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Rajkumar Mills Ltd. Vs. Commissioner of Income-tax, Central, Bombay - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 2 of 1966
Judge
Reported in[1976]103ITR92(Bom)
ActsIncome Tax Act, 1922 - Sections 4(1), 4(5) and 10(5)
AppellantRajkumar Mills Ltd.
RespondentCommissioner of Income-tax, Central, Bombay
Appellant AdvocateS.P. Mehta, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
(i) direct taxation - accrual of income - sections 4 (1), 4 (5) and 10 (5) of income tax act, 1922 - assessee entered into contracts with purchasers in british india - contract executed at indore - amounts received by bankers on behalf of assessee in british india - tribunal justified in holding that sale proceeds received in british india. (ii) place of payment - in case of payment by cheque determination of place of payment would depend upon agreement between parties or their course of conduct - where there is express agreement by creditor that amount be paid by cheque to be sent by post and it is so sent payment will be taken at place where cheque posted - in instant case there was oral agreement. - - the tribunal held that the course of conduct clearly showed that the cheques,.....kantawala, c.j. 1. at the instance of the assessee four questions are referred to us for our determination under section 66(1) of the indian income-tax act, 1922. questions nos. 1 to 3 out of these four questions relate to one set of facts and question no. 4 relates to the next set of facts. questions nos. 1 to 3 relate to the assessment years 1943-44 to 1946-47, for which the relevant previous years are calendar years 1942 to 1945. the first set of three questions relates to the application of section 4(1)(a) of the act. these questions refer to the receipts of certain sale proceeds as given below : ---------------------------------------------------------------------assessment sale proceeds to which section 4(1)(a)years has been.....
Judgment:

Kantawala, C.J.

1. At the instance of the assessee four questions are referred to us for our determination under section 66(1) of the Indian Income-tax Act, 1922. Questions Nos. 1 to 3 out of these four questions relate to one set of facts and question No. 4 relates to the next set of facts. Questions Nos. 1 to 3 relate to the assessment years 1943-44 to 1946-47, for which the relevant previous years are calendar years 1942 to 1945. The first set of three questions relates to the application of section 4(1)(a) of the Act. These questions refer to the receipts of certain sale proceeds as given below :

---------------------------------------------------------------------

Assessment Sale proceeds to which section 4(1)(a)

years has been applied

---------------------------------------------------------------------

(a) (b) (c)

---------------------------------------------------------------------

Realisations by Sales to British Indian Sales to Textiles

cheques & drafts merchants. Sale proceeds Directorate

(see para. 5 infra by cheques, etc., on

for details) British Indian banks

---------------------------------------------------------------------

Rs. Rs. Rs.

1943-44 16,03,437 23,834 4,93,879

1944-45 17,91,959 4,26,681 17,33,334

1945-46 19,828 1,26,172 25,12,274

1946-47 - 4,69,496 15,02,814

----------------------------------------------------------------------

Question No. 1 is in reference to the figures which are set out in column (a) of the above table and is as under :

'Whether, on the facts of this case, the sums of Rs. 16,03,437, Rs. 17,91,959 and Rs. 19,828 were received by the assessee in British India so as to justify assessment under section 4(1)(a) of the profit included therein for the assessment years 1943-44 to 1945-46 ?'

2. The relevant facts for determination of this question are as under :

3. The assessee is a public limited company incorporated in the then State of Indore. It owned and ran a textile mill at Indore. During the relevant years the assessee was assessed to tax under the Act in the status of a non-resident. Under section 4(1) of the Act non-residents are assessable either on income accruing or arising in what was then known as British India or on income which was received in British India. For this question, assessment is made only on the basis of receipt of income in British India by applying the provisions of section 4(1)(a). This income has arisen out of transactions, an analysis of which can be given in the following form :

1943-44 1944-45 1945-46 1946-47

Rs. Rs. Rs. Rs.

