Suhas Chandra Sen, J. - (1.) The Tribunal has referred under Section 256(1) of the I.T. Act, 1961, the following three questions to this court: "(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 5 of the Income-tax Rules, 1962, even in respect of ships which had formed part of the assessee's fleet for more than 20 years ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no profit chargeable to tax within the meaning of Section 41(2) of the Income-tax Act, 1961, in respect of any of the ships sold by the assessee could be included in the computation of the total profits and gains of the assessee's business under Rule 10(ii) of the Income-tax Rules, 1962 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in the computation of the total profits and gains of the assessee's business under Rule 10(ii) of the Income-tax Rules, 1962, the assessee was entitled to deduction of a loss under Section 32(1)(iii) of the Income-tax Act, 1961, in respect of the ships sold by the assessee ? "
(2.) This reference relates to the assessment years 1962-63 and 1963-64 for which the relevant previous years were calendar years 1961 and 1962. The assessee, a Danish company, was assessed in India as a non-resident in each of the above two assessment years. There was no dispute before the Tribunal that the assessments were completed under Rule 10(ii) of the I.T. Rules, 1962, namely, its assessable income in India was determined in the same proportion to its total profits and gains from shipping business as the receipts so accruing or arising in India bore to the total receipts of the business. According to this sub-rule, the ITO first determined the assessee's income from shipping business and then determined its income accruing or arising in India. In the assessment year 1962-63, the entire income from the shipping business was determined at a loss of Kr. 7,213,432 and in the assessment year 1963-64 at a loss of Kr. 12,696,025. According to the above sub-rule, such losses were to be determined in accordance with the provisions of the Act. There is also no dispute that the ITO did apply the Act, while determining the above losses, to various items. The dispute relates only to the application of the Act to the determination of the depreciation which was allowed to the assessee. The ITO, in this connection, worked out the written down value of its vessels by taking into consideration the fact that a particular vessel would not enjoy the allowance for more than 20 years, as according to Section 32(1)(i) of the Act read with Appx. I under Rule 5 of the said Rules, it was entitled to depreciation of 5% on its actual cost. The claim of the assessee, on the other hand, was that it was entitled to depreciation for 20 years under the Indian I.T. Acts, and it was irrelevant to find out when the vessel or ship was actually acquired. The ITO in the assessment year 1962-63 found that the assessee's four vessels whose original cost was Kr. 18,025,592 had been acquired more than 20 years before the assessment year under reference. According to him, therefore, they did not have any written down value and the assessee could not claim any depreciation. Rejecting the contention of the assessee, he disallowed the claim of depreciation of Kr. 901,279 on the above amount. Similarly, in the assessment year 1963-64, he disallowed the depreciation of Kr. 460,550 on the original cost of two vessels which was stated to be Kr. 9,211,008.
(3.) Besides the above, the ITO also found that the assessee had sold two vessels in the assessment year 1962-63 and four vessels in the assessment year 1963-64. Some of these vessels had also been acquired more than 20 years before the assessment years under reference. As already stated above, he was of the view that the written down values had to be worked out by deducting depreciation allowable in different years even though actually not allowed. On this basis, he brought to tax certain sums to profit, the details of which have been given in the orders of the ITO. The assessee had actually claimed certain losses as per its own working of the written down values which were disallowed by the ITO for two reasons, the first being same which was adopted for disallowing depreciation on the running vessels and the second being that the entire deficiency had not been written off in the assessee's books of account.;