Commissioner of Income-tax, Bombay City Ii Vs. Donald Miranda and ors. - Court Judgment

Chagla, C.J.

1. The question that we have to consider in this reference is in a very narrow compass. It is not a question which is easy to decide. The assessment year of the assessee is 1945-46 and the year of account is the year ending 21st March, 1945. During this year, the firm of three partners, James Miranda, Donald Miranda and Mrs. N. Q. Miranda, were carrying on business as wine merchants. Their income for the year was assessed to tax and they were also charged excess profits tax upon their profits of the business for the chargeable accounting period ending on the 1st of April, 1944. The firm was succeeded on the 25th of March, 1945, by a limited liability company, S. S. Miranda Ltd. For the assessment year 1945-46, the firm claimed the benefit of section 25(4) contending that no tax was payable on its profits of the said business for the period from the 1st of April, 1944, to the 24th of March, 1945. The claim of the assessee was considered by the Department and benefit was given to the assessee of section 25(4). The firm had paid excess profit tax in respect of the chargeable accounting period 1st of April, 1944, to the 24th of March, 1945, and had also made a deposit under the provisions of section 10 of the Indian Finance Act, 1942, read with section 2 of the Excess Profits Tax Ordinance, 1943, and had thus become entitled to repayment of a portion of the excess profits tax paid by them. The Department brought the amount, which was repayable to the firm, to tax under the provisions of section 11(11) of the Indian Finance Act of 1946. The contention of the assessee was that the repayment of this amount was profit of his business within the meaning of section 10 of the Income-tax Act, and they were not liable to pay any tax in respect of this amount by reason of section 25(4) of the Act. The Tribunal by a majority decided the matter in favour of the assessee and the Commissioner of Income-tax has now come on this reference. The majority of the members of the Tribunal, in coming to the decision that they did, largely relied on certain English decisions. This is an appropriate case where the note of warning, which has so often been sounded in the past by the Privy Council, applies that when you are considering the taxing statutes of a country, you must go to the statutes themselves and not construe sections of these statutes in the light of decisions given in order countries of their own taxing statutes, and, therefore, what we propose to do, before we turn to the English decisions, is to look to the scheme of our own Act and the Provisions of the law in order to determine whether the contentions of the Commissioner or the assessee should prevail.

2. Now, in the first place, let us turn to the provisions of the Excess Profits Tax Act, and it is necessary to emphasize the scheme underlying that Act. Unlike the Income-tax Act, each assessment year under the Excess Profits Tax Act is not a self-contained unit of time. The tax under the Excess profits Tax Act is paid on excess profits made over the standard profits. In one year the profits may exceed the standard profits, in another year there may be a deficiency and what the Act provides is that you must take the whole period covered by the Act and make an adjustment from time to time with regard to the payment of the tax. If in one year the assessee has paid excess profits tax because the profits of his business exceeded the standard profits, and in the next year his profits fell below the standard profits, then he would be entitled to an adjustment or a refund and this process is to continue during the duration of the Act. Therefore, the underlying idea of the Act is that during the period when the Act was to be in force taken as a whole, if the assessee makes profits in excess of the standard profits computed in the manner laid down in the Act, he was liable to pay tax, and, therefore, when excess profits tax was paid during one year, it was quite possible that due to the exigencies of the years to come, that tax may have to be repaid. This scheme is embodied in the provisions of section 7 of the Act, the marginal note of which is : 'Relief on occurrence of deficiency of profits'. The other section to which we must look, which has considerable bearing on the question that we have to decide, is section 12, which treats the payment of excess profits tax as a deductible expense for assessment of income from the business to income-tax and super-tax, and it looks upon the excess profits tax paid as an expense incurred by the business during that period. We have then a proviso to this section, which deals with the relief which an assessee may obtain under section 7 of the Act. As we have already pointed out, it may happen that after having paid excess profits tax for one chargeable accounting period, by reason of deficiency in profits in the next period, the assessee may become entitled to a refund and provision had to be made with regard to this refund. The assessee having treated the amount to which he become entitled as excess profits tax and having paid it and having received a deduction for it under section 12, the amount escaped tax. It was a permissible deduction and the amount was not brought to tax. But when the Legislature provided for the return of a part of that amount by reason of the assessee becoming entitled to relief under section 7 of the Act, it was but proper that that amount should be brought to tax and the scheme for bringing it to tax was incorporated in the proviso to section 12, and what the proviso lays down is that the amount repayable shall be taken into account in computing the profits and gains of the business for the purposes of income-tax as if it were a profit of the business accruing in the previous year as determined for that business for the purpose of the Indian Income-tax Act, 1922, in which the deficiency of profits occurs. Therefore, the Legislature expressly directed that this amount should be treated as a business income and it also indicated the year in which this particular income should be assessed and the year was the year in which the deficiency of profits occurred.

