# DONALD MIRANDA v. THE COMMISSIONER OF INCOME.TAX, BOMBAY CITY ·II

- **Citation:** [1962] 1 S.C.R. 133
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Appeals Nos. 173 to 175of1960
- **Bench:** J. L. Kapur, M. HrnAYATULLAH, J. c. SHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/donald-miranda-v-the-commissioner-of-income-tax-bombay-city-ii-1971
- **Pages:** 7

## Headnote

Income Tax-Refund of excess profits tax-Liability to incometax-Discontinuance of business-Profits for accounting year
exempt from tax-Excess Profits Tax Act r940 (r5 of r940),
s. I2(I)-Indian Finance Act, r946 (7 oj r946), s. II(II)-Indian
Income.tax Act, r922 (II of r922), ss. IO, I2.
The appellants were partners in a registered firm which was
dissolved on March 24, r945.
A private limited company
succeeded to the business of the firm from March 25, r945. For the
accounting period April l, r944, to March 24, r945, the firm was
assessed to excess profits tax under the Excess Profits Tax Act,
r940. It had deposited certain sums of money as required under
s. IO of the Indian Finance Act, 1942, read with s. 2 of the
Excess Profits Tax Ordinance, 1943, and in accordance with
those provisions became entitled to repayment of a portion of
the excess profits tax. The appellant's claim before the Incometax Officer under s. 25(4) of the Indian Income-tax Act, 1922,
that no tax was payable on the profits of the firm for the period
between April l, 1944, to March 24, 1945, was allowed, but
their plea that the amount of refund of the excess profits tax
was business profit and therefore similarly exempt from tax, was
rejected. The High Court, on a reference, took the view that
the amount refunded \Vas income from other sources taxable
under s. 12 of the Indian Income.tax Act, 1922, and that, therefore, the appellants were not entitled to the benefit of s. 25(4) of
that Act.
Held, that in view of s. l2(I) of the Excess Profits Tax Act,
1940, ands. rr(rr) of the Indian Finance Act, 1946, the amount
refunded was income from business for the purposes of the
Indian Income-tax Act, r922, and did not lose its character
which it had before the deposit. It fell under s. IO of the
Indian Income-tax Act and was, therefore, exempt under s. 25(4)
of that Act.
Mc Gregor and Balfour Ltd. v. Commissioner of Income-tax,
Bengal, [1959] 36 I.TR. 65 and A. & W. Nesbitt Ltd. v. Mitchell,
[1926] II T.C. 2rr, relied on.
CrvIL APPELLATE
JURISDICTION :
Civil Appeals
Nos. 173 to 175of1960.
March I.
134
SUPREME COURT REPORTS
[1962]
Donald Miranda
Appeals from the judgment and orders dated March
11, 1958, of the Bombay High Court in I. T. R. No.
36 of 1957.
v.
Commissioner of
Income-tax
A. V. Viswanatha Sastri, S. M. Dubash and G.
Gopalakrishnan, for the appellants.
K. N. Rajagopal Sastri and D. Gupta, for respon.
dents.
1961. March 1. The Judgment of the Court was
delivered by
Kapur J.
KAPUR, J.-These are three appeals pursuant to a
certificate under s. 66A(2) of the Indian Income-tax
Act, 1922 (hereinafter called the 'Act'), against the
judgment and orders of the High Court of Bombay in
Income-tax Reference No. 36of1957.
The appeals though directed against the same order
· are three in number because each partner of the firm
has brought a separate appeal. The firm was carrying
on the business of wine merchants at Bombay and
came into existence prior to April 1, 1939. The firm
had been assessed to income-tax under the provisions
of the Income-tax Act of 1918.
The firm which was
registered under the provisions of the Income-tax Act
of 1922 (hereinafter termed the Act) was dissolved on
March 24, 1945, and from the day following that i.e.
March 25, 1945, a private limited company i.e. S. S.
Miranda and Co. Ltd. succeeded to the business of the
firm.
A claim made under s. 25(4) of the Act to the
effect that no tax was payable on the profits of the
registered firm for the period between April 1, 1944,
to March 24, 1945, was allowed. In respect of the
chargeable accounting period April 1, 1944, to March
24, 1945, the registered firm was taxed to excess profits tax under the Excess Profits Tax Act, 1940. It
also deposited as required certain sums of money
under s. 10 of the Finance Act, 1942, read with s. 2 of
the Excess Profits Tax Ordinance, 1943. In accordance
with those provisions the firm became entitled to
repayment of a portion of the excess profits tax
amounting to

## Text

..
