Case: Donald Miranda Vs. The Commissioner Of Income-Tax, Bombay City-Ii(And,Connect

2. 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, i.e., March 25, 1945, a private limited company i.e., S. S. Miranda and Co. Ltd. succeeded to the business of the firm. A claim made under S. 25(4) 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 under S. 10 of the Finance Act, 1942, read with S. 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. 2,35,704/- The shares of the three partners who are respective appellants in the three appeals were James Miranda Rs. 58,926/-, Donald Miranda Rs. 58,926/- and Mrs. N. Q. Miranda Rs. 1,17,854/-. It was submitted that the amount refunded was business profit and therefore exempt from tax under S. 25(4) 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. 25(4) 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 S, 25(4) 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 Highthe repayment of excess profits tax made by the Central Government in pursuance of S. 10 of the Indian Finance Act 1942, or S. 2 of the Excess Profits Tax Ordinance, 1943, is profits from business for the purposes of S. 25(4) of the Indian Income-taxThe High Court held that the amount so refunded was income from other sources taxable under S. 12 of the Act and the appellants were, therefore, not entitled to the benefit of S. 25(4) of the Act. In dealing with the nature of the tax the learned Chief Justice saidthe view of the Legislature was that this income should be treated as a statutory income with the consequence that must necessarily follow by reason of its being a statutory income."

Court's reasoning:
The operative words of S. 11(11) of the Finance Act, 1946, and S. 11(14) of that Act are almost identical.9. 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 S. 12(1) of the Excess Profits Tax Act and when it or a portion of it was refunded it had to be treated as income of the assessee. When it was deposited with 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 apart 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 profits 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 out in a Government Treasury it does not cease to be what it was before, i.e., profits of a business. As we have said it is significantly clear form the very preamble of the Excess Profits Tax Act, i.e., it was a tax imposed on profits arising out of certainis 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 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 S. 12 of the Act and not under S. 10. If it was income falling under S. 10 as in out opinion it was, then the appellants were entitled to get the benefit of S. 25 (4) of the Act and the amount was not liable to taxation.