3. The Indian Finance Act of 1942 introduced a new scheme and we agree with Mr. Joshi - and Mr. Palkhivala does not contest that position - that the scheme was introduced for certain specific reasons in the larger interest of the public. Owing to war conditions and large profits made during that period, the Legislature felt that as far possible the profits should be immobilised. It was also felt that some control should be exercised on the spending of these profits so that these profits could be used at a later date for rehabilitation of industry, and finally the Legislature was anxious that the spending power of the people should not increase because that might lead to inflation, and from this point of view, what the Legislature provided by section 10 of the Indian Finance Act was a provision for voluntary deposit which was not to exceed 1/5th of the amount of the excess profits tax, and the Government agreed at such date and subject to such conditions as it may hereafter determine, to repay so much of the excess profits tax as shall be equal to one-tenth of the amount thereof or to one-half of such further sum deposited, whichever is the less; and it also agreed to pay interest at the rate of 2 per cent. per annum on the deposit. There was no obligation at this stage to make the deposit which was optional with the assessee. If he made the deposit, he would obtain the concession which was provided under section 10 and the concession was two-fold, the assessee was to get interest on his deposit and what is more, he was to get a refund of part of the excess profits tax which he had already paid. The Act did not provide when the refund was to be made and in what conditions. That was left to be determined by future legislation and that future legislation was enacted by the Finance Act of 1946 and section 11(11) provided :

'Any sum being excess profits tax repaid in respect of any chargeable accounting period under the provision of section 10 of the Indian Finance Act, 1942, or of section 2 of the Excess Profits Tax Ordinance, 1943 (XVI of 1943), shall be deemed to be income for the purposes of the Indian Income-tax Act, 1922, and shall, notwithstanding the provisions of section 34 of that Act, be treated as income of the previous year which constitutes or includes the chargeable accounting period in respect of which the said sum is repayable.'

4. It may be mentioned, before we go on to consider this sub-section that after the Finance Act of 1942, the Excess Profits Tax Ordinance of 1943 was enacted, which made the deposit under section 10 of the Finance Act, which had so far been optional, compulsory. Therefore, after the enactment of the Ordinance, there was an obligation upon the assessee to make a deposit with the Government. The concessions that he was to obtain were identical. The only change that was made was that instead of the making of the deposit being at the option of the assessee, the option was taken away and there was a statutory obligation upon him to make the deposit contemplated by section 10 of the Finance Act.

5. Now, as it will be noticed, section 11(11) of the Finance Act made the repayment of the excess profits tax, as it was promised by the Legislature by section 10 of the Finance Act, an income for the purpose of the Indian Income-tax Act and it also constituted that income as the income of the previous year to the year in which the excess profits tax was repayable. It is under this sub-section that the assessee received the amount, which is the subject-matter of this reference, and the contention of the assessee is that undoubtedly the income which he has received is assessable to tax, but the income in his hands is business income and if it is business income, then under section 25(4) he is not liable to pay tax by reason of the discontinuance which took place on the 25th of March, 1945. It is not seriously disputed by the Department that if the income is business income, then section 25(4) has application and the assessee would be entitled to the relief. Therefore, the field of controversy is narrowed down to this. Whether looking to the provisions of the Excess Profits Tax Act, and the relevant Finance Acts, can the repayment made by Government to the assessee under section 11(11) constitute business income which attracts the application of section 25(4)

