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TMI Blog1968 (4) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... nce under the U. K. Act (corresponding to 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 of the Income-tax Rules, 1922?" The facts giving rise to these questions of law may now be briefly stated. The assessment years 1960-61 and 1961-62 are the relevant years. The previous relevant years are the calendar years 1959 and 1960. The assessee is a non-resident British shipping company whose vessels ply on the waters all over the world including Indian waters. The Income-tax Officer determined the assessee's Indian profits at a percentage of its total earnings on the basis of rule 33 of the Income-tax Rules. Of the three alternative methods laid down by rule 33 for estimating the assessee's Indian profits, the statement of the case makes it quite clear that the Income-tax Officer adopted the second of the three methods. In other words, he computed the assessee's Indian profits at an amount which bore the same proportion to the total profits of the business (computed in accordance with the Central Board of Revenue Circular No. 7 of 1942 dated 10th February, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther question relates to the allowance of development rebate which the Appellate Assistant Commissioner had ordered to be given. It was argued on behalf of the department before the Tribunal that, since the conditions required for allowance of development rebate were different from the investment allowance in U. K., the U. K. ratio certificate in so far as grant of investment allowance was concerned could not be applied unless the conditions laid down under the Indian Income-tax Act were satisfied. It was also argued that notwithstanding the allowance for wear and tear provided for in the U. K. ratio certificate which the assessee could adopt, such allowance could not be granted under the Indian Income-tax Act unless the assessee had created a reserve of 75 per cent. of the claim. Thirdly, it was contended for the department that the wear and tear allowance mentioned in the instructions of the Central Board of Revenue corresponded only to the depreciation allowance under the Indian Income-tax Act which was an allowance only under section 10(2)(vi) of the Act and did not include an allowance by way of development rebate. The decision of the Tribunal indicates that the Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able territories, or through or from any asset or source of income in the taxable territories, or through or from any money lent at interest and brought into the taxable territories in cash or in kind cannot be ascertained, the amount of such income, profits or gains for the purposes of assessment to income-tax may be calculated on such percentage of the turnover so accruing or arising as the Income-tax Officer may consider to be reasonable, or 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." An analysis of rule 33 will show the three methods to estimate the Indian profits. These three alternative methods are : (8) on such percentage of the total turnover as the Income-tax Officer may consider reasonable ; or (b) at an amount which bears the same proportion to the total profits of the business (computed according to the Indian Income-tax Act) as the receipts accruing or arising in the taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... British shipping company to elect to be assessed on the basis of a ratio certificate granted by the U.K. authorities regarding the income or loss and wear and tear allowance. 2. The bearing of the provisions of sections 10(2)(vii) and 24(2), however, requires to be considered in this connection. As no record of any depreciation allowance has been kept in India in respect of the companies assessed in accordance with either of the methods noted above, it will not be possible to work out the written down value without which the provisions of section 10(2)(vii) cannot be applied. If, therefore, any foreign shipping company desires to follow the method of electing the U. K. wear and tear allowance for the purpose of its Indian assessment, it must agree either to forgo the allowance under section 10(2)(vii)--the Government also agreeing, in such a case, to forgo the tax on the 'excess' described in the second proviso to section 10(2)(vii)--or to give particulars (agreed with the U. K. authorities) in respect of (i) the original cost of the asset sold or discarded, (ii) the aggregate U. K. wear and tear allowance in respect of that asset, and (iii) its scrap value or sale price. The 'ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's Indian income under rule 33 of the Indian Income-tax Rules. I, therefore, answer the first question in the affirmative. The next point relates to the investment allowance. The ratio certificate given by the Chief Inspector of Taxes, U. K., states thus : " An investment allowance in respect of capital expenditure incurred in the same year on the provision of new machinery or plant has also been made. This allowance bears a ratio to the gross shipping earnings of 5.085 per cent. A balancing charge in respect of the sale of machinery or plant in the same year has also been made. This charge bears a ratio to the gross shipping earnings of 0.177%. In arriving at the profit mentioned in the first paragraph of this letter, no account has been taken of the above wear and tear and investment allowance, or of any trading losses, wear and tear, investment, initial and balancing allowances brought forward from previous years." The ratio certificate indicates also that "the allowance for wear and tear of plant for the same year bears a ratio to the gross shipping earnings of 14.197 per cent." Now, rule 33 of the Indian Income-tax Rules quoted above naturally does not spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is no objection to allow the investment allowance for the purpose of the computation of the Indian income of British shipping companies. This would, however, be subject to the condition that investment allowance would be permitted as a deduction only to the extent to which the rate of the allowance granted in the U. K. is not greater than the rate of the development rebate allowed under the Indian Income-tax Act." The Tribunal's reasons are that the Income-tax Officer was bound under section 5 of the Indian Income-tax Act to follow these instructions of the Central Board of Revenue because this particular letter of August 26, 1957, clearly shows that the investment allowance is permitted as a deduction, in respect of the development rebate allowable under the Indian