B. P. Jeevan Reddy, J. - (1.) This appeal is preferred by the assessee on the basis of a certificate of fitness issued by the Calcutta High Court under Section 66A (2) of the Indian Income Tax Act, 1922 (the Act). Three questions were referred under Section 66 (2) of the Act at the instance of the Revenue. The questions are:"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 'Tortugas' 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the enhancement of Rupees 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 Calcutta High Court answered Question No. 1 in the negative, i. e. in favour of the Revenue. Question No. 2 was answered in the affirmative i. e. in favour of the assessee, while Question No. 3 was answered in the negative, i. e. . in favour of the Revenue and against the assessee. On an application filed by the assessee for issuance of a certificate under Section 66A(2), the High Court (a different Division Bench) issued the certificate observing that the case raises certain important questions of law which require to be considered by this Court. The question so indicated are: "The issue involved in this reference concerns the interpretation of the circular and the instructions issued by the Central Board of Revenue vis-a-vis the applicability of Rule 33 of the Income-tax Rules. The answers involve the question of vital importance for the assessment of shipping companies up to the assessment year 1976-77 and how Section 44 B would be applicable. The reference dealt with the question whether a shipping company entitled to depreciation under Section 10(2) (vi) of the Income tax Act, 1961 in view of the instructions issued by the Central Board of Revenue. This reference was also involved with the question whether the assessee would become disentitled to such depreciation in view of the said instructions contained in the circular of the Central Board of Revenue. It is true that the scope and effect of the circular of this type have been considered by the Supreme Court in the case of Ellermen Lines Ltd. v. Commr. of Income Tax, 82 ITR 913 and Navnitlal Javeri v. Sen 56 ITR 198, but the question here is to what extent a circular which curtails the right of the assessee under the Act or the Rule can be given effect to as against the assessee. It is true as was noted by the Supreme Court in the cases referred to hereinbefore as also in the instant case that circulars merely provide a method of the application of Rule 33, but by providing the method if the circular attempts to curtail the right to depreciation by the assessee then the jurisdiction of such circulars to curtail right granted either by the Act or the Rule framed by the Act would require consideration. Further more also on the interpretation of the circular that is a substantial question involved - what does the expression 'fleet' in the instructions issued by the Central Board of Revenue mean. For the aforesaid reasons we are of the opinion that this case involves substantial and important questions of law which require to be considered by the Supreme Court."
(3.) The appellant assessee is a Norwegian Shipping Company. The assessment year concerned is 1958-59 for which the accounting year was the calendar year 1957,. The relevant facts, as stated in the judgment of the High Court are the following: (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 contained in Rule 33 of the net Indian Income Tax Rules, 1922 and the instructions issued thereunder. The profits that were brought to tax ultimately were the Indian Profits of each ship employed in the Indian trade in the Accounting Year 1957. (ii) Following the instructions aforesaid the Income-tax Officer disallowed depreciation of eight ships mentioned in his order on the ground that the said ship in the assessee's fleet were of more than twenty years. (iii) There was an unabsorbed depreciation of about Rs. 3,31,493/- in the Assessment Year 1953-54. An amount of Rs. 2,49,093/- was set-off against the assessee's income for the Assessment Year 1957-58. The unabsorbed depreciation of Rs. 97, 547/- for the Assessment Year 1953-54 pertained to seven ships, which did not come to India in the accounting year relevant to the Assessment Year 1958-59. 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. The Income-tax Officer allowed the assessee to set-off the said amount against the profits for the accounting year relevant to Assessment Year 1958-59. (We are not stating the facts relating to Question No. 2 since it was answered by the High Court in favour of the assessee and because there is no appeal by the Revenue against it.) (iv) On appeal, the Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. Before the Appellate Assistant Commissioner, the Income-tax Officer contended that allowing the set-off of Rs. 97, 547/- by him was a mistake. The assessee accepted the said contention. Accordingly, the Appellate Assistant Commissioner enhanced the assessment by disallowing the said sum of Rs. 97,547/-. (v) The assessee appealed to the Tribunal where it contended that the Instructions insofar as they provide for disallowance of depreciation on the said eight ships (which did not come to India during the accounting year relevant to Assessment Year 1958-59) were ultra vires proviso (c) to Section 10(2)(vi) of the Act and Rule 8 of the Indian Income-tax Rules, 1922. It contended that it is entitled to depreciation in respect of all these ships under the provisions contained in Section 10(2)(vi) proviso (c) and Rule 8. It submitted further that the words "company's fleet" occurring in Instructions were referable only to those ships of the assessee which were employed in its Indian trade. ;