1.(a) Realisation by drafts,

cheques, hundies and sending

them through along with

Invoice and R.R. for

collection (without the

intermediary of reports) 6,85,192

(b) Sales to Br. Indian

merchants on behalf of native

State parties to whom delivery

was given after D.Ds. drawn on

the purchaser were realised by

the assessee's banks in Br.

India. 49,833

2. As in item No.(1)(a) above

(through brokers and

reporters) 6,31,133

3. Realisation through Br.I.

banks with which the company

had no accounts (without the

intermediary of reporters) 1,95,984

4. Sales of overseas merchants

against Letters of Credit in

Bombay T.T. and against R.R.

through central Bank, Bombay 41,295

5. Realisation by draft

through Bank of Indore, with

which the company had account,

for collection against

delivery of goods. - 17,91,759 19,828 -

--------------------------------------

16,03,437 17,91,759 19,828 -

--------------------------------------

4. With regard to the items (other than item 1(b) totalling Rs. 16,03,437, Rs. 17,91,759 and Rs. 19,828, the assesses-mill entered into contracts with the purchasers who were in British India. The contracts were executed at Indore. The goods were appropriated at Indore with the consent of the purchasers and put on rail for transmission to the buyers. The contracts with each of the buyers were in the same form with the only difference as to quantity and other similar particulars. Clause 5 of the contract provided as under :

'That the delivery to be given to me/us against full payment : the delivery documents including railway receipts, etc., to be sent to me/us by V.P. Post, or through some Bank as I/We may direct, all Banking or remittance charges and Hundawan will be borne by me/us. In case I/We arrange to pay up the full amount of the goods in advance, you will at my/your request send the R.R. under registered post, direct to the party at my/our risk and account.'

5. The bills in respect of these contracts were forwarded with a note to the forwarding letter reading as under :

'The payment ought to be made immediately at Indore in cash. As a special consideration draft drawn on any bank at Indore could be accepted.'

6. In spite of this note in the forwarding letter the purchasers paid the amounts only by cheques, drafts or hundies. The cheques were encashed in the manner indicated in the table given above. So far as item No. 4 in the table above was concerned payments were received from overseas merchants. In those cases the overseas merchants opened letters of credit in favour of the assessee with the National Bank of India Ltd., Bombay, for payment by T.T. or against R.R. through the Central Bank, Bombay. The assessee has operated these accounts in Bombay so that the amounts may be at its disposal in British India. Regarding the sums of Rs. 17,91,759 and Rs. 19,828 relevant for the assessment years 1944-45 and 1945-46, the contracts and forwarding notes were similar to those for 1943-44 and the sale proceeds were realised from merchants in British India by drawing demand drafts and sending them to the assessee's bankers at Indore along with the invoices and R.R. for collection against delivery of goods.

7. In all these cases the Income-tax Officer held that the profits imbedded in the sale proceeds were received in British India and were liable to payment of Income-tax. On an appeal by the assessee before the Appellate Assistant Commissioner, he held that the sale proceeds above referred to were received only in British India. These orders of the taxing authorities were confirmed in second appeal by the Tribunal. It was urged on behalf of the assessee before the Tribunal that in respect of items 1 and 2 given in the above table, railway receipts were sent by the assessee along with the bills through certain banks with which the assessee had accounts. Those banks were chosen by the customers who had paid the collection charges. With reference to item 3 it was contended that the assessee had no accounts with the said banks and that, therefore, there was no agency for collection. Regarding item 4, it was urged that under the terms of the contracts the payments were to be made in Indore. Regarding item 5 it was urged that the amounts were received only from the Bank of Indore at Indore and the receipt of the sale proceeds was, therefore, at Indore and not in British India. These contentions on behalf of the assessee were rejected by the Tribunal and it was held that in all these cases, the amounts were assessable under section 4(1)(a). With reference to categories 1 and 2 it was held that the assessee had sent the documents to its own various bankers in the taxable territories; that the bank collected the amounts only in British India and that the point of time of such collections in British India, the sale proceeds had been received. With reference to category 3 it was held that in pursuance of the assessee's instructions to British Indian bankers to remit the proceeds to Indore the amounts were sent over to Indore; that no evidence had been led in to show that it was only at the request of the customer the bank collected the bills and remitted them to Indore and that the bank collected the sale proceeds for the assessee. With reference to category No. 4 in respect of transactions with overseas merchants, the sale proceeds were held to be in British India because their letters of credit were operated by the assessee in Bombay. Regarding category 5, it was held that the assessee was unable to prove, in spite of opportunity being given therefor that the bakers purchased these bills and thereby became holders in due course. On the assessee received the bills only for collection as the assessee's agent.

