Case ID: 5293

Judgment:
ivil Appeal No. 1375 of 1974 605 From the Judgment and Order dated 21.2. 1971 of the Allahabad High Court in Excise Profit Tax Reference No. 55 of 1968. Dr. V. Gauri Shankar and Miss A. Subhashini for the Appellant. S.T. Desai	 Harish Salve	 Mrs. A.K. Verma and D.N. Mishra for the Respondent. The Judgment of the Court was delivered by SABYASACHI MUKHARJI	 J. This appeal is directed against the judgment and order of the High Court of Allahabad dated 21st February 1971. It relates to the assessment under the Excess Profits Tax Act	 1940 (hereinafter called the 'Act '). The assessee was an unregistered firm carrying on business of manufacture and sale of katechu. The chargeable account ing period was 1 4 1943 to 31.3. There were two partners of the assessee firm	 namely	 L. Phoolchand and M/s Biharilal Balkishan each having profits in proportion of 11 annas and 5 annas respectively. The work in connection with the extraction of Katechu was carried on in Nepal by 1. Phoolchand and the sale of Katechu were effected by M/s Biharilal Balkishan at their shops in Kanpur. The assessee firm did not maintain any books of account and the entire record of the business transaction was maintained in the books of M/s Biharilal Balkishan in the account styled "Kalyanmal Phoolchand". The assessee firm had taken a jungle on lease for this purpose and had extracted Katechu from October	 1940 to September	 1941. The sales of katechu extracted were effect ed from 30th May	 1941 to 29th September	 1941. Thereafter another jungle was taken on lease in November	 1942 and Katechu were extracted from 23rd November	 1942 to 6th November	 1944. The sales in this case were effected between 26th July	 1943 to 4th April	 1944. The High Court divided the entire period of manufacture and sale as follows: 1. October 28	 1940 to March 31	 1941	 failing in the financial year ending March 31	1941. Katechu was manufac tured but there was no sale. April 1	 1941 to September 29	 1941	 failing in the financial year ending March 31	 1942. Sales took place from May 30	 1941 to September 29	 1941. 606 3. November 23	 1942 to March 31	 1943	 falling in the financial year ending March 31	 1943. Katechu was manufac tured but there was no sale. April 1	 1943 to March 31	 1944	 falling in the finan cial year ending March 31	 1944	 sales took place from July 26	 1943 to March 31	 1944. April 1	 1944 to April 4	 1944	 falling in the finan cial year ending March 31. 1945	 sales were effected from April 1	 1944 to April 4	 1944	 when the business was dis continued. Therefore	 while there was manufacturing activity there was no sale during the financial years ending 31st March	 1941 and 31st March	 1943. The dispute in this case is with regard to the set off of deficiency of profit relating to the periods 20th October	 1940 to 17th October	 1941 and 23rd November	 1942 to 31st March	 1943. The Excess Profit Tax Officer did not set off the said deficiency of profits that accrued in respect of the period 1940 41 out of the profits for the chargeable accounting period from 1.4.1943 to 31.3. The submission of the assessee was that the business carried on during the charge able accounting period under consideration was not separate to and distinct from the business carried on in 1940 41. The Excess Profit Tax Officer held that business carried on during October	 1940 to October	 2941 was completely differ ent from the business carried on during the chargeable accounting period under consideration. The Appellate Assistant Commissioner on appeal found that the constitution of the firm during the chargeable accounting period was the same as in 1940 41 and the ac counts were maintained in the same fashion; and that the same business of manufacturing Katechu in Nepal and selling the finished products at kanpur was carried on. The Appel late Assistant Commissioner	 therefore	 held that the asses see was entitled to set off in respect of the deficiency of profits accruing in the year 1940 41. The Appellate Assist ant Commissioner further found that the assessee had effect ed sales only during 30th May	 1941 to 29th September	 1941. As such there were no sales either during or until 30th May	 1941 land subsequent to 29th September	 1941. As such he held that there was no profit arising during the accounting period ending on 31st March	 1941. He	 therefore	 confirmed that there were no profits and losses during the chargeable accounting 607 period ending on 31st March	 1941 and as such there could be no deficiency of profits. In the premises	 according to the Appellate Assistant Commissioner	 the assessee was entitled to a set off of the deficiency only for the chargeable accounting period ending on 31st March	 1942 which consisted of the period 1st April	 1941 to 29th September. He allowed such deficiency of Rs.5	600 only. So far as the deficiency pertaining to the period November	 1942 to 3 Ist March	 1943 was concerned	 the facts were that the manufac turing operations started in Nepal on or about 23rd Novem ber	 1942 and the sales of Katechu started at Kanpur on 26th July	 1943 Katechu produced