Decided on July 28,1982



Anand Prakash, Accountant Member - (1.) BOTH these appeals are in respect of the assessment year 1976-77, whereas ST Appeal No. 27 (Cal.) of 1981 is by the assessee and ST Appeal No. 28 (Cal.) of 1981 is by the revenue.
(2.) The only dispute in the assessee's appeal pertains to the computation of capital for the purpose of determining the chargeable profits. The assessee is a shipping company having its head office in Sweden. The part of its income is assessable in India in terms of Section 44B of the Income-tax Act, 1961. In the course of the assessment proceedings to surtax question arose as to how the capital of the company for the purpose of the Surtax Act should be computed. The company worked out the capital for purposes of the Surtax Act by taking Indian capital to world capital in the same ratio as Indian income to the world income. Profit as per world profit and loss account was worked out by the assessee at Rs. 83,37,289. Indian income as per income-tax return was Rs. 14,06,940. Income arising outside India thus, came to Rs. 69,30,349. The total world capital of the assessee-ccmpany was Rs. 9,32,68,839. The proportionate part of it being in the ratio of Indian income to world income was worked out by the assessee-company to be Rs. 1,57,39,368 by deducting from the world capital the proportionate part relatable to income arising outside India. The IAC, however, did not accept the above working. He felt that it would be more appropriate for the purpose of determining the Indian capital to go by the ratio between Indian operating revenue and world operating revenue. The Indian operating revenue as per his working was Rs. 1,87,59,210. It worked out to be 3.3177 per cent of the world operating revenue which was Rs. 56,54,15,207. He, therefore, worked out the Indian capital at 3.3177 per cent of the world capital, i.e., at Rs. 29,00,709.
(3.) ON appeal, the Commissioner (Appeals) did not accept the assessee's computation as correct. He consequently upheld the working of the capital of the IAC. While doing so the Commissioner (Appeals) made the following observations: I have considered the arguments of the appellant but do not find these acceptable. Total income as contemplated in rule 4 of the second Schedule of Surtax must bear the same meaning as in the Income-tax Act as defined in Section 2(45). This particular provisions of the Income-tax Act has been expressly incorporated in Surtax Act under Section 2(9). Therefore, the expression 'total income' must be read as having the same meaning as in Income-tax Act Section 2(45). Section 2(45) defines total income as 'total income means the total amount of income referred to in Section 5, computed in the manner laid down in this Act.' This makes it clear that the total amount of income in the case of non-resident has to be considered in the light of Section 5(2) of the Act. Section 5(2) of the Act is specifically applicable to the non-resident like the appellant makes it clear that only income accrued or deemed to have accrued in India and/ or income receiving or deemed to be received in India are to be treated as total income. Therefore, by very definition of total income for the purposes of Surtax Act in the case of non-resident will mean only the Indian income, i.e., Indian income arising or receiving in India and cannot apply to income arising or received outside India. Therefore, rule 4 of the Second Schedule to the Surtax Act has to be interpreted to mean that the Indian income of a non-resident assessee includes certain amounts which are not includible by virtue of any other provisions then the capital has to be computed on the basis of proportionate income. This means that some amounts which are not included according to certain provisions of the Act but which are otherwise Indian income can only be considered. This rule 4 of the Second Schedule of the Surtax Act does not contemplate an income which is not a part of the total income at all and that will be rendering this rule completely impossible of application because Indian income cannot include world income though world income will necessarily include Indian income. Section 2(45) and Section 5 are dealing with income arising in India only and, therefore cannot include income outside income (sic) as mentioned already. In this view of the matter I am unable to accept the appellant's contention and held that the IAC was justified in not basing his computation of capital on the world income and Indian income basis. This ground of the appellant, therefore, fails.;

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