Malik, C.J. - (1.) The City Board, Mussoorie, which is a Municipal Board, constituted under the U. P. Municipalities Act (NO. 2 of 1916) supplies electric energy and water outside its municipal limits at a profit. The Excess Profits Tax Officer held that on such profits derived from business carried outside its territorial limits the City Board, Mussoorie, is liable to pay excess profits tax. The City Board contested this position and mainly relied on the definition of the word 'person' in Section 2 (17), Excess Profits Tax Act. The Income Tax Appellate Tribunal held against the City Board and on an application made by the Board the following questions have been referred to us under Section 66 (1), Income-tax Act road with Section 25, Excess Profits Tax Act: "(i) Whether the applicant's income arising from the supplies of electric energy and water outside its own jurisdictional area, is chargeable to excess profits tax under the first proviso to Section 4, E. P. T. Act, 1940, read with Clause (III) of Sub-section (3) of Section 4, Income-tax Act, 1922 ? (ii) Whether the provisions of Section 2 (17), E. P. T. Act, 1940, can be construed to mean that 'person' includes a local authority ? (iii) Whether the scheme of the machinery sections of these E. P. T. Act provides no method of the recovery of excess profits tax from a local authority ?" Though the Tribunal has framed three questions the point for decision is whether the City Board, Mussoorie, is liable to excess profits tax on the profits made from supply of electric energy and water outside its jurisdictional areas.
(2.) Learned counsel for the assessee has urged that as a local authority is not included in the definition of the word 'person' in the Excess Profits Tax Act excess profits tax cannot be levied against the Municipal Board, Mussoorie. He has further relied on the provisions of Section 4, Excess Profits Tax Act and has urged that that section gives a total exemption and, therefore, the City Board cannot be made liable for payment of excess profits tax even as regards income derived from its business carried on outside its territorial jurisdiction.
(3.) Under Section 4 (3) (iii), Income-tax Act, before its amendment in 1939, the income of local authorities was totally exempt. After amendment the exemption was limited to income from trade or business carried on within its own jurisdictional area. At the same time when this amendment was made, the definition of the 'person' in Section 2 (9) was also amended so as to include a local authority. The old section read as follows : " 'Person' includes a Hindu undivided family;" After the amendment it reads : " 'Person' includes a Hindu undivided family and a local authority;" The Excess Profits Tax Act (Act 15 of 1940) was enacted in the year 1940 and in Section 2 (17) of this Act the old definition was maintained. It is as follows : " 'Person' includes a Hindu undivided family;" As regards exemptions the proviso to Section 4 is as follows : "Provided that any profits which are, under the provisions of Subsection (3) of Section 4, Income-tax Act, 1922, exempt from Incometax, and all profits from any business of life insurance shall be totally exempt from excess profits tax under this Act." It will be noticed that under this proviso exemptions are only granted from payment of excess profits tax in cases where exemption has been granted under Sub-section (3) of Section 4, Income-tax Act, 1922, except in the case of business of life insurance of which special mention is made.;