6. Now, let us try and understand what the case of the assessee is which has been put forward before us with considerable force by Mr. Palkhivala. Mr. Palkhivala says that prior to the Finance Act 1942, excess profits tax was repayable only in one contagions and that was when there was deficiency of profits. The payment of excess profits tax was allowed as a deduction and when there was repayment of a part of tax due to deficiency of profits, inasmuch as this part had not been submitted to tax, it was brought to tax by the proviso to section 12 of the Excess Profits Tax Act. Then came the Finance Act of 1942 and, according to Mr. Palkhivala, that brought about this important change that the excess profits tax now became payable in two contingencies. The first was the same as before; the second was that if the deposit contemplated by section 10 of the Finance Act was made, then tax to the extent mentioned in that section became repayable, and the whole of Mr. Palkhivala's argument is that there is no difference in principle between these two repayments. Both, according to him, are repayments of excess profits tax, both bore the character of income from business, both escaped tax because the payment of excess profits tax constituted a deduction and both were submitted to tax by the Legislature; and when they were repaid, as it were, they resumed their characteristic or character of business income. The only difference, according to Mr. Palkhivala, between these two repayments was that it is provided by the Legislature that in the first case - the repayment in respect of deficiency of profits, the income was treated as the income of the year in which the deficiency was suffered and in the case where the deposit was made, the income was treated as the income for the year in which the repayment was made. Mr. Palkhivala also points out that inasmuch as the payment of deposit under section 10 was never treated as a deduction under section 12 and as it had borne tax, no provision was made for submitting it to tax when it was returned, and only interest on the deposit was submitted to tax as an income earned by the assessee. It is also pointed out that excess profits tax is paid out of the income of the business. It is the very fact that it bears that character that subjects it to the excess profits tax, and when it is refunded, inasmuch as what is refunded is the excess profits tax paid by the assessee, the amount refunded continues to bear the same character, and, therefore, when it is subjected to tax, it should be subjected to tax as business income and in no other capacity. Mr. Palkhivala says that but for fact that this amount constituted a permissible deduction under section 12, it would undoubtedly have been subjected to tax as business income, and the whole object of the Legislature in making the provisions it did, was to subject an income from business to tax which income had escaped tax by reason of payment of excess profits tax.

