- (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 claimed the benefit of S. 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 S. 25 (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 S. 10 of the Indian Finance Act, 1942 read with S. 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 S. 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 S. 10 of the Income-tax Act, and they were not liable to pay any tax in respect of this amount by reason of S. 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 Sec. 7 of the Act, the marginal note of which is : "relief on occurrence of deficiency of profits. " The other section to which we must look, which has considerable bearing on the question that we have to decide, is Sec. 12, which treats the payment of excess profits tax as a deductible expense for assessment of income from the business to income-tax and super-tax, and it looks upon the excess profits tax paid as an expense incurred by the business during that period. We have then a proviso to this Section, which deals with the relief which an assessee may obtain under Sec. 7 of the Act. As we have already pointed out, it may happen that after having paid excess profits tax for one chargeable accounting period, by reason of deficiency in profits in the next period, the assessee may become entitled to a refund and provision had to be made with regard to this, refund. The assessee having treated the amount to which he became entitled as excess profits tax and having paid it and having received a deduction for it under section 12 the amount escaped tax. It was a permissible deduction and the amount was not brought to tax. But when the Legislature provided for the return of a part of that amount by reason of assessee becoming entitled to relief under Sec. 7 of the Act, it was but proper that that amount should be brought to tax and the scheme for bringing it to tax was incorporated in the proviso to Sec. 12, and what the proviso lays down is that the amount repayable shall be taken into account in computing the profits and gains of the business for the purposes of income-tax as if it were a profit of the business accruing in the previous year as determined for that business for the purpose of the Indian Income-tax Act, 1922 in which the deficiency of profits occurs. Therefore, the Legislature expressly directed that this amount should be treated as a business income and it also indicated the year in which this particular income should he assessed and the year was the year in which the deficiency of profits occurred.
(3.) THE Indian, Finance Act of 1942 introduced a new scheme and we agree with Mr. Joshi- and Mr. Palkhiwalla does not contest that position- that the scheme was introduced for certain speci fie reasons in the larger interest of the public. Owing to war conditions and large profits made during that period, the Legislature felt that as far as possible the profits should be immobilised. It was also felt that some control should be exercised on the spending of these profits so that these profits could be used at a later date for rehabilitation of industry, and finally the Legislature was anxious that the spending power of the people should not increase because that might lead to inflation, and from this point of view, what the Legislature provided by section 10 of the Indian Finance Act was a provision for a voluntary deposit which was not to exceed l/5th of the amount of the excess profits tax, and the Government agreed at such date and subject to such conditions as it may hereafter determine, to repay so much of the excess profits tax as shall be equal to one-tenth of the amount thereof or to one-half such further sum deposited, whichever is the less; and it also agreed to pay interest at the rate of 2 per cent. per annum on the deposit. There was no obligation at this stage to make the deposit which was optional with the assessee. If he made the deposit, he would obtain the concession which was provided under section 10, and the concession was two-fold, the assessee was to get interest on his deposit and what is more, he was to-get a refund of part of the excess profits tax which he had already paid. The Act did not provide when the refund was to be made and in what conditions. That was left to be determined by future legislation and that future legislation was enacted by the. Finance Act of 1946 and Sec. 11 (11) provided : "any sum being excess profits tax repaid in respect of any chargeable accounting period under the provisions of section 10 of the Indian Finance Act, 1942, or of section 2 of the Excess Profits Tax Ordinance, 1943, (XVI of 1943), shall be deemed to be income for the purposes of the Indian Income-tax Act, 1922, and shall, notwithstanding the provisions of Section 34 of that Act, be treated as income of the previous year which constitutes or includes the chargeable accounting period in respect of which the said sum is repayable. " It may be mentioned, before we go on to consider this sub-section that after the Finance Act of 1942, the Excess Profits Tax Ordinance of 1943 was enacted, which made the deposit under Sec. 10 of the Finance Act, which had so far been optional, compulsory. Therefore, after the enactment of the Ordinance, there was an obligation upon the assessee to make a deposit with the Government. The concessions that he was to obtain were identical. The only change that was made was that instead of the making of the deposit being at the option of the assessee, the option was taken away and there was a statutory obligation upon him to make the deposit contemplated by section 10 of the Finance Act.;