Commissioner of Income-Tax Chittagong zone, Chittagong Vs. M/s Everett Orient Line Corporation, 28 DLR (AD) (1976) 30

Case No: Civil Appeal Nos. 15-D to 17-D of 1971

Judge: Kemaluddin Hossain,

Court: Appellate Division ,,

Advocate: MR. SR Pal,Mr. Asrarul Hossain,,

Citation: 28 DLR (AD) (1976) 30

Case Year: 1976

Appellant: Commissioner of Income Tax

Respondent: M/s Everett Orient Line Corporation

Subject: Income Tax, Fiscal Law,

Delivery Date: 1975-12-18

Supreme Court
Appellate Division
Ahsanuddin Chowdhury J.
Kemaluddin Hossain, J.
Debesh Chandra Bhattacharya, J.
The Commissioner of Income-tax  Chittagong zone, Chittagong
M/s. Everett Orient Line Corporation and others
……………............. Respondents
Dec. 18, 1975.
Income Tax Act (XI of 1972)
In the assessment year income of the previous year is assessed. Taxes of the previous year are assessed according to the provisions made in the Finance Act.
Cases Referred to:
United Netherlands Navigation Co. Ltd. Vs. Commissioner of Income Tax, Dacca (1965) 17 DLR SC 446—P.L.D. 1965 S.C. 412; Maharajah of Pithpurara Vs. Commissioner of Income Tax, AIR 1945 (P.C.) 89; Russell (Inspector of Taxes) Vs. Scott.  1948 A.C. 422, and Davigdor Goldsmid Vs. Inland Revenue Commissioners 1953 A.C. 347 Income Tax, Madras Vs. Mir Mohammad Ali 1964 (53) ITR, 165; Abdul Wahab Vs. The Crown, 7 DLR (FC) 87.
Lawyers Involved:
A. W. Chowdhury, Senior Advocate, Supreme Court, instructed by A.M. Khan Chowdhury Advocate-on-Record—For the Appellant.
Asrarul Hosain, Senior Advocate will Mohammad Hassan, Advocate Supreme Court instructed by Md. Nurul Huq, Advocate-on-Record—For the Respondent in C.A. No. 15-D/71
S.R. Pal, Senior Advocate, instructed by Abu Backkar, Advocate-on-Record For the Respondent in C.As. 16-D & 17-D/71.
Civil Appeal Nos. 15-D to 17-D of 1971
Kemaluddin Hossain, J.
These three ap­peals are by way of Special Leave arise out oi judgment of the High Court of East Pakistan in three Reference cases under section 66(2) of the Income-tax Act. As a common question of law is involved, they are heard analogously and disposed of by one judgment. The question is whether under the provisions of section 10(2} (vi) of the Income Tax Act read with rule 9 of the Income Tax Rules the initial depreciation is allowable to vessels belong to non-resident companies which did not ply in Pakistan waters and which had not been installed in Pakistan.
2. The respondent-assessees are non-resi­dent shipping companies. Their registrations are in the United States of America. The Companies received some of their incomes in the then Pakistan by their ships touching Pakistan ports for loading and unloading car­goes.
3. The respondents were assessed to income tax by the Income Tax Officer, Com­panies Circle 1, Chittagong for the assessment year 1966-67, 1962-63 and 1963-64 and in so doing he disallowed the claim for initial depre­ciation of their new ships used by them in res­pective years of assessment.
4. Against the said orders, the assessees preferred direct appeals to the Income Tax Appellate Tribunal, Dacca Bench. The Tri­bunal held that initial and additional deprecia­tions were allowable and directed the Income Tax Officer to make fresh assessments by allow­ing initial and additional depreciations in accordance with law.
5. The appellant applied to the High Court, East Pakistan    under section 66(1) of the Income Tax Act praying that the Tribunal do refer the following questions of law:
  1. "Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal had correctly incorporated the provisions of section 10(2)(vi) of the I.T. Act and Rule 9 (old rule 8) of the I.T. Rules and was justified in allowing initial and additional depreciations in respect of the vessels which did not ply in Pakistan waters during the period in question and which had not been installed in Pakistan." and
  2. Whether the absence of the word 'Pakistan' after the words 'has been installed' in section 10(2) (vi) of the IT. Act and after the word installed in rule 9 (old rule 8) of the I.T. Rules is a bar for disallowance of the benefit of initial and additional depreciation in respect of the plant and machineries which are not installed in Pakistan.  
6. The Tribunal rejected the applications and refused to refer the question to the High Court holding that the same question was considered  in the case of American Export lines and that  there was no cogent reason for taking a different view in these cases.
7. Against the orders of refusal, the appel­lant by an application in each case under sec­tion 66(2)  of the Income Tax Act moved the High Court of East  Pakistan for an order directing the Income Tax Appellate Tribunal, Dacca to refer the question of law set out above for decision of i he said Court.
8.  A Division Bench of the High Court, first issued a rule calling upon the respondents to show cause why the Income Tax Appellate Tribunal should not be directed to refer the aforesaid question of law to the High Court for decision but after hearing  the parties the learned Judges were pleased to discharge the Rules holding that the common question is covered by the decision of the Supreme Court of Pakistan in the case of United Netherlands Navigation Co. Ltd. Vs. Commissioner of Income Tax, Dacca (1965) 17 DLR SC 446—P.L.D. 1965 S.C. 412.
9. From the facts set out above we find that the accounting years and the assessment years   in the three appeals are as follows:
Appeal Accounting year Calendar year Assessment year
C.A. 15-D of 1971 1965   1966-67
