Skip to content


Commissioner of Excess Profits Tax, Bombay North Vs. Karamchand Premchand Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 46 of 1951
Judge
Reported inAIR1953Bom32; (1952)54BOMLR607; ILR1953Bom110; [1952]22ITR79(Bom)
ActsExcess Profits Tax Act, 1940 - Sections 7 and 9(3)
AppellantCommissioner of Excess Profits Tax, Bombay North
RespondentKaramchand Premchand Ltd.
Appellant AdvocateC.K. Daphtary, Solicitor General and ;G.N. Joshi, Adv.
Respondent AdvocateJamshedji Kanga and ;R.J. Kolah, Advs.
Excerpt:
in the case of an assessee company, which had a subsidiary company, the assessment of the excess profits of the assessee company had to be made not only in respect of its own business but also in respect of the business of the subsidiary company during the chargeable accounting period. - .....of profits in the sum of rs. 1,83,422 for excess profits purpose. in the chargeable accounting period sarabhai, ltd., made profits and the contention of the assessue was that inasmuch as there was a deficiency of profits in the account of sarabhai, ltd., in a sum of rs. 1,83,422 and inasmuch as sarabhai, ltd., had made profits during the chargeable accounting period, the deficiency of profits should be set off against the profits made by sarabhai, ltd. this contention was resisted by the department on the ground that the department was only concerned with the assessment of the assessee company and any relief to which sarabhai, ltd., may have been entitled had no bearing on the assessment of the assessee company; or, in other words, the assessee company wag not entitled to the benefit.....
Judgment:

Chagla, C.J.

[1] This reference has become necessary by reason of a somewhat extraordinary and extravagant claim made by the Department. We are concerned with the excess profits tax of the assessee and the chargeable, accounting period is '-1-1943, to 31-12-1943. It seems that in the chargeable accounting period Messrs. Sarabhai, Ltd., became a subsidiary company of the assessee company. Now, before 1-1-1913, i.e. prior to Sarabhai & Co., Ltd., became, if I may use that expression, merged with the assessee company, Sarabhai, Ltd., had a deficiency of profits in the sum of Rs. 1,83,422 for excess profits purpose. In the chargeable accounting period Sarabhai, Ltd., made profits and the contention of the assessue was that inasmuch as there was a deficiency of profits in the account of Sarabhai, Ltd., in a sum of Rs. 1,83,422 and inasmuch as Sarabhai, Ltd., had made profits during the chargeable accounting period, the deficiency of profits should be set off against the profits made by Sarabhai, Ltd. This contention was resisted by the Department on the ground that the Department was only concerned with the assessment of the assessee company and any relief to which Sarabhai, Ltd., may have been entitled had no bearing on the assessment of the assessee company; or, in other words, the assessee company wag not entitled to the benefit which Sarabhai, Ltd., would have been entitled to if Sarabhai, Ltd., had remained an independent company and had not become a subsidiary company to the assessee.

[2] Turning to the provisions in the Excess Profits Tax Act, the principle of relief on the occurrence of deficiency of profits is embodied in Section 7. Deficiency of profits occurs where profits have been made in any chargeable accounting period, and the amount of such profits fall short o the standard profits; and the relief given is that it excess profits tax is payable in respect of the earlier years, then relief is given by a reduction from that amount and if necessary even by a repayment, and if deficiency of profits cannot be absorbed by excess profits in the earlier years, then the deficiency has to be carried forward in subsequent chargeable accounting years. This is the scheme of Section 7. Now, it is not disputed, and it cannot be disputed, that Sarabhai, Ltd., if it had continued to function as a principal company, would have been entitled to carry forward the deficiency of profits in the amount of RS. 1,83,422 to the chargeable accounting period 1-1-1943, to 31-12-1943. The only reason why Sarabhai, Ltd., is not entitled to this relief, according to the Department, is that it has ceased to be a principal company and has become a subsidiary company of the assessee company. Reliance is placed by the Department on Section 9 (3) which provides that-

'If the subsidiary company is a subsidiary of the principal company throughout the chargeable accounting period, such capital employed in, and profits or losses arising from, the business of the subsidiary company as is employed or arise in-

(i) the chargeable accounting period or;

(ii) any year constituting or comprised in the standard period of the principal company shall be treated for the purposes of this Act as if it or they were capital employed in, or as the case may be, profits or losses arising from, the business of the principal company.'

Therefore, according to the Solicitor General it is only the profits or losses of the subsidiary company during the chargeable accounting period which have got to be taken into account in assessing the assessee to excess profits tax. In other words, the profits made by Sarabhai, Ltd., in the chargeable accounting period should be taken into consideration in assessing the profits of the assessee company but the deficiency of profits incurred by the subsidiary company in the previous year must be completely wiped off and not taken into account; In our opinion Section 9 (3) cannot be read by itself without reference to Section 7. A statute must be so read that all the sections as far as possible are reconciled and fitted into the scheme which the Legislature embodied in the statute. The scheme of Section 7 is clear, and when we turn to Section 9 (3) it only refers to how the assessment of the principal company has got to be made with reference to the subsidiary company. Section 9 (3) does not mean that in deciding whether the subsidiary company has made profits or not Section 7 has got to be completely overlooked and not given its proper application. Therefore, when for the purpose of Section 9 (3) it has got to be decided whether the subsidiary company h made any profits during the chargeable accounting period, the profits are only to be determined subject to the provisions of Section 7. Therefore, the profits of Sarabhai, Ltd., for the chargeable accounting period are the profits actually made by them during that period less Rs. 1,83,422 which is the deficiency of profits which under Section 7 Sarabhai, Ltd., are entitled to carry forward to the next year. It must not be forgotten that when we have to assess the excess profits of the assessee, it is not only in respect of its own business but also in respect of the business of Sarabhai, Ltd., which has become a subsidiary company during the chargeable accounting period. Therefore, the Tribunal was right in the view it has taken and the result is that the question that is submitted to us must be answered in the negative. The Commissioner must pay the costs of the reference.

[3] Answered in negative.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //