COMMISSIONER OF EXCESS PROFITS TAX BOMBAY CITY Vs. BHOGILAL H PATEL

JUDGEMENT

(1.) The assessee suffered a loss of RS. 59,129 in a business of buying and selling cotton at Wadhwan. In the same year, he made a profit of us. 15,992 in a cotton business which he carried on in Bombay. The loss suffered by the assesses was allowed to be set off against his profits in Bombay for the purposes of income-tax. And the question that arises in this reference is whether the assessee is entitled to the same relief for the purposes of the excess profits tax for the chargeable accounting period 1943. The Tribunal took the view that he was entitled to that relief, and in coming to that conclusion the Tribunal relied on a decision of this Court in Commissioner, I.-T. v. Murlidhar Mathurawalla, 50 BOm. L. B. 366. In that case, the facts were that the assessee was carrying on two distinct and separate businesses, one in Bombay and the other at Indore. During the year of account, there was a profit in Bombay and a loss at Indore, and the income-tax authorities held that the assessee could not set off the loss at Indore against the profit in Bombay in view of proviso l to Section 24. We came, to the conclusion that he was so entitled to set off by reason of Section 10, Income-tax Act, because Section 10 provided that all businesses, wherever carried on, constituted one hend, and in order to determine what were the profits and gains under that head the assessee was entitled to show all bis profits and set off against those profits losses incurred by him under the same head. Now, the question is whether the principle of this decision applies to the Excess Profits Tax Act.

(2.) Now, the Excess Profits Tax Act has been often construed, and it has been pointed out more than once that this Act taxes an assessee in respect of his business; although the assessee is an individual, he is not taxed in respect of his various activities which may yield profits, but he is taxed only in respect of one specific activity, namely, carrying on of business. Therefore, the unit, as far as taxation is concerned, is the business. But even so, when the business is taxed, the person liable to pay the tax and the assessee for the purposes of the Act is the individual who carries on the business. It has also been observed that the Excess Profits Tax Act is supplementary to the Income-tax Act, the intention Commissioner of Excess Profits Tax, Bombay City vs. Bhogilal H. Patel (30.08.1951 ... Page 3 of 6 y City vs. Bhogilal H. Patel (30.08.1951 ... Page 3 of 6 of the Legislature being to tax further the profits which are also liable to tax under the provisions of the Indian Income-tax Act. Now, Section 5, Excess Profits Tax Act, provides that the Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income-tax by Tirtue of the provisions of Sub-clause (i) or Sub-clause (ii) of Clause (b) of Sub-section (1) of Section 4, Income-tax Act, 1922, or of Clause (c) of that sub-seetion. Therefore, as the section itself stands, every business of which the profits accrued or arose outside British India would also come within the ambit of the Act. Therefore, the business carried on by the saessee at Wadhwan, which was outside British India, would come within the scope of this Act. But there is an important proviso which has got to be considered in this connection, and that is proviso 3 to the section. And that proviso lays down aa follows:

(3.) Now, in my opinion, the expression "the whole of the profits of which accrue or arise in an Indian State," aa I said before, is a descriptive expression describing the nature of the business which is sought to be taken out of the purview of the Act. This description does not so much emphasize the fact that in a particular year profits did accrue or arise in an Indian State. But what it emphasizes is that the business should be such that, lit that business were to make profits those profits I would accrue or arise in an Indian State. There is no attempt at drawing, a contrast between profits and losses. The attention of the Legislature was rather foeussed upon the nature and type and the character of the business which it wanted to ex-clude from the operation of the Excess Profits Tax Act. There is another consideration which should also weigh with us in giving this interpretation to the third proviso to Section 5. It is clear that the Commissioner of Excess Profits Tax, Bombay City vs. Bhogilal H. Patel (30.08.1951 ... Page 5 of 6 y City vs. Bhogilal H. Patel (30.08.1951 ... Page 5 of 6 whole object of the Excess Profits Tax Act was to take a standard period and to ascertain the profits of that standard period, to compare those profits with the profits made by the assesses during the chargeable accounting period, and if, after such a comparison, it waa found as laid down under the Act that the profits during the chargeable accounting period wore in excess of the profits made during the standard period; then the excess profits were liable to tax. Now, in order to determine whether there were excess profits or not, the same standard must be applied for determining the profits during the standard period as must be applied for determining the profits during the chargeable accounting period. Like has to be compared with like: and it is only when that is done that a proper result can be arrived at by which it will be possible to determine whether there were excess profits or not. Now, if Mr. Kolah's construction were to be accepted, it would result in this extraordinary situation, that, if for the purpose of the standard period there were two businesses of tbe aasessee, one in British India and the other in an Indian State, and both the businesses made profits, then by reason of the third proviso to Section 5 the profita made in the business in the Indian State would be excluded and only the profits made in the business in British India would be taken into consideration. But when we come to the chargeable accounting period, with regard to those very two businesses, if the business in the Indian State were to make a loss and the business in British India were to make a profit, then the loss made by the business in tbe Indian State would have to be set off against the profit made in the business in British India. In other words, for the purpose of the standard period, in this particular case, only one business would be considered as falling within the ambit of the Excess Profits Tax Act, whereas for the chargeable accounting period both the businesses would be considered as falling within the ambit of the Act. Now, that is obviously not the scheme of the third proviso. The scheme of the third proviso, according to me, is totally and for all purposes to exclude the business of the nature described in that proviso, and, as I said before, that business is a business in which, if it made profits, such profits would accrue or arise in an Indian State.