Judgment

HEGDE, J.:- The first two appeals have been brought by certificate and the other two by special leave. The later tow appeals came to be filed because the certificates on the basis of which the earlier appeals were brought were found to be defective inasmuch as the High Court had not given any reason in support of those certificates. Hence it is sufficient, if we deal with the latter two appeals.

2. The appellant is a non-residence British Shipping Co. whose ships ply in waters all over the world including the Indian waters. For the assessment years 1960-61, and 1961-62 (the relevant accounting years being 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 were are 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 3 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 taxable territories whether directly or indirectly through or from any business connection in the taxable territories, or through or from and property in the taxable territories or though or from any asset or source of income in the faxable territories, or through or from any money lent at interest and brought into the taxable territories in cash or in kind cannot be ascertained, the amount of such income profits or gains for the purposes of assessment to income-tax 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 beare 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 receipt of the business, or in such other manner as the Income-tax Officer may deem suitable."

3. The Income-tax Officer proceeded to assessee the appellant-assessee on the second of the three bases mentioned in rule 33, but in computing Indian earnings, he did not include the destination earnings received in Indian i.e. fright received in Indian ports in respect of cargo loaded at non-Indian ports nor did he take into account the investment allowance granted to the appellant in its U. K. assessments.

4. Aggrieved by the order of the Income-tax Officer, the assessee took up the matter in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the contention of the assessee as regard the inclusion of the destination earnings in the computation of the Indian earnings of the assessee but rejected its contention as regards the investment allowance. Aggrieved by the order of the Appellate Assistant Commissioner both the assessee as well as the Revenue appealed to the Income-tax Appellate Tribunal. The Tribunal allowed the appeal of the assessee and dismissed that of the Revenue. Thereafter at the instance of the Revenue, the following two questions of law were referred to the High Court under section 66 (1) of the Act.

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the destination earnings collected in Indian should be considered as part of the Indian earnings in determ