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TMI Blog1959 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... the company by the Income-tax Officer. He purported to act under section 11(14) of the Indian Finance Act, 1946 (hereinafter called the Act). The income of the company in India was held to be Rs. 6,34,937 (including the sum of Rs. 2,31,009) while the income outside the taxable territory was held to be Rs. 4,29,620. Applying section 4A(c)(b) of the Indian Income-tax Act, the Income-tax Officer assessed the company on its total world income. The appeals of the company made successively to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were dismissed. The Tribunal, however, referred the following questions of law to the High Court at Calcutta under section 66 of the Indian Income-tax Act : " (1) Whether on the above facts and circumstances of this case the Tribunal was right in holding that the sum of Rs. 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 ? and (2) If so, whether this amount could not be taken into consideration for determining the residence of the assessee under section 4A(c)(b) of the Indian Income-tax Act ? " This reference was heard by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1942 (5 & 6, Geo. VI, c. 21), in respect of those profits, shall be deemed to be income for the purposes of the Indian Income-tax Act, 1922, and shall, for the purpose of assessment to income-tax and super-tax, be treated as income of the previous year during which the repayment is made. " This section may be compared with rule 4(1) of the Rules which are applicable to Cases I and II of Schedule D of the Income Tax Act, 1918 (8 & 9, Geo. V, c. 40) : " Where any person has paid excess profits duty, the amount so paid shall be allowed as a deduction in computing the profits or gains of the year which included the end of the accounting period in respect of which the excess profits duty has been paid ; but where any person has received repayment of any amount previously paid by him by way of excess profits duty, the amount repaid shall be treated as profit for the year in which the repayment is received. " The English rule above quoted deals first with the deduction of the amount paid as excess profits duty from the profits or gains of the year which includes the end of the accounting period in respect of which the excess profits duty has been paid,--a matter dealt with in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Revenue takes a share of those profits in the name of excess profits duty, it is only fair that the profits actually assessed to income-tax should suffer some corresponding deduction........ " The problem which arose in the case of repayment of excess profits duty was different. Nobody knew or could know how soon, or how late, repayment might fall to be made ; nor whether the business whose profits were assessed to excess profits duty would be in the same hands when repayment (if any) came to be made. By that time the business might have ceased to be in existence. Repayment might therefore have to be made to a person who was not carrying on the original business. The original trader might have given up business, died, and an executor might have come in his place. The solution provided for all these cases is that contained in the second part of the paragraph, according to which the amount repaid to any person is to be 'treated as profit for the year in which the repayment is received.' It is obvious that the amount of the former trading profits so repaid could not actually be trading profits for such year. None the less, the amount repaid is to be treated as if it were that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... still the repayment of a sum--too much, it is true,--but a sum taken out of the profits which were made by the company in the course of its trading, profits which at the time they were made were subject to income-tax and subject to excess profits duty, and that is the character of the repayment that has been made. " Dealing with the rule, the Master of the Rolls observed : " I have pointed out, this is a case where the company has received payment of an amount previously paid by way of excess profits duty and having that characteristic attaching to it ; and we are told by the statute that when such a sum is repaid it is to be treated as a profit for the year in which the repayment is received. It is said it may be treated as a profit, but it ought not to be treated as an assessable profit. The answer, to my mind, is that it is paid back not by way of a sum which has no origin or ancestry ; it is a sum which represents a repayment of the amount previously paid by that company in the form of excess profits duty upon their trading. if it is to have that character and is to be treated as such a profit, although it be a repayment of sums paid in respect of profits, it is to be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gthen the reasoning in its application to the words of the Indian statute. We agree with this statement. It is to be noticed that the sub-section creates two fictions. By the first fiction it makes the amount of any repayment " income " for the purposes of the Indian Income-tax Act, and goes on to say that that "income" shall be "treated" for purposes of assessment to income-tax and super-tax, as the income of the previous year. Mr. Mitra for the company contends that no doubt the amount may be treated as "income" for the purposes of the Indian Income-tax Act, but the Department is still under a duty to prove that the company is liable to tax at all. According to him, this will have to be treated as income received outside the taxable territory, because if the fiction contemplated its being treated as "within the taxable territory", it would have said so specifically. In our opinion, this submission cannot be accepted. That this would have been taxable income but for the provisions of section 12(2) of the Excess Profits Tax Act, goes without saying. The income character of the receipt is restored by the fiction, and it is to be brought under assessment without any further proof ..... X X X X Extracts X X X X X X X X Extracts X X X X
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