ELLERMAN LINES LTD. versus C.I.T. WEST BENGAL, CALCUTTA

Citation: [1972] 2 S.C.R. 168 · Decided: 22-10-1971 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Case Partly allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

168 
ELLERMAN LINES LTD. 
v. 
C.I.T. WEST BENGAL, CALCUTTA 
October 22, 1971 
[K. S. HEGDE AND A, N. GROVER, JJ.] 
Income-tax Act, 1922, ss. 5(8), 10(2) (vib)-lndian Income-tax Ru/es, 
1922, r. 33-Non-resident shippin11 company-Computation of turnover-
Ratio certificate issued by U.K. Chief Inspector of Taxes mentioning in· 
vestn1ent ollowance granted by U.K. authorities-In assessing Indian in--
co1ne nf non-resident whether such investn1en-1 allowance (corresponding 
to deve/op111e111 rebate under India Act) whether to be taken into consi-
deration-Effect of circular bv Central Board of Revenue. 
Under a circular issued in 1962 by the Central Board of Revenue under 
s. 5(8) of the Indian Income-tax Act, 1922 the assessing authorities were 
directed to permit British Shipping Companies to elect to be ass"sed on 
the basis of a ratio certificate granted by the U.K. authorities regarding the 
income or loss and the wear and tear allowance. In 1964 the Board in-
structed the taxing autho'rities to take into consideration the investment 
allowance granted by U.K. authorities in computing the taxable income of 
the British Shipping companies. The appellant was a non'resident British 
Shipping company whose ships plied all over the world including Indian 
waters. For the years 1960-61 and 1961-62 the Income-tax Officer com-
puted its total iricome under the Indian Income-tax Act, 1922 by taking 
into account the ratio certificates issued by the Chief Inspector of Taxes 
U.K. which were based on the assessments made on the appellant in U.K. 
In making assessment the Income-tax Officer purported to proceed on the 
basis of r. 33 of the Indian Income-tax Rules, 1922. 
One of the points 
considered by the Income-tax Officer and the Appellate Assistant Commis-
siuner \\'a'i \\'hcther the investment allowance was to be taken into account 
in assessing the Indian income. 
Both of them rejected the contention of 
the appellant that it should be taken into account. 
The tribunal decided 
in favour of the appellant but the High Court in rderence took the oppo-
site view. 
In appeal to this Court by special leave. 
HELD : (i I The authorjties under the Act proceeded on the !Y.isis that 
the ·computati9n of the income of the assessee had to be made on the 
second of the three bases mentioned in r. 33. 
Admittedly the profits of 
the ac;sesscc were not computed in accordance with the provisions of the 
Act. 
That being so. the second basis mentioned in r. 33 could not 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 proceed
1ed before the authorities uoder 
the Act on the assumption that the seoond basis mentioned in r. 33 was the 
relevant basis. The High Court erred in adopting this approach. The fact 
that the authorities under the· Act as \\'ell as the .:>arties were under a mis-
taken impression could not alter the true position in law. 
[!74 H-175 
Bl 
(ii) The computation of appellant"s 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'. [175 CJ 
A 
B 
c 
D 
E 
F 
G 
A 
B 
c 
D 
E 
F 
G 
H 
ELLERMAN LINES LTD. v. C.I.T. (Hegde, J.) 
169 
From the assessment orders it did not appear that the first basis was 
adopied. The most appropriate basis under which the income could have 
been computed was the last basis viz. "in such other manner as the lncome-
tax Officer may deem suitable". While adopting that bas.is the Income-tax 
Officer is not required to rigidly apply the various cond11Ions prescribed 1n 
the Act in the matter of granting one or the other o! 
the permtsStble 
allowances. He may adopt any equitable basis as long as .the basts does 
not conflict either with r. 33 or with the instructions or directions given 
by the Board of Revenue. The power given t~ the Income-tax Officer on 
that basis is a 'very wide power. That power 1s aYatlable not only to the 
Income-tax Officer but also to the Appellate Assistant Commissioner and 
the Tribunal. 
[175 D-F] 
As the Tribunal had determined the tax due from the appellant on the 
ha.is of the ratio certificate given by the U.K. authorities, it could not be 
said that the decision reached by the 

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