)
1 S.C.R. SUPREME COURT REPORTS
133
DONALD MIRANDA
v.
THE COMMISSIONER OF INCOME.TAX,
BOMBAY CITY ·II
(and connected appeals)
(J. L. KAPUR, M. HrnAYATULLAH and
J. c. SHAH, JJ.)
Income Tax-Refund of excess profits tax-Liability to incometax-Discontinuance of business-Profits for accounting year
exempt from tax-Excess Profits Tax Act r940 (r5 of r940),
s. I2(I)-Indian Finance Act, r946 (7 oj r946), s. II(II)-Indian
Income.tax Act, r922 (II of r922), ss. IO, I2.
The appellants were partners in a registered firm which was
dissolved on March 24, r945.
A private limited company
succeeded to the business of the firm from March 25, r945. For the
accounting period April l, r944, to March 24, r945, the firm was
assessed to excess profits tax under the Excess Profits Tax Act,
r940. It had deposited certain sums of money as required under
s. IO of the Indian Finance Act, 1942, read with s. 2 of the
Excess Profits Tax Ordinance, 1943, and in accordance with
those provisions became entitled to repayment of a portion of
the excess profits tax. The appellant's claim before the Incometax Officer under s. 25(4) of the Indian Income-tax Act, 1922,
that no tax was payable on the profits of the firm for the period
between April l, 1944, to March 24, 1945, was allowed, but
their plea that the amount of refund of the excess profits tax
was business profit and therefore similarly exempt from tax, was
rejected. The High Court, on a reference, took the view that
the amount refunded \Vas income from other sources taxable
under s. 12 of the Indian Income.tax Act, 1922, and that, therefore, the appellants were not entitled to the benefit of s. 25(4) of
that Act.
Held, that in view of s. l2(I) of the Excess Profits Tax Act,
1940, ands. rr(rr) of the Indian Finance Act, 1946, the amount
refunded was income from business for the purposes of the
Indian Income-tax Act, r922, and did not lose its character
which it had before the deposit. It fell under s. IO of the
Indian Income-tax Act and was, therefore, exempt under s. 25(4)
of that Act.
Mc Gregor and Balfour Ltd. v. Commissioner of Income-tax,
Bengal, [1959] 36 I.TR. 65 and A. & W. Nesbitt Ltd. v. Mitchell,
[1926] II T.C. 2rr, relied on.
CrvIL APPELLATE
JURISDICTION :
Civil Appeals
Nos. 173 to 175of1960.
March I.
134
SUPREME COURT REPORTS
[1962]
Donald Miranda
Appeals from the judgment and orders dated March
11, 1958, of the Bombay High Court in I. T. R. No.
36 of 1957.
v.
Commissioner of
Income-tax
A. V. Viswanatha Sastri, S. M. Dubash and G.
Gopalakrishnan, for the appellants.
K. N. Rajagopal Sastri and D. Gupta, for respon.
dents.
1961. March 1. The Judgment of the Court was
delivered by
Kapur J.
KAPUR, J.-These are three appeals pursuant to a
certificate under s. 66A(2) of the Indian Income-tax
Act, 1922 (hereinafter called the 'Act'), against the
judgment and orders of the High Court of Bombay in
Income-tax Reference No. 36of1957.
The appeals though directed against the same order
· are three in number because each partner of the firm
has brought a separate appeal. The firm was carrying
on the business of wine merchants at Bombay and
came into existence prior to April 1, 1939. The firm
had been assessed to income-tax under the provisions
of the Income-tax Act of 1918.
The firm which was
registered under the provisions of the Income-tax Act
of 1922 (hereinafter termed the Act) was dissolved on
March 24, 1945, and from the day following that i.e.
March 25, 1945, a private limited company i.e. S. S.
Miranda and Co. Ltd. succeeded to the business of the
firm.
A claim made under s. 25(4) of the Act to the
effect that no tax was payable on the profits of the
registered firm for the period between April 1, 1944,
to March 24, 1945, was allowed. In respect of the
chargeable accounting period April 1, 1944, to March
24, 1945, the registered firm was taxed to excess profits tax under the Excess Profits Tax Act, 1940. It
also deposited as required certain sums of money
under s. 10 of the Finance Act, 1942, read with s. 2 of
the Excess Profits Tax Ordinance, 1943. In accordance
with those provisions the firm became entitled to
repayment of a portion of the excess profits tax
amounting to a sum of Rs. 2,35,704. The shares of
the three partners who are respective appellants in
. -
•
••
'
1 S.C.R. SUPREME COURT REPORTS
135
the three appeals were James Miranda Rs. 58,926,
196'
Donald Miranda Rs. 58,926 and Mrs. N. Q. Miranda Donald Miranda
Rs. 1,17,854. It wa.s submitted that the amount rev.
