M/S. WILH, WILHELMSENversusCOMMISSIONER OF INCOME TAX, WEST BENGAL-I

                        M/S. WILH, WILHELMSEN                                      A
                                      v.
       COMMISSIONER OF INCOME TAX, WEST BENGAL-I

                                JUNE 9, 1996

         [B.P. JEEVAN REDDY AND S.B. MAJMUDAR, JJ.]                                B

      Income Tax Act, 1922: Section 10(2)(vi).

       Depreciati01t-Unabsorbed depreciation-Ays 1953--54 and 1958-
59-Time limit for claim of unabsorbed depreciation allowance on                    C
ships-Central Board of Revenue iss!led lnst1Uctions under R. 33 of IT RZ1les
that allowance of unabsorbed depreciation on ships ceased after expi1y of
twenty years-Validity and binding nature of-Assessee, a foreign shipping
company, instead of fumishing complete account of its world business s!lb-
mitted annual account for its Indian Trad&--Entit/ement of depreciation
allowance for its ships-Held: S!lch l11st111ctions neither inconsistent with nor   D
ultra vires Section 10(2)(vi) of the 1T Act or R. 33 of 1T Rules read with S.
5(8rSuch lnst1Uctions are clear and una111biguoZ1s and the lTO is bound to
follow them-Hence, High Cowt 1ightly held that the assessee not entitled to
get depreciation allowance in respect of ships which had fanned p01t of the
assessee's fleet for more than twenty years-Income Tax Rules, 1922, R.             E
33-Finance Ac~ 1955, S. 24(2).

       Income Tax-Depreciati01t-Unabsorbed depreciation-Ays. 1953-54
and 1958-59---Central Board of Revenue issued inst1Uctions under R. 33 that
unabsorbed depreciation in respect of a p01ticular ship be allowed against that
ship only in a subsequent ye01-Validity of-Assessee, a foreign shipping            F
conipany, instead of subn1itting co111plete account of its world business sub-
mitted annual account of its Indian Trad&--Assessee claimed set-off in AY
1958-59 unabsorbed depreciation allotted in AY 1953-54 to some of its ships
which did not come to India in the accounting year relevant to AY 1958-
59-Entitlement of-Held : Such lnst111ctions not ultra vires S. 10(2)(vi) of        G
IT Act or R. 33 read with S. 5(8) of the Act-Hence, High Cowt rightly held
that assessee was not entitled set-off in the AY 1958-59 the unabsorbed
depreciation in respect of some of its ships which did not come to India in
the relevant accounting year.

      Section 5(8}-Income Tax-Central Board of Revemt&--Power of-To H
                                      231
    232                  SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A issue order, instmctions and directions-Held : such power confemd on the
    Central Board of Revenue has to be exercised for the purpose of and within
    the four comers of the Act and not contrary to the Act 011d Rules.

          The appellant·assessee was a foreign shipping company. The assess·
B ment year concerned was 1958-59 for which the accounting year was the
  calendar year 1957. Instead of furnishing the annual accounts for its world
  business for the Assessment Year 1958-59, the assessee furnished separate
  complete annual accounts for its lndi.an trade. The assessment was made
  under the third method contained in rule 33 of the Income Tax Rules, 1922
  and the Instructions issued thereunder. The profits that were brought to
C tax ultimately were the net Indian profits of each ship employed in the
  Indian trade in the Accounting Year 1957. Following the Instructions
  aforementioned, the Income Tax Ollicer disallowed depreciation of eight
  ships mentioned in his order on the ground that the said ships in the
  assessee's fleet were of more than twenty years. The unabsorbed deprecia·
D tion of Rs. 97 ~47 for the accounting year relevant to the assessment year
  1953-54 pertained to seven ships, which did not come to India in the
  accounting year relevant to the assessment year 1958-59. In the books of
  the assessee, the said sum of Rs. 97, 547 was shown as a business loss
  brought forward from the earlier years. The Income Tax Ollicer allowed
  the assessee to set-off the said amounl against the profits for the account·
E ing year relevant to assessment year 1953-54.

          On appeal, the Appellate Assistant Commissioner allirmed the
    order of the Income Tax Ollicer. Before the Appellate Assistant Commis·
    sinner, the Income Tax Ollicer contended that allowing the set-off of Rs.
F   97,547 by him was a mistake. The assessee accepted the said contention.
    Accordingly, the Appellate Assistant Commissioner enhanced the assess·
    ment by disallowing the said sum of Rs. 97,547.