in Nepal from 23rd November	 1942 to 31st March	 1943 remained in stock till the last date of the chargeable accounting period namely 31st March	 1943 and no part of it was sold. As the assessee did not maintain any books of account	 the provisions of section 13 of the Income Tax Act	 1922 as applied to the Act vide section 21 of the Act were applicable. The revenue	 there fore	 valued the stock in trade at cost and held that there could be no profit or loss during the chargeable accounting period. In appeal	 the assessee had urged that deficiency in profits pertaining to the chargeable accounting periods from October	 1940 to 31st March	 1941 and 23rd November	 1942 to 31st March	 1943 should be allowed a set off in computing the excess profits for the year under consideration. It was submitted that there was no profits pertaining to the said chargeable accounting period	 and therefore	 the standard profits as provided in the Act became the deficiency of the said two chargeable accounting periods which should have been allowed set off. It was further urged on behalf of the assessee that the manufacturing operations were carried on during the said periods and as such it could not be said that the assessee did not carry on any business. The Tribunal	 however	 held that no profits accrued unless sale was effected and	 therefore	 there was no merit in the submission made on behalf of the assessee that during the said two chargeable accounting periods	 although there were no sales effected	 yet profits accrued to the assessee. It was urged on behalf of the revenue that as provided in the Act	 the provisions of the Act would apply to every business of which any part of profits was made during the chargeable accounting period	 is chargeable to income tax. It was further urged that no part of profits	 if any	 which accrued during the said two chargeable accounting periods could be charged and were in fact not so charged	 to income tax	 as no sales were effected and	 therefore	 the Act itself did not apply to the said two chargeable account ing periods. The Tribunal accepted this contention on behalf of the revenue and as 608 such confirmed the order of the Appellate Assistant Commis sioner. On the said facts	 the following question of law was referred to the High Court at the instance of the assessee: "Whether	 on the facts and in the circum stances of the case	 the assessee was entitled to a set off of deficiency of profits relating to the period 28.10.1940 to 31.3.1941 and 23.11. 1942 to 31.3.1943 from the profits of the chargeable accounting period 1.4.1943 to 31.3.1944 in accordance with the provisions of the E.P.T. Act	 1940?" The High Court held that it was not disputed before them that the assessee was carrying on the same business from 28th October	 1940 to 4th April	 1944 for the purpose of the Act. The only question was whether the assessee could be said to have suffered any deficiency of profits during the period 28th October	 1940 to 31st March	 1941 and 23rd November	 1942 to 31st March	 1943 and was whether entitled to be given the benefit of such deficiency. of profit. The High Court referred to certain definitions and recognised and in our opinion rightly that there were sever al stages in business activities before profits could be realised. The High Court observed that profits realised were not of the sale alone. The profits were attributable to the manufacturing operations as well. The High Court referred to certain decisions to which our attention was also drawn where under the Act as to the place where the profits arose	 the courts had enquired into the place where the manufactur ing took place and where the sales took place. This conten tion is no longer relevant for the controversy before us. It was accepted before us that a manufacturing process may begin in one year and result in sale in another year and also that manufacturing process may take at one place and sale at another place. For the purpose of computing the profit of certain operation	 it is true as the High Court noted	 that manufacture and sale might take place in two different years. The High Court held that though chargeable levy was an annual charge and generally for the purpose of the levy of the annual charge the profits of the year preceding the year of charge are taken into consideration if the manufacturing activity leading to the production of finished article which was subsequently sold contributed to the profits realised	 according to the High Court	 it mattered little whether or not the manufacturing activity of the sale related to the same period of 609 twelve months. Some part of the profits realised would be attributable to the manufacturing activities and	 therefore	 could be said to arise during the period when manufacturing was carried on even though sales were effected in the next year. The High Court	 therefore	 was of the view that it was necessary to 	determine what part of the profits realised upon the sales from 30th May	 1941 to 29th September	 1941 could be attributed to the manufacturing activity between 28th OCtober	 1940 to March	 1941 and then to