Statutory deeming fiction made excess profits tax repayment taxable income, and territorial source objections could not defeat assessment.

A statutory repayment of excess profits tax was treated as taxable income because section 11(14) of the Indian Finance Act, 1946 created a double fiction: the repayment was deemed income and was treated as income of the relevant previous year for assessment. Construing the provision with the corresponding English rule, the Supreme Court noted that the fiction was sufficient to fasten income-tax liability without further proof of territorial source. The distinction between income inside and outside the taxable territory did not prevent assessment. The repayment was therefore assessable as income in the year of receipt, and the assessment was upheld.

---

---

Issues: Whether repayment of excess profits tax received from the United Kingdom under the Finance Act was income deemed liable to assessment under the Indian Income-tax Act, and whether the territorial provisions of residence and taxable territory prevented such assessment.

Analysis: Section 11(14) of the Indian Finance Act, 1946 created a twofold fiction: the repayment was deemed to be income, and that income was to be treated as income of the previous year for assessment to income-tax and super-tax. The provision was construed in the light of the corresponding English rule dealing with repayment of excess profits duty, under which repayment retained its character as trading profit and was treated as taxable income notwithstanding the general income-tax scheme. On that construction, the statutory fiction was sufficient to fasten tax liability without further proof of territorial source, and the distinction between income within and without the taxable territory did not defeat the charge.

Conclusion: The repayment was taxable income under section 11(14) and was liable to assessment in the previous year in which it was received, in favour of Revenue.

Final Conclusion: The appeal succeeded in neither of the grounds pressed and the assessment of the repayment as income was upheld.

Ratio Decidendi: Where a taxing provision expressly deems a repayment to be income and requires it to be treated as income of the relevant previous year for assessment, the fiction itself creates the charge and the amount becomes taxable without further enquiry into its territorial character.

---