# MCGREGOR & BALFOUR LTD v. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

- **Citation:** [1959] Supp. 2 S.C.R. 355
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Case number:** Civil Appeal No. 265 of 1956
- **Bench:** B. P. Sinha, J. L. Kapur, M. Hidayatpllah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mcgregor-balfour-ltd-v-the-commissioner-of-income-tax-west-bengal-1662
- **Pages:** 10

## Headnote

Income-tax-Company carrying on business in England and
India-Refund of excess profits tax paid in England-If can be
taxed in India-Indian Finance Act, Ig46, s. II(4).
The appellant carried on business in England and in India.
For the previous years it paid excess profits tax in both countries
and it obtained deduction of the amounts so paid from its profits
and gains for the purposes of the Indian Income-tax Act. In the
assessment year 1947-48 it obtained a repayment of Rs. 2,31,009
out of the excess profits tax paid in England. The Income-tax
authorities acting under s. n(14), Indian Finance Act, 1946,
included this amount received in England in the taxable profits
of the appellant. The appellant contended that the repayment
not being within the taxable territory it could not be taxed.
Held, that the amount received as repayment of the excess
profits tax was rightly taxed. Under s. n(14) the amount of repayment was deemed to be ' income ' for purposes of the Indian
Income-tax Act and that 'income' was to be treated as the income
for the previous year during which the repayment was made.
Section n(14) created a liability irrespective of the considerations
arising from the general provisions of the income-tax law. The
distinction between incomes within and without taxable territories
was made unnecessary by s. n(14).
Eglinton Silica Brick Co. Ltd. v. Marria:n, (1924) 9 Tax Cas.
92; A. & W. Nesbitt Ltd. v. Mitchell, (1926) II Tax Cas. 217 and
Kirke's Trustees v. The Commissioners of Inland Revenue, (1926) II
Tax Cas. 323, applied.

## Text

(2) S.C.R.
SUPREME COURT REPORTS
355
MCGREGOR & BALFOUR LTD.
v.
THE COMMISSIONER OF INCOME-TAX,
WEST BENGAL
(B. P. SINHA, J. L. KAPUR and
M. HIDAYATPLLAH, JJ.)
Income-tax-Company carrying on business in England and
India-Refund of excess profits tax paid in England-If can be
taxed in India-Indian Finance Act, Ig46, s. II(4).
The appellant carried on business in England and in India.
For the previous years it paid excess profits tax in both countries
and it obtained deduction of the amounts so paid from its profits
and gains for the purposes of the Indian Income-tax Act. In the
assessment year 1947-48 it obtained a repayment of Rs. 2,31,009
out of the excess profits tax paid in England. The Income-tax
authorities acting under s. n(14), Indian Finance Act, 1946,
included this amount received in England in the taxable profits
of the appellant. The appellant contended that the repayment
not being within the taxable territory it could not be taxed.
Held, that the amount received as repayment of the excess
profits tax was rightly taxed. Under s. n(14) the amount of repayment was deemed to be ' income ' for purposes of the Indian
Income-tax Act and that 'income' was to be treated as the income
for the previous year during which the repayment was made.
Section n(14) created a liability irrespective of the considerations
arising from the general provisions of the income-tax law. The
distinction between incomes within and without taxable territories
was made unnecessary by s. n(14).
Eglinton Silica Brick Co. Ltd. v. Marria:n, (1924) 9 Tax Cas.
92; A. & W. Nesbitt Ltd. v. Mitchell, (1926) II Tax Cas. 217 and
Kirke's Trustees v. The Commissioners of Inland Revenue, (1926) II
Tax Cas. 323, applied.
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
265 of 1956.
Appeal from the judgment and order dated August
26, 1954, of the Calcutta High Court in Income-tax
Reference No. 107 of 1952.
S. Mitra, Dipak Chaudhry and B. N. Ghosh, for the
appellants.
G. K. Daphtary, Solicitor-General o.f India, K. N.
Rajagopala Sastri, R.H. Dhebar and D. Gupta, for the
respondent.
I959
March r6.
356
SUPREME COURT REPORTS [1959] Supp.
1959
1959.
