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High Court Of Calcutta
S. C. Deb, Dipak Kumar Sen
COMMISSIONER OF INCOME-TAX - Appellant
Versus
WILH.WILHELMSEN - Respondent
Income-Tax Reference 3 Of 1969
Decided On : 11/17/1976
INCOME TAX - Depreciation - Shipping company - Instructions issued by the Central Board of Revenue - Validity - Whether the instructions are ultra vires the provisions of Section 10 (2) (vi), proviso (c) to that Section and rule 8 of the Income-tax Rules, 1922 - Whether the instructions fetter the quasi-judicial power of the Income-tax Officer in the matter of allowing depreciation on ships - Whether the instructions are binding on the income-tax authorities - Whether the Tribunal was right in holding that the instructions cannot override Section 10 (2) (vi), proviso (c) to that section, and rule 8 of the Rules.
Fact of the Case:
The assessee, a Norwegian shipping company, furnished separate complete annual accounts for its Indian trade for the assessment year 1958-59. The assessment was made under the third method of rule 33 of the Indian Income-tax Rules, 1922, and the instructions issued under this rule. The Income-tax Officer disallowed depreciation on eight ships mentioned in his order as those ships were in the assessee's fleet for more than 20 years. The Income-tax Officer allowed Rs. 55,280 as depreciation in respect of the vessel "tortugus" for its three round voyages of 195, 150 and 128 days, respectively, aggregating to 473 days in the accounting year. There was an unabsorbed depreciation of Rs. 3,31,493 in the assessment year 1953-54. Out of that amount, Rs. 2,49,093 was set off against the assessee's income for the assessment year 195-7-58. The unabsorbed depreciation of Rs. 97,547 for the assessment year 1953-54 pertained to seven ships mentioned at page 33 of the paper book and those ships did not come to India in the assessment year 1958-59 and only one of them came to India in the assessment year 1957-58. In the books of the assessee, the said sum of Rs. 97,547 was shown as a business loss brought forward from the earlier years and the Income-tax Officer allowed it to be set off against the profits for the assessment year 1958-59.
Finding of the Court:
1. The instructions issued by the Central Board of Revenue under Section 5 (8) of the Act are not ultra vires the provisions of Section 10 (2) (vi), proviso (c) to that Section and rule 8 of the Income-tax Rules, 1922. 2. The instructions do not fetter the quasi-judicial power of the Income-tax Officer in the matter of allowing depreciation on ships. 3. The instructions are binding on the income-tax authorities. 4. The Tribunal was not right in holding that the instructions cannot override Section 10 (2) (vi), proviso (c) to that section, and rule 8 of the Rules.
Issues: 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 years ? 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 'tortugus' ? 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 ?
Ratio Decidendi: 1. The instructions issued by the Central Board of Revenue under Section 5 (8) of the Act are not ultra vires the provisions of Section 10 (2) (vi), proviso (c) to that Section and rule 8 of the Income-tax Rules, 1922, because they merely lay down the manner of applying rule 33 and do not in any manner fetter the quasi-judicial power of the Income-tax Officer. 2. The instructions are binding on the income-tax authorities and also on this court acting under its reference jurisdiction. 3. The Tribunal erred in holding that the instructions cannot override Section 10 (2) (vi), proviso (c) to that section, and rule 8 of the Rules.
Final Decision: 1. Question No. 1 is answered in the negative and in favour of the revenue. 2. Question No. 2 is answered in the affirmative and in favour of the assessee. 3. Question No. 3 is answered in the negative and in favour of the revenue.
( 1 ) THE following questions are involved in this reference under Section 66 (2) of the Indian Income-tax Act, 1922 :"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 years ?
( 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 'tortugus' ?
( 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 assessee is a Norwegian shipping company. The assessment year involved is 1958-59. The previous year ended on December 31, 1957. The facts stated by the Tribunal may be briefly stated as follows: (i) Instead of furnishing the annual accounts for its world business for the assessment year 1958-59, the assessee furnished separate complete annual accounts for its Indian trade, that is to say, for all round voyages of each ship to and from the Indian ports. The assessment was made under the third method of rule 33 of the Indian Income-tax Rules, 1922, and the instructions issued under this rule. What was ultimately brought to tax was the net Indian profits of each ship employed in the Indian trade in the accounting year 1957. (ii) In view of the said instructions the Income-tax Officer disallowed depreciation on eight ships mentioned in his order as those ships were in the asscssee's fleet for more than 20 years. (iii) The Income-tax Officer allowed Rs. 55,280 as depreciation in respect of the vessel "tortugus" for its three round voyages of 195, 150 and 128 days, respectively, aggregating to 473 days in the accounting year. (iv) There was an unabsorbed depreciation of Rs. 3,31,493 in the assessment year 1953-54. Out of that amount, Rs. 2,49,093 was set off against the assessee's income for the assessment year 195-7-58. The unabsorbed depreciation of Rs. 97,547 for the assessment year 1953-54 pertained to seven ships mentioned at page 33 of the paper book and those ships did not come to India in the assessment year 1958-59 and only one of them came to India in the assessment year 1957-58. In the books of the assessee, the said sum of Rs. 97,547 was shown as a business loss brought forward from the earlier years arid the Income-tax Officer allowed it to be set off against the profits for the assessment year 1958-59. (v) On appeal by the assessee, the Appellate Assistant Commissioner sustained the order of the Income-tax Officer regarding the disallowance of depreciation on those eight ships which were in the assessee's fleet for more than 20 years. (vi) The Income-tax Officer submitted that by mistake he had allowed depreciation for 473 days on the ship "tortugus" instead of 365 days and, therefore, depreciation for 108 days should be disallowed. He also submitted that due to mistake he had allowed the set-off of Rs. 97,547. The assessee accepted those contentions and, accordingly, the Appellate Assistant Commissioner enhanced the assessment by disallowing the excess depreciation of 108 days on the "tortugus" and also by the said sum of Rs. 97,547. (vii) On further appeal, the assessee contended before the Tribunal that the instructions so far as they relate to disallowance of depreciation on those eight ships were ultra vires the provisions of Section 10 (2) (vi), proviso (c) to that Section and rule 8 of the Income-tax Rules, 1922. The assessee argued that depreciation on all those ships should be allowed under Section 10 (2) (vi) and proviso (c) to that section read with R
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