Appeals Nos 173 to 175 of 1960
134 Appeals from the judgment and orders dated March 11 1958 of the Bombay High Court in I T R No 36 of 1957
of A V ViSwanatha Sastri section M Dubash and G Gopalakrishnan for the appellants
K N Rajagopal Sastri and D Gupta for respondents
March 1
The Judgment of the Court was delivered by KAPUR J
These are three appeals pursuant to a certificate under a 66A2 of the Indian Income tax Act 1922 hereinafter called the Act against the judgment and orders of the High Court of Bombay in Income tax Reference No 36 of 1957
The appeals though directed against the same order are three in number because each partner of the firm has brought a separate appeal
The firm was carrying on the business of wine merchants at Bombay and came into existence prior to April 1 1939
The firm had been assessed to income tax under the provisions of the Income tax Act of 1918
The firm which was registered under the provisions of the Income tax Act of 1922 hereinafter termed the Act was dissolved on March 24 1945 and from the day following that ie March 25 1945 a Private limited company ie section section Miranda and Co Ltd succeeded to the business of the firm
A claim made under section 254 of the Act to the effect that no tax was payable on the profits of the registered firm for the period between April 1 1944 to March 24 1945 was allowed
In respect of the chargeable accounting period April 1 1944 to March 24 1945 the registered firm was taxed to excess profits tax under the Excess Profits Tax Act 1940
It also deposited as required certain sums of money tinder section 10 of the Finance Act 1942 read with section 2 of the Excess Profits Tax Ordinance 1943
In accordance with those provisions the firm became entitled to repayment of a portion of the excess profits tax amounting to a sum of Rs 235704
The shares of the three partners who are respective appellants in 135 the three appeals were James Miranda Rs 58926 Donald Miranda Rs 58926 and Mrs N Q Miranda Rs 117854
It was submitted that the amount refunded was business profit and therefore exempt con from tax under section 254 of the Act
The Income tax Officer rejected that submission and the share of each of the appellants was assessed to income tax and super tax and the balance after deducting the same he repaid to each of the partners but he computed the rate applicable to the tax by including the appellants  total business income which was exempt under s
254 of the Act
On appeal this assessment was confirmed but on further appeal the Income tax Appellate Tribunal held that the sum which was refunded was income from business and was therefore exempt from income tax under section 254 of the Act
At the instance of the Commissioner of Income tax the Tribunal referred the following question of law for the opinion of the High Court Whether the repayment of excess profits tax made by the Central Government in pursuance of Section 10 of the Indian Finance Act 1942 or Section 2 of the Excess Profits Tax Ordinance 1943 is profits from business for the purposes of Section 254 of the Indian Income tax Act The High Court held that the amount so refunded was income from other sources taxable under section 12 of the Act and the appellants were therefore not entitled to the benefit of section 254 of the Act
In dealing with the nature of the tax the learned Chief Justice said lm15 Clearly the view of the Legislature was that this income should be treated as a statutory income with the consequences that must necessarily follow by reason of its being a statutory income
 It was argued on behalf of the appellants that the amount refunded was income profits and gains from business and fell under section 10 of the Act and was therefore exempt under section 254 of the Act
For the determination of this question it is necessary to refer to the relevant provisions of the Excess Profits Tax Act 1940 and the Finance Act 1946
Section 121 of the Excess Profits Tax Act was as follows 136 lm15 section 121 The amount of the excess profits tax payable in respect of a business for any chargeable accounting period diminished by any amount allowable by way of relief under the provisions of section 11 or section 11 A shall in computing for the purposes of income tax or super tax the profits and gains of that business be allowed to be deducted as an expense incurred in that period The relevant part of section 1111 of the Indian Finance Act 1946 provided Any sum being excess profits tax repaid in respect of any chargeable accounting period under the provision of section 10 of the Indian Finance Act 1942 or of section 2 of the Excess Profits Tax Ordinance 1943 shall be deemed to be income for the purposes of the Indian Income tax Act 192 2 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 Provided that any such sum repaid in respect of any profits which are
also assessable to excess profits tax under the law in force in the United Kingdom shall be treated for the purpose of assessment to income tax and super tax as income of the previous year during