        The assessee appealed to the Tribunal where it contended that the
  Instructions insofar as they provided for disallowance of depreciation on
G the said eight ships (which did not come to India during the accounting
  year relevant to assessment year 1958-59) were ultra vires proviso (c) to
  Section 10(2)(vi) of the Income Tax Act, 1922 and Rule 8 of the Income
  Tax Rules, 1922. The assessee contended that it was entitled to deprecia·
  tion in respect of all these ships under the provisions contained in Section
H 10(2)(vi) proviso (c) and Rule 8. The Tribunal allowed the appeal.
                       WJLH, WILHELMSEN v. C.l.T.                        233

      On appeal, the High Court held that the Instructions were not A
inconsistent with the provision of the Act or the Rules; they provide for
assessment of total income of a foreign shipping company where it fur-
nished annual accounts for the whole of its business, Indian and foreign,
as well where it furnished the accounts only in respect of its Indian trade,
the Instructions were clear and unambii,'llous. The High Court further held
                                                                                B
that for the purpose of depreciation allowance, the Legislature had con-
templated twenty years to be the normal expectation of the life of a ship;
the Instructions whether statutory or not were binding upon the Income
Tax Authorities since these were issued under Section 5(8) of the Act. The
High Court also held that inasmuch as ships in respect of which the
unabsorbed depreciation was sought to be carried forward did not come           c
to India during the accounting year relevant to assessment year 1958-59
the said amount of Rs. 97,547 could not be set-off against the profits of the
said assessment year. Being aggrieved the appellant-assessee preferred the
present appeal.
                                                                                D
      Dismissing the appeal, this Court

        HELD : 1.1. Section 10(2)(vi) of the Income Tax Act, 1922 does
specifically provide for allowance of depreciation on foreign ships trading
with India. Rule 33 of the Income Tax Rules, 1922 also does not specifically
provide for the situation except that the last portion of the rule empowers E
the Income Tax Officer to arrive at the actual amount of income, profits or
gains accruing or arising to any person residing outside taxable territories
in such other manner as he deems suitable where such ascertainment
cannot be done according to the first two methods indicated therein. It is
precisely to provide for certain specific situations that the Central Board of F
Revenue issued the aforesaid Instructions under Rule 33. The Instructions
specifically lay down the method and the manner in which depreciation has
to be worked out on ships owned by a foreign shipping line carrying on
business in British India. In the instant case, it is admitted that the appel-
lant-company did not prepare and furnish the complete annual accounts G
for its entire business, Indian and foreign, along with an account ofits gross
receipts, Indian and foreign. It kept a separate annual account in respect of
its Indian trade and submitted the same to the Income tax authorities. The
Instructions provide inter alia for such a situation as well. The Instructions
merely elucidate and elaborate the manner in which the business income of
such foreign shipping lines is to be ascertained. These Instructions are H
    234                   SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A relatable to the last/third alternative provided by Rule. 33. The High Court
    rightly held that the aforesaid Instructions do not run counter to Rule 33 or
    for that matter to Section 10(2)(vi). The High Court rightly held that the
    Instructions are clear and unambiguous and that the Income Tax Officer
    was bound to follow them. (244-E-H, 245-A]

B         1.2. The Instructions specifically provided that depreciation must be
    allowed on each ship employed in the Indian trade in a given year and that
    the allowance must be a proportion of the annual rate calculated with
    reference to the number of days spe'"t in the Indian trade whether at sea
    or in harbour. They further provided that any unabsorbed depreciation in
C   any year must be distributed among the ships in the Indian trade in that
    year in proportion to the capital cost of each ship and that the unabsorbed
    depreciation thus allotted to any ship can only be allowed in any sub-
    sequent year against the same ship. The Instructions also provide clearly
    that the allowance shall cease on ships after the expiry of twenty years.
    Therefore, the High Court rightly held that the assessee was not entitled
D   to get depreciation allowance under rule 8 of the Income Tax Rules in
    respect of ships which had formed part of the assessee's fleet for more
    than twenty years. [245-C-D]

