Sankar Prasad Mitra, J. - (1.) This is a reference under Section 66(2) of the Indian Income-tax Act, 1922, The Tribunal has sent to this court a statement of the case on the following question : "Whether, on the facts and in the circumstances of the case, the property tax paid by the assessee in Japan on its vessels was allowable as deduction under Section 10(2)(xv) of the Income-tax Act, 1922 ?"
(2.) The assessment years are 1956-57, 1957-58, 1958-59 and 1959-60. The corresponding previous years were the financial years ending on the 31st of March, 1956, 1957, 1958 and 1959, respectively. The respondent is a nonresident shipping company. Its registered office is in Japan. It has been assessed to income-tax for the assessment years aforesaid under the Indian Income-tax Act, 1922, with respect to net Indian earnings. The assessee did not maintain separate accounts for its Indian business ; its net profits on the basis of its world profit and loss account was computed under the Indian Income-tax Act, 1922, and, thereafter under Rule 33 of the Rules, the Indian net profit was worked out in the proportion as between the gross Indian earnings and the gross world earnings. In the matter of computation of its net world profits and incidentally of its net Indian profits, the assessee claimed before the Income-tax Officer that the Real Estate Tax which it had paid on its vessels for each of the four years aforesaid represented municipal tax levied in Japan on the value of the ships and such tax should be allowed as business expenses.
(3.) It would be convenient at this stage to set out the admitted provisions of the Japanese statute relevant for our purposes in this reference. The provisions are as follows : "Article 341 : With respect to municipal property, the terms listed in the following items shall have the definition given to them under the respective items :-- (1) Property : Land, house and depreciable assets;...... Depreciable assets: Assets (excluding the mining right, fishing right, patent right and other depreciable intangible property) other than land and house which can be used for business purpose and the amount of depreciation in which is included in the loss or necessary expenditures in the computation of income as provided for in the corporation tax law or the income tax law,......" "Article 342 : (1) The municipal property tax shall be imposed on property by city, town or village in which the property concerned is located. (2) With respect to vessels, vehicles, and other objects similar in nature which are included in depreciable assets, the city, town and village in which the principal port of anchorage or regular keeping place is located shall be the city, town or village mentioned in Part I except those cases coming under the provisions of Article 389, para. 1, item (1) and when the principal port of anchorage is unknown with respect to vessels, the city, town or village in which the port of anchorage is located and in which the port of registry is located shall be regarded as the city, town or village in which the principal port of anchorage is located." "Article 349 (b) : The taxable basis for the municipal property tax to be imposed on depreciable concerned assets as of the date of imposition already registered in the depreciable assets tax ledgers. The taxable basis for the municipal property tax to be imposed on vessels as prescribed by Prime Minister's Agency Ordinance, aiming chiefly at the ocean-going area as their sailing area and conforming to the standard, shall be the amount of one-sixth of the value of the vessels concerned." " Article 350 : The standard rate of municipal tax shall be 1.4 per cent. However, even in cases where it is imposed in excess of the standard rate, the rate shall not exceed 2.1 per cent.";