1953 (1) TMI 2

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....assessment year is 1945-46 and the accounting year is the calendar year 1944. The Income-tax Officer assessed the profits for income-tax at Rs. 46,18,384 and that is not questioned. The Excess Profits Tax Officer computed the profits, for excess profits tax purposes, at Rs. 46,94,304. In reaching this figure he excluded certain items in the return for determining how the profits increased the capital ; for example, he excluded moneys given away as presents and in charity etc. Now in order to determine the quantum of excess profits tax payable by an assessee it is necessary under the Act to compute, among other things, the average amount of capital employed by the business during a certain period. This, under Section 2(3), has to be th....

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....existence because it is a mere corollary to clause (a). In the same way, he says, if clause (a) is accepted, then clause (b) lives also, and as clause (a) has been accepted here clause (b) must also be applied without anything more. We do not agree. The word "deemed" clearly governs both clauses, for the fiction which the Rule creates is not only that the profits shall be deemed to have accrued at an even rate throughout the period, but further that they must be deemed to have resulted, as they accrued, in a corresponding increase or decrease in the capital. In the same way, the words "except so far as the contrary is shown" govern both clauses and it is open to either side to rebut the artificial presumptions created by that Rule by sho....

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....ing" within the meaning of Rule 2A of Schedule II. The Commissioner of Income-tax says it is a " debt" within the meaning of Rule 2. We agree with the High Court that this is a "debt" and not a "borrowing". At bottom this is a question of fact. Of course, money so left could, by a proper agreement between the parties, be converted into a loan, but in the absence of an agreement mere inaction on the part of the managing agents cannot convert the money due to them, and not withdrawn, into a loan. A loan imports a positive act of lending coupled with an acceptance by the other side of the money as a loan. The relationship of borrower and lender cannot ordinarily come about by mere inaction. The clause in the Articles of Agreement quoted abo....