          1.3. It has been found by the High Court that seven ships, the
E unabsorbed depreciation whereof was sought to be set- off in the assess-
    ment year 1958-59, did not come to India in the Accounting Year 1957
    relevant to the assessment year 1958-59. According to the Instructions, the
    unabsorbed depreciation in respect. of a particular ship can only be
    allowed against that particular ship in a subsequent year provided that it
    was employed in the Indian trade in the subsequent year. Therefore, the
F   High Court rightly held that the Tribunal was not justified in deleting
    enhancement of Rs. 97,547 to the total income made by the Appellate
    Assistant Commissioner on account of\\Tong deduction by the Income Tax
    Officer. [245-G, 239-H]

G         Ellennan Lines Ltd. v. CIT, 82 ITR 913; Navnitlal Javeri v.Sen, 56 ITR
    198; CIT v. Swedish East Asia Company Ltd., (1981) 127 ITR 148 and CIT
    v. Minerva Maritime C01poration, (1985) 155 ITR 258, referred to.

        2. Section 5(8) of the Act empowered the Central Board of Revenue
  to issue orders, instructions and directions that were binding upon all
H officers and persons employed in the execution of the Act. However, the
           WILH, WILHELMSEN v. C.i.T. (B.P. JEEVAN REDDY, J.]            235

power so conferred on the Central Board of Revenue has to be exercised          A
for the purposes of and within the four corners of the Act. But power so
conferred cannot be used for issuing instructions contrary to the Act and
the Rules. (246-B]

        CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1206 of
1978.                                                                           B

     From the Judgment and Order dated 17.11. 76 of the Calcutta High
Court in I.T.R. No. 3 of 1969.

     Manoj Arora, Ms. Shipra Ghose Jain, Manoj Pillai, Rahul P. Dave
and D.N. Gupta for the Appellant.
                                                                                c
      Dr. V. Gaurishankar, Ms. A. Subhashini, S. Rajappa and S.N. Terdol
for the Respondent.

        The Judgment of the Court was delivered by
                                                                                D
      B.P. JEEVAN REDDY, J. This appeal is preferred by the assessee on
the basis of a certificate of fitness issued by the Calcutta High Court under
Section 66A(2) of the Indian Income Tax Act, 1922 (the Act). Three
questions were referred under Section 66(2) of the Act at the instan~e of
the Revenue. The questions are :                                                E
          "1. Whether, on the facts and in the circumstances of the case, the
          Tribunal was right in holding that the assessee was entitled to get
          depreciation allowance under Rule 8 of the Income-tax Rules even
          in respect of ships which had formed part of the Assessee's fleet
          for more than twenty year ?                                           F

          2. Whether, on the facts and in the circumstances of the case, the
          Tribunal was right in deleting the addition of Rs. 55,280 made by
          the Appellate Assistant Commissioner on account of excess
          depreciation in respect of the vessel 'Tortugas' ?
                                                                                G
          3. Whether, on the facts and in the circumstances of the case, the
          Tribunal was justified in law in deleting the enhancement of Rs.
          97,547 to the total income made by the Appellate Assistant Com-
          missioner on account of wrong deduction of unabsorbed deprecia-
          tion allowed by the Income Tax Officer ?"                             H
    236                   SUPREME COURT REPORTS (1996] SUPP. 3 S.C.R.

A           The Calcutta High Court answered Question No. 1 in the negative,
    i.e., in favour of the Revenue. Question No. 2 was answered in the affirm-
    ative, i.e., in favour of the assessee, vvhile Question No. 3 was answered in
    the negative, i.e., in favour of the Revenue and against the assessee. On an
    application filed by the Assessee for issuance of a certificate under Section
B 66A(2), the High Court (a different Division Bench) issued the certificate
    observing that the case raises certain important questions of law which
    require to be considered by this Court. The questions so indicated are :

