Repayment of excess profits tax treated as business income, not income from other sources, for income-tax purposes.

Repayment of excess profits tax was treated as business income where the original levy had been paid out of business profits and allowed as a deduction in computing business income. Section 11(11) of the Finance Act, 1946 deemed such repayment to be income for the purposes of the Indian Income-tax Act, 1922 and to be assessed in the relevant previous year. On that basis, and because the tax was connected with business profits, the repayment retained its character as profits of business. It therefore fell under section 10 and did not fall under section 12; the assessee was entitled to the benefit of section 25(4).

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Issues: Whether repayment of excess profits tax under the Finance Act, 1942 and the Excess Profits Tax Ordinance, 1943 was profits and gains of business so as to attract section 10 and section 25(4) of the Indian Income-tax Act, 1922, or whether it was income from other sources taxable under section 12.

Analysis: The amount refunded had originally been paid out of business profits and was allowed as a deduction in computing business income under section 12(1) of the Excess Profits Tax Act, 1940. Section 11(11) of the Finance Act, 1946 expressly deemed such repayment to be income for the purposes of the Indian Income-tax Act, 1922 and directed it to be treated as income of the relevant previous year. On that basis, and having regard to the nature of the levy as a tax on profits arising out of business, the repayment did not lose its character as part of business profits when it was returned.

Conclusion: The repayment was business income falling under section 10 and the appellants were entitled to the benefit of section 25(4); it was not taxable under section 12.

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