l Appeals Nos 1622 to 1626 of 1968
Appeals from the judgment and order dated February 11 1964 of the Calcutta High Court in Income tax Reference No 109 of 1960
2 Sachin Chaudhuri T A Ramachandran and D N Gupta for the appellant in all the appeals
section T Desai section A L Narayan Rao R H Dhebar R N Sachthey and B D Sharma for the respondent in all the appeals
The Judgment of the Court was delivered by Shah J
Netherlands Steam Navigation Company Ltd hereinafter called the assessee is a non resident Company engaged in shipping business
For the assessment years 1952 53 to 1956 57 the assessee filed its return of income for the relevant accounting years disclosing taxable income computed on the basis of its annual turnover in its Indian trade ie round voyages to and from Indian Ports
The assessee did not furnish particulars of its world income
The Income tax Officer computed the taxable business income of the assessee for each year by the application of the following formula Indian trade profits x Indian Port receipts Total Port receipts By the expression Indian trade profits in the formula was meant profit earned in round voyages made by the assessee s ships which touched Indian ports
Operation of the formula may be illustrated by taking a sample computation by the Income tax Officer for the year 1953 54 Kr
Total gross earning in Indian Trade 10024996 Deduct 1 Total experience in Indian Trade 7705474 2 Depreciation allowance 733671 8439145 Net profit India Trade 1585851 Gross earning from Indian Ports 5440042 Proportionate Indian Profits 5440042  1585851 860559 100024996 Rs100Kr7980 Rs1078395 In computing the profits of the assessee in India in each year the Income tax Officer allowed normal depreciation and other trade allowances admissible under the Indian Income tax Act 1922 and the relevant rules made thereunder
He however did not allow initial depreciation and additional depreciation in respect of the ships of the assessee in any of the assessment years because the ships acquired by the assessee were not introduced into the Indian business in the years in which they were newly acquired The orders of assessment were confirmed by the Appellate Assistant Commissioner
3 In appeal to the Income tax Appellate Tribunal the assessee claimed Additional depreciation for four ships for which the following details were furnished 1 section section Bintang Brought into use in 1950Brought into use in the Indian trade in 1951
Claim for the assessment years 1952 53 to 19 54 55
2 section section Billiton Brought into use in 1951
Brought into use in the Indian trade in 1952
Claim for the Assessment years 1953 54 to 1956 57
3 S section Banka Brought into use in 1953
Brought into use in the Indian trade in 1954
Claim for the assessment years 1955 56 and 1956 57
4 section section Bawean Brought into use in 1953
Brought into use in the Indian trade in 1954
Claim for the assessment years 1955 56 and 1956 57
 The assessee and the Commissioner were agreed that the taxable income of the assessee had to be determined by the application of the second method in Rule 33 of the Indian Income tax Rules 1922
The Tribunal also observed that the Commissioner and the assessee agreed that the formula adopted by the Income tax Officer was the correct method of assessment
The Commissioner submitted before the Tribunal that if the Indian business of the assessee be regarded as part of its world business and not independent of it the world profits of the assessee must be computed according to the provisions of the Indian Income tax Act 1922 and additional depreciation may be taken into account in determining the taxable profits under the Indian Income tax Act as a fraction of the world profits
But he maintained that if the Indian trade be regarded as a separate business and not part of the world trade of the assessee additional depre ciation could only be allowed under section 102vi a of the Indian Income tax Act provided ships which are new are introduced into the Indian trade and not otherwise In the opinion of the Tribunal in computing the taxable in come of the assessee under the Indian Income tax Act 1922 the Indian business must be taken to be part of the assessee s world business and depreciation which the assessee was entitled to in respect of its world business by the application of the Indian Income tax Act would be proportionately available in respect of its Indian business
 The Tribunal observed that under r 33 the profits have to be calculated under the terms of the Indian Incometax Act and this act postulated that on all machinery plants and such other things like steamers brought into business after March 31 1948 additional depreciation must also be granted
The 4 Tribunal then observed that the ships brought into the Indian trade were not new in the years of account relevant to the five years of assessment but the assessee was still qualified under section 102 vi a to additional depreciation for a continuous period of five years and the fact in the first of these years the new ships did not call at the Indian Ports in one assessment year did not disentitle the assessee to the benefit not only for that year but also for the succeeding four years
Accordingly the Tribunal held that in respect of all the four ships of the assessee additional depreciation was admissible as claimed
At the instance of the Commissioner of Income tax the fol lowing question was referred by the Tribunal to the High Court of Calcutta for opinion in respect of each of the five years  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 The High Court answered the question in the negative Clause vi a was inserted in section 102 of the Indian Income tax Act 1922 by section 11 of the Taxation Laws Extension to Merged States and Amendment Act 67 of 1949
The clause as amended by section 8 of the Indian Income tax Amendment Act 25 of  1953 with effect from April 1 1952 reads as follows  In respect of depreciation of buildings newly erected or of machinery or plant being new which has been installed after the 31st day of March 1948 a further sum which shall be deductible in determining the written down value equal to the amount admissible under clause 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 building 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 1st day of April 1 949 and ending on the 31st day of March 1959