            "The issue involved in this reference concerns the interpretation
            of the circular and the instructions issued by the Central Board of
c           Revenue vis-a-vis the applicability of Rule 33 of the Income Tax
            Rules. The answers involve the question of vital importance for
            the assessment of shipping companies up to the assessment year
            1976-77 and how Section 44-8 would be applicable. The reference
            dealt with the question whether a shipping company is entitled to
D           depreciation under section 10(2)(vi) of the Income Tax Act, 1961
            in view of the instructions issued by the Central Board of Revenue.
            This reference was also involved with the question whether the
            assessee would become disentitled to such depreciation in view of
            the said instructions contained in the circular of the Central Board
            of Revenue. It is true that the scope and effect of the circular of
E           this type have been considered by the Supreme Court in the case
            of Ellennen Lines Ltd. v. Commissioner of Income Tax, 82 I.T.R.
            913 and Navnitlal Javeri v. Sen, 56 I.T.R. 198, but the question here
            is to what extent a circular which curtails the right of the assessee
            under the Act or the Rule can be given effect to as against the
F           assessee. It is true, as was noted by the Supreme Court in the cases
            referred to hereinbefore as also in the instant case that circulars
            merely provide a method of the application of Rule 33, but by
            providing that method if the circular attempts to curtail the right
            to depreciation by the assessee then the jurisdiction of such cir-
            culars to curtail right granted either by the Act or the Rule framed
G           by the Act would require consideration. Further more also on the
            interpretation of the circular there is a substantial question in-
            volved - what does the expression 'fleet' in the instructions"issued
            by the Central Board of Revenue mean. For the aforesaid reasons
            we are of the opinion that this case involves substantial and
H           important questions of law which require to be considered by the
              WILll, WILHELMSEN v. C.I.T. [B.P. JEEVAN REDDY,J.]              237

             Supreme Court."                                                         A

         The appellant-assessee is a Norwegian Shipping Company. The as-
'   sessment year concerned is 1958-59 for which the accounting year was the
    calender year 1957. The relevant facts, as stated in judgment of the High
    Court, are the following :
                                                                                     B
          (i) Instead of furnishing the annual accounts for its world business
    for the Assessment Year 1958-59, the assessee furnished separate complete
    annual accounts for its Indian trade, that is to say, for all-round voyages of
    each ship to and from the Indian Ports. The assessment was made under
    the third method contained in Rule 33 of the Indian Income Tax Rules,            C
    1922 and the Instructions issued thereunder. The profits that were brought
    to tax ultimately were the net Indian profits of each ship employed in the
    Indian trade in the Accounting Year 1957.

           (ii) Following the Instructions aforementioned, the Income Tax Of-
    ficer disallowed depreciation of eight ships mentioned in his order on the D
    ground that the said ships in the assessee's fleet were of more than twenty
    years.

           (iii) There was an unabsorbed depreciation of ship of Rs. 2,49,093
    was set-off against the assessee's income for the Assessment year 1957-58.
    The. unabsorbed depreciation of Rs. 97,547 for the Assessment Year
                                                                                     E
    1953-54 pertained to seven ships, which did not come to India in the
    accounting year relevant to the Assessment Year 1958-59. In the books of
    the assessee, the said sum of Rs. 97,547 was shown as a business loss
    brought forward from the earlier years. The Income Tax Officer allowed
    the assessee to sei-off the said amount against the profits for the accounting   F
    year relevant to Assessment Year 1953-54. (We are not stating the facts
    relating to Question No. 2 since it was answered by the High Court in
    favour of the assessee and because there is no appeal by the Revenue
    against it.)

          (iv) On appeal, the Appellate Assistant Commissioner affirmed the G
    order of ihe Income Tax Officer. Before the Appellate Assistant Commis-
    sioner, the Income Tax Officer contended that allowing the set-off of Rs.
    97,547 by him was a mistake. The assessee accepted the said contention.
    Accordingly, the Appellate Assistant Commissioner enhanced the assess-
    ment by disallowing the said sum of Rs. 97,547.                           H
    238                   SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A        (v) The asscssee appealed lo the Tribunal where it contended that
   the Instructions insofar as they provide for disallowancc of depreciation on
 · the said eight ships (which did not come to India during the accounting
   year relevant to Assessment Year 1958-59) were ultra vires proviso (c) lo
   Section l0(2)(vi) of the Acl and .Ruic 8 of the Indian Income Tax Rules,
B 1922. IL contended that it is entitled to depreciation in respect of all these
   ships under the provisions contained in Section 10(2)(vi) proviso (c) and
   Rule 8. It submitted further that the words "company's fleet" occurring in
   Instructions were referrablc only to those ships of the assessee which were
   employed in its indian trade.

