Taxability of excess profits tax refund turns on prior representation and year of receipt treatment

A refund of excess profits tax was treated as taxable income in the year of receipt rather than being spread over earlier chargeable accounting periods. The court applied the principle that a taxpayer cannot approbate and reprobate: where the assessee had earlier represented that its profits were liable to excess profits tax and thereby obtained the statutory benefit of avoiding the compulsory deposit, it was not open to later deny that liability when the refund was received. The proviso in the Finance Act was read consistently with the earlier provision, and the repayment was brought to tax in the assessment year of receipt.

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Issues: Whether the repayment of excess profits tax was taxable as income in the assessment year in which it was received, or whether it had to be spread over the earlier chargeable accounting periods; and whether the assessee could deny the position earlier represented to obtain the benefit of the proviso to section 10(1) of the Indian Finance Act, 1942.

Analysis: The assessee had previously represented that its profits were liable to excess profits tax in the United Kingdom, and on that basis obtained the benefit of not making the compulsory deposit under section 10(1) of the Indian Finance Act, 1942, as applied by the Excess Profits Tax Ordinance, 1943. When the refund of excess profits tax was later received, the assessee sought to adopt an inconsistent stand and deny the very liability it had earlier asserted. The Court held that the assessee could not be permitted to approbate and reprobate in this manner, especially where the taxing department had altered its position on the strength of the earlier representation. The proviso to section 11(11) of the Finance Act, 1946 was construed consistently with the earlier proviso, and the repayment was treated as income of the year of receipt.

Conclusion: The repayment of excess profits tax was taxable as income in the assessment year 1953-54, and not distributable over the earlier chargeable accounting periods.

Final Conclusion: The reference was answered in favour of the Revenue, and the assessee was held liable to tax the refund in the year of receipt.

Ratio Decidendi: A taxpayer who secures a statutory benefit by representing a state of liability cannot later deny that representation to avoid the corresponding tax consequence, and a refund treated by the governing proviso as income of the year of repayment is taxable in that year.

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