9911796707
TMI Blog1968 (4) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... w 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, 1948) as the receipts accruing or arising in the taxable territories bore to the total receipts of the business. Before the Income-tax Officer the assessee's contention was that even while its profits were being computed in accordance with rule 33 of the Income-tax Rules, in doing so the instructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 Officer was bound under section 5 of the Income-tax Act to follow the instructions of the Central Board of Revenue. These instructions of the Central Board of Revenue clearly laid down that investment allowance was permitted as a deduction in respect of the development rebate allowable under the Indian In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax 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 taxable territories bear to the total receipts of the business ; or (c) in such other manner as the Income-tax Officer may deem suitable. The Income-tax Officer adopted the second method. In other words, the method adopted in this case was an estimate at an amount which bears the same proportion to the total profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation 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 'excess' or the loss computed on the basis of these particulars will, in that case, be added to or deducted from the whole world income computed for the purpose of the second method in rule 33. As regards companies electing to be assessed on the basis of the U. K. ratio certificates it will not be possible to apply the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 speak of any "investment allowance" as such. At the time when this rule was framed, there was no investment allowance as such known under the Income-tax Act either in India or in the U.K. Therefore, it could not have been in the contemplation of the circular of the Board of Revenue, Circular No. 7 of 1942, that such "investment allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 this court to interpret and construe the U. K. Act, to construe and interpret U. K. revenue laws, and come to a finding that what in the U. K. is called an investment allowance under the U. K. Act is the same as development rebate under the Indian Income-tax Act. That will be exceeding our jurisdiction. It may also lead to a conflict of dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that this was in reply to the letter of Turner Morrison of February 8, 1957. Dr. Pal realised this difficulty and therefore relied on the fact that a copy of this letter was sent to the Commissioners, Income-tax, Calcutta and Bombay, with a view to establish as if it was a general order, instruction and direction to all taxing authorities. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istance" ; (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 assessee, sensed the difficulty in his way and therefore tried to argue that what the taxing authorities have done in this case was to follow the third method under rule 33. In other words, his contention is that the estimate in this case was made by exercise of discretion by the Income-tax Officer. I am unable to accept this contention. All throughout t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, 1922, provides three methods, as hereinafter 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