Income-tax Act. I have carefully considered this reasoning and the nature and character of this letter. I am unable to accept the conclusion to which the Tribunal arrived on this point of "investment allowance" and on the character and nature of this letter. I shall state my reasons very briefly. I am of opinion that sitting here on a reference under the Indian Income-tax Act, it is not permissible for thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to avoid an open breach of the Indian Income-tax Act, after its amendment as noticed above. Incidentally, it also affects the assessee's own contention in this regard that the ratio certificate granted by the income-tax authorities is final and the tax authorities in India under the Income-tax Act have to accept it as such, a view which I am unable to accept. The very language in which this second question is framed is therefore indicative of the confusion, for it speaks of allowing the claim of the assessee for the investment allowance under the U. K. Act and assumes that it corresponds to the development rebate under the Income-tax Act. In my view, whether it corresponds or not cannot be within the jursidiction of the taxing authorities and courts here to find out. Thirdly, I am of the opinion that the letter of August 26, 1957, cannot be elevated to the category of "orders, instructions and directions" within the meaning of section 5(8) of the Indian Income-tax Act. It must be recorded here that this was only a letter written in response to the letter of Turner Morrison Co. The letter itself from the Secretary, Central Board of Revenue, dated August 26, 1957, recites tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1922. In the view that I am taking, it is not necessary to discuss : (a) the reference to 15 Halsbury 328, paragraphs 597-598 about proving foreign law. But we need only say that paragraph 598 of Halsbury's statement of the law is : . . . .the English courts are not, in general entitled to construe the foreign law themselves without expert assistance" ; (b) nor is it necessary also to discuss section 45 of the Indian Evidence Act stating, " when the court has to form an opinion upon a point of foreign law . . . the opinions upon that point of persons specially skilled in such foreign law . . . . are relevant facts" ; (c) nor the authority quoted to us in Kumar Jagadish Chandra Sinha v. Commissioner of Income-tax, where a Bench of this court held that an official version of the Pakistan Income-tax Act could only prove that the Act as printed in it was in force on the date of publication of the version but it cannot show whether the law has been amended or subsequently supplemented and the exact law of a foreign State prevailing at a particular time could not be proved except by calling an expert as provided in section 45 of the Evidence Act. Dr. Pal, appearing for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t essential. I, therefore, repeat, for reasons already recorded, that my answer to the first question is in the affirmative and my answer to the second question is in the negative. There will be no order as to costs. K. L. Roy J.-I agree. So far as question No. 1 is concerned I am of the opinion that the income from destination freight collected in the Indian ports not only accrued or arose but was also received in the taxable territories and as such the first question must be answered against the department. As Dr. Pal, the learned counsel for the assessee, has referred to certain decisions of the Income-tax Appellate Tribunal and particularly to the order in I.T.A. No. 9889 of 1960-61 (T. J. Brockle Bank Ltd. v. Income-tax Officer) to which I was a party as a Member of the Bench deciding that appeal, and as he submitted that the aforesaid decisions of the Tribunal support his contention so far as question No. 2 is concerned, I would like to give my own view in the matter. As my Lord has made it clear, all income-tax authorities are required to observe and follow any orders, instructions or directions given by the Central Board of Revenue. Rule 33 of the Income-tax Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shipping company, excepting only receipts from non-trading sources, such as income from investments . . . . . . . As regards section 24(2), there will be no difficulty in respect of companies electing the U. K. wear and tear allowance only. It will, however, not be possible to work out correctly the loss to be carried forward in respect of the companies electing to be assessed on the basis of the U. K. ratio certificate unless the certificate in respect of the assessments from 1939-40 onwards contains the following particulars in place of the particulars furnished for assessments upto and including the year 1938-39 : (i) the ratio of profits (before deduction of any previous loss) of any accounting period as computed for the purposes of the U. K. income-tax computed without making any allowance for wear and tear, to the gross earnings of the company's whole fleet ; (ii) the ratio of loss (before including any previous loss) of any accounting period computed as above ; (iii) the ratio of United Kingdom allowance for wear and tear to the gross earnings of the whole fleet. Thus either certificates (i) and (iii) or certificates (ii) and (iii) will apply to a particular case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed in U.K. In that year, the investment allowance in U.K. was 40% as against 25% allowable under the corresponding provision for development rebate in India and the Income-tax Officer made adjustments to the total profits as well as to the ratio of profits to gross earnings shown in the ratio certificate to bring it in line with the Indian allowance. The Tribunal held that, as under the departmental instructions the Income-tax Officer had to accept the ratio certificate granted by the Chief Inspector of Taxes in the U.K., he could not dissect the certificate and improve on it. He must either accept the certificate or reject it altogether. In I.T.A. No. 9889 of 1960-61, the decision of the Tribunal, to which I was a party, the aforesaid decision of the Tribunal was quoted with approval and followed. During the arguments in the present reference, I repeatedly pointed out to Dr. Pal that if instead of giving the ratio of the investment allowance separately, the ratio certificate only mentioned the ratio of profits to the gross earnings after deducting the investment allowance and also gave the ratio of the wear and tear allowance in the U.K. as was done in the case of Bank Lines ..... X X X X Extracts X X X X X X X X Extracts X X X X
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