RAMLAL JUGAL KISHORE vs EXCESS PROFITS TAX OFFICER, PATNA, AND ANOTHER.

In pursuance of a voluntary disclosure of income, the Excess Profits Tax Officer of Patna made assessments of excess profits tax on the petitioner, Ramlal Jugal Kishore, for the chargeable accounting periods from 1st September, 1939, to 31st of March, 1946. In making these assessments, the Excess Profits Tax Officer adopted the standard profits of Rs. 36,000 per annum which is the minimum standard profit fixed under the Excess Profits Tax Act. The case of the petitioner is that for the "standard period" the standard profit of the petitioner amounted to about Rs. 80,000 per annum and there was a mistake committed by the Excess Profits Tax Officer in taking the standard profit at Rs. 36,000 per annum. The contention of the petitioner is that this procedure adopted by the Excess Profits Tax Officer has resulted in excessive assessments. The petitioner accordingly filed an application on the 11th October, 1957, to the Commissioner of Excess Profits Tax u/s 20 of the Excess Profits Tax Act for rectification of the mistake. This petition was dismissed by the Commissioner on the 10th of December, 1957. On the 19th of December, 1957, the petitioner filed another application before the Commissioner of Excess Profits Tax, but this application was also dismissed. The petitioner then moved the Central Board of Revenue on the 30th May, 1959, for adoption of the correct figure of standard profit and rectification of the excess profits tax assessments. By a letter dated the 6th May, 1960, the Central Board of Revenue informed the petitioner that it did not consider it necessary to interfere.

The petitioner has now obtained a rule from the High Court calling upon the respondents to show cause why the order of the Commissioner of Excess Profits Tax u/s 20 of the Excess Profits Tax Act should not be set aside under article 227 of the Constitution.

Cause has been shown on behalf of the respondents by �learned standing counsel for the Commissioner of Income Tax.

On behalf of the petitioner, learned Government Advocate put forward the argument that the order of the Commissioner of Excess Profits Tax is defective in law because he has given no relevant reason for rejecting the claim of the petitioner that the standard profit should not have been taken at Rs. 36,000 but standard profit should have been computed for the standard period at Rs. 75,000 to Rs. 80,000. In our opinion, the argument put forward on behalf of the petitioner is well founded and must be accepted as correct. In rejecting the claim of the petitioner, the Commissioner of Excess Profits Tax stated as follow :

"The assessee has further claimed that the standard minimum should not have been taken at Rs. 36,000 when the standard profits computed for the standard years were Rs. 75,000 to Rs. 80,000. This is not tenable as the profits disclosed having been kept outside the books, they cannot be deemed to have been utilised for business and consequently cannot be taken into account for capital computation."

It was not be argument of the petitioner that the standard profit should be increased from the figure of Rs. 36,000 because the average amount of capital was increased by putting the profits back into the business. In holding that the profits were kept outside the books and it cannot be assumed to have been utilised for the business, the Commissioner of Excess Profits Tax has not applied his mind to the contention of the assessee. The sole argument advanced behalf of the assessee before the Commissioner of Excess Profits Tax was that since there was computation by the Income Tax department of the standard profit at Rs. 75,000 to Rs. 80,000, the same figure should have been taken into account for computation of excess profits tax also. In this connection, learned counsel on behalf of the petitioner referred to the second proviso to rule 1 of Schedule I of the Excess Profits Tax Act which states as follow :

"The profits of a business during the standard period, or during any chargeable accounting period shall be separately computed, and shall, subject to the provisions of this Schedule, be computed on the principles on which the profits of a business are computed for the purposes of Income Tax u/s 10 of the Indian Income Tax Act, 192 :

Provided that any sums (other than any interest paid by a firm to a partner of the firm) excluded under the proviso to clause (iii) of sub-section (2) of clause (a) of sub-section (4) of that section from the allowances made in computing the profits of the business for the purposes of Income Tax shall, if paid, be included in those allowances when computing the profits of the business for the purposes of excess profits ta :

Provided further that where the profits during any standard period have already been determined for the purpose of an assessment under the Indian Income Tax Act, 1922, such profits as so determined shall, subject to the adjustments required by this Schedule, be taken as the profits during that period for the purpose of excess profits tax."

On behalf of the respondents, however, learned standing �counsel submitted that the income taxed during the standard period for the purposes of Income Tax cannot automatically be taken to be the same figure for the purposes of excess profits tax because the income taxed under the Income Tax Act included several heads like income from property, income from shares, dividends etc., besides income from business. Learned counsel for the respondents also contended that that figure is also subject to various other adjustments for the purpose of computing excess profits tax and the question was not really a matter of rectification of mistake u/s 20 of the Excess Profits Tax Act and the Commissioner had no jurisdiction to act in the present case under the provisions of that section. We do not, however, wish to express any definite opinion on this point and it will be for the Commissioner of Excess Profits Tax to decide, when the case goes back to him on remand, whether he can legally interfere with the order of assessments made by the Excess Profits Tax Officer under the provisions of section 20 of the Excess Profits Tax Act. But for the reasons already given, we hold that the order of the Commissioner of Excess Profits Tax dated the 10th December, 1957, is vitiated by error of law.

Acting, therefore, in exercise of our authority under article 227 of the Constitution we set aside the order of the Commissioner of Excess Profits Tax dated the 10th December, 1957, which is annexure "J" to the writ application, and order that the case should go back before the Commissioner of Excess Profits Tax to be dealt with and decided in accordance with law.

Accordingly, we allow this application. There will be no order as to costs.