COMMISSIONER OF EXCESS PROFITS TAX Vs. MOHOLAL MAGANLAL

JUDGEMENT

(1.) THE assessee was the selling agent of the Victoria Mills, Ltd., and the Jubilee Mills, Ltd. He was also the selling agent of theGaekwar Mills, Ltd., and the Navsari Cotton and Silk Mills, Ltd. The last two mills were working in the Baroda State. The assessee then floated a private limited company in the name M.M. Shah, Ltd., in the Baroda State on 12 -9 -1941. Out of 1000 shares in this private limited company he held 800 shares and his wife held the remaining 200 shares. On 19 -9 -1941, the assessee resigned his office of selling agent of the two mills situated in Baroda State, and this resignation was to take effect from 1 -10 -1941, and on that very day these two mills appointed M.M. Shah, Ltd., to be the selling agents of the mills. The Excess Profits Tax Officer while making the excess profits assessment for the chargeable accounting periods calendar years 1942, 1943, 1944, 1945 and 1 -1 -1946, to 31 -3 -1946, added to the assessee's profits the profits derived from the selling agency business the Baroda State Mills. The finding of the Department and of the Tribunal was that the assesee transferred the selling agencies to M.M. Shah, Ltd with the main purpose of avoiding or reducing the liability of his business to pay in British India excess profits tax. But the Tribunal can to the conclusion that, in view of the decision of this Court in - 'Punjabhai Dipchand v. Commr. of Excess Profits Tax, Bombay Mofussil, AIR 1949 Bombay 415 the assessee was not liable to pay tax in respect of the profits made by his business in Baroda State, and the question that is no referred to us at the instance of the Commisioner is

(2.) TURNING to the Excess Profits Tax Act, it is well settled that the unit which is taxed under the Act is a business, and the charging section is Section 4 which speaks of charge of excess profits tax t any business to which the Act applies, and in order to find out to which business the Act applies, we have got to turn to Section 5 and the third proviso to Section 5. Exemption from the operation of the Act is given to a business the whole of the profits of which accrue or arise in a Part B State. Therefore, it cannot be disputed - and it is not disputed - that looking to Sections 4 and 5 only the business of the assessee in Baroda State was exempted from tax under the Excess Profits Tax Act, or, in other words, the business was not a business to which the Act applies. What is contended by Sir Nusserwanji on behalf of the Commissioner is that Section 10A overrides the third proviso to Section 5, and it is urged that if an assessee transfers his business in taxable territories to a Part B State with the object and the intention of avoiding or reducing his liability to excess profits tax, then it is open to the Excess Profits Tax Officer to ignore that transaction and to consider the profits made by the business in a Part B State as if they were the profits in the taxable territories.

(3.) NOW , turning to our decision on which reliance was placed by the Tribunal, Sir Nusserwanji has attempted to distinguish that case from the facts we have to consider in the present reference. Sir Nusserwanji is perhaps right that there were one or two distinguishing features in that case. There, there was a firm carrying on business in Ahmedabad in piecegoods and that firm had two partnerS.Then a new firm was started at Jorawarnagar in the Wadhwan State, which was an Indian State, and that firm had three partners, and therefore in that sense the firm was a new firm which was started in an Indian State and that new firm was never liable to pay excess profits tax in the taxable territories. What Sir Nusserwanji says is that in the present case the assessee was liable to pay excess profits tax in respect of his selling agency business for the two Baroda Mills; in fact he has paid excess profits tax and it is by means of the device adopted by him in starting a limited company in the Baroda State and getting the selling agency business transferred to that State that he has avoided payment of excess profits tax. Therefore, Sir Nusserwanji says that we are not bound by the decision of this Court in 'Punjabhai's case'. Although the facts are different and distinguishable when we turn to that decision, the 'ratio decidendi' is clear and that 'ratio dscidendi' applies equally strongly to the facts of the present case.