- (1.) : This is a reference under s. 66(1) of the Indian IT Act, 1922. The assessment years are 1952-53 to 1956-57, the corresponding accounting years being the calendar years 1951 to 1955. The assessee is the Netherlands Steam Navigation Co. Ltd. It is a non-resident company having business connections all over the world. It has a branch in Calcutta for its Indian business. It carried on business in the accounting years in question. It filed returns for each of the assessments concerned showing its taxable income computed on the basis of its annual accounts for its Indian trade, that is, for round voyages round the world but no particulars of the shipping trade were furnished.
(2.) THE ITO computed the taxable business income for each year by employing the following formula : By Indian trade profits is meant the profits of round voyages in which Indian ports were touched by the vessels. It was agreed between the Department and the assessee that this was the correct method of assessment. In so computing the profits in India in each year, the ITO allowed depreciation admissible under the Indian IT Act and the relevant Rules made thereunder. He did not, however, allow initial or additional depreciation in respect of some ships in any of the years on the finding that those ships were newly acquired by the assessee in the accounting years, prior to those in which they were brought for trading in Indian waters and were not, therefore, entitled to initial or additional depreciation. THE ITO computed the taxable profits by applying r. 33 of the IT Rules. In other words, the ITO held that the assessee was entitled to initial depreciation and development rebate only on those ships which were entirely new and which were first brought into use in the Indian trade. THE ITO was of the view that as none of the concerned ships had been brought into use in the Indian trade in any of the years when they were new, the assessee was not entitled to its claim. With regard to additional depreciation, the ITO held that the new ships should have been brought into use after the 31st March, 1948, so far as Indian shores were concerned. As none of them were new to the Indian trade in these years, additional depreciation was not admissible. THE AAC, on appeal, confirmed these orders. In the appeal to the Tribunal the assessee contended that the dispute related to the following ships brought into use variously : The assessee's counsel also conceded that there was liability to tax; that r. 33 of the Indian IT Rules was applicable; and that the second part of that rule, which reads as follows, must be applied : ".... On an amount which bears the same proportion to the total profits of the business of such person (such profits being computed in accordance with the provisions of the Indian IT Act), as the receipts so accruing or arising bear to the total receipts of the business, or in such other manner as the ITO may deem suitable,". The assessee's counsel further contended that depreciation was granted under r. 8, which listed different rates to be allowed for different kinds of assets and that ships appeared under the same category as other such assets. The Department agreed up to that point, but it stated that depreciation had to be considered in calculating the world profits only according to the provisions of the Indian IT Act. The Department contended further that once this was done and profits arrived at as per the second part of r. 33, the assessee was entitled to no more depreciation than that granted.
(3.) THE Tribunal has held that in fact the steamers were brought into use after the 31st March, 1948, the relevant date for the allowances of depreciation claimed by the assessee. THE Tribunal Indian trade profit X Indian trade profits Total port receipts. (1) S. S. Bintang ... Brought into use in 1950. Brought into use in Indian trade in 1951. Claim for the asst. yrs. 1952-53 to 1954-55. (2) S. S. Billiton ... Brought into use in 1951. Brought into use in Indian trade in 1952. Claim for the asst. yrs. 1953-54 to 1956-57. (3) S. S. Banka ... Brought into use in 1953. Brought into use in Indian trade in 1954. Claim for the asst. yrs. 1955-56 and 1956-57. (4) S. S. Bawean ... Ditto. has also held upon reading r. 8 that ships like other assets were entitled to additional depreciation. Further, it held that as a shipping company was entitled to get additional depreciation for a continuous period of five years and the fact that in the first of these years the new steamers, about which there was no dispute, did not call at the Indian ports in one year or the next, would not disentitle the assessee to this benefit not only for that year but also for succeeding years. On these facts the following question of law arises : Whether, on the facts and circumstances of the case, the assessee company is entitled to additional depreciation in respect of the four ships mentioned above ?" In the argument before us learned counsel for the Department did not dispute that ships were entitled to additional depreciation under s. 10(2)(via). We, therefore, proceed on the assumption that ships can be taken into consideration for the purposes of cl. (via) of s. 10(2). Mr. Debi Pal, learned counsel for the assessee, in refuting the contention of the ITO has submitted to us that in this case no distinction can be made between the Indian trade and the rest of the trade of the assessee. The assessee carries on a shipping business. It was also carrying on business in India. It cannot be said that each of its ships was carrying on a separate business. In the premises, the whole question is whether these four ships have been installed in the shipping business of the assessee and they satisfy the conditions laid down in cl. (via) of s. 10(2). These conditions, according to Mr. Debi Pal, are : (1) The subject-matter, building, machinery or plant should be new; (2) the building, machinery or plant should have been installed after the 31st March, 1948; (3) the benefit of depreciation allowed would enure for five successive assessments for the financial years next following the previous year in which it was erected or installed; and (4) this period of five years shall fall within the period commencing on the first day of April, 1949, and ending on the 31st March, 1959. Mr. Debi Pal urges before us that each of these conditions is applicable to the four ships mentioned above and as such the Tribunal's order in the instant reference should be upheld by this Court. It would be useful at this stage to quote the relevant portions of s. 10 of the Indian IT Act, 1922. These provisions are : "10. Business.--(1) The tax shall be payable by the assessee under the `head profits and gains of business...' in respect of the profits or gains of any business..... carried on by him; (2) Such profits or gains shall be computed after making the following allowances, namely :--... (iv) in respect of insurance against risk of damage or destruction of buildings, machinery, plant, furniture, stocks orstores, used for the purposes of the business,.... the amount of any premium paid;... (vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent (where the assets are ships other than ships ordinarily plying on inland waters), to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed (and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed);..... (via) in respect of depreciation of buildings newly erected, or of machinery or plant being new which has been installed after the 31st March, 1948, a further sum (which shall be deductible in determining the written down value) equal to the amount admissible in cl. (vi) (exclusive of the extra allowance for double or multiple shift working of the machinery or plant and the initial depreciation allowance admissible under that clause for the first year of erection of the buildings or the installation of the machinery or plant) (in not more than five successive assessments for the financial years next following the previous year in which such buildings are erected and such machinery and plant installed and falling within the period commencing on the first day of April, 1949, and ending on the 31st March, 1959);...";