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Interpretation of rule 5(2) of the Income-tax Rules, 1962 for a non-resident shipping company's depreciation claim on a second-hand ship. Analysis: The case involved the assessment of a non-resident shipping company for the assessment year 1970-71 regarding the depreciation claim on a second-hand ship, "S. S. Dimitrios," which had touched the Port of Mangalore during the relevant period. The Income Tax Officer (ITO) initially denied the depreciation claim based on the ship's anticipated life and purchase details. However, the Appellate Assistant Commissioner (AAC) allowed the depreciation, stating that rule 5(2) only determined the rate of depreciation and did not restrict the allowance to consecutive years from the purchase. The AAC directed the ITO to allow the depreciation claimed by the assessee. Upon further appeal by the Department, the Tribunal upheld the AAC's decision. The Tribunal analyzed the relevant provisions of the Income Tax Act and Rules and rejected the Department's argument that depreciation allowance should cease after the ship's anticipated life. The Tribunal emphasized that rule 5(2) merely provided a formula for computing depreciation and did not limit the allowance based on the ship's life expectancy at the time of purchase. The Tribunal's decision aligned with previous judgments supporting depreciation claims even for ships in the fleet for over twenty years. The High Court concurred with the Tribunal's interpretation of rule 5(2), emphasizing that the rule's language did not support the Department's restrictive construction. The Court upheld the Tribunal's decision, ruling in favor of the assessee's entitlement to depreciation on the second-hand ship as long as the depreciation did not exceed the ship's actual cost. The Court highlighted that rules cannot contradict the main provisions of the relevant tax laws and supported the Tribunal's reasoning. Ultimately, the High Court answered the posed question affirmatively in favor of the assessee, indicating that the Tribunal's interpretation of rule 5(2) was correct. The parties were directed to bear their own costs of the reference, concluding the judgment in favor of the non-resident shipping company regarding the depreciation claim on the second-hand ship, "S. S. Dimitrios."
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