March 16. The Judgment of the Court was
Mcgregor &
delivered by
.
Balfour Ltd.
HIDAYATULLAH, J.-Messrs. Mcgregor & Balfour,
C
. v:
,, Ltd., Calcutta (hereinafter called the Company) is a
ommissioner o, C
.
t d .
th
U 't d K"
d
I
r,,coine-tax,
ompany mcorpora e m
e
m e
mg om.
ts
west Bengal
head office is also there. It, however, does business in
India also. In some of the previous years, the ComHidayatullah J. pany was required to pay excess profits tax both in
England and in India. When it did so, it obtained
deduction of the amounts from its profits and gains
for purposes of the Indian Income-tax Act, under
s. 12(2) of the Indian Excess Profits Tax Act..
In the ·assessment year 1947-1948 which corresponded to the accounting year of the Company ending
on October 31, 1946, it obtained a repayment of
Rs. 2,31,009 out of the excess profits tax paid in England. This was under s. 28(1) of 4 & 5, Geo. VI,
Ch. 30. For purposes of the levy of the Indian Income-tax, this sum 1was included in the taxable profits
of the Company by the Income-tax Officer.
He purported to act under s. 11(14) of the Indian Finance
Act, 1946 (hereinafter called the Act).
The income of
the Company in India was held to be Rs. 6,34,937
(including the sum of· Rs. 2,31,009) while the income outside the taxable territory was held to be
Rs. 4,29,620.
Applying s. 4A(c)(b) of the Indian
Income-tax Act, the Income-tax Officer. assessed the
Company on its total world income.
The appeals of the Company made successively to
the Appellate Assistant Commissioner and the Incometax Appellate Tribunal were dismissed. The Tribunal,
however, referred the following questions of law to
the High Court at Calcutta under s. 66 of the Indian
Income-tax Act :
"(1) Whether on the above facts and circumstances of this case the Tribunal was right in holding
that the sum of Rs. 2,31,009 was income of the assessee during the assessment year under consideration
and was liable to be assessed under the Indian Income-tax Act? and
{2) If so, whether this amount could not be taken
into consideration for determining the residence of the
(2) S.C.R. SUPREME COURT REPORTS
357
assessee under s. 4A(c)(b) of the Indian Income-tax
I959
Act ?, ,,
Mcgregor &
This reference was heard by Chakravarti, C. J., and
Balfour Ltd.
Lahiri, J., who by their judgment dated August 26,
v.
1954, answered the first question in the affirmative Commissioner of
and the second in the negative.
They, however,
~nco~e-tozi
granted a certificate under s. 66A of the Indian Inest
enga
come-tax Act, read with Art. 135 of the Constitution Hidayatullah J.
to appeal to this Court. No appeal has been filed on
behalf of the Department, and the second of the two
questions must be taken to be finally settled in this
case.
The contentions of the Company in this appeal,
thus, concern only the first question, and they are
two: It was said firstly thats. 11(14) of the Finance
Act could not be made applicable to the assessment
year 1947-1948, because the provision was not incorporated in the Indian Income-tax Act or repeated in
the subsequent Finance Acts. This argument was not
seriously pressed before us, and beyond mentioning it,
Mr. Mitra for the Company did not choose to elaborate it. We think that Mr. Mitra has been quite
correct in not pursuing the matter. The section
framed as it is, does apply to subsequent assessment
years just as it did to the assessment for 1946-194 7,
and prima f acie, it was not necessary to follow one of
the two courses detailed above. Since the point was
not pressed before us, we need not give our reasons
here.
It was said nextly that the High Court was in error
in construing s. 11(14) of the Finance Act as a provision which created a liability proprio vigore, as if it
was a charging section. It was contended that the
repayment was not within the taxable territory, and
in view of the answer to the second question as to the
applicability of s. 4A(c)(b}, there could be no tax upon
it. On behalf of the Department it was argued that
the sub-section created a charge by itself and the fiction therein created being sufficient and clear, it was
not necessary to consider where the income arose.
Section 11(14) of the Finance Act reads as follows:
"Where under the provisions of sub-section (2) of
a58
SUPREME COURT REPORTS [1959] Supp.