funded, was business profit and therefore exempt Commission" of
from tax under s. 25(4) of the Act. The Income-tax
Income·ta•
Officer rejected that submission and the share of each
of the appellants was assessed to income-tax and super
Kapur J.
tax and the balance after deducting the same he repaid to each of the partners but he computed the rate
applicable to the tax by including the appellants'
total business income which was exempt under s. 25(4)
of the Act. On appeal this assessment was confirmed
but on further appeal the Income-tax Appellate Tribunal held that the sum which was refunded was
income from business and was therefore exempt from
income-tax under s. 25(4) of the Act.
At the instance
of the Commissioner of Income-tax, the Tribunal referred the following question of law for the opinion of
the High Court:
"Whether the repayment of excess profits tax
made by the Central Government in pursuance of
Section 10 of the Indian Finance Act, 1942, or Section 2 of the Excess Profits Tax Ordinance, 1943, is
profits from business for the purposes of Section 25(4) of the Indian Income-tax Act?"
The High Court held that the amount so refunded was
income from other sources taxable under s. 12 of the
Act and the appellants were therefore not entitled to
the benefit of s. 25(4) of the Act. In dealing with the
nature of the tax the learned Chief Justice said:-
"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."
It was argued on behalf of the appellants that the
amount refunded was income, profits and gains from
business and fell under s. 10 of the Act and was therefore exempt under s. 25(4) of the Act.For the determination of this question it is necessary to refer to the
relevant provisions of the Excess Profits Tax Act, 1940,
and the Finance Act, 1946. Section 12(1) of the
Excess Profits Tax Act was as follows:-
J)onald l1firanda
v.
Commissioner of
Tncome-tax
J(apur j.
136
SUPREME COURT REPORTS
[1962)
S. 12(1) "The amount of the excess profits tax
payable in respect of a business for any chargeable
accounting period diminished by any amount allowable by way of relief under the provisions of section 11 or section 11-A shall, in computing for the
purposes of income-tax or super tax the profits and
gains of that business, be allowed to be deducted as
an expense incurred in that period."
The relevant part of s. 11(11) of the Indian Finance
Act, 1946, provided:-
" Any sum being excess profits tax repaid in respect of any chargeable accounting period under the
provisions of section 10 of the Indian Finance Act,
1942, or of section 2 of the Excess Profits Tax Ordinance, 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:
Provided that any such sum repaid in respect
of any profits which are also assessable to excess
profits tax under the law in force in the United Kingdom shall be treated, for the purpose of assessment
to income-tax and super tax, as income of the
previous year during which the repayment is made."
It is not necessary to quote s. 10(1) of the Finance
Act, 1942, or the relevant provisions of the Excess
Profits Tax Ordinance, 1943. Section 12(1) of the
Excess Profits Tax Act shows that the amount of ,
excess profits tax payable in respect of a business for
any chargeable accounting period was an allowable
expenditure. Under s. 11(11) of the Indian Finance
Act, 1946, any excess profits refunded under the provisions of Indian Finance Act, 1942, or of s. 2 of the
Excess Profits Tax Ordinance, 1943, were deemed to
be income and were to be treated as income of the
previous year which constituted or which included the
chargeable accounting period in respect of which the
said sum was repayable. Thus the sum repaid was
•
'
•
1 S.C.R. SUPREME COURT REPORTS
137
to be treated as income for the purposes of the Act for
the previous year, notwithstanding s. 34 of the Act.
The preamble of the Excess Profits Tax Act shows
that the object of that Act was to impose a tax on profits arising out of certain businesses. Therefore when
any portion of the tax collected on excess profits tax
was refunded under the provisions of the :Finance Act,
1942, or the Excess Profits Tax Ordinance, 1943, it
necessarily had the same quality which it had before
the amount which was charged with the payment of
tax had under the provisions of those Acts. In a judgment of this Court, Mc Gregor and Balfour Ltd. v. Commissioner of Income Tax, West Bengal('), the amount
received as a refund by the assessee was held to be
income for the purpose of the Act and for assessment
it was treated as income of the previous year. After
reference in that case to R. 4(1) of the Rules applicable to cases I and II of Schedule 'D' of the English
Income Tax Act, 1918 (8 and 9 Geo. V, c. 40), it was
observed:-
"The object and purpose of the legislation in each
case is the same, and though the two provisions are
not ipsissima verba, they are substantially in the
same words and also in pari materia .................... .
