If assessee Res./ NR u/s 4A to be considered, when assessable inc. determined

Facts in brief:

1.  The assessee-company had its head office in London and branches in India. 

2.  The EPTO treated the assessee as non-resident in the assessment year as its foreign profits were more than the Indian profits and determined the standard profits. 

3.  The AAC confirmed the orders of the EPTO.

4.  On appeal, Tribunal held that the profits for the chargeable accounting period as well as the standard period had to be computed under Rule 1 of Schedule I to the Act on the principles on which the profits of a business are computed for the purposes of income-tax under section 10 of the Income-tax Act and that the business profits of the assessee had to be determined first and the question whether the assessee was a resident or a non-resident under section 4A of the Act could only be considered at a later stage when assessable income was being determined. 

5.  On reference, High Court affirmed the order of the Tribunal.

   On appeal Supreme Court held as under:

6.  Rule I of Schedule I provides that business profits during the standard period are to be computed on the principles on which business profits are computed for purposes of income-tax under section 10 of the Income-tax Act. Such profits under section 10 may comprise Indian as well as foreign profits.

7.   The question whether Indian or foreign profits are greater would become relevant for determining the status of the assessee, whether he is a resident or non-resident, and would be considered later when the assessable income came to be determined. 

8.  It is only after the business profits are determined under section 10 that the question can be considered whether the assessee is a resident or non-resident. The same procedure would have to be followed while determining the business profits for the purpose of the excess profits tax also and section 4A could not be considered till after the business profits had been determined under section 10 in the first instance. 

9.  Both Indian and foreign profits would have to be determined for the purpose of this computation and they would be the business profits to be taken into account while computing standard profits without excluding any of them by applying section 4A.

10.  Whatever be the standard period chosen by the assessee it is a unit by itself and the profits of the business during the standard period must be computed under section 6 as a whole. The total profits, thus, computed would then be divided by two, if the standard period was one of two years and the resultant profits would then be compared with the profits of the chargeable accounting period. 

11.  There was nothing in the section to warrant the splitting up of the standard period, determining the business profits of each year separately and considering whether the assessee was a resident or non-resident for the particular assessment year.

12.  In the instant case, the profits of the assessee, Indian as well as foreign, were determined in the respective income-tax assessments and for the purpose of excess profits tax all the profits earned by assessee during the standard period had to be added together. The EPTO should therefore have added together both Indian profits and London profits for both the years.

13.  Accordingly, the finding of the Tribunal and High Court was to be confirmed and appeal was to be dismissed.