DEVKARAN NANJEE BANKING COMPANY LIMITED Vs. COMMISSIONER OF EXCESS PROFITS TAX

JUDGEMENT

(1.) -

(2.) THE assessee is the Devkaran Nanjee Banking Co., Ltd., and the questions that arise for our consideration deal with the construction of certain provision of the Excess Profits Tax Act (XY of 1940), and the first question that we have to consider is whether the assessee bank is entitled to the benefit conferred upon assessees under Rule 5 of Schedule I to the Act. Schedule I contains rules for the and under Rule 2 of that Schedule, any borrowed money and debts shall be deducted for the purposes of computing the average amount of capital. THErefore, if the bank borrowed any moneys, those moneys could not go to the increase of the average amount of capital used by the bank. But there is an exception contained in rule 5 of schedule I, and that exception is that notwithstanding the provisions of rule 2 of Schedule II the amount of loan or debentures from a bank carrying on a bona fide banking business or effected by means of a public issue of debentures secured on the property of the company, shall not be deducted in arriving at the amount of the capital employed in the business. But this rule 5 starts by the opening words, "if at any time after the close of the standard period," and obviously this rule can only apply to those companies which have a standard period. When we turn to the Act itself, Section 6 deals with standard profits and lays down various standard periods for which profits have got to be assessed in order to arrive at a conclusion as to what the standard profits are. But to section 6 there is proviso which lays down that in the case of a business which was commenced on or after the 31st day of March, 1936, the standard profits shall, at the option of the person carrying on the business, be an amount calculated by applying the statutory percentage of the average amount of capital employed in the business during such chargeable accounting period. Now, the assessee bank commenced business after the 31st March, 1936, and it availed itself of the option given by this proviso, and it is not disputed before us that this particular assessee did not have any standard period as indicated in sub-clause (2) of section 6. THE sub-clause contains four different periods which may be adopted by an assessee as the standard period at its option. But the assessee bank having exercised its option under the proviso to which I have referred, did not and in fact could not, adopt any of the four periods as the standard period. THErefore, for the purposes of the Excess Profits Tax Act it had no standard period whatsoever. If that be so, in my opinion,, it is clear that in the computation of the average amount of capital it would be governed by Rule 2 only and it could not avail itself of the exception contained in Rule 5 of schedule I. If it had no standard period, if its standard period never commenced, there could be no question of the close of the standard period, and as that rule is only applicable to those assessees who have a standard period and the rule comes into operation after the close of such standard period, in my opinion Rule 5 cannot apply to the case of the assessee and the Tribunal was right in coming to the conclusion that the assessee was not entitled to the benefit set out in that rule.

(3.) I would therefor answer question No. 1 in the negative and question No. 2 in the affirmative. We will reformulate the last question by deleting the words "notwithstanding that the entire profits so computed do not go to increase the capital employed in the business", and answer the question so reformulate in the affirmative. Assessee to pay the costs.