COMMISSIONER OF INCOME TAX Vs. DONALD MIRANDA

JUDGEMENT

(1.) THE question that we have to consider in this Reference lies in a very narrow compass. It is not a question which is easy to decide. The assessment year of the assessee is 1945 -46 and the, year of account is the year ending 31 -3 -1945. During this year, the firm of three partners, James Miranda, Donald Miranda and Mrs. N. Q. Miranda, were carrying on business as wine merchants. Their income for the year was assessed to tax and they were also charged excess profits tax upon their profits of the business for the chargeable accounting period ending on 1 -4 -1944. The firm was succeeded on 25 -3 -1945 by a limited liability company, S.S. Miranda Ltd. for the assessment year 1945 -46, the firm churned the benefit of Section 25(4) contending that no tax was payable on its profits of the said business for the period from 1 -4 -1944 to 24 -3 -1945. The claim of the assessee was considered by the Department and benefit was given to the assessee of Section 35(4). The firm had paid excess profits tax in respect of the chargeable accounting period 1 -4 -1944 to 24 -3 -1945 and had also made a deposit under the provisions of Section 10 of the Indian Finance Act, 1942 read with Section 2 of the Excess Profits Tax Ordinance, 1943 and had thus become entitled to repayment of a portion of the excess profits tax paid by them. The Department brought the amount, which was repayable to the firm, to tax under the provisions of Section 11(11) of the Indian Finance Act of 1946. The contention of the assessee was that the repayment of this amount was profits of his business within the meaning of Section 10 of the Income -tax Act and they were not liable to pay any tax in respect of this amount by reason of Section 25(4) of the Act. The Tribunal by a majority decided the matter in favour of the assessee and the Commissioner of Income -tax has now come on this reference. The majority of the members of the Tribunal, in coming to the decision that they did, largely relied on certain English decisions. This is an appropriate case where the note of warning which has so often been sounded in the past by the Privy Council applies that when you are considering the taxing statutes of a country, you must go to the statutes themselves and not construe sections of those statutes in the light of decisions given in other countries of their own taxing statutes, and, therefore, what we propose to do, before we turn to the English decisions, is to look to the scheme of our own Act and the provisions of the law in order to determine whether the contentions of the Commissioner or the assessee should prevail.

(2.) NOW , in the first place, let us turn to the provisions of the Excess Profits Tax Act and it is necessary to emphasize the scheme underlying that Act. Unlike the Income -tax Act, each assessment year under the Excess Profits Tax Act is not a self -contained unit of time. The tax under the Excess Profits Tax Act is paid on excess profits made over the standard profits. In one year the profits may exceed the standard profits; in another year there may be a deficiency and what the Act provides is that you must take the whole period covered by the Act and make an adjustment from time to time with regard to the payment of the tax. If in one year the assessee has paid excess profits tax because the profits of his business exceeded the standard profits and in the next year his profits fall below the standard profits, then he would be entitled to an adjustment or 'a refund and this process is to continue during the duration of the Act. Therefore, the underlying idea of the Act is that during the period when the Act was to be in force taken as a whole, if the assessee makes profits in excess of the standard profits computed in the manner laid down in the Act, he was liable to pay tax and therefore, when excess profits tax was paid during one year, it was quite possible that due to the exigencies of the years to come, that tax may have to be repaid. This scheme is embodied in the provisions of Section 7 of the Act, the marginal note of which is :

(3.) NOW , as it will be noticed, Section 11(11) of the Finance Act made the repayment of the excess -profits tax, as it was promised by the Legislature by Section 10 of the Finance Act, an income for the purpose of the Indian Income -tax Act and it also constituted that income as the income of the previous year to the year in which the excess profits tax was repayable. It is under this sub -section that the assessee received the amount, which is the subject matter of this reference and the contention of the assessee is that undoubtedly the income which he has received is assessable to tax, but the income in his hands is business income and if it is business income, then under Section 25(4) he is not liable to pay tax by reason of the discontinuance which took place on 25 -3 -1945. It is not seriously disputed by the Department that if the income is business income, then Section 25(4) has application and the assessee would be entitled to the relief. Therefore, the field of controversy is narrowed down to this : Whether looking to the provisions of the Excess Profits Tax Act and the relevant Finance Acts, can the repayment made by Government to the assessee under Section 11 (11) constitute business income which attracts the application of Section 25(4) ?