1964 (2) TMI 101 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Rule 33 of the Indian Income-tax Rules.
2. Entitlement to initial and additional depreciation under Section 10(2)(via) of the Indian Income-tax Act, 1922.
3. Calculation of taxable business income for non-resident companies.
4. Conditions for claiming additional depreciation for new assets.

Issue-wise Detailed Analysis:

1. Applicability of Rule 33 of the Indian Income-tax Rules:
The Income-tax Officer computed the taxable business income for each year by employing a specific formula:
\[ \text{Indian trade profits} \times \frac{\text{Indian port receipts}}{\text{Total port receipts}} \]
which was agreed upon by both the department and the assessee as the correct method of assessment. The Tribunal confirmed that Rule 33 was applicable, and the second part of the rule must be applied:
\[ \text{"... on an amount which bears the same proportion to the total profits of the business of such person (such profits being computed in accordance with the provisions of the Indian Income-tax Act), as the receipts so accruing or arising bear to the total receipts of the business, or in such other manner as the Income-tax Officer may deem suitable."} \]

2. Entitlement to Initial and Additional Depreciation under Section 10(2)(via):
The Income-tax Officer did not allow initial or additional depreciation for ships brought into use in Indian trade after March 31, 1948, on the grounds that they were not new to Indian waters in the relevant years. The Tribunal, however, held that the ships were entitled to additional depreciation as they were brought into use after the specified date. The Tribunal's decision was based on Rule 8, which listed different rates of depreciation for different assets, including ships. The Tribunal concluded that the shipping company was entitled to additional depreciation for a continuous period of five years, irrespective of whether the ships called at Indian ports in the first year or subsequent years.

3. Calculation of Taxable Business Income for Non-resident Companies:
The assessee's income for Indian income-tax purposes was computed using a formula based on receipts accruing in India and net profits of Indian trade. The Tribunal noted that no particulars of the shipping trade were furnished, leading to an agreed basis of computation:
\[ \text{Receipts actually accruing in India} \times \frac{\text{Net profits of Indian trade}}{\text{Total receipts for Indian trade (actually accruing - accruing from round voyages)}} \]
The Tribunal emphasized that the income of a non-resident, like the assessee, chargeable to Indian income-tax, must be computed in the manner prescribed by Rule 33.

4. Conditions for Claiming Additional Depreciation for New Assets:
The Tribunal held that the four ships in question satisfied the conditions laid down in Section 10(2)(via):
1. The asset should be new.
2. The asset should have been installed after March 31, 1948.
3. The benefit of depreciation should enure for five successive assessments following the year of installation.
4. The period of five years should fall within April 1, 1949, to March 31, 1959.
However, the High Court held that the assessee must establish that the asset was introduced as a new asset into the business whose profits are assessed under the Indian Income-tax Act. The High Court concluded that the assessee was not entitled to additional depreciation as the ships were not new when introduced into the Indian trade.

Conclusion:
The High Court held that the assessee was not entitled to additional depreciation under Section 10(2)(via) as the ships were not new when introduced into the Indian trade. The Tribunal's order was not sustained, and the answer to the question of law was in the negative. The respondent was ordered to pay the costs of the reference.