•959
Section 12 of the Excess Profits Tax Act, 1940 (XV of
Mcgregor &
1940), excess profits tax payable under the Jaw in
Balfour Ltd.
force in the United Kingdom has been deducted in
v.
computing for the purposes of income-tax and superCommissioner of tax the profits and gains of any business, the amount
Income-tax.
of any repayment under sub-sectiori (1) of Section 28 of
West Bengal
the Finance Act. 1941, (4 & 5, Geo. 6, c. 30), as amendHidayatullah J. ed by Section 37 of the Finance Act, 1942 (5 & 6, Geo
6, c. 21 ), in respect of those profits, shall be deemed to be
income for the purposes of the Indian Income-tax Act,
1922, and shall, for the purpose of assessment to
income-tax and super-tax, be treated as income of the
previous year during which the repayment is made."
This section may be compared with 1 R. 4(1) of the
Rules which are applicable to cases I and II of sch.
D of the Income-tax Act, 1918 (8 & 9, Geo. V, c. 40):.
"Where any person has paid excess profits duty,
the amount so paid shall be allowed as a deduction in
computing the profits or gains of the year which
included the end of the accounting period in respect
of which the excess profits duty has been paid; 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."
The English rule above quoted deals first with the
deduction of the amount paid as excess profits duty
from the profits or gains of .the year which inclndes
the end of the accounting period in respect of which
the excess profits duty has been paid,-a matter dealt
with in s. 12(2) of the Indian Excess Profits Tax Act,
and next with the assessability to tax of the amount
repaid from the excess profits duty previously charged
-a matter dealt with in sub-ss. (11) and (14) of s. 11
of the Finance Act.
The object and purpose of the legislation in each
case is the same, and though the two provisions are
not ipsissima verba, tpey are substantially in the
same words and also in pari materia. The concluding
words of the English rule "the amount repaid shall be
treated as profits of the year in which the repayment
is received ", and which have been interpreted by
(2) s.c.tt. SUPREME C0t1RT lt~POR'J.IS
as9
English Courts may specially be compared with the
concluding words of sub~s. (14) of s. 11 of the :Finance
Mcgregor &.
Act, which run:
Balfour Ltd.
"any repayment ...... shall, for the purposes of
v.
assessment to income-tax and super-tax, be treated as Commissioner of
the income of the previous year during which the
Income-tax,
repayment is made."
West Bengal
There can be no doubt that the intention underlying
the two provisions is the same, and the language is
substantially similar.
Now, the English rule was interpreted by the English Courts to create a liability irrespective of considerations arising from the general provisions of the
income-tax law. In Eglinton Silica Brick Co., Ltd. v.
Marrian (1), the assessee company which had gone
into voluntary liquidation in 1904 was carried on by
the liquidator till 1921 when the business was sold to
another company which took it over on October 5,
1921, and the business of the appellant company then
ceased. The income-tax assessment for the year 192122 was apportioned between the two companies and
inasmuch as the assessee company had suffered a loss,
it was reduced to nil in its case. The assessee company then received£. 7,224 and£. 1,150 in 1952 after
it had ceased to carry on business as repayments of
excess profits duty, and this income was assessed
under R. 4(1) above mentioned. The question was
whether this was right.
The case was considered by the Lords of the First
Division, and they gave their opinion against the
assessee firm.
The Lord President (Clyde) with whom
Lords Skerrington, Cullen and Sands agreed (Lord
Sands dubitans) explained the two parts of the rule as
follows:
"The principle is obvi.ous. It is that if a taxpayer has made profits assessable (directly, or indirectly through the operation of the three years' average)
to income tax, and the Revenue takes a share of those
profits in the name of Excess Profits Duty, it is only
fair that the profits actually assessed to Income Tax
should suffer some corresponding deduction ......... "
(1) (1924) 9 Tax Cas. 92, 98.
Hidayatullah J.
1959
Mcgregor &>
Balfour Ltd.
v.
Com1nissioner of
Income tax,
West Bengal "'
Jfidayatullah ].