C.A. 16-D of 1971 1961 -do- 1962-63
C.A. 17-D of 1971 1962 -do- 1963-64
10.  The assessees are foreign shipping companies registered in U.S.A. The Com­panies ply their ships in different countries of the world including the then Pakistan. They introduced and used for the first time new ships in each of the assessment years. The dispute centres   round the allowance of initial depre­ciation to the new ships under section 10(2) (vi) of the Income Tax Act. It is conceded that, even if ships did not call at any of the Pakistani ports, whether the allowance will be allowable. The Income Tax Officer allowed normal de­preciation and it is not in dispute but he did not allow initial depreciation. It was challenged on appeal before the Tribunal which allowed both initial and additional depreciations under different provisions of the Art. It is to be observed that the assessees claimed allowance of initial depreciation only and not additional depreciation and so the decision of the Tribunal allowing additional depreciation is uncalled for and will not govern the orders of assess­ment. We proceed to deal with the narrow question, whether the assessees are entitled to the allowance of initial depreciation under section 10(2) (vi) of the Income Tax Act. The High Court held that the question in substance is covered by the decision of the Supreme Court Pakistan in the case of United  Netherland Navigation Co. Ltd. The Evacuee obtained leave on the ground that the Finance Act, 1967 amended Income Tax Act inter alia by introducing the words 'in Pakistan' after the words 'installed in s. 10(2)(vi) and so required fresh consideration of the point . in the light of the amendment.
11. In view of the peculiar facts of these three appeals, we are not called upon the cons­true   the true meaning of the amendment, but to examine whether the amendment at all applied to years of assessments under appeal. The Finance Act 1967 has not been given a retrospective operation. From the facts set out  above  it is manifest that Appeal Nos. 16 and 17 relating to assessment years 1962-63 and 1963-64 are clearly out-side the amend­ment of 1967. The only marginal case is that of accounting year 1965 i.e., 1965-66 in C.A. Appeal No. 15 corresponding to assessment year 1966-67.
12. Before dealing with the  applicability of the amendment the authority of the Privy Council on the operation of the Income Tax Act and the Finance Act as propounded in Maharajah of Pithpurara Vs. Commissioner of Income Tax, AIR 1945 (P.C.) 89 may be seen. Lord Thankerton propounded the proposition as follows:
"Before dealing with the particular grounds of appeal, their Lordships consi­der it desirable to make some general observations as to Indian Income Tax law, which may clear away a certain con­fusion of thought which would appear to affect certain of the contentions in the present case. In the first place, it is clear to their Lordships that under the express terms of s. 3, Income Tax Act, 1922, the subject of charge is not the income of the year of assessment, but the income of the previous year. This is in direct contrast to the English In­come Tax Acts, under which the subject of assessment is the income of the year of assessment, though the amount is measured by a yardstick based on pre­vious years. The difference is well illus­trated by the distinction that in England the source of income must still be extent in the year of assessment but that is not of relevance in India. Their Lordships may refer to the able judgment of Rankin C.J. in 2 ITC 328, with which they agree.
In the second place, it should be remembered that the Income Tax Act, 1922, as amended from time to time forms a code,' which has no operative effective so far as it is rendered applicable for the recovery of tax imposed for a particular fiscal year by a Finance Act. This may be illustrated by pointing out that there was no charge on the 1938-1939 income, until the passing of the Finance Act of 1939, which imposed the tax for 1939-1940 on the 1938-1939 income and au­thorised the present assessment. By sub-section (1) of s. 6, Finance, Act, 1939, income tax for the year beginning on 1st April, 1939, is directed to be charged at the rates specified in Part 1 of Sche­dule 2, and rates of super-tax are also provided for, and by sub-section (3) it is pro­vided that :
"for the purpose of this section and of Schedule 2, the expression 'total in­come means total income as determined for the purposes of income-tax or su­per tax as the case may be, in accord­ance with provisions of the Income tax Act, J922". This can only refer to the Income-Tax Act, 1922, as it stood amended at the date of the Finance Act, 1939, and necessarily includes the alternations made by the Amending Act, which had already come into force on 1st April, 1939."
