Case: M/s. Ellerman Lines Limited Vs. Commissioner of Income Tax, West Bengal I

development rebate. In reply to that letter, the Board of Revenue wrote to them as follows :"Sub :- Assessment of British Shipping Companies on the basis of ratio certificates - Treatment of investment allowances granted in the U. K.I am directed to reply your letter dated 8th February 1957 on the above subject and to state that as the development rebate which corresponds to the investment allowance granted in the U. K. is allowed under the Indian Income-tax Act from the assessment year 1956-57, there is no objection to allow the investment allowances for the purpose of the computation of the Indian Income of British Shipping Companies. This would, however be subject to the condition that the investment allowance would be permitted as a deduction only to the extent to which the rate of the allowance granted in the U. K. is not greater than the rate of development rebate allowed under the Indian Income-tax Act."13. We were informed that the copies of that letters were sent to the Income-tax Commissioners in the various States. From this letter, it is clear that the Board of Revenue had instructed the taxing authorities to take into consideration the investment allowance granted by the U. K. authorities in computing the taxable income of the British Shipping Companies. At this stage, it is necessary to mention that the proviso to Cl. (vib) of Section 10 (2) referred to earlier was incorporated into the Act sometime after the above instructions were issued by the Board of Revenue.14. The authorities under the Act have proceeded on the basis that the computation of the income of the assessee has to be made on the second of the three bases mentioned in R. 33. This assumption appears to be incorrect. Admittedly the profits of the assessee company were not computed in accordance with the provisions of the Act. That being so, the second basis mentioned in Rule 33 cannot be applied. This aspect was brought to the notice of the High Court. But the High Court refused to consider the same on the ground that both the Revenue as well as the assessee had proceeded before the authorities under the Act on the assumption that the second basis mentioned in Rule 33 is the relevant basis. In our opinion the High Court erred in adopting that approach. The fact that the authorities under the Act as well as the parties were under a mistaken impression cannot alter the true position in law. It is obvious that that basis could not have been applied That being so the computation of the appellants income had to be made either under the first basis viz. the calculation of the profits and gains on such percentage of the turnover accruing or arising as the Income-tax Officer may consider to be reasonable or on the third basis i.e. "in such other manner as the Income-tax Officer may deem suitable.15. From the assessment orders made by the Income-tax Officer, it does not appears that in computing the taxable income of the assessee, he adopted the first basis. The most appropriate basis under which he could have computed the income was the have computed the income was the last basis viz. "in such other manner as the Income-tax Officer may deem suitable." While adopting that basis, the Income-tax Officer is not required to rigidly apply the various conditions prescribed in the Act in the matter of granting one or the other of the permissible allowances. He may adopt any equitable basis so long as that basis does not conflict either with Rule 33 or with the intructions or directions given by the Board of Revenue. The power given to the Income-tax Officer under that basis is a very wide power. That power is available not only to the Income-tax Officer but also to the Appellant Assistant Commissioner and the Tribunal. As the Tribunal had determined the tax due from the appellant on the basis of the ratio certificate given by the U. K. authorities,it cannot be said that the decision reached by the Tribunal was an unreasonable one. The Tribunals decision accords with the instructions given by the Board of Revenue.16. The fact the proviso to Section 10 (2) (vib) was incorporated into the Act after the Board issued its instructions cannot affect either the validity of rule 33 or the force of the instructions issued by the Board of Revenue because neither Rule 33 nor the instructions issued were strictly in accordance with Section 10 (2). They merely lay down certain just and fair methods of approach to a difficult problem.17. The learned Solicitor-General appearing for the Revenue at one stage of his argument contended that the instructions issued by the Board of Revenue cannot have the Board of Revenue cannot have any binding effect and those instructions cannot abrogate or modify the provisions of the Act. But he did not contend that Rule 33 is ultra vires the Act. The instructions in question merely lay down the manner of applying Rule 33.18. Now coming to the question as to the effect of instructions issued under Section 5 (8) of the Act, this Court observed in Navnit Lal C Javeri v. A. K. Sen, Appellate Assist Commissioner of Income-tax, Bombay, 56 ITR 198 = (AIR 1965 SC 1375 );"It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under Section 5 (8) of the Act. This circular pointed out to all the officers that it was likely that some of the companies might have advanced loans to their shareholders as a result of genuine transactions of loads, and the idea was not to affect such transactions and to bring them within the mischief of the new provision."19. The directions given in that circular clearly deviated from the provisions of the Act, yet this Court held that the circular was binding on the Income-tax Officer.