C         The Tribunal did not go in the question whether the Instructions
    were ultra vires lhc statutory provisions aforesaid but held that the Appel-
    late Assistant Commissioner has misunderstood the said Instructions. It
    allowed the assessee's appeal on the following reasoning :

             "When the depreciation is allowed under the Indi~n Income-tax
D            Act it follows that in the matter of calculating the. overall or total
             depreciation for the purpose of proviso (c) to sectio.n 10(2)(vi) one
             has also to take into account only such depreciation as has been
             actually allowed under the Indian Income-tax Act. As such we are
             not concerned with any notional depreciation or depreciation
E            which might have been provided, in the accounts other than those
             relevant for the purpose of assessment under the Indian Income-
             tax Act. This, to our mind, seems to be the most patent and obvious
             interpretation of Section 10(2)(vi). In case of the present assessee
             which is assessed on the round voyage method, a particular ship
             might have called at the Indian port some 25 years back and may
F            be employed for the company's Indian trade for the second time
             only in the 26th year. That does not mean that the company will
             not be entitled to depreciation in the 26th year because in the
             intervening 25 years the ship was evidently not used for purpose
             of the round voyage via india and as such no depreciation had been
G            allowed under the Indian Income-tax Act except for the first year.

                                •••      •••     ****
             In the case of a foreign shipping company like that of the appellant
             company there may be ships which are borne more than 20 years
H            on the total world fleet and many of the ships might not have been
          WILH, WILHELMSEN v. C.l.T. [B.P. JEEVAN REDDY,J.]               239

         used at all in the Indian Waters but there is no prohibition under      A
         the Indian Income-tax Act against allowing depreciation on such
         ships simply on the ground that the ship had formed a part of the
         Company's llect for more than 20 years. We, therefore, hold in
         favour of the appellant company viz. that depreciation allowance
         as provided in Rule 8 should be allowed on all ships employed in        B
         connection with the company's Indian trade subject only to the
         limitation i111posed under proviso (c) to section 10(2)(vi)."

      The Tribunal further held that the said Instructions which may have
been valid when issued, became obsolete in view of the introduction of
Section 24(2) in the Act by the Finance Act, 1955. It found that inasmuch        C
as the assessec carried on the same business in the relevant assessment yeat
as was carried on in the pervious relevant years, the assessee is entitled to
set-off the unabsorbed depreciation of Rs. 97,547 against the profits of the
Assessment Year 1958-59.
                                                                                 D
      We may now set out the opinion of the High Court on the three
questions referred. On the first question, the High Court held that the
Instructions are not inconsistent with the provisions of the Act or the Rules.
They provide for assessment of total income of a foreign shipping company
where it furnishes annual accounts for the whole of its business, Indian and
foreign, as well as where it furnishes the accounts only in respect of its       E
Indian trade. By following the latter method, the foreign shipping company
cannot get depreciation allowance more than it is entitled to in the former
method. The Instructions are clear. There is no ambiguity therein.
Depreciation on a ship is allowed only when it is actually employed in the
trade or business. From Appendix-A to Rule 8, it appears that for the            p
purposes of depreciation allowance, the Legislature has contemplated
twenty years to be the normal expectation of the life of a ship. The order
passed by the Income Tax Officer is consistent with the said provisions.
The Instructions merely clarify the rule position. Whether statutory or not,
they are binding upon the Income Tax authorities, having been issued
under sub-section (8) of section 5 of the Act.                                   G

     On Question No. 3, the High Court held that inasmuch as ships in
respect of which the unabsorbed depreciation was sought to be carried
forward did not come to India during the accounting year relevant to
Assessment Year 1958-59 the said amount of Rs. 97,547 cannot be set-off H
    240                   SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A against the profits of the said assessment year.
          (We aic not selling out the opinion of the High Court on Question
    No. 2, since the said question is not in issue before us.)

          For a proper appreciation of the questions ansmg herein, it 1s
B necessary to set out the relevant provisions of law.

         Sub-section (8) of Section 5 of the Act empowered the Central Board
    of Revenue to issue Orders, instructions and directions \Vhich were binding
    upon all officers and persons employed in the execution of the Act. The
    Sub-section read as follows :
c
             "(8) All Officers and persons employed in the execution of this Act
             shall observe and follow the orders, instructions and directions of
             the Central Board of Revenue :

               Provided that no such orders, instructions or directions shall
D           be given so as to interfere \vith the discretion of the Appellate
            Assistant Commissioner in the exercise of his appellate functions."