8. As regards this question Mr. Mehta on behalf of the assessee contended that as under the contract delivery was to be given against payment and as in the note to the forwarding letter it was stated that the payment should be made immediately at Indore in cash or as a special consideration a draft drawn on any bank at Indore could be accepted, the submission was that the sale proceeds cannot be regarded as having been received in British India. He submitted that in view of these express terms in the contract even though moneys were received by bankers in British India they could not be regarded as having been received by such bankers in British India as the agents of the assessee.

9. Under section 4(1)(a) of the Act subject to the provisions of the Act, the total income of any pervious year of any person includes all income, profits and gains from whatever source derived which are received or are deemed to be received in the taxable territories in such year by or on behalf of such person. It cannot be disputed that in each one of these cases the amounts were actually received by the bankers on behalf of the assessee in British India and if that was so, it was the first receipt and notwithstanding the provisions of the terms of the contract or of the note in the forwarding letter as the receipt was in India the Tribunal was justified in holding that such sale proceeds were received in British India. This question was not given up but the arguments were almost lukewarm. In our opinion, the Tribunal on the facts found was justified in taking the view that the receipt of the sale proceeds in respect of all these transactions was in the taxable territories and subject to tax for the relevant assessment years.

10. Question No. 2 relates to sale proceeds in respect of sales to British Indian merchants received by cheques, etc., on British Indian Banks. The question that is referred to us for our determination is : whether on the facts of this case the sums shown in column (b) of the table above referred to were received in British India so as to justify application of section 4(1)(a) to the profit included therein.

11. In respect of all these sales the contracts and forwarding letters were similar to those which were referred to earlier. The sales were effected in Indore. In all these cases the sale proceeds were received by cheques, drafts or hundies on British Indian bankers. Such cheques, etc., were sent by post by the British Indian merchants to the assessee at Indore. The assessee in turn sent back those cheques to its bankers in British India for realisation.

12. The Income-tax officer with regard to these items held that they were received as sale proceeds in British India. In an appeal by the assessee before the Appellate Assistant Commissioner, it was contended on its behalf that the sale proceeds could not be taken as received in British India as immediately on the receipt of such cheques, etc., the bank was debited and the debtor was credited with the amount of the said cheques. It was submitted on behalf of the assessee that such cheques were received in Indore in absolute and final payment by way of unconditional discharge. The Appellate Assistant Commissioner accepted the contention of the assessee and held that the sale proceeds were received by the assessee at Indore as the cheques were received as absolute and final payment by way of unconditional discharge. In an appeal by the revenue before the Tribunal it was urged on behalf of the revenue that the Appellate Assistant Commissioner was in error in taking the view that the sale proceeds were received by the assessee at Indore. The Tribunal found as a fact that the provisions contained in the contract and in the note to the forwarding letter were not adhered to by the contracting parties, namely, the assessee and the merchants, as they had adopted other modes for making payment. The Tribunal held that the course of conduct clearly showed that the cheques, drafts and hundies were received through post; that there was no agreement to pay the moneys in Indore. The Tribunal accordingly found that the cash could not be regarded as having been covered by the decision of the Supreme Court in the case of Patney & Co. but was governed by the decision of the Supreme Court in Commissioner of Income-tax v. Ogale Glass Works and by a decision of this court in Commissioner of Income-tax v. Indore Malwa United Mills Ltd. Accordingly, the Tribunal held that the sale proceeds were liable to be taxed under section 4(1)(a).

