TMI Blog1971 (10) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... n waters all over the world including the Indian waters. For the assessment years 1960-61 and 1961-62 (the relevant accounting years being the calendar years 1959 and 1960), the Income-tax Officer computed its total income taxable under the Indian Income-tax Act, 1922 (which will hereinafter be referred to as the "Act") by taking into account the ratio certificates issued by the Chief Inspector of Taxes, U.K., which were based on the assessments made on the appellant in U.K. During the relevant period, there was in U.K. "investment allowance" corresponding to "development rebate" under the Act. The certificates issued by the Chief Inspector contained the percentage ratio of the total world profits of the appellant to its world earnings and similarly the percentage ratio of the wear and tear allowance and the investment allowance to its total world earnings. In making the assessment, the Income-tax Officer purported to proceed on the basis of rule 33 of the Indian Income-tax Rules, 1922. The said rule reads: "In any case in which the Income-tax Officer is of opinion that the actual amount of the income, profits or gains accruing or arising to any person residing out of the taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Rules ? (2) Whether, on the facts and in the circumstances of the case, 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 of the Income-tax Rules, 1922 ? " The High Court answered the first question in favour of the assessee and the second in favour of the revenue. Hence, these appeals by the assessee. The revenue has not appealed against the decision of the High Court as regards question No. 1. Hence, we have only to consider whether the decision of the High Court relating to question No. 2 is in accordance with law. At the commencement of his arguments Mr. Palkhivala, learned counsel for the assessee, indicated that rule 33 may not be applicable to the facts of the case; but he said that, for the purpose of this case, he was prepared to proceed on the basis that the said rule is the governing provision. The authorities under the Act as well as the High Court have examined the facts of this case on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 958, an amount equal to seventy-five per cent. of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by him during a period of ten years next following for the purposes of the business of the undertaking, except-- (i) for distribution by way of dividends or profits, or (ii) for remittance outside India as profits or for the creation of any asset outside India, and if any such ship, machinery, or plant is sold or otherwise transferred by the assessee to any person other than the Government at any time before the expiry of ten years from the end of the year in which it was acquired or installed, any allowance made under this clause shall be deemed to have been wrongly allowed for the purposes of this Act." It may be noted that in the case of a shipping company like the appellant before us, whose ships ply all over the world, it may not be possible to strictly comply with the provisions contained in section 4 and section 10(2). The provisions dealing with the levy of income-tax are not identical in all countries. It may well nigh be impossible for a shipping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to reply your letter dated 8th February, 1957, on the above subject and to state that as the development rebate which corresponds to the investment allowance granted in the U. K. is allowed under the Indian Income-tax Act from the assessment year 1956-57, 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 the 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 development rebate allowed under the Indian Income-tax Act." We were informed that the copies of that letter were sent to the Income-tax Commissioners in the various States. From this letter, it is clear that the Board of Revenue had instructed the taxing authorities to take into consideration the investment allowance granted by the U. K. authorities in computing the taxable income of the British shipping companies. At this stage, it is necessary to mention that the proviso to clause (vib) of section 10(2) referred to earlier was incorporated into the Act some time af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the U. K. authorities, it cannot be said that the decision reached by the Tribunal was an unreasonable one. The Tribunal's decision accords with the instructions given by the Board of Revenue. The fact that the proviso to section 10(2)(vib) was incorporated into the Act after the Board issued its instructions cannot affect either the validity of rule 33 or the force of the instructions issued by the Board of Revenue because neither rule 33 nor the instructions issued were strictly in accordance with section 10(2). They merely lay down certain just and fair methods of approach to a difficult problem. The learned Solicitor-General appearing for the revenue at one stage of his arguments contended that the instructions issued by the Board of Revenue cannot have any binding effect and those instructions cannot abrogate or modify the provisions of the Act. But he did not contend that rule 33 is ultra vires the Act. The instructions in question merely lay down the manner of applying rule 33. Now, coming to the question as to the effect of instructions issued under section 5(8) of the Act, this court observed in Navnit Lal C. Javeri v. K. K. Sen, Appellate Assistant Commissioner, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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