. - - - - - Dated:- 13-3-1987 - Judge(s) : S. NATARAJAN., SABYASACHI MUKHERJEE JUDGMENT The judgment of the court was delivered by SABYASACHI MUKHARJI J.-This appeal is directed against the judgment and order of the High Court of Allahabad dated February 21, 1971. It relates to the assessment under the Excess Profits Tax Act, 1940 (hereinafter called " the Act "). The assessee was an unregistered firm carrying on the business of manufacture and sale of katechu. The chargeable accounting period was April 1, 1943, to March 31, 1944. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The submission of the assessee was that the business carried on during the chargeable accounting period under consideration was not separate and distinct from the business carried on in 1940-41. The Excess Profits Tax Officer held that the business carried on during October, 1940, to October, 1941, was completely different from the business carried on during the chargeable accounting period under consideration. The Appellate Assistant Commissioner on appeal found that the constitution of the firm during the chargeable accounting period was the same as in 1940-41 and the accounts were maintained in the same fashion; and that the same business of manufacturing Katechu in Nepal and selling the finished products at Kanpur was carried on. The Appellate Assistant Commissioner, therefore, held that the assessee was entitled to set off in respect of the deficiency of profits accruing in the year 1940-41. The Appellate Assistant Commissioner further found that the assessee had effected sales only during May 30, 1941, to September 29, 1941. As such, there were no sales either during or until May 30, 1941, and subsequent to September 29, 1941. As such, he held that there was no profit ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half of the Revenue that, as provided in the Act, the provisions of the Act would apply to every business of which any part of profits made during the chargeable accounting period, is chargeable to income-tax. It was further urged that no part of profits, if any, which accrued during the said two chargeable accounting periods could be charged and were in fact so charged, to income-tax, as no sales were effected and, therefore, the Act itself did not apply to the said two chargeable accounting periods. The Tribunal accepted this contention on behalf of the Revenue and as such confirmed the order of the Appellate Assistant Commissioner. On the said facts, the following question of law was referred to the High Court at the instance of the assessee: " Whether, on the facts and in the circumstances of the case, the assessee was entitled to a set off of deficiency of profits relating to the periods, October 28, 1940, to March 31, 1941, and November 23, 1942, to March 31, 1943, from the profits of the chargeable accounting period April 1, 1943, to March 31, 1944, in accordance with the provisions of the E. P. T. Act, 1940 ? " The High Court held that it was not disputed before them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 31, 1941, and then to compute the deficiency of profits for the chargeable accounting period ending March 31, 1941. That might require, according to the High Court, fresh determination of the profits earned during the period April 1, 1941, to September 29, 1941, and, consequently, of the deficiency of profits during the chargeable accounting period ending March 31, 1942. The High Court was of the view that the deficiency of profits for the chargeable accounting periods ending March 31, 1941, and March 31, 1942, would have to be set off when computing the excess profits for the relevant chargeable accounting period ending March 31, 1944. The High Court expressed the view that under section 2(5) of the Act, the job of the assessee in the extraction and sale of katechu under the two jungle leases must be considered as a single business for the purpose of the Act. The High Court, therefore, came to the conclusion that upon the principle of apportionment of profits to which it had adverted, the profits earned upon sales effected during the chargeable accounting period ending March 31, 1944, must similarly be apportioned between the manufacturing activity during the chargeable accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies and persons engaged in business of abnormally large profits. The object of the Bill (which later became the Act) was to secure for the Government a considerable portion of the additional business profits which accrued as a result of the conditions prevailing during the war. To begin with, the right to impose a tax of 50% on the excess profit made in any accounting period after April 1, 1939, was given. It had subsequently been increased to 66-2/3%. Section 2(1) of the Act defines " accounting period ". Section 2(6) defines " chargeable accounting period " as (a) any accounting period falling wholly within the term beginning on the 1st day of September, 1939, and ending on the 31st day of March, 1941, and (b) where any accounting period falls partly within and partly without the said term, such part of that accounting period as falls within the said term. The " standard profits " is defined under section 2(20) which was required to be computed in accordance with the provisions of section 6 of the Act. It is not necessary in view of the controversy before us to refer to other definitions except that section 2(3) deals with " average amount of capital " which is relevant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n occurrence of deficiency of Profits and provides in substance that where a deficiency of profits occurs in any chargeable accounting period in any business, the profits of the business chargeable with excess profits tax shall be deemed to be reduced and relief shall be granted according to the provisions laid down therein. The main question in this case is to keep the distinction between " accounting period " and " chargeable accounting period ". The accounting period, it has to be borne in mind, is the twelve months, proceeding just on the basis of the income-tax year and the assessment must be made on the same basis. The " chargeable accounting period " is the period beginning from September 1, 1939, ending after amendment on March 31, 1946. So if there is any deficiency of profits in any of the accounting periods which has not been absorbed in the assessment for that year, it may be carried forward but the assessment must be made on the basis of the accounting period. This has to be emphasised and it must be borne in mind that though it is wholly immaterial whether the manufacture and sale took place in the same year or in two different years, the division of time into perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Excess Profits Tax Act on the same basis as are profits for an income-tax assessment. It is clear that excess profits tax is attracted in respect of a business to which the Act applies when the profits during the chargeable accounting period exceed the standard profit. It has to be clearly borne in mind that the Act is not an entirely different Act in the sense that it proceeds upon a concept completely different from the notions of income-tax or has its source in an entirely different tax concept. More profits which were likely to have been earned during those years, were made subject to excess profits tax. It appears to us that the period of assessment in the Act is an " accounting period " in the same way as the " previous year " is the period of assessment for the purpose of income-tax. Though profit in composite transaction could be apportioned as between manufacture and sale in the same accounting year, such an apportionment is not permissible when one part of the transaction, i.e., manufacture, falls in one chargeable accounting period and another part of the transaction, i.e., the trading operations, falls in another accounting period. Then, set off of deficiency in pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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