Case: Commissioner Of Excess Profits Tax West Bengal Vs. Adair Dutt &amp; Company Ltd

1. The respondent, the assessee, is a limited company and has its head office in London. It has three branches in India. The control and management of its business during the five chargeable accounting periods (commencing from the 1st September, 1939, and ending on the 31st March, 1944) were in London but as its Indian profits exceeded the London profits it was treated as a resident company under Sectione (b), of thex Act The assessee had chosen as its standard period the previous years for the assessment years7 and9 under Section 6(2)(b) of the Excess Profits Tax Act. Its profits for these years as determined in the respectivex assessments were as follows :Previous year for7 assessment year(a) Indian profitsRs. 10, 525 (b) London profitsRs 66, 386Previous year for9 assessment year(c) Indian profitsRs. 79, 611 (d) London profitsRs. 20, 813      The Excess Profits Tax Officer treated the assessee ast in the assessment year7 as its foreign profits were more than the Indian profits and determined the standard profits for that year at Rs. 10, 525 ignoring the foreign profits Rs. 66, 386 altogether. The standard profits according to him were the aggregate of (a), (c) and (d) (Rs. 10, 525, Rs. 79, 611 and Rs. 20, 813) and he made his order accordingly.      2. The Appellate Assistant Commissioner confirmed the orders of the Excess Profits Tax Officer and a further appeal was taken by the assessee to thex Appellate Tribunal. The Tribunal held that the profits for the chargeable accounting period as well as the standard period had to be computed under Rule 1 of Schedule I to the Excess Profits Tax Act on the principles on which the profits of a business are computed for the purposes ofx under Section 10 of thex Act and that the business profits of the assessee had to be determined first and the question whether the assessee was a resident or at under Section 4A of the Act could only be considered at a later stage when assessable income was being determined. The appeal was accordingly allowed and the Excess Profits Tax Officer was directed to revise his calculations on the basis indicated in the orderAt the instance of the appellant, the Commissioner of Excess Profits Tax, West Bengal, the Tribunal referred the following question to the High Court under Section 21 of the Excess Profits Tax Act read with Section 66(1) of thex Act :" Whether in computing the profits for the standard period under Schedule I of the Excess Profits Tax Act, the London profits (Rs. 66, 386) forx assessment were rightly included by the Tribunal. "      3. The High Court answered the question in the affirmative and the appellant obtained from the High Court the necessary certificate under Section 66A(2) of thex Act that this was a fit case for appeal to this Court.

Reasoning: 5. It is clear that whatever be the standard period chosen by the assessee it is a unit by itself and the profits of the business during the standard period must be computed as a whole. The total profits thus computed would then be divided by two, if the standard period was one of two years and the resultant profits would then be compared with the profits of the chargeable accounting period. There is nothing in the section to warrant the splitting up of the standard period, determining the business profits of each year separately and considering whether the assessee was a resident ort for the particular assessment year6. The profits of the assessee, Indian as well as foreign, were determined in the respectivex assessments as stated above and for the purposes of excess profits tax all the profits earned by the assessee during the standard period had to be added together. The Excess Profits Tax Officer should therefore have added together (a), (b), (c) and (d) above and not only (a), (c) and (d) as he did7. The Excess Profits Tax Officer however considered the profits of assessment year7 separately and on a consideration of the Indian and foreign profits comprised in that assessment he determined that the assessee was at in that year and therefore those foreign profits were not to be considered at all while arriving at the figure of standard profits8. We are of the opinion that the Excess Profits Tax Officer was in error when he excluded the foreign profits for the assessment year7 from computation. Rule 1 of Schedule I to the Excess Profits Tax Act provides that business profits during the standard period are to be computed on the principles on which business profits are computed for purposes ofx under Section 10 of thex Act. Business profits under Section 10 may comprise Indian as well as foreign profits. All these profits would come within the computation of business profits and they would be determined as such in thex assessmentfor the particular assessment. The question whether Indian or foreign profits are greater would become relevant for determining the status of the assessee, whether he is a resident or, and would be considered later when the assessable income came to be determinedIt is only after the business profits are determined under Section 10 that the question can be considered whether the assessee is a resident ort and that question can certainly not be determined unless and until the Indian and foreign profits of the assessee have been in the first instance determined under Section 10. The determination of business profits under Section 10 would therefore be the first step to be taken before Section 4A could be applied. The same procedure would have to be followed while determining the business profits for the purpose of the excess profits tax also and Section 4A could not be considered till after the business profits had been determined under Section 10 in the first instance. Both Indian and foreign profits would have to be determined for the purpose of this computation and they would be the business profits to be taken into account while computing standard profits without excluding any of them by applying Section 4A.