13. The contention of Mr. Mehta on behalf of the assessee was that under the terms of the contract delivery was against payment; that in the note to the forwarding letter it was clearly stated that payment ought to be made immediately at Indore in cash or by drafts drawn on any bank in Indore. He, therefore, submitted that as the cheques, drafts and hundies were received by the assessee at Indore, the sale proceeds were received at Indore; that even though such cheques, drafts and hundies may have been sent by post, it cannot be regarded that the post office was the agent of the assessee as there was no stipulation in the terms of the contract; that as in the note to the forwarding letter it was clearly stated that payment ought to be made immediately at Indore in cash or by draft drawn on any bank in Indore, the post office in any event must be regarded as agent of the purchaser and not of the assessee. He strongly relied upon the decision of the Supreme Court in the case of Patney & Co., the decision of this court in Commissioner of Income-tax v. New Jehangir Mills Ltd., the decisions of the Gujarat High Court in Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax and in Amarsinhji Mills Ltd. v. Commissioner of Income-tax. His submission was that there was no evidence to show that the assessee expressly or by necessary implication permitted the purchasers to send money by cheques, demand drafts or hundies through post office and therefore there was no warrant whatsoever for taking the view the post office was the agent of the assessee company at the place where the cheques, demand drafts and hundies were posted. The principles which govern cases where payment is received by cheques, demand drafts or hundies are well-settled in view of the decisions of the Supreme Court in Ogale Glass Works' case, Commissioner of Income-tax v. Kirloskar Bros. Ltd., and in Shri Jagdish Mills Ltd. v. Commissioner of Income-tax. In these cases the Supreme Court has laid down the following propositions :

(a) when payments is received by cheque the receipt is at the time when the cheque is delivered and not when it is encashed. This would be so even if in the instance provided it is not honoured subsequently on presentation;

(b) If the cheque is sent by post the receipt would be at the place where the cheque is posted provided the mode of sending it by post is adopted at the express or implied request of the addressee, in such case the post office being the agent of the addressee; otherwise the receipt would be at the place where the cheque is delivered by the post office to the addressee;

(c) having regard to business, a request to make payment by cheque may in itself imply a request to send it by post, while a request to remit the amount would be tantamount to an express request to send it by post.

14. The terms of the contract clearly provided that delivery will be effected to the purchaser against full payment and the foot-note to the forwarding letter pointed out that the payment ought to be made immediately at Indore in cash; as special consideration draft drawn on any bank at Indore could be accepted. It should be pointed out that the mode prescribed in the note to the forwarding letter has been completely discarded and disregarded. None of the purchasers effected payment in cash at Indore, nor any payment by sending a draft drawn on any bank at Indore, nor such payment was insisted by the assessee in any one of these cases. In fact, the assessee accepted cheques, drafts and hundies drawn on banks in British India and forwarded through post from taxable territories. Such course of conduct was consistent in respect of all the transaction. The Tribunal in its order has held that the case under question No. 2 is directly covered by the decision of this court in the case of Commissioner of Income-tax v. Indore Malwa United Mills Ltd., which has been confirmed in appeal by the Supreme Court and the decision of the Supreme Court is reported in : [1966]59ITR738(SC) Indore Malwa United Mills Ltd. v. Commissioner of Income-tax. In this case the assessee, Indore Malwa United Mills Ltd., had offices at Bombay and Indore and a textile mill at Indore, within the native State of Indore outside British India. The assesses-mill supplied textile goods on orders placed by the stores department of the Government of India. The orders were placed with the assessee at Indore and accepted at Indore. Condition 9 relating to payment of orders of one type provided :

'Unless otherwise agreed to between the parties, payment for the delivery of the stores will be made on submission of bills in the prescribed form in accordance with the instructions given in the acceptance of tender by cheque on a Government Treasury in British India or on a branch in British India of the Reserve Bank of India or the Imperial Bank of India transacting Government business.