which the repayment is made
 It is not necessary to quote section 101 of the Finance Act 1942 or the relevant provisions of the Excess Profits Tax Ordinance 1943
Section 121 of the Excess Profits Tax Act shows that the amount of excess profits tax payable in respect of a business for any chargeable accounting period was an allowable expenditure
Under section llll of the Indian Finance Act 1946 any excess profits refunded under the provisions of Indian Finance Act 1942 or of section 2 of the Excess Profits Tax Ordinance 1943 were deemed to be income and were to be treated as income of the previous year which constituted or which included the chargeable accounting period in respect of which the said sum was repayable
Thus the sum repaid was 137 to be treated as income for the purposes of the Act for the previous year notwithstanding section 34 of the Act
The preamble of the Excess Profits Tax Act shows that the object of that Act was to impose a tax on profits arising out of certain businesses
Therefore when any portion of the tax collected on excess profits tax was refunded under the provisions of the Finance Act 1942 or the Excess Profits Tail Ordinance 1943 it necessarily had the same quality which it had before the amount which was charged with the payment of tax had under the provisions of those Acts
In a judgment of this Court Mc Gregor
and Balfour Ltd vs Commissioner of Income Tax West Bengal 1 the amount received as a refund by the assessee was held to be income for the purpose of the Act and for assessment it was treated as income of the previous year
After reference in that case to R 41 of the Rules applicable to oases I and II of Schedule D 
of the English Income Tax Act 1918 8 and 9 Geo
V c 40 it was observed The object and purpose of the legislation in each case is the same and though the two provisions are not ipsissima verba they are substantially in the same words and also in pari materia
There can be no doubt that the intention underlying the two provisions is the same and the language is substantially similar
 Thus this Court was of the opinion that the intention of the legislature ins
1114 of the Indian Finance Act 1946 which was the section applicable in that case and of R 41 of the English Income Tax Act was the same
The operative words of section 1111 of the Finance Act 1946 and of section 1114 of that Act are almost identical
It would thus appear that the amount of excess profits tax was an allowable deduction for the purpose of computation of the business profits of an assessee under section 121 of the Excess Profits Tax Act and when it or a portion of it wag refunded it had to be treated as income of the assessee
When it was deposited with 138 the Central Government it was a portion of the profits of the business of the assessee and when it was returned to the assessee it must be restored to its character of being a part of the profits of a business
It cannot be said that its nature changes merely because it is refunded as a consequence of some provisions in the Finance Act or the Excess Profits Tax Ordinance
Its nature remains the same
The effect of the deposit under the Acts above mentioned was as if a slice of the business profit was taken and deposited with the Central Government Treasury and then when it was found that a larger amount had been deposited than was exigible a portion of it was returned
By being put in a Government Treasury it does not cease to be what it was before ie profits of a business
As we have said it is significantly clear from the very preamble of the Excess Profits Tax Act ie it was a tax imposed on profits arising out of certain businesses
An argument was raised on behalf of the Commissioner that the tax was not paid out of the profits of the business but in respect of the profits
That is immaterial it was charged levied and paid on the amount by which the profits during any chargeable accounting period exceeded the standard profits
It would be mere quibbling with words if one were to say that it was not a slice taken out of the profits of a business
In the cage Mc Gregor and Balfour Ltd vs Commissionerof Income Tax 1 this Court quoted with approval the observation of the Master of the Rolls in A  W Nesbitt Ltd vs Mitchell 1 where it was said But in respect of what is that payment made It is not a legacy it is not a sum which has fallen from the skies it is a sum which is repaid because there was too large a sum paid by the company to the revenue authorities over the whole period during which Excess Profits Duty was paid and that sum means and is intend to represent a repayment of a sum which was paid by them in respect of the duty charged upon the excess profits of their trading
It comes back therefore not having lost its character but being still the repayment of a sum too much it is true but a sum taken 1 2  217 218 139 out of the profits which were made by the company in the course of its trading profit which at the time they were made were subject to income tax and subject to excess profits duty and that is the character of the repayment that has been made
