Case Note & Summary
The assessee, a non-resident shipping company with a local office in Calcutta, submitted returns for assessment years 1952-53 to 1956-57 disclosing taxable income computed on the basis of annual turnover in its Indian trade but did not furnish particulars of world income. The Income-tax Officer computed the taxable business income for each year by applying a special formula which was accepted by the assessee. However, in computing income, the officer allowed only normal depreciation and other trade allowances admissible under the Income-tax Act, 1922, but declined to grant initial or additional depreciation in respect of the company's ships for any assessment year because the ships acquired by the appellant were not introduced into the Indian business in the years in which they were newly acquired. The assessment orders were confirmed by the Appellate Assistant Commissioner. On further appeal, the Tribunal held that in respect of all the four ships, additional depreciation was admissible under Section 10(2)(vi-a) of the Act as claimed. On a reference, the High Court answered the question against the assessee. The Supreme Court upheld the High Court’s view. The central legal issue was whether the assessee was entitled to additional depreciation when its taxable profits were computed by a special formula rather than by the second method in Rule 33 of the Income-tax Rules, 1922—the method acknowledged by both sides as the appropriate one for determining profits of a non-resident shipping company. The Court reasoned that since that correct method was never applied, and the assessee had accepted a different mode of computation, it could not claim depreciation allowances that would have been relevant only if world profits had been computed under Rule 33. The ratio decidendi clarified that the admissibility of allowances under Section 10(2)(vi-a) is contingent upon computation of profits in accordance with the prescribed statutory method. The decision of the High Court was affirmed, and the appeal was dismissed.
Headnote
A) Income Tax - Depreciation Allowance - Additional Depreciation - Income-tax Act, 1922, Section 10(2)(vi-a) - Non-resident shipping company’s taxable business income computed by special formula accepted by both sides, not under second method in Rule 33 of Income-tax Rules, 1922 - The company claimed initial and additional depreciation on ships newly acquired but not introduced into Indian business in those years - The Tribunal allowed the claim, but the High Court reversed - Held: Additional depreciation not admissible because the correct method (Rule 33 second method) was never applied; had it been applied to world profits, depreciation allowances would have been necessary, but the assessee could not claim them while accepting a computation not strictly conforming to law.
Issue of Consideration
Whether initial and additional depreciation under Section 10(2)(vi-a) of the Income-tax Act, 1922 is admissible when the taxable profits of a non-resident shipping company are computed by a special formula rather than the second method prescribed in Rule 33 of the Income-tax Rules, 1922
Final Decision
The Supreme Court held that additional depreciation was not admissible as an allowance in the computation of taxable income by the special formula adopted by the Income-tax Officer. The appeal was dismissed.
Law Points
- Additional depreciation under Section 10(2)(vi-a) is not admissible when taxable profits are computed by a special formula not in accordance with Rule 33 of Income-tax Rules
- 1922
- the appropriate method for a non-resident shipping company is the second method in Rule 33
- requiring world profit computation
- the assessee cannot claim depreciation allowances by accepting a non-standard computation method and then seeking allowances that would have been relevant only under the correct method