15. The delivery of the goods was to be f.o.r. Indore. After the special inspecting officer posted at Indore issued the inspection certificate the goods were sent by rail, the railway receipts being made out in the name of the representative of the Government to whom the goods were to be despatched. Bill were prepared by the assessee in the prescribed form and submitted to the Controller of Supplies, New Delhi. The direction for payment of the bills read : 'Please pay by cheque to self on bank at Indore'. For the amount of the bills the Government of India drew cheques in favour of the assessee on the Reserve Bank of India and these cheques were sent by post to the assessee at Indore, the cheques were deposited in the account of the assessee with the Imperial Bank of India, Indore, and on clearance of the cheques the amount was credited to the account of the assessee. The Appellate Tribunal following the decision of the Bombay High Court in the case of Kirloskar Bros. Ltd., which was later reversed by the Supreme Court in its decision reported in : [1954]25ITR547(SC) - Commissioner of Income-tax v. Kirloskar Bros. Ltd., held that as the assessee unconditionally received the cheques at Indore, the income was received at Indore. The point whether the post office was the assessee's agent was not considered by the Tribunal. The question referred by the Appellate Tribunal to the High Court was 'whether the assessee-company was liable to pay tax in the taxable territories on the ground that the sale proceeds, which included the profit element therein, were received in the taxable territories ?' It was contended on behalf of the Commissioner before the High Court that as the cheques were posted at Delhi in pursuance of a request from the assessee the income was received at Delhi and was, therefore, assessable to tax. The High Court by a majority decision held that the assessee was liable to pay tax in British India as the sale proceeds, which included the profit element therein. The Division Bench of this court cited a passage from the decision of the Supreme Court in the case of Ogale Glass Works. The passage runs as under :

'The engagement of the Government was to make payment by cheques. The cheques were drawn in Delhi and received by the assessee in Aundh by post. According to the course of business usage in general to which, as part of the surrounding circumstances, attention has to be paid, under the authorities cited above, the parties must have intended that the cheques should be sent by post which is the usual and normal agency for transmission of such articles and according to the Tribunal's findings they were in fact received by the assessee by post.'

16. Reference was made by the High Court in Shri Jagdish Mills Ltd.'s case, where their Lordships observed that when an implied request by the creditor to send the cheque by post can be spelt out from the facts and circumstances of the case, the post office would be constituted the agent of the addressee for the purposes of receiving such payment. It cannot be disputed that none of the sale proceeds covered by the questions were received in the manner indicated by the terms of the contract or the note at the foot of the forwarding letter. In fact the various purchasers made payments by cheques which were drawn on the British Indian banks and such cheques were without any demur accepted by the assesses-mill when they were received through post. Thus, it is quite clear that by necessary implication the assessee mill permitted the purchasers to send cheques, drafts or hundies by post and an implied request on the part of the assessee to send them by post was made. When such is the case, the post office is the agent of the assesses-mills and as the cheques, drafts and hundies were received by the post office in a taxable territory, the Tribunal was justified in holding that such amounts were received in the taxable territories by the assesses-mills.

17. The decision of the Bombay High Court in Indore Malwa United Mills Ltd.'s case has been affirmed by the Supreme Court as stated above and it is stated :

'We are satisfied that the post office was the agent of the assessee for the purpose of receiving the cheques representing the sale proceeds and the assessee received the sale proceeds in British India where the cheques were posted, and consequently, the profits in respect of the sales were taxable under section 4(1) (a).'

