Anchor Line Ltd. Vs. Income-tax Officer - Court Judgment

Excerpt:
1. these two appeals are by the assessee against the order of the c.i.t. (appeals) for a.ys. 1982-83 & 1983-84.2. the first ground claiming non-application of section 44-b is covered against the assessee by the tribunal decision in anchor line ltd. v.ito [1984] 10 itd 63 (bom.) and in ita nos. 2679 & 2680 (bom.)/84 and 2695 & 2696 (bom.)/84 dated 10-7-1987.3. the alternative contention of the assessee before us at the time of hearing was that the unabsorbed losses of the earlier years have not been set off against the income of these two years. there is no discussion on this point in the assessment order of the income-tax officer. the c.i.t. (appeals) rejected the claim of the assessee by following his earlier order. this point also seems to be covered by the tribunal order.....

Judgment:
1. These two appeals are by the assessee against the order of the C.I.T. (Appeals) for A.Ys. 1982-83 & 1983-84.

2. The first ground claiming non-application of Section 44-B is covered against the assessee by the Tribunal decision in Anchor Line Ltd. v.ITO [1984] 10 ITD 63 (Bom.) and in ITA Nos. 2679 & 2680 (Bom.)/84 and 2695 & 2696 (Bom.)/84 dated 10-7-1987.

3. The alternative contention of the assessee before us at the time of hearing was that the unabsorbed losses of the earlier years have not been set off against the income of these two years. There is no discussion on this point in the assessment order of the Income-tax Officer. The C.I.T. (Appeals) rejected the claim of the assessee by following his earlier order. This point also seems to be covered by the Tribunal order wherein the directions were given to allow loss/depreciation in accordance with law. The learned counsel of the assessee, however, brought to our notice that the Tribunal in a latter decision in the case of Tino Kauin Kaisha Ltd. v. ITO [1988] 26 ITD 326 (Bom.) wherein it was held that even the depreciation would be allowable to be carried forward and set off irrespective of the provisions of Section 44B provided that it was set off within 8 years like any other business loss and therefore, a clear direction to allow the loss including the depreciation should be given. The learned departmental representative, on the other hand, drew our attention to the Calcutta High Court decision in the case of Universal Cargo Carriers Inc. v. CIT[1986] 26 Taxman 669 and contended that the depreciation is prohibited to be allowed because of non obstante provisions under Section 44B. The learned counsel of the assesses however, replied that depreciation is essentially a pan of the business loss and this aspect on which the Tribunal had allowed the depreciation to be carried forward and set off has not been considered by their Lordships of the Calcutta High Court. The Tribunal order, according to him, was based on the decision of the Bombay High Court in the case of Ambika Silk Mills Co. Ltd. v. CIT [1952] 22 ITR 58 at p. 65. He, therefore, contended that a contrary view should not be taken in these appeals. We agree with the contention of the assessee. The Tribunal's decisions having been based on the verdict of jurisdictional High Court whereby depreciation is treated to be a business loss, we direct the Income-tax Officer to allow the business loss and unabsorbed depreciation of earlier years in accordance with the provisions of Section 72 as a business loss subject to the limitation that it could not be allowed to be carried forward and set off beyond the period of 8 years prescribed under Section 72.

1. While agreeing in entirety with the conclusion arrived at by my learned brother vis-a-vis ground No. 2 taken by the assessee-appellant before the Income-tax Appellate Tribunal, I will like to supplement our reasoning in the following terms.

2. Chapter IV in the Income-tax Act, 1961 deals with the topic,'computation of total income'. Subject matter of charge to income-tax under the provisions of the Income-tax Act, 1961 is 'total income'. This has been defined in Section 2(45) to mean the total amount of income referred to in Section 5, computed in the manner laid down in the Act. 'Income' has also been defined in Section 2(24). This means that expressions 'income' and 'total income' have been defined in different contexts and the subject matter of charge is not the 'income' but the 'total income'. Chapter IV-D deals with the topic 'profits and gains of business or profession'. It is comprised over Sections 28 to 44D. Section 44B speaks of 'special provision for computing profits and gains of shipping business in the case of non-residents'. This was brought on the statute book by insertion by Finance Act, 1975 with effect from 1-4-1976. This section reads as under:- 44B. (1) Notwithstanding anything to the contrary contained in Sections 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of ships, a sum equal to seven and a half per cent of the aggregate of the amounts specified in Sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession." (2) The amounts referred to in Sub-section (1) shall be the following, namely:- (i) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India; and (ii) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India.

3. The section starts with the words, 'notwithstanding anything to the contrary contained in Sections 28 to 43 A....' This means that in computing profits and gains of shipping business in the case of a non-resident, Sections 28 to 43 A stand excluded insofar as these are 'contrary' to the text as is found in Section 44B.Section 44B lays down a formula, a measure for working out the aggregate of amounts which shall be deemed to be, 'profits and gains of shipping business in the case of a non-resident' and which shall be subjected to charge to tax under the head 'Profits and gains of business or profession'.

Now profits and gains of business or profession is not 'total income' butis'income' and Section 2(24)(i) speaks of, 'income includes, (i)profits and gains'; So far so good, so the natural inference from the reading of Section 448, Section 4, Section 2(24) and 2(45) is that under Section 44B a measure has to be arrived at to work out and compute profits and gains of shipping business in the case of anon-resident and that is all.

Since,as mentioned above, the opening words of Section 44B, exclude anything 'contrary' contained in Sections 28 to 43A of the Act, computation under Section 44B has to be taken as net-profits and gains and deductions provided for under Sections 28 to 43A do not come into play. The net result is that under Chapter IV-D the measure of computation provided in Section 44B becomes the net but other Chapters in the Apt do not stand excluded. Naturally Chapter VI of the Act, which deals with the, topic, 'aggregation of income and set off or carry forward of loss' has to be taken note of and these previsions do not get excluded, 4. 'Set off, or carry forward and set off has been discussed in Sections 70 to 80 of the Act and in this view of the matter, these provisions have to be applied in the case of a non-resident also when profits and gains of shipping business is computed as is provided for in special provision - viz. Section 44B of the Act. We hold and direct accordingly. As held by my learned brother in his proposed order, the appeals stand allowed partly.