Judgment:
Dipak Kumar Sen, J.
1. M/s. Shinwa Kaium Kaisha Ltd., the assessee, is a non-resident shipping company incorporated in Japan. The assessee was assessed to income-tax in India for the assessment year 1971-72, the corresponding accounting year ending on March 31, 1971. The Income-tax Officer computed the income received or deemed to be received in India by the assessee under Rule 10(ii) of the Income-tax Rules, 1962, the material part whereof is set out below :
' In any case in which the Income-tax Officer is of opinion that the actual amount of the income accruing or arising to any non-resident person whether directly or indirectly, through or from any business connection in India or through or from any property in India or through or from any asset or source of income in India... cannot be definitely ascertained, the amount of such income for the purpose of assessment to income-tax may be calculated :--...
(ii) on any amount which bears the same proportion to the total profits and gains of the business of such person (such profits and gains being computed in accordance with the provisions of the Act), as the receipts so accruing or arising bear to the total receipts of the business...'
2. The total income, i.e., world income of the assessee, computed at Rs. 4,18,771,188, was taken to be the total profits and gains of the assessee.
3. The total receipts of the business of the assessee was ascertained at Rs. 46,333,095,484 being only the receipts on account of freight. The receipts accruing or arising in India only on account of freight received or deemed to have been received in India was ascertained at Rs. 4,594,480,546. The proportion of the said two figures was applied to the total profits and gains of the assessee to arrive at the profits and gains assessable in India.
4. Being aggrieved, the assessee preferred an appeal before the Appellate Assistant Commissioner contending, inter alia, that in computing the total receipts of the business, the Income-tax Officer had excluded, inter alia, the additions following the adjustment of foreign currency, compensation received on account of general average and interest earned on discount. It was contended that the said items were included in the world profits of the assessee and held to be incidental to its shipping business. The assessee contended that the amounts constituting the said items should also be included in the total business receipts as otherwise the proportion calculated would be prejudicial to the interests of the assessee. It was held by the Appellate Assistant Commissioner that Rule 10(ii) of the Income-tax Rules, 1962, contained the expression 'receipts' and the expression should include the totality of receipts of the assessee's business both from shipping as well as from non-shipping sources and such non-shipping receipts could be held to have arisen or accrued in connection with the business of the assessee in India. The Appellate Assistant Commissioner found the assessment was inconsistent and he held that the Income-tax Officer having found that a part of the non-operating revenue having been included in the world profits, the same should have also been considered as part of the total receipts. He directed the Income-tax Officer to recompute the Indian income with reference to the world income afresh.
5. Being aggrieved, the Revenue preferred an appeal before the Income-tax Appellate Tribunal. It was held by the Tribunal that the world shipping profits of the assessee has been worked out with reference to the provisions of the Income-tax Act, 1961, and if the Income-tax Officer has included the same items in its world income in accordance with the provisions of the Indian statute, it must have been held that the said items form part and parcel of the business income. The Tribunal held that the items like general average, adjustment of foreign currencies and interest on discount earned in the course of business of shipping having been treated as part of the operating profits deserved to be taken into account as part of world receipts. The Tribunal upheld the order of the Appellate Assistant Commissioner directing the inclusion of the said items in the world receipts. To the extent as aforesaid, the appeal of the Revenue was rejected.
6. On an application of the Revenue under Section 256(2) of the Income-tax Act, 1961, the Tribunal, as directed by this court, has referred the following question as a question of law arising out of its order :
' Whether, on the facts and in the circumstances of the case and on a correct interpretation of the provisions of Rule 10(ii), the Tribunal was justified in holding that Yens 13,73,71,388 should be treated as part of the world receipts of the business and should be taken into consideration in working out the proportion under Rule 10(ii) of the Income-tax Rules, 1962?'
7. Learned advocates for the parties reiterated the respective contentions made in the proceedings below. Our attention was drawn to Rule 10(ii) of the Income-tax Rules, 1962.
8. It appears to us that the expression 'receipt' has not been defined in the Act but the meaning of the expression 'receipt', in our view, has been made clear in various sections of the Act as noted hereafter :
'Sections.--(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Explanation 1.--Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance-sheet prepared in India.
Explanation 2.--For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.
Section 9.--(1) The following incomes shall be deemed to accrue or arise in India-
(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through or from any money lent at interest and brought into India in cash or in kind or through the transfer of a capital asset situate in India;
Explanation.--For the purposes of this clause-
(a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India ;
(b) in the case of, a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export.'
9. We have noted the material provisions of Rule 10(ii) earlier:
From a plain reading of the relevant statutory provisions, it appears to us that the expressions 'accrued' or 'arisen' or 'received' or 'deemed to be received' have been used in the Act and they must be given their plain meaning in the absence of any particular definition.
10. We are unable to appreciate the logic of the Income-tax Officer in confining the business receipts of the assessee only to freight. The other items like interest on discount, adjustment of currency and general average have obviously arisen in connection with the shipping business of the assessee and have been received or deemed to have been received by the assessee in its business and made assessable to tax. The formula laid down by Rule 10(ii) is only to determine as to which part of such total income has accrued or has arisen or is received or would be deemed to be received in India within the meaning of Section 5. Explanation 2 to Section 5(2), in our view, makes the matter absolutely clear. The items in dispute which have been held to be included in the total income of the assessee must necessarily be considered to be the receipts of its business.
11. For the above reasons, we answer the question referred in the affirmative and in favour of the assessee.
12. There will be no order as to costs.
Mukul Gopal Mukherji, J.
13. I agree.