compute the deficiency of profits for the chargeable accounting period ending 31st March	 1941. That might require	 according to the High Court	 a fresh determination of the profits earned during the period 1st April	 1941 to 29th September	 1941 and	 consequently	 of the deficiency of profits during the chargeable accounting period ending 31st March	 1942. The High Court was of the view that the deficiency of profits for the chargeable accounting periods ending 31st March	 1941 and 31st March	 1942 would have to be set off when computing the excess profits for the relevant chargeable accounting period ending 31st March	 1944. The High Court expressed the view that under section 2(5) of the Act the job of the assessee in the extraction and sale of Katechu under the two jungle leases must be considered as a single business for the purpose of the Act. The High Court	 there fore	 came to the conclusion that upon the principle of apportionment of profits to which it had adverted to	 the profits earned upon sales effected during the chargeable accounting period ending 31st March	 1944 must similarly be apportioned between the manufacturing activity during the chargeable accounting period ending 31st March	 1943 and the sales during the chargeable accounting period ending 31st March	 1944 and the deficiency of profits worked out on that basis in respect of the chargeable accounting period ending 3 Ist March	 1943 must be set off in computing the excess profits for the chargeable accounting period ending 31st March	 1944. The High Court	 therefore	 did not accept the opinion of the Tribunal that because the chargeable account ing periods ending 31st March	 1941 and 31st March	 1943 were occupied with manufacturing activity alone and there were no sales	 therefore	 no part of the profits realised upon the sales could be apportioned to those chargeable accounting periods and consequently that it could not be said that there was any deficiency of profits during those periods. The question referred to the High Court was an swered in affirmative. In order to appreciate the real controversy in this matter	 it is appropriate to refer to the observations of Kania	 J.	 as the Chief Justice then was	 in the decision in the case of Commissioner of Income 610 Tax	 Bombay vs Raipur Manufacturing Co.	 Ltd.; at 733. It was observed as follows: "The Excess Profits Tax Act as shown by the preamble itself is a legislation to impose tax on excess profits arising out of certain business. The Income tax Act is the principal legislation which imposes a tax on the income of a person. Section 6 divides the income under five heads which are chargeable to tax. The fourth head is profits and gains of busi ness	 profession or vocation. Out of that a certain portion is carved out by the Legisla ture for the purpose of imposing the excess profits tax. I am unable to accept the conten tion of the Commissioner that the Excess Profits Tax Act is an entirety independent legislation	 which is connected with the Income tax. Act only to the extent it is expressly so stated in the Excess Profits Tax ' Act. The scheme that the Excess Profits Tax Act is a legislation intended to tax the profits of certain business in excess of a certain limit as provided in that Act. It is therefore complementary to the Income tax Act by its very nature." As the Statement of Objects of the Act stated that the outbreak of war	 while it has necessitated greatly increased expenditure by the Government on defence and other services	 has simultaneously created opportunities for the earning by companies and persons engaged in business of abnormally large profits. The object of the Bill (which later became the Act was to secure for the Government a considerable portion of the additional business profits which accrued as a result of the conditions prevailing during the war. To begin with the right to impose a tax of 50% of the excess of the profit made in any accounting period after the 1st day of April	 1939 was given. It had subsequently been increased to 66 2/3 %. Section 2(1) of the Act defines the 'accounting period '. Section 2(6) defines 'chargeable accounting period as (a) any accounting period falling wholly within the term begin ning on the 1st day of September	 1939	 and ending on the 31st day of March	 1946 and (b) where any accounting period falls partly within and partly without the said term	 such part of that accounting period as fails within the said term. The 'standard profits ' is defined under section 2(2) which was required to be computed in accordance with the provisions of section 6 of the Act. It is not necessary in view of the controversy before us to refer to other defini tions except that section 2(3) deals with 'average 611 amount of capital ' which is relevant for computation of the excess profits. Section 6 defines the 'standard profits ' and how it is to be computed. As there was no controversy on this aspect before us	 it is not necessary to deal with it. Section 2(9) defines 'deficiency of profits ' as follows: (9) "deficiency of profits" means "(i) where profits have been made in any chargeable