1996 (7) TMI 1 - SC - Income Tax

Unabsorbed Depreciation - Shipping Company - Whether Tribunal was right in holding that the assessee was entitled to get depreciation allowance u/r 8 of the Income-tax Rules even in respect of ships which had formed part of the assessee's fleet for more than twenty years - Held, yes

Issues Involved:
1. Entitlement to depreciation allowance under rule 8 for ships part of the assessee's fleet for over twenty years.
2. Deletion of the addition of Rs. 55,280 made by the Appellate Assistant Commissioner on account of excess depreciation for the vessel 'Tortugus'.
3. Justification in law for deleting the enhancement of Rs. 97,547 to the total income due to wrong deduction of unabsorbed depreciation allowed by the Income-tax Officer.

Issue-wise Detailed Analysis:

Issue 1: Entitlement to Depreciation Allowance Under Rule 8 for Ships Part of the Assessee's Fleet for Over Twenty Years

The primary question was whether the assessee was entitled to depreciation allowance under rule 8 of the Income-tax Rules for ships that had been part of the fleet for more than twenty years. The Calcutta High Court had previously answered this in the negative, favoring the Revenue. The appellant-assessee, a Norwegian shipping company, did not furnish annual accounts for its entire world business but provided separate accounts for its Indian trade. The Income-tax Officer disallowed depreciation for eight ships over twenty years old, following instructions issued under rule 33.

The Tribunal's decision was that the instructions misunderstood the statutory provisions, allowing the appeal by stating that depreciation should be allowed for ships employed in the Indian trade, regardless of their age. The High Court, however, held that the instructions were consistent with the Act and the Rules, clarifying that depreciation is allowed only when ships are actually employed in trade. The Supreme Court agreed with the High Court, stating that the instructions were clear and binding, and that the depreciation allowance ceases after twenty years as per the instructions. Thus, the Supreme Court affirmed the High Court's decision, holding that the instructions did not contradict the statutory provisions.

Issue 2: Deletion of the Addition of Rs. 55,280 Made by the Appellate Assistant Commissioner on Account of Excess Depreciation for the Vessel 'Tortugus'

The High Court had answered this question in favor of the assessee, and since there was no appeal by the Revenue, this issue was not further elaborated upon in the Supreme Court judgment. Therefore, the deletion of Rs. 55,280 on account of excess depreciation for the vessel 'Tortugus' stood affirmed in favor of the assessee.

Issue 3: Justification in Law for Deleting the Enhancement of Rs. 97,547 to the Total Income Due to Wrong Deduction of Unabsorbed Depreciation Allowed by the Income-tax Officer

This issue involved the disallowance of Rs. 97,547 as unabsorbed depreciation from the assessment year 1953-54, which was initially allowed by the Income-tax Officer but later disallowed by the Appellate Assistant Commissioner. The Tribunal allowed the set-off, but the High Court reversed this decision, stating that since the ships in question did not come to India during the relevant accounting year, the unabsorbed depreciation could not be set off.

The Supreme Court upheld the High Court's decision, emphasizing that the instructions were clear that unabsorbed depreciation could only be set off against the same ship in subsequent years if it was employed in Indian trade. Since the ships were not employed in the relevant year, the set-off was not permissible. Thus, the Supreme Court affirmed the High Court's decision on this issue as well.

Conclusion:

The Supreme Court dismissed the appeal, affirming the High Court's answers to the questions involved. The instructions issued under rule 33 were held to be consistent with the statutory provisions, and the disallowance of depreciation for ships over twenty years and the non-set-off of unabsorbed depreciation were upheld. The appeal was dismissed with costs, consolidating the advocate's fee at rupees ten thousand.

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