Standard-period profit computation under excess profits tax must follow Section 10 first, before residential status is applied.

For computing profits for the standard period under Schedule I of the Excess Profits Tax Act, the business profits had first to be worked out under Section 10 of the Income-tax Act, 1922, subject to the Schedule, before any later application of the provisions governing total income and residential status under Sections 4 and 4A. The standard period was the relevant unit of computation, so the London profits for the earlier assessment year could not be excluded merely because the assessee's residence position was considered at an intermediate stage. The High Court therefore answered the issue in favour of the assessee and held that the amount could be included in the standard-period profits.

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Issues: Whether, in computing the profits for the standard period under Schedule I of the Excess Profits Tax Act, the London profits for the earlier assessment year could be included, and whether the assessee's residential status under the Income-tax Act could be determined before computing business profits under Section 10.

Analysis: Rule 1 of Schedule I required the profits of the standard period to be separately computed on the principles applicable to business profits under Section 10 of the Income-tax Act, 1922, subject to the schedule. The Court held that the computation under Section 10 had to be carried out first, and that the provisions dealing with total income and residential status under Sections 4 and 4A came into play only at a later stage. The standard period was treated as the relevant unit for computation, and the earlier inclusion of the London profits could not be excluded merely because the assessee was treated as resident or non-resident at an intermediate stage.

Conclusion: The sum of Rs. 66,386 could not be ignored in computing the profits for the standard period, and the question was answered in the affirmative in favour of the assessee.

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