1973 PLP 130 (PTD)

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. 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, 1922, provides three methods, as herein after mentioned, for the computation of the assessable income of non‑resident assessees where the Income‑tax Officer thinks that such income cannot be properly ascertained, viz: (i) either as a percentage of turnover , or (ii) on an amount which bears the same proportion to the total profits of the business of (such, profits being computed in accordance with the provisions of the Income‑tax Act) as the receipts so accruing or arising bear to the total receipts of the business, or (iii) in such manner as the Income‑tax Officer may deem suitable. For the assessment of foreign shipping companies, whose ships ply to and from Indian ports and where the accounts of the entire shipping business are not available for the purpose of the Indian assessment, the Central Board of Revenue has issued certain instructions from time to time. Similar, but separate instructions, have also been issued by the Central Board of Revenue for the assessment of British shipping companies. The last of Such instructions were issued in 1942 and were contained in Part III of the 10th Edition of the Income‑tax Manual published by the authority of the Central Board of Revenue. It is to be noted that though subsequently various new allowances were made available to the assessees both under the United Kingdom income‑tax laws and also under the Indian Income‑tax Act, no modification or change was made in these instructions. As the assessee is admittedly a British shipping company, the instructions regarding the assessment of such companies would be applicable to its assessment. Such instructions provide that for the assessment for the. years beginning with 1940‑41 the following method would be adopted : "When assessing British shipping companies, the Income‑tax Officer should accept a certificate granted by the Chief Line Inspector of Taxes in the United Kingdom stating, (i) 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 the ratio of the United Kingdom allowance for wear and tear to the gross earnings of the whole fleet, or (ii) the fact that there were no such profits. The expression 'gross earnings' of‑the company's whole fleet means the total receipts‑of the 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. w r and teak allowance only. It will, however, not be possible to work out correctly the less 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 up to 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. The relative ratios being applied to the Indian 'gross earnings', it will be possible to work out separately the proportionate Indian profit or loss and depreciation and there will be no difficulty in carrying forward the loss or the depreciation or both, as the case may be." Under these instructions, therefore, the Income‑tax Officer is required to see what was the ratio of profits, before deduction of any previous loss or the wear and tear allowance, disclosed by the ratio certificate and the ratio of the United Kingdom allowance for wear and tear and to apply these two ratios to the Indian gross earnings to work out the proportionate Indian profit. In this case the ratio certificates granted by the Chief Inspector of Taxes in the United Kingdom showed the following ratios separately: "(i) the ratio of profits to the gross shipping earnings, (ii) the ratio of the allowance for wear and tear to the gross shipping earnings, (iii) the ratio of the investment allowance in respect of capital expenditure to the gross shipping earnings, and (iv) the ratio of the balancing charge to the gross shipping earnings." It was "claimed by the assessee that in determining the ratio of profits to the gross shipping earnings the investment allowance should also be deducted as otherwise the true ratio of the profits to the gross earnings would not be arrived at. The difficulty in the way of the assessee is that, though the allowance for development rebate was introduced in India from the assessment year 1955‑56 and the corresponding invest ment allowance in the U. K. even earlier in 1954, no corresponding modification in the instructions was issued by the Central Board of Revenue for guidance of the Income‑tax Officers. It must therefore .be held that the Central Board of Revenue intended that no allowance other than the U. K. wear and tear allowance should be considered and allowed in determining the ratio of profits to total turnover for the purpose of applying the same to the Indian turnover. In I. T. A. No. 8260 of 1959‑60 in the case of Bank Lines Ltd. in respect of the assessment year 1958‑59, the U. K., ratio certificate showed 'the ratio of profit to gross earnings at 33.07% and also the ratio of the wear and tear allowance as in that year. In determining the aforesaid ratio of profits, the income‑tax authorities had already deducted the a investment allowance allowed 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: e 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 Ltd., the Income‑tax Officer would be bound under the aforesaid instructions to accept the aforesaid ratios. He could not dissect the certificate and add back the amount of the investment allowance. As the certificate in the present case has shown the ratio of profit and the ratio of the wear and tear allowance and that of the investment allowance separately, the departmental instructions did not authorise the Income‑tax Officer, to determine the ratio of profits afresh after giving a further deduction on account of the investment allowance in the U. K. For the above reasons and the reasons given by my Lord, I agree that question No. 2 must be answered in the negative and against the assessee. ‑‑