7. Now, in order to test Mr. Palkhivala's argument and to see whether such a complete parallel exists between the two types of repayments which are contemplated by the Excess Profits Tax Act and the Finance Act, we must look to the relevant language of the two sections. The difference in language between the proviso to section 12 of the Excess Profits Tax Act and of section 11(11) of the Finance Act is striking. The proviso to section 12 of the Excess Profits Tax Act expressly provides that the amount repayable shall be taken into account in computing the profits and gains of the business for the purposes of income-tax as if it were a profit of the business. The Legislature has left nothing to argument or to any contention as to what the nature of this income should be. When we turn to section 11(11) of the Finance Act, it is difficult to understand why, when the Legislature was dealing with the Excess Profits Tax Act, it did not reproduce the same language if the intention of the Legislature was to bring about an identical situation. Really, Mr. Palkhivala has no answer to this argument. The only answer he can give - and that is possible answer - is that good drafting is not the strong point of the Indian Legislature. But before we can accuse the Legislature of bad and slovenly drafting, we must try and see whether by different language, the Legislature intended to convey a different meaning. When in a parallel legislation, an entirely different language is used by the Legislature, the presumption must be that the Legislature intended the different language to have a different meaning and when one looks at the language of section 11, the first thing that becomes noticeable is that the Legislature has introduced two legal fictions. One is that the excess profits tax, which is repaid under the provisions of section 10 of the Finance Act, is deemed to be an income; and the other is the fiction with regard to the year with regard to which this repayment is to be considered. We are largerly concerned with the first legal fiction. Mr. Palkhivala's submission is that the Legislature has not introduced any legal fiction with regard to the character which this repayment bears, and, therefore, it is not permissible to the court to extend the legal fiction must be strictly confined to supersending only the extent of that fiction the realities of the case. Mr. Palkhivala says that the only legal fiction is to make the repayment of the excess profits tax an income and treating that income and dealing with that income for the purpose of tax under the provisions of the Indian Income-tax Act. It is pointed out that the Legislature has expressly provided that this repayment should be deemed to be income for the purpose of the Indian Income-tax Act and, therefore, you must turn to the Indian Income-tax Act in order to determine how this income should be computed, and it is necessary to decide under which head of income this particular income would fall, and if one were to do so, according to Mr. Palkhivala, it is obvious that the only head of income, under which this income would fall, is under section 10 of the Act, 'Business Income'. In putting forward this argument, Mr. Palkhivala makes many assumptions. It is clear that the Legislature had some doubt as to whether the repayment of this excess profits tax would constitute an income at all, and secondly as to the nature of the income, and therefore in the first place, the Legislature left no doubt as to the position that the repayment of excess profits tax constituted an income and when that income was to be subjected to tax. The Legislature did not give any indication as to the nature of the income, as it did, under the proviso to section 12. If the view of the Legislature was that this was business income, it would have so provided, as it did, under the proviso to section 12. But obviously that was not the view of the Legislature and in our opinion for a very good reason. The repayment of excess profits tax by reason of the contagions of deficiency of profits is part and parcel of the scheme of the Excess Profits Tax Act. The tax is refunded because in the eye of the law there is over-payment. 'The assessee was not liable to pay the tax at all, and, therefore, that amount, which is returned always, as it were, formed part of his business income and inasmuch as that income was subjected to tax, the proviso to section 12 proceeded to subject it to tax. But so far as the Indian law is concerned it is not necessary to elaborate the position under the Excess Profits Tax Act, because as we have already pointed out, the proviso to section 12 expressly constitutes the repayment a business income. It is only if there was no such express provision, as there is none in the English law, as we shall point out when we turn to the provisions of that law, that it may be necessary to consider whether, when repayment is made under the proviso to section 12, it would or it would not constitute a business income. It is not a debatable question because the Legislature has so expressly provided. But, when we turn to the Finance Act, we have to consider the nature of the repayment. Undoubtedly, when this amount was paid as excess profits tax, it was paid out of business income. It constituted a deduction under section 12 and it had imprinted on it the undeniable character of a business income. The real question is : Did that imprint continue when the assessee got it back under the provisions of section 11(11) Now, the provisions with regard to the payment of a deposit are not part and parcel of the Excess Profits Tax Act. They have nothing to do with the machinery of the Act. They have nothing to do with the assessment of excess profits. The repayment of the tax is a statutory concession given by the Legislature in consideration of the deposit made by the assessee. It is clearly a concession when the deposit was voluntary. It is equally a concession when the deposit becomes compulsory, because the State is taking from the assessee a deposit, which strictly under the law of taxation, it is not entitled to, and in return for that, it is not only pays two per cent. interest but it also refunds a part of the tax. Therefore, the income that the assessee receives is not a business income but is an income arising by reason of a concession made by the State; in other words, it is statutory income, an income which owes its origin not to any activity on the part of the assessee but it is the result of a concession made by the State pursuant to a particular policy. We agree with Mr. Palkhivala that what the Government repays to the assessee is not a gift. The State repays because it is under a statutory obligation to refund just as much as the assessee was under a statutory obligation to make a deposit. But even though it may not be gift, it may still be an income arising by reason of a statutory provision, or by reason of a statutory concession. In this connection, we may well ask the question, in order to decide what the real nature of the income is to what is the source of this income. It is source of this income any business activity carried on by the assessee Mr. Palkhivala's answer is that originally the source was business. The tax was paid out of the income of the business and the source continues to be the same when the tax is returned to the assessee. In our opinion, that argument is fallacious. Mr. Palkhivala drew our attention to the well-known definition of 'a source' which the Privy Council had laid down in Rhodesia Metals Ltd. (Liquidator) v. Commissioner of Taxes, that a source is not a legal concept but it is that which a practical man would regard as a real source of income, and the difficulty in the way of accepting the contention of Mr. Palkhivala is that he is looking upon the real source of income from a purely legal point of view evolving it as a legal concept and considering various provisions of the various statutes in order to come to a conclusion as to what the real nature of the income is. But let us forget the technicalities of the case and accept the wise advice of the Privy Council and look at it from the point of view of a practical man or a commercial man. It is difficult to believe that the commercial man, when he got this refund of to, could possibly look upon it as an income, the source of which was is business. The business had produced its name a long time ago, tax had been paid on it long time ago and all that was past history, and this was what we may call a windfall, although the Finance Act of 1946 provides for the payment; but the windfall is not complete because the payment is not free from tax but is subjected to tax. Mr. Palkhivala resents the use of the word 'windfall' because he says that when the assessee made the deposit, he knew that a part of the tax would be repaid to him. So it is not something unexpected that has happened. All that was left to the future was the determination of the time when the payment should be made the conditions under which such amount should be paid. It is perfectly true that under section 10 of the Finance Act of 1942, the assessee had the right to the return of a portion of the tax paid by him. But what Mr. Palkhivala seeks to do is to equate that right with the right of the assessee to treat that as his business income. The conditions under which this repayment was to be made was left to the Government. The Government out of generosity of its heart might have said that the repayment should bear no tax whatever. It might have fixed a special tax, a special rate, but all that the Government did was that it treated the repayment as an income and allowed the Income-tax Act to deal with that income. We agree with Mr. Palkhivala that we have to compute this income in the manner laid down in the Indian Income-tax Act. But there is no difficulty with regard to that, because there is always section 12 which deals with all residuary