The problem which arose in the case of repay.
ment 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 ha\·e
ceased to be in existence. Repayment might therefore
have to be 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 all these
cases is that contained in the second part of the para.
graph, 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 is 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. In my opinion,
this is what explains the position of paragraph (1) of
l't ule 4 as part of the Rules under Cases I and II of
Schedule D, which are concerned with the profits of
trades and vocations. That some artificia.l rule should
be formulated was in the circumstances inevitable,
and the highly artificial character of the rule adopted
is shown by the words in which it is expressed-' the
amount repaid shall be treated lts profit for the year in
which the repayment is received.' In short, the
amount repaid is deemed to be something that it is
not, and could not in the actual circumstances possi.
bly be. Nor is this in any. way unreasonable or contrary to what might be expected, if regard be had to
the subject-matter. For, as has been seen, the Excess
Profits Duty was itself a part of the trading profits
computed by methods familiar under the Income Tax
Act. It was not merely a part of something which
entered into the computation of profit; it was actual
(2) S.C.R. SUPREME COURT REPORTS
361
computed profit.
And, but for the disparity between
the' accounting period' and the three years' average,
it would have been directly assessable to Income
Tax."
A similar view was taken in the Court of Appeal by
Lord Hanworth, M. R., Scrutton, L. J., u.nd Romer, J.
(Scrutton, L. J., dubitans) in A. & W. Nesbitt Ltd. v.
Mitchell (1).
There too, the assessee company after
suffering losses in the accounting period May 1 to
November 25, 1920, went into liquidation and ceased
to trade. On April 22, 1924, the repayment of Excess
Profits Duty took place, and this was assessed to
income-tax. The Master of the Rolls described the
amount received as repayment in these words:
"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 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."
Dealing with the rule, the Master of the Rolls observed:
"I have pointed out, this is a case where the
Company has received pay.ment·of an amount previously paid by way of Excess Profits Duty and having
that characteristic attaching to it ; and we are told by
the Statute that when such a sum is repaid it is to be
treated as a profit for the year in which the repayment is received. It is said it may be treated as a
{1) (1926) n Tax Cas. 2n, 217, 218.
46
I959
Mcgregor &
Balfour Ltd.
v.
Commissioner of
Income-tax,
West Bengal
Hidayatullah ].
362 SUPREME COURT REPORTS [1959] Supp.
z959
profit; but it ought not to be treated as an assessable
profit. The answer, to my mind, is that it is paid back
:.~;;::
0
~,~
not by way of a sum which has no origin or ancestry; it
v.
is a sum which represents a repayment of the amount
Commissioner of previouly paid by that Company in the form of Excess
Inoomo-tax.
Profits Duty upon their trading. If it is to have that
West Bengal
character and is to be treated as such a profit, althoHidayatullah 1. ugh it be a repayment of sums paid in respect of
profits, it is to be treated as a profit for the year in
which the repayment is received.
The word 'treated'
indicates that it is to be dee-;ed to be something which
in fact it is not, or whether it is so or not it is to be
treated as a profit, and therefore it is, to my mind,
impossible to discuss the question of whether or not
difficulties may arise or whether it may be criticised
as financially not quite sound that it should be treated
in this method in that particular year ; but we are
told by the Statute that it is to be treated as a profit
for the year in which the repayment is received."
In a case similar on facts as the ones cited above
(Kirke's Trustees v. '1.'he Commissioners of Inland
Revenue(')), the House of Lords (Viscount Cave, L. C.,
Lord Atkinson, Lord Shaw of Dunfermline, Lord
Sumner and Lord Carson) placed the same construction upon the latter part of H. 4(1).
The following
passage in the speech of Lord Sumner, explaining the
extent of the fiction in the latter part of the Rule, is
extremely instructive :
"The express mandatory terms of the sentence
show, in carefully chosen language, that he is to submit to something by reason of his having previously
enjoyed this advantage in the shape of repayment of
an amount previously paid by way of Excess Profits
Duty. Something which is not a profit, but is only a
money repayment, something which may not result in a
profit, because although trading goes on there is so great
a loss on the year that this repayment does not make
up the deficit, something which may not be a trading
profit, because trading has ceased altogether, nevertheless is to be treated as profit and as profit for the year.
' Treated ' is a fresh word free from legal technicality.
(1) (1926) 11 Tax Cas. 323, 332.