          The provision is clear. It requires no elaboration. It is, however,
    evident that the power so conferred on Central Board of Revenue has to
E   be exercised for the purposes of and within the four corners of the Acl.

          Sub-section (2) of Section 10 provided the allowances to be made
    while ascertaining the profits and gains of business, profession and voca-
    tion. Clause (vi) of sub-Section (2) provided for depreciation on buildings,
    machinery, land or furniture being the property of the assessee. Proviso (c)
F   appended to clause (vi) provided that "the aggregate of all allowances in
    respect of depreciation made under this clause ·and clause (vi-a) or under
    any Act repealed hereby, or under the Indian Income-tax, 1886, shall, in
    no case, exceed the original cost to the assessee of the buildings, machinery,
    plant or furniture, as the case may be". Rule 33 of the Indian Income Tax
G   Rules read as follows :

            "33. 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
H           the taxable territories or through or from any property in the
             WILH, WILHELMSEN v. C.I.T. [B.P. JEEVAN REDDY,J.]              241

            taxable territories, or through or from any asset or source of A
            income in the taxable territories, or through or from any money
            Jent at interest and brought into the taxable territories in cash or
            in kind cannot be ascertained, the a111ount of such incon1e, profits
            or gains for the pwposes of assessment to income-tax may be
            calculated on such percentage of the turnover so accruing or arising
                                                                                   B
            as the Income-lax 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 accord-
            ance 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        c
            deem suitable."

         Now, coming to the Inst11tctions issued under Rule 33, and which are
    the main subject-matter of debate herein, they read thus :

            "This Rule (Rule 33) provides the manner of ascertaining the           D
            income, profits or gains of a non-resident person, when the actual
            amount of his income, profits or gains chargeable to tax in British
            India cannot be arrived at.

               Jn respect of foreign shipping companies carrying on business       E
            in British India the following method will be followed for the
            purpose of calculating their income from shipping business in
            respect of assessment for the year 1939-40 and for earlier years :

            (i) If a company fumishes annual accounts for the whole of the
            business, Indian and foreign, the second method provided by Rule       F
            33 will reasonably be applied. Depreciation has only to be con-
            sidered in calculating the world-profits. These are to be calculated
            according to the Indian Income tax Act. Profits calculated accord-
            ing to the United Kingdom Act will, therefore, require certain
            adjustments. Deductions permitted in the United Kingdom but not G
            permitted in Indian will have to be added back and deductions
            permissible in India but not permissible in the United Kingdom
            will have to be allowed. If any company, however, prefers to claim
            the depreciation allowed by the United Kingdom Income-tax

-           authorities, the Commissioners of Income-tax may adopt that fig-
            ure. Otherwise, depreciation will have to be calculated according H
    242                 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A         to the Indian Rules. What follows applies to the calculated of
          depreciation according to the Indian rules. For this purpose, a
          completed depreciation record has to be maintained for the entire .
          fleet. Depreciation begins to run from the first year in which the
          company is assessed in India that is, the first year in which its
          profits or loss were determined for the purpose of deciding
B         whether it was liable to Indian Income-tax. Unabsorbed deprecia-
          tion i.e., any balance of depreciation which cannot be allowed in
          any year owing to the profits not being sufficient to cover the full
          amount permissible under the Indian rules will be carried forward
          and allowed as far as possible in calculating the world-profits
c         according to the Indian method in the following year and if
          necessary in subsequent years provided that unabsorbed deprecia-
          tion for 1938-39 and earlier years cannot be set off against an
          assessment for 1939-40 or any subsequent year.

              The proportion Indian receipts to total receipts is applied to
D         the world-profits calculated according to the Indian method (if
          there are any such profits) and the result is the Indian income
          liable to tax. No further deduction is permissible from the amount
          thus arrived at on account of depreciation (unabsorbed or other-
          wise) or anything else. The due proportion of all allowances
          permissible is automatically set off against the Indian profits by the
E         above method.

