IMPORTANT POINT
Circulars and Instructions issued under Rule 33 of the Income Tax Rules are clear and unambiguous and they do not run counter to Rule 33 or to Section 10(2)(vi) of the Income Tax Act.

Headnote:(i) Income Tax Act, 1961-Sections 5(8) & 10(2)(vi)-Income Tax Rules-Rule 33-Assessment of shipping companies for assessment year 1976-77-Claim of depreciation u/s. 10(2)(vi)-Circular and instructions issued by Central Board of Revenue issued under-Interpretation of-Instructions are not inconsistent with provisions of the Act or Rules-Depreciation on a ship is allowed only when it is actually employed in trade or business-Instructions merely clarify the rule position-Whether statutory or not, they are binding upon Income Tax authorities.
       Held : That Section 10(2)(vi) does not specifically provide for allowance of depreciation on foreign ships trading with India. Rule 33 also does not specifically provide for the situation except that the last portion of the rule empowers the Income Tax Officer to arrive at the actual amount of income, profits or gains accruing or arising to any person residing outside taxable territories in such other manner as he deems suitable where such ascertainment cannot be done according to the first two methods indicated therein. It is precisely to provide for certain specific situations that the Central Board issued the aforesaid Instructions under Rule 33. The Instructions specifically lay down the method and the manner in which depreciation has to be worked out on ships owned by a foreign shipping line carrying on business in British India. In this case, it is admitted that the appellant-company did not prepare and furnish the complete annual accounts for its entire business, Indian and foreign, along with an account of its gross receipts, Indian and foreign. It kept a separate annual account in respect of its Indian trade and submitted the same to the Income tax authorities. The Instructions provide inter alia for such a situation as well. The Instructions issued by the Central Board under Rule 33 merely elucidate and elaborate and manner in which the business income of such foreign shipping lines are 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 allotted to any ship can only be allowed in any subsequent year against the same ship. The Instructions also provide clearly that the allowance shall cease on ships after the expiry of twenty years. (Para 12)
       (ii) Income Tax Act, 1961-Sections 5(8) & 10(2)(vi)-Assessment of shipping companies-Unabsorbed depreciation in respect of a particular ship can only be allowed against that particular ship in subsequent year provided it was employed in Indian trade in subsequent year. (Para 13)

JUDGMENT

B.P. Jeevan Reddy, J.-This appeal is preferred by the assessee on the basis of a certificate of fitness issued by the Calcutta High Court under Section 66A(2) of the Indian Income Tax Act, 1922 (the Act). Three questions were referred under Section 66(2) of the Act at the instance of the Revenue. The questions are :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to get depreciation allowance under Rule 8 of the Income-tax Rules even in respect of ships which had formed part of the assessee s fleet for more than twenty year ?

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 Tortugas ?

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 ?"

2. 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 be considered by this Court. The questions so indicated are :

"The issue involved in this reference concerns the interpretation of the circular and the instructions issued by the Central Board of Revenue vis-a-vis the applicability of Rule 33 of the Income Tax Rules. The answers involve the question of vital importance for the assessment of shipping companies up to the assessment year 1976-77 and how Section 44-B would be applicable. The reference dealt with the question whether a shipping company is entitled to depreciation under section 10(2)(vi) of the Income Tax Act, 1961 in view of the instructions issued by the Central Board of Revenue. This reference was also involved with the question whether the assessee would become disentitled to such depreciation in view of the said instructions contained in the circular of the Central Board of Revenue. It is true that the scope and effect of the circular of this type have been considered by the Supreme Court in the case of Ellermen Lines Ltd. v. Commissioner of Income Tax, 82 ITR 913 and Navnitlal Javeri v. Sen 56 ITR 198, but the question here is to what extent a circular which curtails the right of the assessee under the Act or the Rule can be given effect to as against the assessee. It is true, as was noted by the Supreme Court in the cases referred to hereinbefore as also in the instant case that circulars merely provide a method of the application of Rule 33, but by providing that method if the circular attempts to curtail the right to depreciation by the assessee then the jurisdiction of such circulars to curtail right granted either by the Act or the Rule framed by the Act would require consideration. Further more also on the interpretation of the circular there is a substantial question involved - what does the expression fleet in the instructions issued by the Central Board of Revenue mean. For the aforesaid reasons we are of the opinion that this case involves substantial and important questions of law which require to be considered by the Supreme Court."

3. The appellant-assessee is a Norwegian Shipping Company. The assessment year concerned is 1958-59 for which the accounting year was the calender year 1957. The relevant facts, as stated in the judgment of th

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1996 Supreme(SC) 1031

IMPORTANT POINTCirculars and Instructions issued under Rule 33 of the Income Tax Rules are clear and unambiguous and they do not run counter to Rule 33 or to Section 10(2)(vi) of the Income Tax Act.

Cases Referred (1)

IMPORTANT POINT
Circulars and Instructions issued under Rule 33 of the Income Tax Rules are clear and unambiguous and they do not run counter to Rule 33 or to Section 10(2)(vi) of the Income Tax Act.