Judgement

SHAH, J.: Netherlands Steam Navigation Company Ltd. - hereinafter called "the assessee" - is a non-resident Company engaged in shipping business. For the assessment years 1952-53 to 1956-57 the assessee filed its return of income for the relevant accounting years disclosing taxable income computed on the basis of its annual turnover in its Indian trade i.e., "round voyages" to and from Indian Ports. The assessee did not furnish particulars of its world income. The Income-tax Officer computed the taxable business income of the assessee for each year by the application of the following formula:

Indian Port receipts

Indian trade profits

Total Port receipts

By the expression "Indian trade profits" in the formula was meant profit earned in "round voyages" made by the assessee s ships which touched Indian ports. Operation of the formula may be illustrated by taking a sample computation by the Income-tax Officer for the year 1953-54:

"Total gross earnings in Indian Trade Kr. 10,024,996

Deduct :-

(1) Total expenses in Indian Trade. Kr. 7,705,474

(2) Depreciation allowance Kr.733,671 Kr. 8,439,145

Net profit Indian Trade Kr. 1,585,851

Gross earnings from Indian ports Kr. 5,440,042

Proportionate Indian profits-

5,440,042 x 1,585,851 Kr. 860,559

10,024,996

(Rs. 100 : Kr. 79,80) Rs. 10,78,395"

2. In computing the profits of the assessee in India in each year the Income-tax Officer allowed normal depreciation and other trade allowances admissible under the Indian Income-tax Act, 1922, and the relevant rules made thereunder. He, however, did not allow initial depreciation and additional depreciation in respect of the ships of the assessee in any of the assessment years, because the ships acquired by the assessee were not introduced into the Indian business in the years in which they were newly acquired. The orders of assessment were confirmed by the Appellate Assistant Commissioner.

3. In appeal to the Income-tax Appellate Tribunal the assessee claimed additional depreciation for four ships for which the following details were furnished:

"(1) S. S. Bintang. - Brought into use in 1950.

Brought into use in the Indian trade in 1951.

Claim for the assessment years 1952-53 to 1954-55.

(2) S. S. Billiton - Brought into use in 1951.

Brought into use in the Indian trade in 1952.

Claim for the assessment years 1953-54 to 1956-57.

(3) S. S. Banka. - Brought into use in 1953.

Brought into use in the Indian trade in 1954.

Claim for the assessment years 1955-56 and 1956-57.

(4) S. S. Bawean. - Brought into use in 1953.

Brought into use in the Indian trade in 1954.

Claim for the assessment years 1955-56 and 1956-57."

The assessee and the Commissioner were agreed that the taxable income of the assessee had to be determined by the application of the second method in Rule 33 of the Indian Income-tax Rules, 1922. The Tribunal also observed that the Commissioner and the assessee agreed that the formula adopted by the Income-tax Officer was "the correct method of assessment."

4. The Commissioner submitted before the Tribunal that if the Indian business of the assessee be regarded as part of its world business and not independent of it, the world profits of the assessee must be computed according to the provisions of the Indian Income-tax Act, 1922, and additional depreciation may be taken into account in determining the taxable profits under the Indian Income-tax Act as a fraction of the world profits. But he maintained that if the Indian trade be regarded as a separate business and not part of the world trade of the assessee, additional depreciation could only be allowed under Section 10 (2) (vi-a) of the Indian Income-tax Act, provided ships which are new are introduced into the Indian trade and not otherwise.

5. In the opinion of the Tribunal, in computing the taxable income of the assessee under the Indian Income-tax Act, 1922 the Indian business must be taken to be part of the assessee s world business, and "depreciation which the assessee was entitled to, in res