              This method is equally applicable whether a company works
          out the profits for each voyage or follows any other method of
          account provided that it prepares complete annual accounts for
          the whole business, Indian and foreign, and furnishes the accounts
F         of gross receipts, Indian and foreign.

              Son1e lines do not funiish con1plete annual accounts for their
          world business. They keep separate complete annual accounts for
          their Indian trade that is, for all round voyage to and from Indian
          ports. The proper cow:'" is then to apply the method just described
G
          treating the profits of the Indian trade and the gross receipts of the
          Indian trade as though they were the world-profits and the world-
          receipts respectively. In fact, the business other than the Indian trade
          is ignored.

H         (ii) A difficulty sometimes arises in such cases owing to the fact
 WILH, WILHELMSEN v. C.i. T. [B.P. JEEVAN REDDY, J.]           243

that the ships employed in the Indian trade are constantly being A
changed. Unless United Kingdom depreciation is accepted as
indicated above, a depreciation record will have to be kept for
every ship employed at any time in the Indian trade. Depreciation
must be allowed on each ship employed in the Indian trade in a
given year and the allowance must be a proportion of the annual B
rate calculated with reference to the number of days spent in the
Indian trade whether at sea or in harbour. Any unabsorbed
depreciation in any year must be distributed among the ships in
the Indian trade in that year in proportion to the capital cost of
each and the unabsorbed depreciation thus allotted to any ship .
can only be allowed in any subsequent year against the same ship. C

The allowance should cease :

(a) on ships which were included in the fleet in the first year in
which the company becomes liable to assessment in India (ir-
respective of whether it was actually found to have a taxable D
income in that year or not), after the twentieth year beginning with
that year;

(b) on ships subsequently added to the company's fleet, after they
have been borne on the fleet for 20 years.                           E

   In both cases the period may be extended proportionately
where the United Kingdom depreciation is allowed in calculating
the profits of the Indian trade which take the place as already
explained of the world profits.
                                                                     F
   Obsolescence cannot be allowed in these cases.

    British Shipping Companies - Assessment or : when assessing
British Shipping Companies, the Income-tax Officer should accept
a certificate granted by the Chief Inspector of Taxes in United
Kingdom stating (1) the ratio of the profits of any accounting G
period as computed for the purposes of the United Kingdom
income-tax computed without making any allowance for wear and
tear to the gross earnings of the Company's whole fleet, and their
ratio of the United Kingdom allowance for wear and tear to the
gross earnings of the whole fleet, or (2) the fact there were no such H
    244                   SUPREME COURT REPORTS (1996] SUPP. 3 S.C.R.

A            profits. The expression 'gross earnings' of the company's whole
             fleet means the total receipts of the Shipping Company excepting
             only receipts from non-trading sources, such as income from in-
             vestments. Assessment for 1940-41 onwards - 77ie above i11stmctio11s
             should also be followed in respect of the assessme/lf of foreign
             shipping companies for 1940-41 011wards. These instructions inter
B
             alia allow a foreign shipping company furnishing annual accounts
             for the whole of its business. Indian and foreign to adopt the U .K.
             wear and tear allowance in lieu of the depreciation allowance
             under the Indian Income-tax Act for the purpose of the computa-
             tion of its income in accordance with the second method provided
c            by Rule 33, and also allow a British shipping company to elect to
             be assessed on· the basis of a ratio certificate granted by the U.K.
             authorities regarding the income or loss and the wear and tear
             allowance."

                                                (Quoted from the Paper Book)
D
         It would be evident from a perusal of the above provisions that
  Section 10(2)(vi) does not specifically provide for allowance of deprecia-
  tion on foreign ships trading with India. Rule 33 also does not specifically
  provide for the situation except that the last portion of the rule empowers
E the Income tax Officer to arrive at the actual amount of income, profits or
  gains accruing or arising to any person residing outside taxable territories
  in such other nnmner as he dee.ms suitable where such ascertainment
  cannot be done according to the first two methods indicated therein. It is
  precisely to provide for certain specific situations that the Central Board
F issued the aforesaid Instructions under Rule 33. The Instructions specifi-
  cally lay down the method and the manner in which depreciation has to be
  worked out on ships owned by a foreign shipping line carrying on business
  in British India. In this case, it is admitted that the appellant-company did
  not prepare and furnish the complete annual accounts for its entire busi-
  ness, Indian and foreign, along with an account of its gross receipts, Indian
G and foreign. It kept a separate annual account in respect of its Indian trade
  and submitted the same to the Income-tax authorities. The Instructions
  provide i11ter alia for such a situation as well. The Instructions issued by
  the Central Board under Rule 33 merely elucidate and elaborate the
  manner in which the business income of such foreign shipping lines are to
H be ascertained. These Instructions are relatable to the last/third alternative
          W!LlI, WILHELMSENv. C.l.T.(B.P.JEEVANREDDY,J.j                245