(2) S.C.R. SUPREME COURT REPORTS
363
It is the widest word that could be chosen. The Legisz959
lature avoided saying 'shall be assessed as' or 'shall
h
.
f
fi
d l
,
Mcvego• &
be brought into t e computat10n o pro t an
oss ,
Balfou• Ltd.
and simply says that something which is not profit
v.
but mere payment shall be treated as profit, which it Commissioner of
may or may not be, and as profit for the xear. I think,
Income-tax,
therefore, that the word 'treated' is an apt word to
West Bengal
impose a charge".
Hiaayatullah J.
See also in this connection Olive and Partington Ltd. v.
Rose (1).
These cases were relied on by Chakravarti, C. J., and
Lahiri, J., in the judgment under appeal, and the
learned Judges pointed out that the addition of the
words " for the purposes of assessment to income-tax
and super-tax" rather strengthen the reasoning in its
application to the words of the Indian Statute. We
agree with this statement. It is to be noticed that the
sub-section creates two fictions.
By the first fiction it
makes the amount of any repayment 'income' for the
purposes of the Indian Income-tax Act, and goes on
to say that that ' income ' shall be ' treated ' for purposes of assessment to income-tax and super-tax, as
the income of the previous year.
Mr. Mitra, for the Company contends that no doubt
the 'amount may be treated as' income' for the purposes of the Indian Income-tax Act, but the Department is still under a duty to prove that the Company
is liable to tax at all.
According to him, this will
ha.ve to be treated as income received outside the taxable territory, because if the fiction contemplated its
being treated as 'within the taxable territory ', it
would have said so specifically. In our opinion, this
submission cannot be accepted.
That this would have been taxable income but for
the provisions of s. 12(2) of the Excess Profits Tax Act,
goes without saying. The income character of the
receipt is restored by the fiction, and it is to be brought
under assessment without any further proof than this
that it has been received as repayment of tbe United
Kingdom tax, in respect of which a deduction was
made in the earlier years. The distinction between
(r) (1929) 14 Tax Cas. 701.
364
SUPREME COURT REPORTS [1959] Supp.
'959
incomes within and without taxable territories is made
unnecessary by demanding that this amount by way
Mcgregor &·
f
h ]] b b
h
d
'
Balfour Ltd.
o repayment s a
e roug t to tax an ' treated as
v.
income within the previous year. The effect thus is
Commissioner of that the sub-section charges the said amount with a
Income-tax.
liability to tax by its own force or ta borrow the words
West Dengal
of Lord Sumner, is apt to 'impose a charge'.
In our opinion, the amount received as repayment
Hidayatullah J. of excess profits tax must be deemed to be 'income '
I959
March I6.
for the purposes of the Indian Income-tax Act and for
assessment it must be treated as income of the previous year. The answer to question No. 1 given by
the Calcutta High Court was thus correct.
The appeal fails, and is dismissed with costs.
Appeal dismissed.
ADDITIONAL COLLECTOR, BAN ARES·
v.
MAHARAJ KISH ORE KHANNA
(JAFER IMAM, A. K. SARKAR and
K. SuBBA RAo, JJ.)'
Execution of Decrees-Decree passed by Special Judge in U.P.
• -If can be exernted outside U. P.-Extra-territoriality-Transfer
of such decree-Collector and Additional Collector, if exercise same
powers-Limitation-U. P. Encumbered Estates Act, r934 (U. P.
XXV of I934), ss. r4(7) and 24(3)-Code of Civil Procedure, r908
(V of r908), s. 39-Indian Limitation Act, r908 (IX of r908), Art.
r82.
The respondent, who owned landed properties at Banaras in
Uttar Pradesh and at Purnea in Bihar, was heavily indebted and
applied to the Collector, Banaras under s. 4 of the U. P. Encumbered Estates Act, 1934, for liquidation of his debts.
The Collector, acting under s. 6, forwarded the application to the Special
Judge, appointed under the Act who on March 21, 1940, passed
after the enquiry directed by the Act three money decrees in
favour of three creditors of the respondent and forwarded them
to the Collector for execution. Section 14(7) of the Act provided
that such decrees were to be deemed to be decrees of a civil Court