Norman Macleod, Kt., C.J.
1. The petitioners were assessed on the 30th October 1919 under the Excess Profits Duty Act (X of 1919) in the amount of Rs. 6,48,379-4-0 and received due notice thereof from the Collector of Income Tax (Exh. B). Thereupon the petitioners presented an appeal against the said assessment to the Chief Revenue-Authority claiming that they were entitled to be held exempt from assessment. The appeal was heard on the 3rd August 192O when the assessment of the Collector of Income Tax was confirmed. The petitioners requested the Chief Revenue-Authority to state a case for the opinion of the High Court but on the 11th August the Chief Revenue-Authority wrote that a reference to the High Court had been deemed unnecessary.
2. On the 20th August the petitioners obtained a rule calling upon the Chief Revenue-Authority to show cause why he should not Bombay be orderd to refer to this Hon'ble Court for its decision the questions set out in Exh. D to the petition, and the question Navigation whether the cash and investments referred to in para 8 of the petition should be taken into consideration for purposes of a excess profits duty, together with his opinion upon those questions, or, in the alternative, why the Chief Revenue-Authority should not be ordered to hear and determine according to law the petitioners' application to refer the above questions to this Hon'ble Court. The alternative prayer seems unnecessary. An affidavit in reply has been put in annexing the decision of the Chief Revenue-Authority to the effect that the reference asked for was quite unnecessary as the provisions of Section 6 of the Act and Schedule II thereto were absolutely clear on the point.
3. Section 45 of the Specific Relief Act provides that-
The High Court may make an order requiring any specific act to be done or forborne within the local limits of its ordinary original civil jurisdiction by any person holding a public office : Provided
(a) That an application for such order be made by some person whose property, franchise or personal right would be injured by the forbearing or doing of the said specific act.
(b) That such doing or forbearing in under any law for the time being in force dearly incumbent on such person in his public character.
(c) That in the opinion of the High Court such doing or forbearing is consonant to right and justice.
(d) That the applicant has no other specific and adequate legal remedy. And
(e) That the remedy given by the order applied for will be complete.
4. Act X of 1919 is an Act to impose a duty on excess profits arising out of certain businesses, and it is admitted that the Act applies to the business carried on by the petitioners. Sections 5 and 6 provide for the methods in which the excess profits are to be ascertained for the purposes of assessment.
5. Section 7 gives the Collector power to make allowances for special circumstances.
6. Section 8 provides for an appeal to the Chief Revenue-Authority against the decision of the Collector on an application under Section 7. The decision of the Chief Revenue-Authority is final.
7. Section 15 provides that certain sections of the Indian Income Tax Act (VII of 1918) including Sections 49 to 52 shall apply as if they referred to excess profits duty instead of to income tax.
8. Section 51 of the Indian income Tax Act (VII of 1918) provides that if in the course of any assessment under the Act and Persia a question has arisen with reference to the interpretation of any provision of the Act or of any rule thereunder, the Chief Revenue-Authority shall refer any such question on the application of the assessee with its own opinion thereon to the High Court, unless it is satisfied that the application is frivolous or that a reference is unnecessary.
9. The wording of the section is not very satisfactory. On a strict construction the Chief Revenue-Authority could always avoid referring a question on the application of the assessee by saying it was satisfied the reference was unnecessary, and then it would be difficult for the Court to hold that it was incumbent under the Act for the Chief Revenue-Authority to refer the question. I think, however, it would be open to the Court to consider the grounds on which the Chief Revenue-Authority was satisfied that a reference was unnecessary. For instance if a question arose with regard to the interpretation of a section which was so complex, so intricate, that it was clearly advisable that the question should be finally determined by a judicial authority rather than by the Chief Revenue-Authority, I doubt whether that Authority would be justified in saying that it was satisfied that a reference was unnecessary, law order, therefore, to decide whether in this case the Chief Revenue-Authority had reasonable grounds for being satisfied that a reference with regard to the questions which had arisen was necessary, we must consider the sections of the Act which provide for the assessment of excess profits duty.
10. Section 2 defines the accounting period as the twelve months ending the 31st March 1919, or, if the accounts of the business have been made up within the twelve months for the purpose of the Indian Income Tax Act 1918 in respect of a year ending on any date other than 31st March, then the year ending on that date.
11. Section 4 imposes a duty of 50 per cent, on the amount by which the profits in the accounting period exceed the standard profits.
12. Section 6(1)(a) and (6) prescribe various methods for calculating standard profits. If they are calculated under (b) there is a proviso that if the average capital employed in the business in the years adopted for the purpose of determining the standard profits is less or more than the capital so employed at the end of the accounting period, there shall be made to or from the standard profits an addition or deduction as the case may be, which shall bear to the standard profits the same pro-portion as such decrease or increase of capital bears to the average capital so employed in the year so adopted. For the Navigation purpose of ascertaining the average capital, the capital employed in the business in any year shall be deemed the capital so employed at the end of that year.
