Statutory apportionment of profits excludes foreign tax deductions where the formula uses "profits" uniformly.

A statutory apportionment formula requiring Indian branch profits to be matched against the company's total profits applies the term "profits" uniformly throughout the rule. The Court held that, for this computation, profits are taken before deduction of local income-tax and excess profits tax, because Indian assessable profits are themselves calculated without deducting Indian income-tax. Allowing deduction of foreign taxes from total profits would distort the comparison built into the formula and defeat its scheme. Commercial accounting authorities on tax as an outgoing were distinguished as inapplicable to taxable-income computation. The claimed deductions were therefore not allowable.

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Issues: Whether, in computing the total profits of a foreign company for apportionment of Indian assessable profits under the relevant rule, income-tax and excess profits duty payable in England and income-tax payable outside British India were deductible.

Analysis: The rule required the profits of the Indian branch to bear the same proportion to the total profits of the company as Indian receipts bore to total receipts. The Court held that the expression "profits" had to be used consistently throughout the rule and, in the context of a statutory apportionment formula, meant profits before deduction of the several local income taxes and excess profits taxes. Since Indian assessable profits themselves were to be computed without deducting Indian income-tax, allowing deduction of foreign taxes in the total profits figure would distort the basis of comparison and defeat the rule's scheme. Authorities relied on for commercial accounting treatment of tax as an outgoing were distinguished because they did not govern the computation of taxable income under the Act.

Conclusion: The claimed deductions were not allowable, and the question was answered against the assessee.

Ratio Decidendi: Where a statutory apportionment formula uses the same expression "profits" for both the Indian branch and the company's total business, the term must be applied uniformly and taxes levied on profits are not deductible in computing the total profits for that formula unless the statute expressly permits such deduction.

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