Tax avoidance provision cannot override express exemption where business profits accrue in an Indian State.

Section 10A of the Excess Profits Tax Act could not be used to override the express exemption in the third proviso to section 5 for a business whose whole profits accrued or arose in an Indian State. The Act required applicability to be determined first under section 5; only then could anti-avoidance adjustments under section 10A operate. Because the business in question fell within the exempt category, its profits remained outside the charge to excess profits tax. The tax-avoidance provision therefore had no application, and the issue was resolved in favour of the assessee and against the revenue.

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Issues: Whether section 10A of the Excess Profits Tax Act, 1940 could be applied to a business whose profits were exempt under the third proviso to section 5 because they accrued or arose in an Indian State.

Analysis: The third proviso to section 5 expressly excluded from the Act any business the whole of whose profits accrued or arose in an Indian State, and treated a part-business in an Indian State as a separate business for that purpose. Section 10A empowered adjustments where transactions were effected mainly to avoid or reduce excess profits tax, but it could not be used to defeat the express limitation on the Act's application created by section 5. The scheme of the Act required the question of applicability to be determined first under section 5, and only then could section 10A operate. Since the Ratlam business fell within the exempted category, its profits were outside the charge to excess profits tax.

Conclusion: Section 10A did not apply, and the answer to the referred question was in favour of the assessee and against the revenue.

Ratio Decidendi: A provision aimed at counteracting tax avoidance cannot be invoked to override an express statutory exemption defining the scope of the taxing Act.

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