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Excess Profit Tax Act, 1940--Sections 2, 5-7-'Accounting period'-'Chargeable account period'-'Standard profits'-What are Deficiency in profits-Setting off-Basis of determination. The assessee was an unregistered firm carrying on business of manufacture and sale of Katechu. The firm carried on the work of extraction of Katechu in Nepal and sales were affected in Kanpur. It had first taken a jungle on lease and Katechu were extracted from October 1940 to September, 1941. Sales were effected from 30th May, 1941 to 29th September, 1941. Thereafter, another jungle was taken on lease and Katechu were extracted from 23rd November, 1942 to 6th November, 1944. The sales were effected between 26th July, 1943 to 4th April, 1944.The assessee claimed set off of deficiency of profit for the periods 20th October, 1940 to 17th October, 1941 and 23rd November, 1942 to 31st March, 1943 on the ground that the business carried on during the chargeable accounting period 1-4-1943 to 31-3-1944 was not separate to and distinct from the business carried on in 1940-41. The Excess Profit Tax Officer did not set off the deficiency of profits that accrued in respect of the period 1940-41 out of the profits for the chargeable accounting period from 1-4-1943 to 31-3-1944, and held that the business carried on during October, 1940 to October, 1941 was completely different from the business carried on during the aforesaid chargeable accounting period. So far as the deficiency pertaining to the period November, 1942 to 31st March, 1943 was concerned, the manufacturing operations started on or about 23rd November, 1942 and the sales started on 26th July, 1943. Katechu produced from 23rd November, 1942 to 31st March, 1943 remained in stock till the last date of the chargeable accounting period namely, 31st March, 1943. As the assessee did not, maintain any books of account, the provisions of s.13 of the Income Tax Act, 1922 were applicable. The Revenue, therefore, valued the stock-in-trade at cost and held that there could be no profit or loss during the ) chargeable accounting period. In appeal, the assessee urge that deficiency in profits pertaining to the chargeable accounting periods from October, 1940 to 31st March, 1941, and 23rd November, 1942 to 31st March, 1943 should be allowed a set off in computing the excesss profits and as there were no profits during the said chargeable accounting period, the standard profits became the deficiency of the said two years which should have been allowed set off and that as manufacturing operations were carried on during the said periods, it could not be said that the assessee did not carry on any business. The Appellate Assistant Commissioner found that the constitution of the firm during the chargeable accounting period was the same as in 1940-41, that the accounts were maintained in the same fashion and the same business was carried on, that the assessee had effected sales only during 30th May, 1941 to 29th September, 1941 and held that the assessee was entitled to set off in respect of the deficiency of profits. He, therefore, confirmed that there were no profits and losses during the chargeable accounting period ending on 31st March, 1941 and as such there could be no deficiency of profits. The assessee was, therefore, held to be entitled to a set off of the deficiency only for the chargeable accounting period ending on 31st March. 1942 which consisted of the period Isl April, 1941 to 29th September 1941. The Tribunal, however, held that no profits accrued unless sale was effected and accepting the contention of the Revenue that no part of profits, which accrued during the said two chargeable accounting periods could be charged and were in fact not so charged to income-tax, as no sales were effected, the Act itself did not apply and confirmed the order of the Appellate Assistant Commissioner. The High Court divided the entire period of manufacture and sales to determine the question whether there was manufacturing activity and sale; (1) October 28, 1940 to March 31, 1941, falling in the financial year ending March 31, 1941, Katechu was manufactured but there was no sale; (2) April 1, 1941 to September 29, 1941, falling in the financial year ending March 31, 1942; sales took place from May 30, 1941 to September 29, 1941; (3) November 23, 1942 to March 31, 1943 falling in the financial year ending March 31, 1943; Katechu was manufactured but there was no sale; (4) April 1, 1943 to March 31,1944, falling in the financial year ending March 31,. 1944; sale took place from July 26, 1943 to March 31, 1944; (5) April 1, 1944 to April 4, A 1944, falling in the financial year ending March 31, 1945; sales were effected from April 1, 1944 to April 4, 1944 when the business was discontinued. It held that while there was manufacturing activity there was no sale during the financial years ending March 31, 1941 to March 31, 1943, that the profits earned upon sales effected during the chargeable accounting period ending 31st March, 1944 must be apportioned between the manufacturing activity during the chargeable accounting period ending 31st March, 1943 and the sales during the chargeable accounting period ending 31st March, 1944 and that the deficiency of profits must be set off in computing the excess profits for the chargeable accounting period ending 31st March, 1944. The High Court, therefore, did not accept the opinion of the Tribunal and held that the assessee was entitled to a set off of deficiency of profits relating to the periods 28-10-1940 to 31-3-1941 and 23-11-1942 to 31-3-1943 from the profits of the chargeable accounting period 1-4-1943 to 31-3-1944. |
