Law:

Section:

Section 10A of the Excess Profits-tax Act, 1940, read with section 184 of the Income-tax Act, 1961 [corresponding to section 26A of the Indian Income-tax Act, 1922] - Avoidance or Reduction of Excess Profits Tax - Assessee - HUF was carrying on business in grains, kerosene oil, petrol and cloth - Assessee separated its cloth business from main business and started a new firm to carry it on which was registered under section 26A of 1922 Act - Whether on facts, main purpose of formation of new firm could be said to reduce liability to pay excess profits tax and consequently, formation of new partnership was a transaction within meaning of section 10A and registration of firm under section 26A of 1922 Act was no bar to addition of its income to income of assessee which was subject to excess profits tax proceedings by Excess profits Tax officer in exercise of his powers of adjustment under section 10A - Held, yes FACTS The assessee HUF was carrying on extensive business in grain, kerosene oil, petrol and cloth. The cloth business of the assessee was separated from the main business and a new firm was started to carry on the cloth business. The partnership was registered under section 26A of the 1922 Act by the ITO. The Excess Profits Tax Officer, however, held under section 10A that the cloth business had been started with the main purpose of reducing the liability to pay excess profits tax which was affirmed by the Tribunal. On reference: HELD The Tribunal had set out at some length, in the statement of the case, the material on the basis of which it came to that conclusion. It could not, therefore, be said that there was no material on which the Tribunal could hold that the main purpose was to reduce the liability to pay excess profits tax. Thus, it was to be held that the formation of the new partnership was a transaction within the meaning of section 10A, and the fact of the registration of the firm under section 26A of the 1922 Act was no bar to the addition of its income to the income of a firm which was subject to excess profits tax proceedings by the Excess Profits Tax Officer in exercise of his powers of adjustment under section 10A(2). Note: The case was…

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