accounting period	 the amount by which such profits fall short of the stand ard profits; (ii) where a loss has been made in any charge able accounting period	 the amount of the loss added to the amount of the standard profits;" Section 4 defines 'charge of tax ' as follows: "Charge of tax" ( 1 ) Subject to the provi sions of this Act	 there shall in respect of any business to which this Act applies	 be charged	 levied and paid on the amount by which the profits during any chargeable ac counting period exceed the standard profits a tax (in this Act referred to as "excess prof its tax") which shall	 in respect of any chargeable accounting period ending on or before the 31st day of March	 1941	 be equal to fifty per cent	 of that excess and shall	 in respect of any chargeable accounting period beginning after that date	 be equal to such percentage of that excess as may be fixed by the annual Finance Act; Provided that any profits which are	 under the provisions of sub section (3) of section 4 of the Indian Incometax Act	 1922	 exempt from income tax	 and all profits from any business of life insurance shall be total ly exempt from excess profits tax under this Act. Provided further that in the. case of any business which includes the mining of any mineral	 any bonus paid by or through the Central Government in. respect of increased out put of the mineral shall be totally exempt from excess profits tax under this Act. (2)Where a chargeable accounting period falls partly 612 before and partly after the end of March	 1941	 the foregoing provisions of this section shall apply as if so much of that chargeable accounting period as falls before	 and so much of that chargeable accounting period as falls after	 the said end of March were each a separate chargeable accounting period	 and as if the excess of profits of that separate chargeable accounting period were an appor tioned part of the excess of profits arising in the whole period determined in accordance with the provisions of section 7A." Section 7 deals with the relief on occurrence of defi ciency of profits and provides in substance that where a deficiency of profits occurs in any chargeable accounting period in any business	 the profits of the business charge able with excess profits tax shall be deemed to be reduced and relief shall be granted according to the provisions laid down therein. The main question in this case is to keep the distinc tion between 'accounting period ' and 'chargeable accounting period '. The accounting period	 it has to be borne in mind	 is the twelve months ' proceeding just on the basis of the income tax year and the assessment must be made on the same basis. The 'chargeable accounting period ' is the period beginning from 1st September	 1939 ending after amendment on 31st March	 1946. So if there is any deficiency of profits in any of the accounting period which has not been absolved in the assessment for that year may be carried forward but the assessment must be made on the basis of the accounting period. This has to be emphasised and it must be borne in mind that though it is wholly immaterial whether the manu facture and sale took place in the same year or in two different years	 the division of time into periods for its assessment must be made in a real sense as in the income tax one	 and then make appropriate adjustments. Therefore the profits and losses of each year must be computed on yearly basis in terms of the definition of 'accounting period ' under section 2(1) of the Act. But if any deficiency of profits remains unabsolved	 it may be carried forward against any excess profits made and set off during the next accounting period. The chargeable accounting period is the period from 1st September	 1939 to 31st March	 1946. But each year 's excess profit & loss must be computed in the manner contemplated in section 2(1) of the Act. So if there was any deficiency of profits in any particular period	 it must be determined on that basis. In order to work out the scheme of the Act	 there must be proper devetailing of the concept of "accounting period"	 613 "chargeable accounting period" and basic scheme of the Income Tax Act bearing in mind that excess profits are excess of profits which were intended to be mopped up during the war period intended to be taxed separately and differ ently. This view finds support in the decision of the Alla habad High Court. In the case of Haji Rahmat Ullah and Co. vs Commissioner of Income tax	 U.P.	 the High Court of Allahabad held that a payment received in any year subsequently to a chargeable accounting period is not liable to be treated as the profits of that period	 merely because the work which occasioned that payment was done during that period. The "profits during the chargeable accounting peri od" are those profits respecting which a right to receive had accrued or arisen during that period. If the right to receive those profits had accrued or arisen subsequently	 then even though they had accrued or arisen by reason of work done during the chargeable accounting period	 these were not liable to be treated as the profits of that charge