There can be no doubt th11.t the intention underlying the two provisions is the same and the language
is substantially similar."
·
Thus this Court was of the opinion that the intention
of the legislature ins. 11(14) of the Indian Finance
Act, 1946, which was the section applicable in that
case and of R. 4(1) of the English Income Tax Act was
the same. The operative words of s. 11(11) of the
Finance Act, 1946, and of s. 11(14) of that Act are
almost identical.
It would thus appear that the amount of excess profits tax was an allowable deduction for the purpose of
computation of the business profits of an assessee
under s. 12(1) of the Excess Profits Tax Act and when
it or a portion of it was refunded it had to be treated
as income of the assessee. When it was deposited with
(I) [1959] 36 l.T.R. 65.
18
r96r
Donald Jlfirandav.
Commissioner of
Income-tax
Kapur j.
138
SUPREME COURT REPORTS
[1962)
'96'
the Central Government it was a portion of the profits
D
Id M .
d of the business of the assessee and when it was returnona
""" a
h
.
b
d
.
h
v.
ed to t e assessee 1t must e restore to its c aracter
Commissioner of of being a part of the profits of a business. It cannot
Income-tax
be said that its nature changes merely because it is
refunded as a consequence of some provisions in the
Kapur J.
Finance Act or the Excess Profits Tax Ordinance. Its
nature remains the same. The effect of the deposit
under the Acts above-mentioned was as if a slice of
the business profit was taken and deposited with the
Central Government Treasury and then when it was
found that a larger amount had been deposited than
was exigible a portion of it was returned. By being
put in a Government Treasury it does not cease to be
what it was before i.e. profits of a business. As we
have said it is significantly clear from the very preamble of the Excess Profits Tax Act i.e., it was a tax
imposed on profits arising out of certain businesses.
An argument was raised on behalf of the Commissioner that the tax was not paid out of the profits of the
business, but in respect of the profits. That is immaterial; it was charged, levied and paid on the amount
by which the profits during any chargeable accounting
period exceeded the standard profits. It would be
mere quibbling with words if one were to say that it
was not a slice taken out of the profits of a business.
In the case Mc Gregor and Balfour Ltd. v. Commissioner of Income Tax (') this Court quoted with a pprov -
al the observation of the Master of the Rolls in
A. & W. Nesbitt Ltd. v. Mitchell(') where it was said:-
"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 a 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
(1) [1959) 36 l,T,R. 65.
(2) (1926) II T.C. 2II, 217, n8,
..
:..--
..
;
1 S.C.R. SUPREME COURT REPORTS
139
out of the profits which were made by the company
in the course of its trading, profits which at the time Donald Miranda
they were made were subject to income-tax. and
v.
subject to excess profits duty, and that is the Commissioner of
character of the repayment that has been made."
Income-tax
The amount deposited comes back without losing its
character. No doubt the words in the English Rule
are "shall be treated as profits for the year in which
the payment is received", and ins 11(11) of the Indian
Finance Act, 1946, such sum has to be treated as
income of the previous year but as pointed out by this
Court in Balfour and Mc Gregor case('), the intention
underlying the two provisions is the same and even
the language used in the two provisions is substantially the same.
Counsel for the Commissioner drew our attention to
Kirke's Trustees v. Commissioners of Inland Revenue('),
_and it was submitted that the Lord Chancellor held at
p. 329 that for the amount so received the assessment
falls to be made under Case VI of Schedule 'D'. Lord
Shaw of Dunfermline at p. 332 said that the repayment was to be treated as trading profits for the year
of repayment and therefore assessable as such under
Schedule 'D'. He was also of the opinion that the
charge was to be one under Case VI. Lord Sumner said
that it became a minor matter to decide whether the
charge was to be made under Case I or Case VI but
this is little consolation to the respondent (the Commissioner of Income-tax) because Case VI was also
dealing with taxes in respect of annual profits and
gains which do not fall in one of the other cases.
In our opinion the amount refunded did not lose its
character which it had before the deposit and therefore it is an erroneous view to take that the income
was assessable under s. 12 of the Act and not under
s. 10. If it was income falling under s. 10, as in our
opinion it was, then the appellants were entitled to
get the benefit of s. 25(4) of the Act and the amount
was not liable to taxation.
The appeals are therefore allowed with costs. One
hearing fee.
Appeals allowed.
(1) [1959] 36 l.T.R. 65.
(2) (1926) II T.C. 323.
Kapu1' ].