18. Referring to the cases relied upon by Mr. Mehta, the first case which will have to be considered is the case of Commissioner of Income-tax v. Patney & Co. The Supreme Court in this case has taken the view that in the case of payment by cheque sent by post the determination of the place of payment would depend upon the agreement between the parties or the course of conduct of the parties. If it is shown that the creditor authorised the debtor either expressly or impliedly to send a cheque by post the property in the cheque passes to the creditor as soon as it is posted. If there is an express request by the creditor that the amount be paid by cheque to be sent by post and it is so sent the payment will be taken to be at the place where the cheque is posted. However, upon the facts of the case, it appears that there was an oral agreement whereby it was decided that the commission to be paid to Messrs. Patney & Co. Ltd., Secunderabad, the agent company in Hyderabad State at Secunderabad, in cash or by cheque, as the case might be. Thus, the payment either in cash or by cheque was to be made under the agreement at Secunderabad and, therefore, the principle laid down by the Supreme Court in Ogale Glass Works' case was not made applicable. Similarly, on facts in the other decisions of the High Court relied upon by Mr. Mehta, the view taken was that the post office was not an agent of the assessee. We, therefore, need not refer in detail to the decision of the Bombay High Court in New Jehangir Vakil Mills Ltd.'s case and the decisions of the Gujarat High Court in Petlad Turkey Red Dye Works Co. Ltd.'s case and in Amarsinhji Mills Ltd. v. Commissioner of Income-tax. In each one of these cases the principles which were laid down were applied having regard to the facts of each case and the decisions were taken.

19. This taken us to the third questions which has been referred to us for our determination and it is as under :

'Whether, on the facts of this case, the sale proceeds shown under column (c) of the table (sales to Textile Directorate) were received in British India so as to justify the application of section 4(1)(a) to the profits included therein ?'

20. In respect of this question the relevant transactions were with the Government, that is, the Textile Directorate. The sales were made under identical conditions for all the years. There were two systems by which the sales were effected and the two systems are :(1) tender system and (2) panel system. Under the tender system, the assessee-company submitted tenders in certain prescribed forms. These tenders were accepted by the Government. Under the panel system the requirements of the Government were allocated by an officer working under the Textile Control Regulations between the several textile units. The assessee as one of these units had to supply the goods in accordance with the allocations. In these cases, therefore, there was no tender by the assessee and the allocations where only in the nature of orders from the Government. One of the conditions under which the goods were supplied to the Government was that the contractor must submit the bills in form W.S.B. 166 in duplicate using the prescribed forms. Clause 9 of the prescribed form related to payment and it provided as under :

'Unless otherwise agreed between the parties, payment for the delivery of stores will be made on submission of bills in the prescribed form in accordance with the instructions given in the acceptance of tender by cheque on a Government Treasury in British India or on a branch in British India of the Reserve Bank of India or the Imperial Bank of India transacting Government business.'

21. Arrangements were made by the Government for inspection of the goods at the factory premises of the assessee by a special officer posted at Indore. After the goods were ready for delivery, the inspecting officer was informed and he attended the factory premises, inspected the goods and issued an inspection certificate. The goods were sent by rail from Indore and the Rs. were made out in the name of the representative of the Government to whom the goods were directed to be despatched. Bills were prepared in the form prescribed by the Government and sent to the Controller of Stores, New Delhi. The direction for payment in the said form ran as follows :

'Please pay by cheque to self on the Imperial Bank at Indore'.

22. The cheques drawn by the Government were posted from British India and the amount were duly credited to the account of the Controller of the Appellate Assistant Commissioner held that the sale proceeds were received in British India and brought the proper profits to tax under section 4(1)(a). The Tribunal considered it necessary to ask for a report and after receipt of the report held that this was a case where there was an implied request by the assessee to send the cheques by post and as there was nothing to show that the cheques were expected to be delivered by hand, the post office was the agent of the assessee for the purpose of receiving such payment.