income and if a special type of income is created by the statute it is obvious that it come fall under any of the recognised heads of the Income-tax Act and must, therefore, fall under the residuary head in section 12.

8. Now, let us turn to the two English decisions on which strongest reliance has been placed by Mr. Palkhivala and according to him both these two cases deal with a different provision of law and the principle which emerges is equally applicable to considering the particular provision of law which we have before us. The two cases are Eglinton Silica Brick Co. Ltd. v. Marrian and A. & W. Nesbitt Ltd. (In Liquidation) v. Mitchell (H. M. Inspector of Taxes. Now, the scheme of the English Excess Profits Tax Act which treats excess profits tax as payable for a long continuous period, and for repayment, when there is deficiency of profits in any particular year, is identical with our own Act, and both these cases were dealing with a repayment to the assessee by reason of deficiency of profits. It is important to remember that they were not dealing with the repayment of tax by reason of section 10 of the Finance Act and by reason of a deposit having been made by the assessee. As far as we know - and Mr. Joshi assures us that it is the position - that there was no similar provision in English law with regard to payment of deposits, and perhaps Mr. Joshi is right when he suggest that the reason is that there the tax was at a much higher level than what it was in our country. Now, what the English courts were concerned to decide in these two cases was whether the repayment in respect of deficiency of profits constituted a business income. Such a question would not have arisen in India at all because of the clear language of the proviso to 12. But as far as the English law is concerned, in Eglinton Silica Bricks Co. Ltd. v. Marrian, the court was construing rule 4 of the Rules applicable to Cases I and II of Schedule D of the Income Tax Act, 1918, and these cases dealt with business income, and what fell for interpretation was the second part of rule 4(1) which was :

'but where any person has received repayment of any amount previously paid by him by way of excess profits duty, the amount repaid shall be treated as profit for the year in which the repayment is received',

9. and the question was whether the expression 'treated as profits' meant 'treated as profits of business' and the learned Lord President of the Court of Session, Scotland, points out at p. 98 :

'The problem which arose in the case of repayment of Excess Profits Duty was different. Nobody knew or could know how soon, or how late, repayment might fall to be made; nor whether the business whose profits were assessed to Excess Profits Duty would be in the same hands when repayment (if any) came to be made. By that time the business might have ceased to be in existence. Repayment might therefore have to made to a person who was not carrying on the original business. The original trader might have given up business, died and an executor might have come in his place. The solution provided for these cases is that contained in the second part of the paragraph, according to which the amount repaid to any person is to 'be treated as profit for the year in which the repayment is received'. It is obvious that the amount of the former trading profits so repaid could not actually be trading profits for such year. None the less, the amount repaid to be treated as if it were that which - in fact - it is not, and cannot be. The amount repaid consists of trading profits which reach the taxpayer out of their proper time. However belated his fruition of them, they have not lost their original character as trading profits.'