able accounting period. The High Court observed that it would seem ex facie that if the profits earned during a certain period are taxable under the Income tax Act	 it is a part of those very profits which is liable to excess profits tax. Whether the profits in the one case could be identified with the profits in the other would be determined by refer ence to the period in which those accrued or arose. It was emphasised that the profits during the chargeable accounting period must be computed under the Excess Profits Tax on the same basis as are profits for an income tax assessment. It is clear that excess profits tax is attracted in respect of a business to which the Act applied when the profits during the chargeable accounting period exceed the standard profit. It has to be clearly borne in mind that the Act is not an entirely different Act in the sense that it proceeds upon the concept completely different from the notions of Income tax and has its source in an entirely different tax concept. More profits which were likely to have been earned during those years	 these were made subject to excess profits. It appears to us that the period of assessment in the Act is an "accounting period" in the same way as the 'previ ous year ' is the period of assessment for the purpose of Income Tax. Though profit in a composite transaction could be apportioned as between manufacture and sale in the same accounting year	 such an apportionment is not permissible when one part of the transaction	 i.e. manufacture	 fails in one chargeable accounting period and falls in another part of the accounting period i.e. the trading operations	 i.e. falls in another accounting period	 then set off of defi ciency in profits under section 7 of the Act is permitted but a necessary precondition was that profit 614 must be made in the accounting period to which the deficien cy relates. The profits attributed on apportionment was outside the scope of section 7 of the Act. It must be remem bered that the 'excess profit ' under the Act is profit determined under the Income Tax Act subject to prescribed adjustments. If the income tax assessment discloses nil profits	 no separate profit can be determined independently under the Act. The position of the Excess Profits Tax Act was explained by Lord President Clyde in Edward Collins & Sons. Ltd. vs The Commissioner of Inland Revenue	 at 780 where the Lord President emphasised that subject to certain modi fication those profits had to be determined in the same way and on the same principle as a trader 's profits and gains have to be computed for the purposes of the Incometax Act. It is a general principle	 in the computation of the annual profits of a trade or business under the Income Tax Acts	 that those elements of profit or gain	 and those only	 enter into the computation which are earned or ascertained in the year to which the enquiry refers; and in like manner	 only those elements of loss or expense enter into the computation which are suffered or incurred during that year. The same principle	 in our opinion	 would be applicable to the facts of this case. The decision of this Court in Commissioner of Income tax	 Bombay vs Ahmedbhai Umarbhai & Co.	 Bombay	 18 I.T.R. 472 related entirely to a different context where certain part of the activities occurred at Raichur and the sales took place in Bombay	 the question was whether the activity which the assessee carried on at Raichur was part of their business within the meaning of the third proviso to section 5 of the Act	 that the profits of a part of the business	 the manufacturing of oil in their mills at Raichur	 accused or arose at Raichur and that such profits were not assessa ble to excess profits tax under the third proviso to Section 5 of the Act. That is not the controversy here.controversy is not so much where the profits arose nor is the controver sy whether the profits arose during the chargeable account ing period but where the profits arose during the 'account ing period ' and as such whether the deficiency of the prof its not arising during 'counting period ' but during the 'chargeable accounting period ' could be set off without computation. The method of computation under section 7 of the Act must be on the basis of 'accounting period ' and after that the deficiency in profits for that period should be computed on that basis and after set off carried forward to be set off during the chargeable accounting period. It is thus an harmonious construction of 615 the different provisions of the Act is possible and the true excess profits	 if any	 as contemplated by the Act be deter mined. The concept of 'accounting period ' in the background of the 'chargeable accounting period ' can thus be harmo nised. The accounting period was 1st April	 1943 to 31st March	 1944. In the facts of the case we are of the opinion that the question must be answered in the negative and in favour of the revenue. The appeal is allowed and the judg ment and order of the High Court are set aside. In the facts and circumstances of the case	 parties will pay and bear their own costs. A.P.J. Appeal allowed.

