Standard profits under excess profits tax must be computed as one unit, with residency tested only after profit calculation.

In computing standard profits under the Excess Profits Tax Act, the standard period must be treated as a single unit and its business profits determined as a whole. Rule 1 of Schedule I requires those profits to be computed on the principles applicable to section 10 of the Income-tax Act, so both Indian and foreign profits may enter the calculation. Residency status under section 4A of the Income-tax Act cannot be applied at the threshold to exclude foreign profits before the standard-period profits are first determined. The foreign profits for the relevant assessment year were therefore includible, and the exclusion made by the Excess Profits Tax Officer was incorrect.

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Issues: Whether, in computing standard profits under the Excess Profits Tax Act, the standard period could be split year-wise so as to exclude foreign profits of one assessment year by first determining residency status under the Income-tax Act.

Analysis: The standard period chosen under section 6 of the Excess Profits Tax Act was a single unit, and the profits for that period had to be computed as a whole. Rule 1 of Schedule I required the business profits of the standard period to be computed on the principles applicable under section 10 of the Income-tax Act, under which both Indian and foreign profits could enter the computation. The question of whether the assessee was resident or non-resident under section 4A of the Income-tax Act arose only after business profits had first been determined and could not be used at the threshold to exclude foreign profits from the standard period computation.

Conclusion: The foreign profits for the relevant assessment year were rightly includible in the standard period computation, and the exclusion made by the Excess Profits Tax Officer was incorrect.

Final Conclusion: The appeal failed, and the computation adopted by the Tribunal and the High Court was sustained.

Ratio Decidendi: For computing standard profits under the Excess Profits Tax Act, the business profits of the chosen standard period must be determined as a whole under the income-tax computation rules, and residency status cannot be applied beforehand to exclude profits from that computation.

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