Statutory exemption for Indian State profits bars excess profits tax avoidance provisions where no liability exists at all.

Section 5 excluded from excess profits tax any business whose whole profits accrued or arose in an Indian State, so profits wholly earned there were outside charge. Section 10A, which targeted arrangements to avoid or reduce tax liability, could not apply where no liability existed in the first place on those State profits. The taxpayer was entitled to arrange its business to benefit from the statutory exemption, and the motive for opening the business in the Indian State was irrelevant. The addition of those profits to taxable income was therefore beyond jurisdiction.

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Issues: Whether Section 10A of the Excess Profits Tax Act applied where the profits in question accrued wholly in an Indian State and were outside the charge under Section 5 of the Act.

Analysis: Section 5 excluded from the Act any business the whole of the profits of which accrued or arose in an Indian State. Section 10A was intended to counteract transactions designed to avoid or reduce a liability to excess profits tax. Where there was no liability at all in respect of profits accruing outside British India, there could be no avoidance of tax within the meaning of Section 10A. The assessee was entitled to structure its business so as to take advantage of the statutory exemption, and the motive for opening the business in the Indian State was immaterial.

Conclusion: Section 10A did not apply to the case, and the order adding the Indian State profits to the assessee's taxable profits was beyond jurisdiction.

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