The power of the Excess Profits Tax Officer is with regard to profits not with regard to items in the profit and loss account of the assessee.

FACTS :- Nahalchand Laloochand (assessee) was a firm which did the business of the selling agency of the Brady group of Mills and the Kohinoor Mills. The total income as assessed to tax by the Income-tax Officer for the assessment year 1947-43 was Rs. 4,96,944, including a sum of Rs. 1,65,000 Which was credited on December 20, 1945, in the account of Bai Jivibai who was the widow of one of the partners of the assessee firm who had died in 1940. The assessee contended that Bai Jivibais husband had given, her gold ornaments which she had sold and the amount of Rs. 1,65,000 was the sale proceeds which was credited to her account.

2. The taxing authorities held that the case of the assessee was not true and the sum of Rs. 1,65,000 represented income of the assessee from an undisclosed source. The Excess Profits Tax Officer also took the view that the amount represented undisclosed profits of the assesses firm from business.

3. Two appeals were preferred to the Appellate Tribunal, one under the Indian Income-tax Act, 1922, and the other under the Excess Profits Tax Act, 1940, and both appeals were dismissed. In its order the Tribunal observed as follows : "In the present case the sum of Rs. 1,65,000 has been held by the Tribunal as profits of the assessee firm from some undisclosed sources. If the finding in respect of this item was that these were the suppressed sales of the assesees business or income relating to the business carried on, the assessees position would have been stronger, and in our opinion, an apportionment had to be made. But this item has been treated income from some undisclosed source in respect of which, there was no income subsequent to that date. In other words, the source which yielded that income did not yield any income after December 2, 1945, the date when the entry was made in the books of account.

There could be no question of apportioning this item as required by the above section. In respect of this item the chargeable accounting period does not go beyond the date mentioned above. The proviso, therefore, has no application to the facts of the present case. We think that the Excess Profits Tax Officer was right in not treating this item as the income of the chargeable accounting period under reference."

4. The following questions were referred to the High Court :

(1) Whether the Revenue Authorities are wrong in taking for the purpose of excess profits tax assessment the whole sum of Rs. 1,65,000 (rupees one lac and sixty five thousand) in the excess profits tax period ending the thirty-first day of March one thousand nine hundred and forty-six ?

(2) Whether on a true construction of the relevant provisions of the Act the Revenue Authorities ought to have in any event averaged the whole of the said amount of Rs. 1,65,000 (One lac and sixty five thousand) over the entire period of Excess Profits Tax and business profits tax as well as specially so when the appellants in the excess profits tax appeal even expressed their willingness to have the assessment for business profits tax purposes modified to a corresponding extent ? and

(3) Whether in view of the finding of the Tribunal that the said sum of Rs. 1,65,000 (one lac and sixty five thousand) was from some undisclosed source outside the assessees business the Tribunal was right in law in taking the said sum into consideration for the purposes of assessment of excess profits tax ?

5. CHAGLA, C.J :- (His Lordship, after stating facts and holding that the amount of Rs. 1,65,000 was an income from business and therefore liable to payment of excess profit tax, proceeded :)

6. The other question raised by Mr. Kolah is that in any view of the case this amount should be apportioned as provided by the proviso to R. 1, sch. I, to the Excess Profits Tax Act. Now, certain dates are important. The sum of Rs. 1,65,000, as already stated, was credited in the cooks of account of the assessee firm on December 20, 1945. The Excess Profits Tax Act came to an end on Marc