KESHAVALAL AND CO MADRAS Vs. COMMISSIONER OF INCOME TAX MADRAS
HIGH COURT OF MADRAS
KESHAVALAL AND CO., MADRAS
COMMISSIONER OF INCOME-TAX, MADRAS
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Satyanarayana Rao, J. -
(1.) Two interesting questions have been referred to us by the Income-tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act. They are:
1. Whether the Excess Profits Tax Officer was not justified in law in adopting the procedure laid down in the third proviso to Rule 1 of Schedule 1 of the Excess Profits Tax Act, when the chargeable accounting period and the accounting period were not coterminous.
(2.) Whether on the facts and in the circumstances of the case the writing off Rs. 16881 bad debts before 31-3-46 while the accounting period closed on 24th October 1946 was a special circumstance to be taken into account in determining the profits of the chargeable accounting period ending 31st March 1946.
2. The assessee is a firm and carries on business in yarn and money-lending. The assessment year for the purpose of incometax is 1947-48 and the accounting year is Samvat year corresponding to 4th November 1945 to 24th October 1943. For the purpose of excess profits tax he adopted the Samvat year as the year of account and the chargeable accounting period came to an end on the 31st March 1946 on which date the excess profits tax ceased to operate. During the accounting year it has been found by the Income-tax Appellate Tribunal that the assessee incurred a loss of Rs. 16681 by reason of bad debts and that they were written off in the accounts before 31st March 1948. This was found to be bona fide by the Appellate Tribunal whose finding, therefore, must be taken as final.
(3.) The question raised by the assessee was that instead of adopting the method of apportioning the profits for the chargeable accounting period ending with 31st March 1946, after ascertaining the profits for the accounting year commencing from 4-11-1945 and ending with 24-10-1946, it was possible to ascertain the profits during the chargeable accounting period by taking the accounts for this period and if so taken the loss of Rs. 16000 and odd would be set off against the profit which accrued due during this short period between 441-1945, before 31st March 1946 of this magnitude is itself a special circumstance warranting the Excess Profits Tax Officer to alter not only the method of apportionment but even the mode of ascertaining the profits for the chargeable accounting period. This contention was rejected by the revenue authorities and by the Appellate Tribunal. The Appellate Tribunal rejected it on the ground that the loss incurred in the ordinary course of the business would not be taken as a special circumstance justifying the application of the proviso to Rule 1 of Schedule 1 of the Excess Profits Tax Act.;
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