DONALD MIRANDA vs. THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY II

CIVIL APPEAL No. 173/1960Supreme Court[1962] 1 S.C.R. 13301 March 1961Bench: 3 JudgesAuthor: J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH7 pages
AI SummaryAllowed

What were the facts?

The appellants were partners in a registered firm dissolved on March 24, 1945. A private limited company succeeded the firm from March 25, 1945. For the accounting period April 1, 1944, to March 24, 1945, the firm was assessed to excess profits tax. The firm had deposited sums under Section 10 of the Indian Finance Act, 1942, and Section 2 of the Excess Profits Tax Ordinance, 1943, entitling it to a refund of a portion of the excess profits tax, amounting to Rs. 2,35,704. The Income-tax Officer allowed the claim that profits for the period April 1, 1944, to March 24, 1945, were not taxable under Section 25(4) of the Indian Income-tax Act, 1922. However, the Officer rejected the plea that the refunded excess profits tax was business profit and thus exempt. The High Court, on reference, held the refunded amount was income from other sources taxable under Section 12 of the Act, denying the benefit of Section 25(4).

What did the Supreme Court hold?

The Supreme Court held that the amount refunded was income from business for the purposes of the Indian Income-tax Act, 1922, and did not lose its character which it had before the deposit. The Court reasoned that Section 12(1) of the Excess Profits Tax Act, 1940, allowed the excess profits tax payable to be deducted as an expense, and Section 11(11) of the Indian Finance Act, 1946, deemed any refunded excess profits tax as income. The Court emphasized that the refunded amount retains its original character as a portion of business profits. It cited McGregor and Balfour Ltd. v. Commissioner of Income-tax and A. & W. Nesbitt Ltd. v. Mitchell to support the view that the refunded sum is a repayment of a sum taken out of profits made in the course of trading. Therefore, it fell under Section 10 of the Indian Income-tax Act, 1922, and was exempt under Section 25(4) of that Act. The appeals were allowed, and the amount was not liable to taxation.

What were the issues?

1. 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, 1922? Assessee's contentions: The amount refunded was business profit and therefore exempt from tax under Section 25(4) of the Indian Income-tax Act, 1922. They relied on the principle that the refunded amount retains its original character as business profit. Revenue's contentions: The High Court held that the refunded amount was income from other sources taxable under Section 12 of the Indian Income-tax Act, 1922, and thus the appellants were not entitled to the benefit of Section 25(4). The judgment does not explicitly record further arguments from the revenue before the Supreme Court, but their stance was that the refunded amount was not business profit.

Which sections of the Income-tax Act were involved?

Section 12(1),Section 11(11),Section 25(4),Section 10,Section 12,Section 66A(2)

AI-generated summary — verify with the full judgment below

.. ) 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 income- tax-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 Income- tax Officer under s. 25(4) of the Indian Income-tax Act, 1922, that no tax was pay

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