10. Therefore, what the learned Lord President was pointing out was that although the profits came back to the assessee at a point of time when they were in fact not made and even if those profits might have gone to someone who did not actually make them, or even where the business which produced the profits had ceased to function, yet by legal fiction, they were treated as the profits of the business. Therefore, really what was troubling the court was not so much the question as to whether the profits were the profits of the business but the curious position of the profits being treated as profits of the business which might have ceased to exist at a point of time when those profits could not possibly have been made. In the context in which rule 4 appears which respect to the learned Judges who decided this case, it is difficult to understand how any other view could have been taken than the one they took, namely, that the profits referred to in this case were the profits of the business, and again at p. 99 the learned Lord President points out :

'When it is repaid, it is no more than fair and reasonable that it should be repaid subject to some corresponding liability for Income Tax to that which it originally escaped solely on account of its withdrawn for Excess Profits Duty. Paragraph (1) of Rule 4 therefore subjects the repaid trading profits to Income Tax. It does so by requiring them to be treated as if they were profits of that year, and by that I understand that the sums repaid are to be regarded as sums assessable to Income Tax as profits of the year in which they are received...'

11. Therefore, this Rule gives effect to the idea which we have indicated as underlying the Excess Profits Tax Act that when there is deficiency of profits, in the eye of the law the assessee has paid tax which is not strictly payable because there were no excess profits which could attract that tax, and as that tax is being repaid, it becomes part of the business income of the assessee and as it did not originally bear tax, it is now being subjected to tax.

12. The second case is identical on facts, the only difference being that the court was now considering not any statutory rule but a section of the Finance Act of England, and section 35 of that Act dealt with the repayment with which we are concerned and the language used was identical with the language of rule 4 that where any person has received repayment of any amount previously paid by him by way of excess profits duty, the amount repaid shall be treated as profit for the year in which the repayment is received, and Lord Hanworth, M. R., points out at p. 216 :

'The whole scheme of these payments and repayments and adjustment was to make the total of the amount of the Excess Profits Duty paid by the taxpayer during the whole period during which he was paying Excess Profits Duty accord with his profits or losses during that period - a period, it may be, and indeed it proved to be, of several years',

and at p. 217 the learned Master of the Rolls analyses the nature of this repayment :

'But in respect of what is that payment made It is not a legacy, it is not a sum which has fallen from the skies; it is a sum which is repaid because there was too large a sum paid by the company to the Revenue Authorities over the whole period during which Excess Profits Duty was paid, and that sum means and is intended to represent a repayment of sum which was paid by them in respect of the duty charged upon the excess profits of their trading. It comes back, therefore, not having lost its character but being still the repayment of a sum - too much, it is true, - but a sum taken out of the profits which were made by the company in the course of its trading, profits which at the time they were made were subject to Income-tax and subject to Excess Profits Duty, and that is the character of the repayment that has been made.'

13. Now, it may be noticed that the Master of the Rolls points out that this sum was repaid to the assessee because too large a sum had been paid initially; in other words there was an overpayment or a payment of the tax for a larger amount than the assessee was liable. Therefore, in this case, as in the case of repayment under section 12 of our Act, what the Government was doing was to return to the assessee a part of the tax which it had charged, to which it was not entitled by reason of the scheme of the Act and which the assessee was not liable to pay considering the profits made by his business as a whole. Can that be not said a repayment under section 11(11) of the Finance Act Can it be said that the assessee was not liable to pay tax or that the Government was bound to return the tax because the tax was paid in a larger amount than the scheme of the Excess Profits Tax Act justified. As we have already said, it is perfectly true that the assessee had become entitled to this repayment and he did not get it as a gift or as an indulgence or as a boon, but he became entitled to it not because on a proper assessment he was not liable to pay a particular portion of the tax but because the State for certain reasons provided for a special concession as the State had the use of the deposits made by the assessee.