 The assessee is a non resident Company
It maintains a Branch Office in Calcutta but on that account the  Indian business of the assessee cannot be regarded as business distinct from its world business
It was not so treated by the Income tax Officer or by the Appellate Assistant Commissioner
In computing profits or gains of business carried on by an assessee normal depreciation 5 under section 102vi and additional depreciation under section 102vi a are undoubtedly admissible in the conditions and to the extent allowed under the two clauses
By section 41 of the Indian Income tax Act the total income of any previous year of a non resident includes all income profits and gains from whatever source derived which 1 are received or are deemed to be received in the tax able territories in such year by or on behalf of such person and 2 which accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year
Section 10 of the Act which charges to tax the profits and gains of business profession or vocation carried on by an assessee applies to assessees who are residents residents but not ordinarily resident and non residents
Profits and gains of business of a non resident received or deemed to be received in the taxable territories by or on behalf of the assessee are taxable under the Indian Income Tax Act 1922  profits and gains of business which accrue or arise or are deemed to accrue or arise to him in the taxable territories are also taxable under that Act but profits and gains which accrue or arise or are deemed to accrue or arise to a non resident without the taxable territories are not taxable under the Act
Section 4 is one of the pivotal sections in the scheme of the Income tax Act
Thereby within the total income of a non resident is included income received arising or accruing or deemed to be received or to have arisen or accrued within the taxable territories
The Act however gives no clear guidance for determining when income may be said to have arisen or accrued within the taxable territories
But r 33 framed under the Act purports to give some direction to the Income tax Officer for determining income profits or gains accruing or arising to a non resident for the purpose of assessment to income tax
There is no dispute that the profits of the business taxable under the Indian Income tax Act 1922 are a fraction of the world profits and the profits are to be determined under r 33 of the Income tax Rules
Rule 33 of the Income tax Rules reads as follows  In any case in which the Income tax officer is of Opinion that the actual amount of the income profits or gains accruing or arising to any person residing out of the taxable territories whether directly or indirectly through or from any business connection in the taxable territories or through or from any Property in the taxable territories or through or from any asset or source of income in the taxable territories or through or from any 6 money lent at interest and brought into the taxable territories in cash or in kind cannot be ascertained the amount of such income profits or gains for the purposes of assessment to income tax may be calculated on such percentage of the turnover so accruing or arising as the Income tax Officer may consider to be reasonable or 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 Income tax Act as the receipts so accruing or arising bear to the total receipts of the business or in such other manner as the Income tax Officer may deem suitable
 The rule authorises the Income tax Officer to adopt one of the three methods of determining income profits or gains  Or the purpose of assessment to income tax where the Income tax Officer is unable to ascertain the actual amount of income profits or gains arising inter alia out of a business connection in the taxable territories  a a percentage of turnover considered reasonable b a proportion of the total profits computed according to the provisions of the Indian Income Tax Act of the business of the assessee equal to the proportion which the receipts accruing or arising bear to the total receipts of the business and c such other manner as the Income tax Officer may deem suitable
The second method it was common ground was properly applicable to the determination of taxable income of the assessee
That method requires as a first step determination of the total profits of the business of the assessee in accordance with the provisions of the Indian Income tax Act the next step is to determine the proportion between the receipts accruing or arising within the taxable territories and the total receipts of the business and the third step is to determine the income profits or gains by the application of the proportion for the purpose of assessment to income tax
This method ordains that the fraction which the total profits bear to the total world receipts is to be applied to the Indian receipts for determining the taxable profits
The income so determined will be the taxable income without any further allowances because the permissible allowance will all enter the computation of the world income and income taxable under the Income tax Act is also a fraction thereof
Apparently the Income tax Officer did not apply the second method under r 33 in computing the taxable income of the assessee for under that method in determining the taxable income the receipts accrued or arising in India had to be multiplied by the proportion between the total profits of the business and the total receipts of the world business
7 Counsel for the assessee asked us to assume that the profits computed by the Income tax Officer according to the formula adopted by him are profits determined by the second method in r 33 and claimed on that footing that beside normal depreciation additional depreciation ought also to have been taken into account and the taxable profits of the assessee determined on that basis
But that assumption cannot be made
One of the essential conditions of the applicability of the second method in r 33 is the determination of the total world profits of the assessee under the Indian Income tax Act and reduction of the Indian taxable profits by the application of the appropriate fraction
The assessee has not produced its books of account of its world trade to enable the Income tax Officer to determine its total taxable profits arising from its world business