Summary:
The assessee was an unregistered firm carrying on busi ness of manufacture and sale of Katechu. The firm carried on the work of extraction of Katechu in Nepal and sales were affected in Kanpur. It had first taken a jungle on lease and Katechu were extracted from October 1940 to September	 1941. Sales were effected from 30th May	 1941 to 29th September	 1941. Thereafter	 another jungle was taken on lease and Katechu were extracted from 23rd November	 1942 to 6th November	 1944. The sales were effected between 26th July	 1943 to 4th April	 1944. The assessee claimed set off of deficiency of profit for the periods 20th October	 1940 to 17th October	 1941 and 23rd November	 1942 to 31st March	 1943 on the ground that the business carried on during the chargeable accounting period 1 4 1943 to 31 3 1944 was not separate to and dis tinct from the business carried on in 1940 41. The Excess Profit Tax Officer did not set off the defi ciency of profits that accrued in respect of the period 1940 41 out of the profits for the chargeable accounting period from 1 4 1943 to 31 3 1944	 and held that the busi ness carried on during October	 1940 to October	 1941 was completely different from the business carried on during the aforesaid chargeable accounting period. So far as the deficiency pertaining to the period Novem ber	 1942 to 31st March	 1943 was concerned	 the manufactur ing operations started on or about 23rd November	 1942 and the sales started on 26th July	 1943. Katechu produced from 23rd November	 1942 to 31st March	 1943 remained in stock till the last date of the chargeable accounting period. namely	 31st March	 1943. As the assessee did not	 maintain any books of account	 the provisions of section 13 of the Income Tax were applicable. The Revenue	 therefore	 valued the stock intrade at cost and held that there could be no profit or loss during the chargeable accounting period. In appeal	 the assessee urge that deficiency in profits pertaining to the chargeable accounting periods from Octo ber	 1940 to 31st March	 1941	 and 23rd November	 1942 to 31st March	 1943 should be allowed a set off in computing the excess profits and as there were no profits during the said chargeable accounting period	 the standard profits became the deficiency of the said two years which should have been allowed set off and that as manufacturing opera tions were carried on during the said periods	 it could not be said that the assessee did not carry on any business. The Appellate Assistant Commissioner found that the constitution of the firm during the chargeable accounting period was the same as in 1940 41	 that the accounts were maintained in the same fashion and the same business was carried on	 that the assessee had effected sales only during 30th May	 1941 to 29th September	 1941 and held that the assessee was entitled to set off in respect of the deficien cy of profits. He	 therefore	 confirmed that there were no profits and losses during the chargeable accounting period ending on 31st March	 1941 and as such there could be no deficiency of profits. The assessee was	 therefore	 held to be entitled to a set off of the deficiency only for the chargeable accounting period ending on 31st March	 1942 which consisted of the period 1st April. 1941 to 29th Sep tember. The Tribunal	 however	 held that no profits accrued unless sale was effected and accepting the contention of the Revenue that no part of profits	 which accrued during the said two chargeable accounting periods could be charged and were in fact not so charged to income tax	 as no sales were effected	 the Act itself did not apply and confirmed the order of the Appellate Assistant Commissioner. The High Court divided the entire period of manufacture and sales to determine the question whether there was manu facturing activity and sale; (1) October 28	 1940 to March 31	 1941	 failing in the financial year ending March 31	 1941	 Katechu was manufactured but there was no sale; (2) April 1	 1941 to September 29	 1941	 failing in the finan cial year ending March 31	 1942; sales took place from May 30	 1941 to September 29	 1941; (3) November 23	 1942 to March 31	 1943 failing in the financial year ending March 31	 1943; Katechu was manufactured but there was no sale; (4) April 1	 1943 to March 31	 603 1944	 failing in the financial year ending March 31	. 