provided by Rule 33. We are, therefore, in agreement with the High Court       A
that the aforesaid Instructions do not run counter to Rule 33 or for that
matter to Section 10(2)(vi). Eviaently, these Instructions were issued in
view of the problems faced and exP,erience gained by the department and
to meet situations not expressly proiided for by the Act or the Rules. They
are in the nature of guid.ance to the assessing officers. We are also in       B
agreement with the High Court that the Instructions are clear and unam-
biguous and that the Income tax Officer was bound to follow them. The
Instructions specifically provided that depreciation must be allowed on
each ship employed in the Indian trade in a given year and that the
allowance must be a proportion of the annual rate calculated with refer-
ence to the number of days spent in the Indian trade whether at sea or in      C
harbour. They further provided that unabsorbed depreciation in any year
must be distributed among the ships in the Indian trade in that year in
proportion to the capital cost of each ship and that the unabsorbed
depreciation thus allotted to any ship can only be allowed in any sub-
sequent year against the same ship. The Instructions also provide clearly      D
that the allowance shall cease on ships after the expiry of twenty years. ll
is not disputed by the learned counsel for the assessee before us that the
Instructions have been correctly understood or followed by the Income Tax
Officer. The complaint rather is that the Instructions themselves are incon-
sistent with the statutory provisions. Since we have held that the Instruc-
tions are not inconsistent with nor can be said to be outside the purview      E
of Rule 33 read with Section 5(8) of the Act, no further question arises.
Accordingly, we affirm the answer given by the High Court to Question
No. 1.

      So far as Question No. 3 is concerned, the answer to it also depends     F
upon the validity and applicability of Instructions aforesaid. It has been
found by the High Court that the seven ships, the unabsorbed depreciation
whereof was sought to be set-off in the Assessment Year 1958-59, did not
come to India in the Accounting Year 1957 relevant to the Assessment
Year 1958-59. According to the Instructions, the unabsorbed depreciation
b respect of a particular ship can only be allowed against that particular     G
ship in a subsequent year provided that it was employed in the Indian trade
in the subsequent year. Accordingly, we affirm the answer given by the
High Court to Question No. 3 as well.

      The learned counsel for the appellant brought to our notice the H
    246                  SUPREME COURT REPORTS (1996] SUPP. 3 S.C.R.

A subsequent decision of the Calcntta High Court in Commissioner of Income
  Tax, West Bengal v. Swedish East Asia Company Limited, (1981) 127 J.T.R.
  148 where the Division Bench criticised certain obser~ations in the judg-
  ment under appeal with respect to the scope of the pmver conferred upon
  Central Board under Section5(8). Since we have held that the Instructions
  concerned herein are relatable to Rule 33, it is not necessary to go into the
B question whether the power conferred upon the Central Board to issue
  instructions can be employed for issuing instructions contrary to the Act
  and the Rules. Obviously it can't be so used - an aspect already dealt by
  us hercinabove. The learned counsel also brought to our notice that the
  decision of the Calcutta High Court in Swedish East Asia Company Limited
C has been followed by the Bombay High Court in Commissioner of Income
  Tax v. Mine1va Mmitime C01poration, (1985) 155 J.T.R. 258. For the reasons
  given above, this submission does not carry the appellant's case any further.

           Now, a word about the order of the High Court granting certificate.
    The order granting certificate raises certain question which do not directly
D   arises from the judgment of the High Court. The order granting certificate
    seems to assume that the I nstructi ans arc inconsistent with the statutory
    provisions which assumption, in our respectful opinion, is not warranted,
    as has been indicated by us hereinabove.

E        For the above reasons, the appeal fails and is dismissed with costs.
    Advocate's fee Rupees ten thousand consolidated.

    v.s.s.                                                   Appeal dismissed.