Law:

Section:

Section 5, read with section 10A, of the Excess Profits Tax Act, 1940 - Excess profits tax - Chargeable as - Assessment year 1944-45 - Assessee carried on cloth business on whole-sale basis having its head office at Farrukhabad and a branch at Ahmedabad - Assessee started a new whole sale cloth business at Ratlam in an Indian State on 8-3-1943 - Excise Profit tax officer applying section 10A included income from Ratlam business in total income of assessee on ground that main purpose of starting new business at Ratlam was to avoid excess profit tax liability - Whether in presence of third proviso to section 5, section 10A could not be applied in instant case - Held, yes FACTS The assessee carried on cloth business on whole-sale basis having its head office at Farrukhabad and a branch at Ahmedabad. During the accounting period from 9-11-1942 to 28-10-1943, the assessee started a new wholesale cloth business at Ratlam which was in an Indian State. That business was started with effect from 8-3-1943, the first accounting period of which was from that date to 7-4-1944. A profit of Rs. 30,601 was determined for income-tax purposes for the aforesaid period, the assessment year being 1944-45. Since the profits of Ratlam business were to be computed for the period 8-3-1943 to 7-4-1944, a proportionate profit for the chargeable accounting period 8-3-1943 to 20-10-1943, was worked out, the amount coming to Rs. 19,578. The Excess Profits Tax Officer was of the view that the main purpose of starting the new business at Ratlam was to avoid excess profits tax liability. Therefore, under section 10A, he included the income from Ratlam business in the total income of the assessee for the purpose of excess profits tax. The assessee was the sole proprietor of the entire business in the taxable as well as non-taxable territories. Ordinarily he was liable to be assessed to excess profits tax on his total income from all the business under the second proviso to section 2(5) of the Act. The third proviso to section 5 of the Act, however, provided that any income which accrued or arose in an Indian State was exempt from excess profits tax. The conclusion of the Excess Profits Tax…

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