1971 (10) TMI 7 - SC - Income Tax

Assessee a British shipping company - Investment Allowance - Whether Tribunal was right in holding that the destination earnings collected in India should be considered as part of the Indian earnings in determining the assessee s Indian income under rule 33 of the Income-tax Rules - question is answered in the affirmative and in favour of the assessee

Summary

Issues Involved:
1. Inclusion of destination earnings in the computation of Indian earnings.
2. Allowance of investment allowance under the U.K. Act in the computation of total world income for determining Indian income.

Issue-wise Detailed Analysis:

1. Inclusion of Destination Earnings in the Computation of Indian Earnings:
The primary issue was whether the destination earnings collected in India should be considered as part of the Indian earnings under rule 33 of the Indian Income-tax Rules, 1922. The Income-tax Officer did not include the destination earnings received in India, i.e., freight received in Indian ports for cargo loaded at non-Indian ports, in the computation of the appellant's Indian earnings. The Appellate Assistant Commissioner accepted the appellant's contention regarding the inclusion of these earnings, but the revenue appealed this decision. The Tribunal upheld the appellant's contention, and the High Court answered this question in favor of the assessee. The revenue did not appeal against this decision, making it final and binding.

2. Allowance of Investment Allowance under the U.K. Act:
The second issue was whether the Tribunal was right in allowing the claim of the assessee for the investment allowance under the U.K. Act, corresponding to the development rebate under the Indian Income-tax Act, 1922, in the computation of its total world income for the purpose of determining the assessee's Indian income under rule 33. The High Court ruled in favor of the revenue, rejecting the assessee's claim for the investment allowance. The appellant contended that the investment allowance granted by the U.K. authorities should be considered in the computation of the taxable income under the Indian Act, as instructed by the Central Board of Revenue.

The Supreme Court noted that the computation of the income of the assessee had to be made on the basis of either the first or the third method mentioned in rule 33, as the second basis (proportion to total world profits) was not applicable. The Tribunal had computed the income based on the ratio certificate given by the U.K. authorities, which was deemed reasonable and in accordance with the instructions of the Board of Revenue.

The Supreme Court emphasized that the instructions issued by the Board of Revenue under section 5(8) of the Act were binding on the Income-tax authorities. These instructions allowed for the investment allowance granted in the U.K. to be considered for the computation of the Indian income of British shipping companies, provided the rate of the allowance was not greater than the rate of development rebate allowed under the Indian Act.

The court also referenced the case of Navnit Lal C. Javeri v. K. K. Sen, where it was held that a circular issued by the Board of Revenue is binding on all officers and persons employed in the execution of the Act, even if it deviates from the provisions of the Act.

Conclusion:
The Supreme Court allowed the appeals by special leave (Civil Appeals Nos. 1161 and 1162 of 1971), ruling in favor of the assessee on the second issue. The decision of the High Court was substituted with an affirmative answer, allowing the investment allowance under the U.K. Act in the computation of the assessee's total world income. The appeals by certificate (Civil Appeals Nos. 2459 and 2460 of 1968) were dismissed as not maintainable. The assessee was entitled to costs in the appeals allowed, both in the Supreme Court and the High Court.