KANTAWALA, J. -
(1.) BY this reference under S. 66(1) of the Indian INCOME TAX ACT, 1922, the question that is referred to us for determination is :
"Whether, on the facts and in the circumstances of the case, the ship, ss. Bharatsena, can be said to have been used by the assessee for the purposes of its business at any time during the previous year 1956 ?"
(2.) THE question for determination relates to the asst. year 1957 -58, the previous year of which was the calendar year ending December 31, 1956.
The assessee is a company, registered under the Indian Companies Act, carrying on the business of running a fleet of cargo steamers, mostly on Indian waters. On July 1, 1947, the
assessee purchased for the purpose of its business the steamer, ss. Bharatsena, for the sum of Rs.
14,45,288. Certain additions at the cost of Rs. 5,90,901 were made to the steamer and depreciation was allowed by the ITO to the assessee on the footing that the total cost of the
steamer was Rs. 20,36,189.
(3.) IN or about October, 1955, the assessee commenced negotiations for sale of the above steamer through its agents in London, M\s. Harley Mullion & Co., Ltd., London. These negotiations resulted
into acceptance of offer on December 2, 1955, by the agent of the buyer, a company floated in
Panama. The acceptance of the buyer was communicated to the assessee by a cable and letter
dated December 2, 1955, by the assessee's agents, M/s Harley Mullion & Co., Ltd., London.
Thereafter other formalities regarding Government permission, mode of remittance of sale
proceeds from purchaser with the approval of the Reserve Bank of India, etc., were carried out. On
December 28, 1955, the ship sale contract was reduced to writing in accordance with the terms
agreed during the course of negotiations. The contract, inter alia, provides that the vessel is sold
on outright basis and is to be delivered to the purchaser safely afloat with her present class
maintained free of all recommendations and free of average at an Indian port in vendors' option.
The purchase price was agreed at 1,53,000 sterling payable in U.S. Dollars ; 10 p c. of the price was payable as deposit on signing of the agreement and the balance of the purchase price was to be paid in a bank in London in U. S. Dollars credited in Hard Currency Sterling Account. Delivery of the vessel was to be given within January/February, 1956. Clause 4 of this contract contained certain provisions as regards the repairs to be carried out. Under this clause, the assessee as vendor was to place the vessel in drydock and if rudder, propeller, bottom or other under -water part or parts were found broken, damaged or defective so as to affect the vessel's clean certificate of class, the same shall be made good at the vendor's expense to the classification society's satisfaction to retain vessel's class without qualification. There was also provision in this clause about certain repairs to be carried out if they were required by the purchasers and the costs thereof were to be borne by the purchasers. Under this agreement, the assessee as the vendor was to pay all the costs of transporting the vessel to the drydock and from the drydock to the place of delivery. Clause 4(b) provided for the time of delivery. Under that clause, the vessel shall be deemed ready for delivery after coming out of the drydock on completion of any repairs that may be necessary for which the vendor shall give final notice of readiness to the purchasers and the purchasers were to pay for the vessel within 3 days from such time of readiness as provided in cl. 5 of the contract. Clause 7 of the contract provided for the consequences of default of due payment by the purchasers. Under that clause failing due payment by the purchasers of any part of the purchase money, the deposit in respect of the vessel was liable to be forfeited to the sole use of the vendors and the vendors were at liberty to resell the vessel either by public or private sale and any deficiency between the amount realised and the amount due was to be made good by the defaulting purchasers together with interest at the rate of 5per cent p. a. and all expenses of such resale. Clause 8 of this contract provided for consequences of default on the part of the vendors. Under that clause if the vendor committed default in the execution of the legal bill of sale or in the delivery of the vessel as provided therein, other than from any cause whatsoever beyond the vendor's control, the deposit was to be released to the purchasers on demand together with interest at the rate of 5per cent p. a. without prejudice to the purchaser's claim for proved damage. Clause 15 of the agreement provided that the agreement was subject to the vendor's securing the sanction of the Indian authorities to the sale of the steamer to the purchasers for registration under Panamanian Registry. This clause further provided that, in the event of such sanction not being obtained, the contract was to become null and void and, in that event, the deposit paid by the purchasers was to be refunded to him. ;