23. Before us Mr. Mehta has not seriously challenged the finding of the Tribunal especially in view of the decision of this High Court and of the Supreme Court in Indore Malwa United Mills Ltd.'s case. Actually, the receipts from Government under the tender system or the panel system were clearly governed by the ratio of the decision of the Supreme Court and of the Bombay High Court in Indore Malwa United Mills Ltd.'s case and the Tribunal was justified in holding that the post office was the agent of the assessee so that the receipt has taken place at a place where the cheque meant for the assesses-mills was posted. Thus, the amount of the sale proceeds in respect of the contract with the Government was actually received in British India because pursuant to a request of the assesses-mills the cheques were posted in British India. Thus, Mr. Mehta has not seriously controverted the finding of the Tribunal and, accordingly, our answer to question No. 3 above is in the affirmative.

24. This takes us to question No. 4 which relates to a separate set of facts. This question is reference to written down value for calculating of depreciation and the question referred to us is as under :

'Whether, on the facts and in the circumstances of the case, on a proper interpretation of section 10(5)(b), the written down value for calculating depreciation should be calculated by taking the original cost less (a) depreciation referable to the proportionate profit taxed in the taxable territories for the assessment years 1939-40 to 1942-43 or (b) the total depreciation in arriving at the world profit of which a proportionate part was taxed in the taxable territories ?'

25. The assessee's contention before the Tribunal was that in calculating the written down value depreciation referable to the proportionate profit taxed in the taxable territories for the assessment years 1939-40 to 1942-43 should be deducted and not the total depreciation in arriving at the world profits. That contention of the assessee was rejected by the Tribunal and the Tribunal accepted the plea urged on behalf of the revenue and deducted the total depreciation in arriving at the world profits for calculating the written down value for the relevant assessment years.

26. Before us Mr. Mehta on behalf of the assesses-mill contended that now this question can be regarded as having been concluded by a decision of the Supreme Court in Commissioner of Income-tax v. Nandlal Bhandari Mills Ltd. He submitted that the majority decision taken by the Supreme Court in this case clearly shows that the view taken by the Tribunal is erroneous. On the other hand, Mr. Joshi, on behalf of the revenue, contended that the decision in Nandlal Bhandari Mills Ltd.'s case ought not to be followed because in that case the Supreme Court had occasion to consider the provisions of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, with which we are not concerned. If regard be had to the ratio of this decision it is quite apparent that question No. 4 is concluded by the decision of the Supreme Court in this case. It is made clear at more than one place in the judgment of the Supreme Court that the court was really concerned with the question of the amount that will be allowed to the assessee towards depreciation under the Income-tax Act during the years up to and inclusive of the year 1944. Up to the year 1944 the mills were not situate within the taxable territories, as they were at Indore. The court considered the provisions of section 10(5)(b) as well as rule 33 of the Income-tax Rules, 1922, and clearly laid down that in fixing the depreciation allowance for the years in which the respondent (the assesses-mills) was assessed as a non-resident under the Indian Income-tax Act, the Income tax officer had actually allowed only a portion of the amount towards depreciation allowable in assessing its world income. The mere fact that in the matter of calculation the total amount of depreciation was first deducted from the world income and thereafter a proportion was struck did not amount to an actual allowance of the entire depreciation in ascertaining the taxable income that accrued in British India. Therefore, the depreciation deducted in arriving at the taxable income alone could be taken into account and not the depreciation taken into account for arriving at the world income. This ratio fully governs the facts of the present case and the question referred to us in view of this decision shall have to be answered in favour of the assessee as under :

27. On a proper interpretation of section 10(5)(b) the written down value for calculating depreciation should be calculated by taking the original cost less depreciation referable to the proportionate profits taxed in the taxable territories for the assessment years 1939-40 to 1942-43.

28. As both the assessee and the revenue have partly succeeded in this reference, the fair order as to costs will be that each party will bear its own costs.


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