13. The position is that the Income Tax Act is a dormant act and is activated year to year as for the recovery of the tax on income at the fate provided in Finance Act. Income tax is assessed on the previous year set out in the Act. The machinery for realisation of the tax is furnished by the Finance Act of the year of assessment. The law in operation on the first date of assessment year will clinch and govern the income of the previous year which in terms of the Act is the date immediately ending on the first day of the assessment year. The same view has been taken by the Supreme Court of Pakistan in the case of Radhashyam Vs. Commissioner of Income Tax East Pakistan 12 DLR (SC) 25. The facts were that the jute business which was sought to be assessed was started on 16-9-50 and the accounts of the busi­ness were closed on 29-6-51. The Finance Act governing assessment of 1951-52 came into force on 1-4-51. The Control Board Revenue issued a notification declaring that "in case of all assesses during the second 1950-51, not having carried on business before 1st October 1949 to determine the previous year for the purpose of their assessment for 1951-52 to be the period of 12 months ending on the 30th June, 1951". The question was whether the notification could affect the asse­ssee. The Supreme Court of Pakistan follow­ing the authority of Privy Council in the case of Maharajah of Pithampuram, and other deci­sions held that when the liability of the assessee has come into existence, it cannot be altered in quantum, context and character except by direct retrospective legislation. The Cen­tral Board of Revenue on 28-8-51 could not affect the assessee without giving a retrospec­tive operation to the notification.
14.  Turning   to the facts   of the present case we find that the assessees observed calen­dar years and their accounting years ended on the last day of December. We are however concerned with the calendar year 1965 that is 1965-66 corresponding to assessment year 1966-67. In terms of Income-tax Act, the previous year will be deemed to have ended on 30th June, 1966. On 1 July 1966 came the Finance Act of 1966 governing the assessment of income   tax of the previous year 1965-66. The Finance Act of 1967 will govern the pre­vious year ending on 30th June 1967 that is 1966-67 corresponding to assessment year 1967-68. The Finance Act of 1967 was not made operative retrospectively. It will not and cannot affect the year of assessment of under appeal. And so we conclude the point in the leave order.
15.  Mr. A.W. Chowdhury learned counsel for the  Revenue  has attempted to argue  that even without the amendment of the words "Pakistan", the word 'installed' in clause (vi) carries by necessary implication the meaning that they were installed in Pakistan.  Mr. Pal has rightly pointed out that taxing statute requires strict interpretations and has cited Russell (Inspector of Taxes) Vs. Scott. 1948 A.C. 422, and Davigdor Goldsmid Vs. Inland Revenue Commissioners 1953 A.C. 347.
16. We find it difficult to accept the con­tention of Mr. A.W.  Chowdhury. Apart from the fact that strict interpretation should be given to taxing statute, Mr. Asrarul Hossain has appropriately pointed out that the change of language appearing in clause (Via) relating to additional depreciation even before the amendment gives a clear indication of the in­tention of the Legislature.  In clause (Via) the word 'in Pakistan' are to be found but not in clause (VI). The Legislature in the same section has employed different language in two clauses. The ordinary rule of interpretation that change of language represents expression of different intentions is applicable. There is nothing in the context to hold to the contrary. The reason is weighty and requires no further discussion.
17. Mr. Asrarul Hossain has rightly po­inted   out   with   reference   to the decision of Income Tax, Madras Vs. Mir Mohammad Ali 1964 (53) ITR, 165, that the word 'installed' has been interpreted, with reference to substantially the same language of the Indian Act with the present one, to mean inducted or introduced or to place an apparatus in ser­vice or use. The question in that case was whe­ther the fixing of diesel engine in motor bus in place of petrol engine could be said to be installed. Holding it  to be so, it was observed that the expression 'installed' did not neces­sarily mean fixed in position but also mean used in the sense of inducted or introduced or to place an apparatus in position for service or use. On this analogy we can very well say that  introducing  a ship  for the first time for commercial use means 'installed' by assessee in the year of assessment.
18. Mr. A.W. Chowdhury has further sought to argue that the present appeals are not covered by the authority of the Supreme Court of Pakistan in United Netherland Navigation Co. Ltd. case. It is true the ques­tion involved in that decision was whether a foreign Company can claim allowance of unabsorbed depreciation in terms of s. 10(2) (vi) proviso (b) The Supreme Court held that the Revenue could under rule 33 assess of foreign company under any one of the three alternative methods provided therein. But if the Revenue chooses to follow the second method, then it should treat the assessee as a national company allowing all unabsorbed depreciation to the assessee.  The relevant pas­sage may be quoted.
"Our answer to the question re­ferred is that in computing total profits under the second method mentioned in rule 33 all unabsorbed depreciation has to be allowed and after profits are thus computed the proportion of total receipts against Pakistan receipts has to be applied to determine the profits for Pakistan."
19. The Supreme Court decided the ques­tion in a manner as to embrace the present point under consideration. The Revenue in the instant case followed the second method of rule 33. The assessee could claim initial de­preciation unless there is anything contrary in the Act. We do not find any statutory bar to a foreign assessee's claim in that regard. Hence the Tribunal was right in so far it allo­wed the three assessees' initial depreciation under s. 10(2)(vi) of the Act. We find no reason to interfere. All the three appeals are dismissed with costs.