14. There is one other aspect of the matter which we may consider and that was Mr. Joshi's contention in reinforcement of his argument that section 11 of the Finance Act of 1946 sets up a self-contained code for taxing of this particular income and the taxation is not within the ambit of Income-tax Act. We are unable to accept that contention. It is true that sub-section (12) of section 11 provides for deduction of this tax from the amount which has to be repaid but it is rightly pointed out by Mr. Palkhivala that this is only a provision with regard to deduction of tax at the source and supplements the provision of section 18, and sub-section (13) also provided for appeal in connection with the assessment of tax on this repayment. Far from the Finance Act setting up a separate, independent and autonomous scheme of taxation of this particular income, section 11(11) expressly provides that this amount should be deemed to be income for the purposes of the Indian Income-tax Act, and, in out opinion, the whole machinery laid down by the Indian Income-tax Act must be brought into play for the purpose of assessing this income. It may be said at the highest that the repayment is charged to tax by reason of sub-section (11) of section 11 of the Finance Act, but having charged it to tax, the computation, various stages of assessment, the recovery, is all left to the provisions of the Indian Income-tax Act. But, as we have already pointed out, even though we agree with Mr. Palkhivala on this aspect of the matter, our turning to the Indian Income-tax Act does not help us to determine under what head of income this particular income would fall. We have to decided that from the nature of the income itself and if we come to the conclusion that it is not an income from business but it is an income from other sources, then it would fall under section 12 of the Indian Income-tax Act and the computation will be as provided by that section. We also agree with Mr. Palkhivala that an assessee would receive several benefits if the income was to be treated as business income. In this case the assessee would get the benefit under section 25(4). It may be that the assessee may claim benefit in respect of earned income or in respect of a set-off. But it does not seem to us that the Legislature ever intended that having made this concession of returning to him a portion of the tax, which strictly from the point of view of the Excess Profits Tax Act he was liable to pay, it should make a further concession of giving him all the benefits which would arise by treating this repayment as business income. Clearly the view of the Legislature was that this income should be treated as a statutory income with the consequences that must necessarily follow by reason of its being a statutory income.

15. A similar view seems to have been taken of a somewhat identical provision in the Finance Act of 1946, section 11(14), by the Calcutta High Court in McGregor and Balfour Ltd. v. Commissioner of Income-tax. The Calcutta High Court was considering repayment made to a non-resident foreign company of excess profits tax under the Finance Act of England, and these repayments have been constituted incomes for the purposes of the Indian Income-tax Act by section 11(14) of the Finance Act of 1946, and the learned Chief Justice at page 402 says :

'It appears to me that the income contemplated by section 11(14) is a class by itself, made assessable by the section without reference to the various conditions laid down in the Income-tax Act and so treated, because it was already assessable when it was deducted in the computation of the income. In that sense, the income contemplated by the section is sui generis and it is not appropriate to apply to it the various tests down in the Income-tax Act.'

16. It is true that as pointed out by Mr. Palkhivala the learned Chief Justice was repelling the various arguments addressed on behalf of the non-resident company; one was that although the repayment was treated as income, it was not assessable and further that the various rights of a non-resident under the Indian Income-tax Act should be considered in deciding whether the non-resident was liable to pay this tax. But even so, the learned Chief Justice does look upon the income constituted by sub-section (14) of the section 11 in language identical with sub-section (11) of the section 11 as an income which is in a class by itself and an income is sui generis. With respect we may not be prepared to go to the whole length with the learned Chief Justice and say that this income falls under a head which is not contemplated by the Indian Income-tax Act. The head contemplated by section 12 is wide enough to embrace any and every kind of income including this special kind of income constituted by section 11(14) and section 11(11). But whether the income is sui generis or it is an income falling under section 12 is a question which does not in any way help the assessee, because he must fail whether the income is sui generis or is an income falling under section 12. In order to succeed on this reference, he must succeed in showing that the income is a business income which should be subjected to tax as a business income.

17. Mr. Palkhivala also wanted to argue that even if this income does not fall under section 10, section 25(4) would still apply because all that section 25(4) requires is the income, profits and gains of a business during the relevant period, and Mr. Palkhivala's contention is that independently of section 10 and without satisfying the technicalities of that section, if he could show that from a commercial point of view it is constituted 'income, profits and gains from business' then he would be entitled to succeed. The whole of our judgment is based on the view that this income is not a business income whether within the meaning of section 10 of the Indian Income-tax Act or from a broader point of view. Our view is that this is a statutory income derived by the assessee by reason of the obligation undertaken by the State to pay him a certain portion of the tax by reason of the fact that he made a certain deposit contemplated by section 10 of the Finance Act of 1942.

18. The result is that the Commissioner must succeed and we must answer the only question submitted to us in the negative. The assessee to pay the costs.

19. No order on the notice of motion.

20. Question answered in the negative.