 The amount deposited comes back without losing its character
No doubt the words in the English Rule are shall be treated as profits for the year in which the payment is received and in B 1111 of the Indian Finance Act 1946 such sum has to be treated as income of the previous year but as pointed out by this Court in Balfour and Mc Gregor case 1 the intention underlying the two provisions is the same and even the language used in the two provisions is substantially the same
Counsel for the Commissioner drew our attention to Kirke s Trustees vs Commissioners of Inland Revenue 2 and it was submitted that the Lord Chancellor held at p 329 that for the amount so received the assessment falls to be made under Case VI of Schedule D 
Lord Shaw of Dunfermline at p 332 said that the repayment was to be treated as trading profits for the year of repayment and therefore assessable as such under Schedule D 
He was also of the opinion that the charge was to be one under Case VI
Lord Sumner said that it became a minor matter to decide whether the charge was to be made under Case I or Case VI but this is little consolation to the respondent the Commissioner of Income tax because Case VI was also dealing with taxes in respect of annual profits and gains which do not fall in one of the other cases
In our opinion the amount refunded did not lose its character which it had before the deposit and therefore it is an erroneous view to take that the income was assessable under section 12 of the Act and not under B 10
If it was income falling under section 10 as in our opinion it was then the appellants were entitled to get the benefit of section 254 of the Act and the amount was not liable to taxation
The appeals are therefore allowed with costs
One hearing fee
Appeals allowed


Summary:
One Ramchandar executed a simple mortgage deed without possession of his share in the property in dispute in favour of the respondents and others the relevant Portion of which ran thus  I do hereby mortgage without possession half share five annas and four pies area 678 31 acres jama sarkar Rs 326108 together with Khudkashat chbotaghas big shrubs abadi gair abadi cultivated and that lying vacant and the rights and privileges appertaining to water forests chahat gardens and right of cultivation malguzari and trees of every kind whether giving fruits or no fruits and prohibited and unprohibited wood with entire rights and privileges appertaining to the village After the mortgage Ramchandar s share was sold to the appellants and certain other lands recorded in Ramchandar s mother s name also came into the possession of the appellant
The main questions arising for decision were whether the mortgage included the sir land of Ramchandar and whether the other lands coming into the possession of the appellant were accession to the mortgage
Held that as the mortgage deed stood it was a mortgage of all the proprietary rights in the mortgagor s share in the property including the proprietary right in the sir pertaining to that share
As the mortgage was without possession the mortgagor was not losing possession of his sir and it was not necessary for him to make an application under section 50 of the Central Provinces Tenancy Act relating to the reservation of a right of occupancy
Sections 49 and 50 come into play when the proprietor making a transfer loses his right to occupy any portion of his sir land temporarily or permanently
Although in the plaint of the suit based on the mortgage no mention was made of sir the entire proprietary right in sir khudkashat etc
relating to the mortgagor s share would be sold on a decree passed in the suit
The words  all rights pertaining to the share  appearing in the sale certificate following the execution of the decree in the mortgage suit passed in favour of the respondents would include the mortgagor s proprietary rights in the sir land and the respondents by their sale certificate would get a right in the sir land also
914 As the appellant had purchased the entire share of Ram chandar who was later ejected from his ex proprietary tenancy which came into the possession of the appellant as lambardar his sir land which thus came into the appellant s possession while the mortgage was subsisting became an accession to the mortgage under section 70 Of the and the mortgagees were entitled to half share in the lands which came into the appellant s possession
The lands recorded nominally in the name of Ramchandar s mother but in the actual possession of the former having also came into the possession of the appellant as lambardar were held by him for the entire body of proprietors and the respondent would be entitled to a share in them
The respondent s claim to those lands were not barred by 0
II r 2 of the Code of Civil Procedure merely because they were not mentioned in the plaint of the mortgage suit
Hazarilal vs Hazarimal AIR 1923 Nag
130 and Seth Manakchand vs Chaube Manohar Lal A IR  held not applicable