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TMI Blog1996 (7) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in deleting the addition of Rs. 55,280 made by the Appellate Assistant Commissioner on account of excess depreciation in respect of the vessel 'Tortugus' ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the enhancement of Rs. 97,547 to the total income made by the Appellate Assistant Commissioner on account of wrong deduction of unabsorbed depreciation allowed by the Income-tax Officer ? " The Calcutta High Court answered question No. 1 in the negative, i.e., in favour of the Revenue. Question No. 2 was answered in the affirmative, i.e., in favour of the assessee, while question No. 3 was answered in the negative, i.e., in favour of the Revenue and against the assessee. On an application filed by the assessee for issuance of a certificate under section 66A(2), the High Court [a different Division Bench] issued the certificate observing that the case raises certain important questions of law which require to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1958-59, the assessee furnished separate complete annual accounts for its Indian trade, that is to say, for all-round voyages of each ship to and from the Indian ports. The assessment was made under the third method contained in rule 33 of the Indian Income-tax Rules, 1922, and the instructions issued thereunder. The profits that were brought to tax ultimately were the net Indian profits of each ship employed in the Indian trade in the accounting year, 1957. (ii) Following the instructions aforementioned, the Income-tax Officer disallowed depreciation of eight ships mentioned in his order on the ground that the said ships in the assessee's fleet were of more than twenty years. (iii) There was an unabsorbed depreciation of about Rs. 3,31,493 in the assessment year 1953-54. An amount of Rs. 2,49,093 was set off against the assessee's income for the assessment year 1957-58. The unabsorbed depreciation of Rs. 97,547 for the assessment year 1953-54 pertained to seven ships, which did not come to India in the accounting year relevant to the assessment year 1958-59. In the books of the assessee, the said sum of Rs. 97,547 was shown as a business loss brought forward from the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee which is assessed on the round voyage method, a particular ship might have called at the Indian port some 25 years back and may be employed for the company's Indian trade for the second time only in the 26th year. That does not mean that the company will not be entitled to depreciation in the 26th year because in the intervening 25 years the ship was evidently not used for purpose of the round voyage via India and as such no depreciation had been allowed under the Indian Income-tax Act except for the first year. . . . In the case of a foreign shipping company like that of the appellant-company there may be ships which are borne more than 20 years on the total world fleet and many of the ships might not have been used at all in the Indian waters but there is no prohibition under the Indian Income-tax Act against allowing depreciation on such ships simply on the ground that the ship had formed a part of the company's fleet for more than 20 years. We, therefore, hold in favour of the appellant-company, viz., that depreciation allowance as provided in rule 8 should be allowed on all ships employed in connection with the company's Indian trade subject only to the limitation im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue orders, instructions and directions which were binding upon all officers and persons employed in the execution of the Act. The sub-section read as follows : " (8) All officers and persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Central Board of Revenue : Provided that no such orders, instructions or directions shall be given so as to interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions. " The provision is clear. It requires no elaboration. It is, however, evident that the power so conferred on the Central Board of Revenue has to be exercised for the purposes of and within the four corners of the Act. Sub-section (2) of section 10 provided the allowances to be made while ascertaining the profits and gains of business, profession and vocation. Clause (vi) of sub-section (2) provided for depreciation on buildings, machinery, land or furniture being the property of the assessee. The proviso (c) appended to clause (vi) provided that "the aggregate of all allowances in respect of depreciation made under this clause and clause (via) or under any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, require certain adjustments. Deductions permitted in the United Kingdom but not permitted in India will have to be added back and deductions permissible in India but not permissible in the United Kingdom will have to be allowed. If any company, however, prefers to claim the depreciation allowed by the United Kingdom income-tax authorities, the Commissioners of Income-tax may adopt that figure. Otherwise, depreciation will have to be calculated according to the Indian rules. What follows applies to the calculation of depreciation according to the Indian rules. For this purpose, a complete depreciation record has to be maintained for the entire fleet. Depreciation begins to run from the first year in which the company is assessed in India, that is, the first year in which its profits or loss were determined for the purpose of deciding whether it was liable to Indian income-tax. Unabsorbed depreciation, i.e., any balance of depreciation which cannot be allowed in any year owing to the profits not being sufficient to cover the full amount permissible under the Indian rules will be carried forward and allowed as far as possible in calculating the world profits according to the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in which the company becomes liable to assessment in India (irrespective of whether it was actually found to have a taxable income in that year or not), after the twentieth year beginning with that year ; (b) on ships subsequently added to the company's fleet, after they have been borne on the fleet for 20 years. In both cases the period may be extended proportionately where the United Kingdom depreciation is allowed in calculating the 'profits of the Indian trade' which take the place as already explained of the 'world profits'. Obsolescence cannot be allowed in these cases. British shipping companies---Assessment of : when assessing British shipping companies, the Income-tax Officer should accept a certificate granted by the Chief Inspector of Taxes in the United Kingdom stating, (1) the ratio of the profits of any accounting period as computed for the purposes of the United Kingdom income-tax computed without making any allowance for wear and tear to the gross earnings of the company's whole fleet, and their ratio of the United Kingdom allowance for wear and tear to the gross earnings of the whole fleet, or (2) the fact that there were no such profits. The expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pping lines is to be ascertained. These instructions are relatable to the last/third alternative provided by rule 33. We are, therefore, in agreement with the High Court that the aforesaid instructions do not run counter to rule 33 or for that matter to section 10(2)(vi). Evidently, these instructions were issued in view of the problems faced and experience gained by the Department and to meet situations not expressly provided for by the Act or the Rules. They are in the nature of guidance to the Assessing Officers. We are also in agreement with the High Court that the instructions are clear and unambiguous and that the Income-tax Officer was bound to follow them. The instructions specifically provided that depreciation must be allowed on each ship employed in the Indian trade in a given year and that the allowance must be a proportion of the annual rate calculated with reference to the number of days spent in the Indian trade whether at sea or in harbour. They further provided that any unabsorbed depreciation in any year must be distributed among the ships in the Indian trade in that year in proportion to the capital cost of each ship and that the unabsorbed depreciation thus allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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