1944; sale took place from July 26	 1943 to March 31	 1944; (5) April 1	 1944 to April 4	 1944	 failing in the financial year ending March 31	 1945; sales were effected from April 1	 1944 to April 4	 1944 when the business was discontinued. It held that while there was manufacturing activity there was no sale during the financial years ending March 31	 1941 to March 31	 1943	 that the profits earned upon sales ef fected during the chargeable accounting period ending 31st March	 1944 must be apportioned between the manufacturing activity during the chargeable accounting period ending 31st March	 1943 and the sales during the chargeable accounting period ending 31st March	 1944 and that the deficiency of profits must be set off in computing the excess profits for the chargeable accounting period ending 31st March	 1944. The High Court	 therefore	 did not accept the opinion of the Tribunal and held that the assessee was entitled to a set off of deficiency of profits relating to the periods 28 10 1940 to 31 3 1941 and 23 11 1942 to 31 3 1943 from the profits of the chargeable accounting period 1 4 1943 to 31 3 1944. Allowing the Appeal	 HELD: 1. The scheme contained in the Excess Profits Tax Act is a legislation intended to tax the profits of certain business in excess of a certain limit as provided in that Act. It is	 therefore	 complementary to the Income Tax Act by its very nature. [610D] Commissioner of Income Tax	 Bombay vs Raipur Manufactur ing Co.	 Ltd.	 at 733	 followed. In order to work out the scheme of the Act	 there must be proper dovetailing of the concept of 'accounting period '. 'chargeable accounting period ' and basic scheme of the Income Tax Act bearing in mind that excess profits are excess of profits which were intended to be mopped up during the war period	 to be taxed separately and differently. [612H; 613A B] 3. If the right to receive those profits had accrued or arisen subsequently then even though they had accrued or arisen by reason of work done during the chargeable account ing period	 these were not liable to be treated as the profits of that chargeable accounting period. [613C] 4.Whether the profits in the one case could be identi fied with the profits in the other would be determined by reference to the period in which those accrued or arose. The profits during the chargeable 604 accounting period must be computed under the Excess Profits Tax on the same basis as are profits for an income tax assessment. [613D E] Haji Rahmat Ullah and Co. vs Commissioner of Income tax	 U.P.	 	 relied upon. It has to be clearly borne in mind that the Act is not an entirely different Act in the sense that it proceeds upon the concept completely different from the notions of Income Tax and has its source in an entirely different tax concept. More profits which were likely to have been earned due to profits	 these were made subject to excess profits. [613E F] 6. Though profit in a composite transaction could be apportioned as between manufacture and sale in the same accounting year	 such an apportionment is not permissible when one part of the transaction	 i.e. manufacture	 falls in one chargeable accounting period and falls in another part of the accounting period i.e. the trading operations i.e. falls in another accounting period	 then set off deficiency in profits under section 7 of the Act is permitted but a necessary precondition was that profit must be made in the accounting period to which the deficiency relates. [613G H; 614A] 7. The excess profit under the Act is profit determined under the Income Tax Act subject to prescribed adjustments. If the income tax assessment discloses nil profits	 no separate profit can be determined independently under the Act. [614A B] 8. It is a general principle	 in the computation of the manual profits of a trade or business under the Income Tax Acts	 that those elements of profits or gain	 and those only	 enter into the computation which are earned or ascer tained in the year to which the enquiry refers; and in like manner	 only those elements of loss or expense enter into the computation which are suffered or incurred during that year. [614C D] Edward Collins & Sons Ltd. vs The Commissioners of Inland Revenue	 at 780	 followed and Commission er of Incometax	 Bombay vs Ahmedbhai Umarbhai & Co.	 Bombay	 18 I.T.R. 472	 distinguished.