There was apparently no clear appreciation of the true im port of the second method under r 33 before the Departmental Authorities and the Tribunal
Counsel for the assessee suggested that his client may be willing to produce before the Income tax Officer the books of account of the relevant years for computing the total world profits according to the Indian Income tax Act 1922 and the benefit of additional depreciation may then be allowed to the assessee in computing the total profits under the Indian Income tax Act
Counsel for the Commissioner expressed his willingness to the adoption of that course
Counsel requested us to adjourn the hearing to enable them to obtain instructions from their respective clients and the hearing was accordingly adjourned for three weeks
But ultimately counsel for the assessee informed us that his clients may not be able to bring before the Income tax Officer the books of account of their world trade
The Income tax Officer has evolved a special formula for de termining the profits which is not the second method in r 33 of  the Income tax Rules
The assessee has not challenged the correctness of that method nor has the Department
In the application of that formula normal depreciation and trade expenses are deducted from the total gross earning in the Indian trade but not the additional depreciation
Clearly the Income tax Officer did not in computing the tax able income resort to the second method in r 33 of the Incometax Rules
We are exercising in these appeals advisory jurisdiction and are only called upon to answer the question referred by the Tribunal
We are incompetent to decide whether computation of the taxable income by the Income tax Officer by the application of the formula evolved by him is correct that question is not before us
We are only concerned to determine the validity of the claim for admitting additional depreciation in the computation of the taxable income of the assessee by the method adopted 8 by the Income tax officer
Additional depreciation is a statutory allowance in the determination of taxable profit under section 10 of the Act and in the case of a non resident where actual income cannot be determined and resort is had to r 33 not when an empirical method is adopted for computation of the tax able income
We are however unable to agree with the observations of the High Court that no relief in any shape or form can be enjoyed by any assessee under the Indian Income tax Act in respect of a source of income unless the income from that source is taken into consideration for the purpose of that Act
In the reference before us the income in question was outside the purview of assessment under the Indian Income tax Act
That was not the plea of the Commissioner
The source of the income of the assessee charged to tax was business it was not income from any other source
The Commissioner and the assessee were ad idem on that matter
The only dispute was whether additional depreciation was admissible in the computation of the taxable income when the taxable business profits were determined by the Income tax Officer by the method evolved by him
It was common ground that the appropriate method for deter mining the profits was the second method in r 33
But that method was never applied if it was applied in the computation of the world profits of the assessee it would have been necessary to allow the various depreciation allowances
The assessee could not while accepting determination of taxable profits in a manner not warranted by the second method under r 33 claim that additional depreciation should be allowed
The answer to the question therefore is that additional depreciation is not admissible as an allowance in the computation of the taxable income by the special formula adopted by the Income tax Officer
The appeals fail
The assessee will pay the costs of these appeals
One hearing fee
RKPS Appeals dismissed


Summary:
The appellant is a non resident shipping company with its local office in Calcutta
For its assessment to income tax for the years 1952 53 to 1956 57 the appellant filed returns disclosing taxable income computed on the basis of its annual turn over in its Indian trade but did not furnish particulars of its world income
The Income tax Officer computed the taxable business income for each year by application of a special formula which was accepted by the appellant
However in computing the income the Income tax Officer only allowed normal depreciation and other trade allowances admissible under the income tax Act 1922 and did not allow any initial depreciation or additional depreciation in respect of the ships of the appellant in any of the assessment years because the ships acquired by the appellant were not introduced into the Indian business in the years in which they were newly acquired
The orders of assessment were confirmed by the Appellate Assistant Commissioner but the Tribunal held that in respect of all the four ships additional depreciation wag admissible under section 102 vi a of the Act as claimed
The High Court on a reference answered the question against the assessee
HELD  Additional depreciation was not admissible to the appellant as an allowance in the computation of the taxable income by the special formula adopted by the Income tax Officer
It was common ground that the appropriate method for determining the profits was the second method in r 33
But that method was never applied if it was applied in the computation of the world profits of the assessee it would have been necessary to allow the various depreciation allowances
The assessee could not while accepting determination of taxable profits in a manner not warranted by the second method under r 33 claim that additional depreciation should be allowed
8 E The Supreme Court in the present appeal was exercising an advisory jurisdiction and could not decide whether the computation of taxable income by the Incometax Officer by the application of the formula evolved by him was correct
Additional depreciation is a statutory allowance in the determination of taxable profit under section 10 of the Act and in the case of a non resident where actual income cannot be determined and resort is had to r 33 not when an empirical method is adopted for computation of the taxable income