The Judgment of the Court was delivered by
HARRIES, C.J. - This is a reference made by the Income-tax Appellate Tribunal, Calcutta Bench, under Section 66 of the Indian Income-tax Act at the instance of the assessees. The question which has been formulated for the opinion of the Court is as follows :-
'Is it open to the Rampooria Cotton Mills Ltd., to exercise the option referred to in the second proviso to Section 6(1) of Excess Profits Tax Act ?'
The assessees are a limited company which acquired a cotton mill from Messrs. Hazarimal Hiralal in the year 1942. This mill was in existence before March 31, 1936, and until the date of transfer to the assessees had been worked by Messrs. Hazarimal Hiralal.
Messrs. Hazarimal Hiralal who had operated the mill between the period September, 1939, and the year 1942 determined their standard profits on the basis of a standard period. The present assessees continued the same method between 1942 and the commencement of the chargeable accounting period, July 1, 1944. During that period the standard profits we computed on the basis of the standard years profit. The assessees however then claimed that they were entitled under the second proviso of Section 6(1) of the Excess Profits Tax Act to adopt standard profits on the basis of the statutory percentage permitted on the average amount of capital employed. Reliance was placed on the terms of the second proviso to Section 6(1) of the Act.
The assessees contended that as they took over the present mill in 1942 their business should be considered as having commenced on or after March 31, 1936. The Tribunal however held that the business which they carried on, namely, the business of operating the cotton mill, was commenced before March 31, 1936, and accordingly the assessees were not entitled to exercise the option given to assessees by the second proviso to sub-section (1) of Section 6 of the Act. Being dissatisfied with that view the assessees asked the Tribunal to state a case which the latter has done raising the question which I have set out.
Section 6(1) so ar as it is material is as follows :-
'For the purpose of this Act, the standard profits of a business in relation to any chargeable accounting period shall, subject to the provisions of sub-sections (3) and (4), be an mount bearing to the profits of the business during the standard period, if in respect of the business a standard period is available, the same proportion as the chargeable accounting period bears to the standard period;
Provided further that in the case of a business which was commenced on or after March 31, 1936, the standard profits shall, at the option of the person carrying on the business, be an amount calculated by applying the statutory percentage to the average amount of capital employed in the business during such chargeable accounting period.'
There can be no doubt if the assessees business can be said to have been commenced after March 31, 1936, the assessees could at their option claim that the standard profits should be calculated as provided in this second proviso.
Section 8 of the Excess Profits Tax Act deals with successions and amalgamations. Sub-section (1) reads as follows :-
'As from the date of any change in the persons carrying on a business, the business shall, subject to provisions of this section, be deemed for all the purposes of this Act except for the purposes of determining the amount of the statutory percentage to have been discontinued, and a new business to have been commenced.'
From this sub-section it is clear that except for one purpose a new business is deemed to have been commenced as and from the date of any change in the persons carrying on the business subject however to other provisions of the section.
Sub-section (3) of this section provides :-
'A business shall not, for the purposes of the provisions of this Act relating to the computation of standard profits, be deemed to be discontinued by reason of any change occurring on or after September 1, 1939, in the persons carrying it on...........'
Sub-section (1) is made expressly subject to sub-section (3) an therefore a business is not to be deemed a new business for the purposes of the provisions of the Act relating to the computation of standard profits where a change in the persons carrying it on occurred on or after September 1, 1939, though for other purposes such a change would have the effect of creating as it were a new business commencing from the date of the change. However such a change in the ownership of the business does not affect the provisions relating to computation of standard profits.
Section 2(20) defines 'standard profits' as meaning standard profits as computed in accordance with the provisions of Section 6.
The assessees claim that they are entitled to the benefit of the second proviso to Section 6(1), namely, computation of the standard profit as provided in that proviso. It appears to me that what the assessees are claiming is a method of computing the standard profits and sub-section (3) of Section 8 makes it clear that the assessees business cannot be regarded as a new business for the purposes of computation of the standard profits because the transfer in ownership took place in 1942, that is, after September 1, 1939. It is only in the case of a business which was commenced after March 31, 1936, that the option given in the second proviso to sub-section (1) of Section 6 arises, and change in ownership after September 31, 1939, does not make the new owner an owner of new business for the purposes of computation of profits though he will be regarded as the owner of a new business for most other purposes.
It seems to me quite clear that the view of the Income-tax Appellate Tribunal that the assessees were not entitled to the benefit of the second proviso to sub-section (1) of Section 6 was right and the question submitted must be answered in the negative.
The Commissioner of Excess Profits Tax is entitled to his cost of these proceeding. Certified for two counsel.
SINHA, J. - I agree.
Reference answered in the negative.