1. The question raised in this reference lies in a very narrow compass. Under section 10 of the Indian Finance Act, 1942, an option was given to an assessee who became liable to pay excess profits tax to make a deposit of one-fifth of the amount of the excess profits tax; and, if he did so, he became entitled to be refunded one-tenth of the amount of the excess profits tax or one-half of the said deposit, whichever was less. There was a proviso to this section and the proviso was that in respect of any profits which were also liable to assessment to excess profits tax under the law in force in the United Kingdom, it was unnecessary to make the deposit. In other words, an assessee who was liable to have his excess profits tax assessed in the United Kingdom had the benefit of the refund profits by section 10 (1) without incurring the obligation to make the deposit provided by that section. Now this voluntary deposit contemplated by section 10 (1) was made obligatory by clause 2 of the Excess Profits Tax Ordinance of 1943. Then we come to the Finance Act of 1946, and section 11, sub-section (11) of that Act provided that any sum being excess profits tax which had been repaid was to be deemed to be income of the previous of the Indian Income-tax Act and was to be treated as income of the previous year which constituted or included the chargeable accounting period in respect of which the said sum was repayable. Now the reason for this enactment was that, inasmuch as payment of excess profits tax was a permissible deduction from income under the Indian Income-tax Act, if any amount of excess profits tax was repaid, that should be deemed to be income for the relevant accounting year. To this section again there was a proviso :
'Provided that any such sum repaid in respect of any profits which are also assessable to excess profits tax under the law in force in the United Kingdom shall be taxed, for the purpose of assessment to income-tax and super-tax, as income of the previous year during which the repayment is made.' Therefore, instead of distributing the repayment to the relevant assessment years as provided in section 11 (11), in the case referred to in the proviso, namely, in a case where profits were also assessable to excess profits tax, the whole repayment was to be treated to be the income of the previous year. With this legal background let us look at the facts of this case.
2. Army & Navy Stores Ltd., who are the assessees before us, were incorporated in the United Kingdom and had a registered office there. They also carried on business in India at the material time and their chargeable accounting periods are 1st September, 1940, to 31st August, 1941, 1st September, 1941, to 31st August, 1942, 1st September, 1942, to 31st August, 1943, 1st September, 1943, to 31st August, 1944, and 1st September, 1945, to 31st March, 1946, respectively. They were called upon to make the compulsory deposit under the provisions of the Finance Act, 1942, and the Excess Profits Tax Ordinance. To this requisition the company relied on the 24th of November, 1946, in the following words :
'In reply to the last paragraph, we have to state that the company in question is eventually liable to excess profits tax (in the United Kingdom) and as such it would appear that the compulsory deposit is not payable in accordance with the fourth proviso to section 10 (1) of the Finance Act, 1942.'
3. The excess profits tax refund was paid to the assessee company in the accounting year ended 31st August, 1952, and the Department brought that refund to tax as income of the assessee for the assessment year 1953-54. The assessee company's contention was that the amount of refund should be distributed to the various charging periods and should be treated as income of the previous year in respect of which the repayment was made. The Tribunal accepted the contention of the assessee company and the Commissioner has now brought this question of law before us for our consideration.
4. Now the most significant and outstanding fact in this reference is that the assessee company obtained a particular benefit and escaped a particular obligation by reason of representation made by it to the Taxing Department. The representation that the company made on the 24th of November, 1946, was that it was liable to excess profits tax in the United kingdom. It was by reason of this representation that it succeeded in inducing the Department to attract to its case the proviso to section 10, sub-section (1), to which reference has been made. But for this representation and but for the statement that it was liable to pay excess profits tax in the U. K., the company would have been liable to make a compulsory deposit. It was only if it had made a compulsory deposit that it would have been entitled to the refund provided in that section. It could escape obligation to make compulsory deposit only if its profits were liable to excess profits tax in the United Kingdom and it escaped that liability because it represented to the Department that its profits were liable to excess profits tax in the United Kingdom. Now when the question arose under section 11 (11) of the Finance Act, 1946, as to how the refund should be brought to tax, the assessee company completely changed its front and took up the attitude that its profits were not liable to excess profits tax in the United Kingdom and therefore the case did not fall under the proviso to section 11 (11). It is difficult to understand how the assessee can be permitted to deny the truth of the representation made by it in its letter of the 24th of November, 1946, when on the strength of it it obtained a certain benefit and when on the strength of it the Taxing Department relieved it of a certain obligation. The Taxing Department having changed its position to its prejudice by reason of this representation, the assessee company cannot be permitted to deny the truth of that representation when the question arises of assessing its refund to tax under the proviso to section 11 (11).
5. Mr. Kolah asks us to look at the facts of this case as far as the assessee company is concerned, and the facts show that between the years 1940 and 1945, when excess profits tax was payable in the United Kingdom, the company did not make any excess profits at all. On the contrary, during the working of the company for these years, there was a deficient in the sum of Pounds 44,676. But, says Mr. Kolah, when the letter was written on the 24th of November, 1946, the assessee company did not know what the ultimate result of its working would be and whether in fact it would be assessed to tax or not; and therefore for the purpose of interpreting the proviso to section 10 of the Finance Act of 1942 Mr. Kolah asks us to read the expression 'liable to assessment' as meaning that there is a possibility of the profits made by an assessee doing business in the United Kingdom being assessed to excess profits tax. Mr. Kolah says that this proviso does not deal with the fact of assessment to excess profits tax, but that it only refers to the possibility of excess profits tax being brought to assessment and ultimately to tax. We are prepared to take Mr. Kolah at his word and we are prepared to put that construction on that proviso if it favours his client. But if that is the interpretation which has to be placed upon the proviso to the Finance Act of 1942, then the same interpretation should be put upon the proviso to section 11 (11) of the Finance Act of 1946. The language used in the Finance Act of 1942 is 'liable to assessment'; the language used in the Finance Act of 1946 is 'assessable to excess profits tax'. We see no difference between these two expressions. Both emphasise, not the fact of assessment, but the liability to be assessed. Both contemplate excess profits tax being made in the United Kingdom which under the law May be brought to tax under the Excess Profits Tax Act. If, therefore, we place the same construction upon the proviso to section 11 (11) of the Finance Act of 1946 as the proviso in section 10 (1) of the Finance Act of 1942, the position of the assessee is equally the same, because there is no doubt that the profits which the assessee made or which it might make were liable to be assessed to excess profits tax in the United Kingdom. Mr. Kolah himself says that the assessee company could not know whether it would make profits, whether the profits would be excess profits and whether those profits would in fact be brought to tax. If that is so, them the position of the assessee company vis-a-vis excess profits tax is the same under the proviso to section 10 (1) of the Finance Act of 1942 as under the proviso to section 11 (11) of the Finance Act of 1946. It is not necessary for us, as the Tribunal has attempted to do, to find out why this proviso was enacted; but if we must look for an object in a taxing statute, we are sure of one thing, that the Indian Legislature could never have had as its object in enacting the proviso to section 10 (1) and the proviso to section 11 (11) that an assessee who got the benefit of refund of excess profits tax without incurring the obligation of making the deposit should also have the benefit of having the refund distributed in the relevant accounting years and not to the year in which the refund was made.
6. In our opinion, therefore, the assessee company is liable to have the sum of excess profits tax repaid to it as income for the assessment year 1953-54 and question submitted to us accordingly.
7. Assessee to pay the costs.
8. Question answered accordingly.