13. By Sub-section (4) no increase of capital made after the 31st December 1918 shall be taken into account in any case and no such increase before that date shall be taken into account, when it appears or to the extent to which it appears, that the increase was made with intent to evade or has the effect of evading the payment of the excess profits duty. To take, therefore, a concrete instance, if the standard profits are one lac on an average capital of ten lacs, and the capital at the end of the accounting period is twenty lacs then the standard profits will be increased to two lacs. It is obvious then that the more the capital at the end of the accounting period can be increased, the greater the addition to the standard profits, with a corresponding decrease in the amount on which the excess profits duty can be levied.
14. Schedule II to the Act prescribes how capital is to be ascertained.
1. The amount of the capital of a business shill, so far as it does not consist of money, be taken to be-
(a) So far as it consists of assets acquired by purchase the price at which these assets were acquired, subject to any proper deduction for depreciation or for unpaid purchase money.
(b) So far as it consists of debts due to the business the nominal amount of those debts subject to any deduction which has been allowed or in allowable in respect of those debts under the Indian Income Tax Act 1918. And
(c) So far as it consists of any other assets which have not been acquired by purchase the value of the assets : t the time they became assets of the business, subject to any proper deduction for depreciation.
Any borrowed money or trade debt shall be deducted in computing the amount of capital for the purposes of this Act.
15. Then there is the proviso which has given rise to the matter in dispute in this case.
16. Accumulated profits other than those made in the accounting period would, in the ordinary course, remain to the credit of the profit and loss account and would not be capital, but nothing in the provisions regarding the ascertainment of the capital of a business is to prevent accumulated profits being treated as capital if they are employed in the business.
17. Now the petitioners' balance sheet for the year ending the 31st December 1918 shows a total of 119 lacs odd for cash and investments. No doubt a portion of this amount was required to meet recognised liabilities appearing on the other side of the balance sheet, but it is equally clear, and I do not think the petitioners dispute it, that some portion of this amount represented accumulated profits for the years prior to the accounting period. Those profits which are not employed in the business cannot be treated as capital for the purposes of the Act. There is nothing, therefore, with regard to the interpretation of Schedule II which can give rise to any difficulty. Assuming that the questions were referred to us, what is the proper interpretation of the proviso to Clause (1) of the Second Schedule, we could only say that accumulated profits cannot be treated as capital unless they are employed in the business. Whether or not they are employed in the business is a question of fact which the Chief Revenue-Authority is entitled to decide on the materials before it.
18. The petitioners claimed that the whole of their cash and investments were employed in the business. They made no attempt to assist the Collector or Chief Revenue-Authority in deciding how much was employed in the business with the result that a haphazard guess was made at the amount, instead of employing proper accounting methods. The questions which the petitioners formulated in their letter of the 5th August to the Chief Revenue-Authority, were really questions for a Chartered Accountant and not questions with regard to the interpretation of the Act. Supposing those questions were before the Court they could only be answered with the assistance of experts. But it may be permissible to make a few remarks on the facts as presented to us. Ordinarily speaking the excess in a balance sheet of assets over liabilities is profit. On the balance sheet produced before us that excess is over sixty lacs, if the reserve fund is not considered as a liability since it represents past profits which have not been distributed. But if the ships are valued as the petitioners wish them to be valued for the purpose of increasing the capital as at the end of the accounting period, the profits would be over rupees eighty-six lacs including of course the profits earned during the accounting period. This amount is actually represented by cash and investments; and could be distributed among the shareholders by way of dividend. If, however, it was represented by ships, even though they were purchased at the end of the accounting period, it would be profit employed in the business.
19. As on the 31st December 1918 it had not been so employed, it cannot be argued that it makes no difference so long as it was intended to be employed. The Act does not say that profits intended to be employed in the business can be treated as capital. Bombay We have not got the calculations before us on which the Collector came to the conclusion that the capital at the end of the Navigation accounting period was twenty-four lacs, but the best advice I can give the petitioners is that they should ask the Collector or the Chief Revenue-Authority to reconsider its decision, and instead of adopting an absolutely impossible attitude in calculating the capital, to satisfy him by proper accounting methods what amount of the accumulated profits now represented by investments are actually employed in the business.
20. In my opinion the Chief Revenue-Authority had reasonable grounds for being satisfied that it was unnecessary to refer to the High Court the questions which had arisen with regard to the interpretation of the Act and the rule should be discharged with costs.
21. I agree that it has not been shown to be ' clearly incumbent on ' the Chief Revenue-Authority to refer the questions mentioned in this petition under Section 51 of the Indian Income Tax Act, 1918, and that the rule should be discharged with costs.
22. The words ' employed in the business' in the proviso to Rule 1 of Schedule II to the Excess Profits Duty Act, 1919, prima facie bear their natural meaning of ' actually employed in the business', and cannot properly be construed as if the words were 'employed or intended to be employed in the business'. If the latter had been intended, they would presumably have been used, just as they are used in Schedule D, Cases I and II, Rule 3(f) of the English Income Tax Act, 1918 which specifies ' any sum employed or intended to be employed as capital in such trade, profession, employment or vocation.'
23. In my opinion, the interpretation put on the proviso by the Chief Revenue-Authority is correct, and he had reasonable grounds for being satisfied that it was unnecessary to make the reference to the High Court, which the petitioners asked for.