1951 (8) TMI 24 - HC - Income Tax

Court rules against set off of losses for excess profits tax. Income vs. Excess Profits Tax principles clarified.

Commissioner of Excess Profits Tax Versus Bhogilal H. Patel

Commissioner of Excess Profits Tax Versus Bhogilal H. Patel - [1952] 21 ITR 72 (BOM.) Issues:- Whether the assessee is entitled to set off a loss suffered in a business at Wadhwan against profits made in a cotton business in Bombay for the purpose of excess profits tax under the chargeable accounting period of 1943.Analysis:The judgment addressed the issue of whether an assessee could set off a loss from a business at Wadhwan against profits from a cotton business in Bombay for excess profits tax purposes. The Tribunal allowed the set off based on a previous decision regarding income tax. The Excess Profits Tax Act focuses on taxing an assessee in respect of their business activities, treating the business as the unit for taxation purposes. Section 5 of the Act applies to businesses with profits chargeable to income tax under specific provisions. However, a proviso excludes businesses with all profits in an Indian State from the Act's scope. The proviso also deems a part of a business with profits in an Indian State as a separate business for exclusion. The contention arose regarding whether the proviso applies only to profits or also to losses incurred by a business outside British India.The judgment analyzed the interpretation of the proviso, emphasizing that it describes the nature of excluded businesses rather than distinguishing between profits and losses. The court highlighted that the Act aims to compare profits during a standard period with those in the chargeable accounting period to determine excess profits. Applying different standards for different periods would lead to inconsistencies. The court rejected the argument that the proviso only applies to profits and not losses, as it would create an illogical situation where profits from one business are excluded, but losses are not. The judgment concluded that the principle from a previous decision on income tax did not apply to cases under the Excess Profits Tax Act due to the distinct principles underlying both Acts.In conclusion, the court ruled against allowing the set off of losses from the Wadhwan business against profits from the Bombay business for excess profits tax purposes. The judgment clarified that the principles governing income tax and excess profits tax are different, and the proviso in the Excess Profits Tax Act aims to exclude specific types of businesses from its scope. Both judges concurred on answering the question in the negative, indicating that the assessee was not entitled to the relief sought.