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]14. The authorities under the Act have proceeded on the basis that the computation of the income of the assessee has to be made on the second of the three bases mentioned in R. 33. This assumption appears to be incorrect. Admittedly the profits of the assessee company were not computed in accordance with the provisions of the Act. That being so, the second basis mentioned in Rule 33 cannot be applied. This aspect was brought to the notice of the High Court. But the High Court refused to consider the same on the ground that both the Revenue as well as the assessee had proceeded before the authorities under the Act on the assumption that the second basis mentioned in Rule 33 is the relevant basis. In our opinion the High Court erred in adopting that approach. The fact that the authorities under the Act as well as the parties were under a mistaken impression cannot alter the true position in law. It is obvious that that basis could not have been applied That being so the computation of the appellants income had to be made either under the first basis viz. the calculation of the profits and gains on such percentage of the turnover accruing or arising as the Income-tax Officer may consider to be reasonable or on the third basis i.e. "in such other manner as the Income-tax Officer may deem suitable.15. From the assessment orders made by the Income-tax Officer, it does not appears that in computing the taxable income of the assessee, he adopted the first basis. The most appropriate basis under which he could have computed the income was the have computed the income was the last basis viz. "in such other manner as the Income-tax Officer may deem suitable." While adopting that basis, the Income-tax Officer is not required to rigidly apply the various conditions prescribed in the Act in the matter of granting one or the other of the permissible allowances. He may adopt any equitable basis so long as that basis does not conflict either with Rule 33 or with the intructions or directions given by the Board of Revenue. The power given to the Income-tax Officer under that basis is a very wide power. That power is available not only to the Income-tax Officer but also to the Appellant Assistant Commissioner and the Tribunal. As the Tribunal had determined the tax due from the appellant on the basis of the ratio certificate given by the U. K. authorities,it cannot be said that the decision reached by the Tribunal was an unreasonable one. The Tribunals decision accords with the instructions given by the Board of Revenue.16. The fact the proviso to Section 10 (2) (vib) was incorporated into the Act after the Board issued its instructions cannot affect either the validity of rule 33 or the force of the instructions issued by the Board of Revenue because neither Rule 33 nor the instructions issued were strictly in accordance with Section 10 (2). They merely lay down certain just and fair methods of approach to a difficult problem.17. The learned Solicitor-General appearing for the Revenue at one stage of his argument contended that the instructions issued by the Board of Revenue cannot have the Board of Revenue cannot have any binding effect and those instructions cannot abrogate or modify the provisions of the Act. But he did not contend that Rule 33 is ultra vires the Act. The instructions in question merely lay down the manner of applying Ruleauthorities under the Act as well as the High Court have examined the facts of this case on the basis of rule 33. The second question referred to the High Court requires the High Court to express its opinion whethere on the facts and in the circumstances of the case, the Tribunal was right in allowing the claim of the assessee for the investment allowance under the U. K. Act in the computation of the total world income for the purpose of determining the assessees Indian income under rule 33. Under these circumstances, it would not be appropriate for us at this stage to ignore the earlier proceedings and examine the case afresh on a wholly different basis. Hence we have not gone into the question whether rule 33 is applicable to the facts of the case. We are proceeding on the assumption that it applies.It may be noted that in the case of a shipping company like the appellant before us, whose ships ply all over the world, it may not be possible to strictly comply with the provisions dealing with the levy ofare not identical in all countries. It may well night be impossible for a shipping company like the appellant to rigidly comply with the requirements of the laws in force in the numerous countries where it can be said to have earned income. Possibly to get over such a difficulty rule 33 was enacted. That is how the Revenue had proceeded in assessing the appellant.We were informed that the copies of that letters were sent to theCommissioners in the various States. From this letter, it is clear that the Board of Revenue had instructed the taxing authorities to take into consideration the investment allowance granted by the U. K. authorities in computing the taxable income of the British Shipping Companies. At this stage, it is necessary to mention that the proviso to Cl. (vib) of Section 10 (2) referred to earlier was incorporated into the Act sometime after the above instructions were issued by the Board of Revenue.