S.T. Desai, J.
1. The assessee, Shree Ambica Ltd., Ahmedabad is the successor in interest of Shree Jagdish Mills Ltd. which, at all material times, ran a textile mill at Baroda which was an Indian State. The assessment year is 1949-50 and the previous year ended on 31st December, 1948. Shree Jagdish Mills Ltd. carried on its manufacturing operations at Baroda and also carried on its business at Baroda, but it used to make its purchases of stores, fuel and raw materials such as cotton British India. We shall refer to this mills company hereafter as 'the assessee'. The assessee became liable to pay excess profits tax in accordance with the law promulgated in the Baroda State in 1943 by a Huzur Ordinance called the Excess Profits Ordinance, 1943. It will be convenient at this stage to set out certain provisions of that Ordinance :
'2. Excess Profits Tax Act applied to Baroda State : The Excess Profits Tax Act (No. XV of 1940) in force British India as modified up to date shall apply to the Baroda State with the modification shown in the Schedule annexed hereto from 1st August, 1943.
3. Rate of Excess Profit Tax : The excess profits shall be an amount equal to sixty and two-thirds per cent. by which the profits of the business during the chargeable accounting period exceed the standard profits.
4. Excess Profit Fund : The proceeds of the excess profits shall be deposited with the Accountant-General, who shall maintain a fund called 'The Baroda Excess Profit Fund' (hereinafter called 'the fund')
6. How the fund may be utilised : The Board shall invest the amount of the fund in the name of the Accountant-General in securities of the Government of India or War Loans floated by the Government or in any other manner approved by the Government provided that the request of the assessee the Board may, at their discretion, invest a portion of the amount standing in his name in shares of companies or trading concerns with the consent of the Government of India or of the Baroda Government.
8. Amount to be repaid for the benefit of industry : The amounts to the credit of each assessee shall be repaid for the benefit of his industry or business within twenty-four months of the date on which the deposit made, whichever is later.'
2. The expenses of management of the Fund were to be charged to the Fund. For the chargeable accounting period 1942, the excess profits tax payable by the assessee mills was Rs. 7,93,544. The assessee mills instead of paying the amount in cash to the Accountant-General purchased Government of India Loan Paper and sent it to the Accountant-General. In respect of the chargeable accounting periods 1942,1943 and 1944, the total demand for excess profits tax made on the assessee was Rs. 38,86,609. This was paid by the assessee mills from time to time by handing over Government of India securities of the face value of Rs. 38,43,000 and the balance was paid by cheque. All the securities which were tendered to the Accountant-General and accepted by him in lieu of payments of excess profits tax were endorsed in his favour and continued to stand all along in his name while they formed part of the Baroda Excess Profits Fund in accordance with clause 4 of the Ordinance. While the securities were with the Accountant-General, they necessarily earned interest and the Accountant-General realised the interest on those securities. Certificates of deduction were also issued by the Reserve Bank in favour of the Accountant-General. The Accountant-General, however, made an endorsement on those certificates that the securities belonged to the assessee mills. The war came to an end and ultimately on 7th November, 1947, the Accountant-General directed the refund of Rs. 40,51,351-14,1 where out Rs. 40,38,670-7-5 represented the value of the securities that were directed to be handed over and Rs. 12,681-6-8 was the amount of uninvested balance. Included in this sum of RS. 40,51,351-14-1 was a sum of Rs. 28,718. According to the Tribunal, the assessee got back the securities of a larger face value than what it has tendered to the Accountant General. The Department sought to tax this amount of Rs. 28,718. The assessee contented that the amount represented interest on securities and the contention of the department was that such was not the position. The Tribunal found that this sum did not represent interest on securities in the hands of the assessee. The contention of the assessee was that all among the Government securities remained the property of the assessee and the interest realised by the Accountant-General on these securities was the income of the assessee which could only be taxed under the head of 'Interest on Securities'. The Tribunal rejected that contention and the assessee has come before us on this reference.
3. Two question have been raised for our determination :
'(1) Whether the sum of Rs. 28,178 is assessable to tax in the hands of the assessee under the head 'interest on securities' referred to in section 8 of the Act
(2) Whatever may be the answer to the above question, is the assessee entitled to any credit for tax in accordance with the provisions of section 18(5) read with section 18(3) ?'
4. It has been argued before us by Mr. Palkhivala that what has been described as excess profits tax was no tax at all. Now, the argument of Mr. Palkhivala come to this : The Excess Profits Ordinance was nothing more that a procedure or machinery for collection compulsory deposits and the title of the Ordinance had little meaning and less consequence. It was said that the word 'tax' was not used in the title as was done in British India when the tax was described as excess profits tax. When we turn to the provisions we find that the expression 'tax' has been used in the Ordinance. Now, the only clause on which reliance has been principally placed by the learned counsel is clause 8 and the whole argument really turns on the provisions contained in that clause according to which the amount was to be repaid to the assessee and was in fact repaid to the assessee. It was said that the Government securities were purchased by the assessee mills and ultimately the whole amount was returned to the assessee mills. The real question before us is whether the assessee mills was the owner of the securities and as such entitled to receive interest on the same or was it the Excess Profits Found to which the securities belonged and which, as represented by the Accountant-General, was entitled to receive interest on the securities. What is relied on by the assessee is evidently what was done for convenience both of the assessee and the Accountant-General and we find it difficult to see how that can change the true nature of the levy, if it was a levy, and there is a little scope for the argument that was paid by the assessee was not excess profits tax. The fact that it was to repaid for the benefit of the industry cannot affect or alter its true nature and incidents. The securities were transfers in the name of the Accountant-General; they became investment of the fund and not of the assessee. It was the Accountant-General who was entitled to draw interest on the same and in fact received interest on those securities. On these facts, it is not possible for us to the accept the contention raised on behalf of the assessee that it it was the assessee who received interest on those securities. No doubt, the whole amount with interest actually received on the securities was ultimately handed over to the assessee but it cannot be said that the interest on the securities was the income of the assessee. We agree with the Tribunal that neither factually nor legally the true nature of the sum under consideration could be held to be interest on securities of the assessee mills. That disposes of the first question before us.
5. The other question is mire consequential than an independent question and the assessee can succeed only it we were to hold that the securities were held by the Fund as bare trustees for the assessee. We must discountenance that contention. In our judgment, it was the Fund who owned the securities and held the securities, which were in payment of excess profits tax. In our opinion, the assessee was not in any manner legally or beneficially interested in the same and was not entitled to earn interest on the same in any capacity.
6. Our answer to the first question will be the negative.
7. Our answer to the second question will also be in the negative.
8. There is notice of motion taken out by the assessee. The notice of motion will be dismissed with costs.
9. Assessee to pay the costs.
10. Question answered in the negative.