1969 (3) TMI 5 - SC - Income Tax

Appellant was a non-resident company engaged in shipping business - assessee did not furnish particulars of its world income - appellant was not entitled to additional depreciation - Assessee s appeal dismissed

Summary

Issues Involved:
1. Computation of taxable income for a non-resident company engaged in shipping business.
2. Applicability of additional depreciation under section 10(2)(via) of the Indian Income-tax Act, 1922.
3. Correct method of assessment under Rule 33 of the Indian Income-tax Rules, 1922.

Detailed Analysis:

1. Computation of Taxable Income for a Non-Resident Company Engaged in Shipping Business:

The assessee, a non-resident company engaged in the shipping business, filed its return of income for the assessment years 1952-53 to 1956-57 based on its annual turnover in its Indian trade. The Income-tax Officer computed the taxable business income using a specific formula: "Indian port receipts X Indian port receipts/Total port receipts." This formula was used to determine the proportionate Indian profits.

2. Applicability of Additional Depreciation under Section 10(2)(via) of the Indian Income-tax Act, 1922:

The assessee claimed additional depreciation for four ships for the relevant assessment years. The Tribunal held that the assessee was entitled to additional depreciation as the Indian business was part of the assessee's world business. The Tribunal observed that under Rule 33, profits must be calculated under the Indian Income-tax Act, which includes additional depreciation for machinery and plants brought into business after March 31, 1948. However, the High Court answered the question in the negative, stating that additional depreciation was not admissible.

3. Correct Method of Assessment under Rule 33 of the Indian Income-tax Rules, 1922:

The second method in Rule 33 was agreed upon by both the assessee and the Commissioner as the correct method for determining taxable income. This method involves:
- Determining the total profits of the assessee's world business under the Indian Income-tax Act.
- Determining the proportion between the receipts accruing or arising within the taxable territories and the total receipts of the business.
- Applying this proportion to the Indian receipts to determine the taxable income.

However, the Income-tax Officer did not apply this method correctly as the assessee did not produce its world trade books of account. Instead, a special formula was used, which did not include additional depreciation.

Conclusion:

The Supreme Court concluded that the Income-tax Officer did not apply the second method under Rule 33 in computing the taxable income. The method used did not warrant the inclusion of additional depreciation. The Court clarified that additional depreciation is a statutory allowance under section 10 of the Act, but it is not applicable when an empirical method is used for computation. The appeals were dismissed, and the assessee was ordered to pay the costs.