Per Shri R. L. Sangani, Judicial Member - This appeal by the assessee relates to the assessment year 1976-77.
2. The assessee is a non-resident shipping company, incorporated in the United Kindgom. Prior to the assessment year 1976-77, the assessee was being assessed in accordance with the directions contained in Circular No. 7 [C. No. 27 (17)-IT/41], dated 10-2-1942-Taxmanns Direct Taxes Circular, Vol. 1. 1980 edn., p. 567 issued by the CBDT. That circular allowed a British shipping company to elect to be assessed on the basis of the ratio certificate granted by the UK authorities regarding the income or loss and the wear and tear allowance.
3. Section 44B of the Income-tax Act, 1961 (the Act) which was inserted in the Act, by the Finance Act, 1975, with effect from the assessment year 1976-77, made a special provision for computing profits and gains of shipping business in case of non-residents. The contention of the assessee before the ITO was that since the said circular had not been withdrawn by the CBDT it was binding on the assessing authorities, with the result that the assessing authorities were bound to follow the directions in the said circular for the assessment of the British shipping companies, even for the assessment year 1976-77, in spite of the insertion of section 44B in the Act, with effect from the assessment year. According to the assessee, provisions of section 44B would not be applicable, in view of the fact that the said circular had not been withdrawn. This contention was not accepted either by the ITO or the Commissioner (Appeals).
4. According to the Commissioner (Appeals), the CBDTs circular had laid down the manner of computing the income with a view to avoiding unnecessary disputes at a time when there was no statutory fixed mode of determination of such income. The circular had not been issued with the intent to override any statutory provision. Since specific provision for computation of income of non-resident shipping companies had been made by insertion of section 44B, the directions given in that circular could not be applied. He further observed that when the officer had the option to make assessment by one of the two modes, the directions given in the circular for adopting one of the two modes, the directions given in the circular for adopting one of the two modes in specific cases would be binding on the assessing authorities, but when, as here, there was no option to the assessing authorities in view of the insertion of the specific statutory provision, the directions in the earlier circular would not be applied. The assessee has now come in appeal before us and the main contention on behalf of the assessing authorities notwithstanding the insertion of section 44B. Reliance is placed on certain decision which shall be considered subsequently.
5. The contention on behalf of the department is that in view of the subsequent insertion of specific provision on the subject in section 44B, the circular in question should be deemed to have been rendered ineffective. He drew our attention to Circular No. 169, dated 23-6-1975-Taxmanns Direct Taxes Circulars, Vol. 2, 1980 edn., p. 500 and contended that the said circular should be deemed to have been rendered the previous circular ineffective.
6. We have consider the rival submissions and facts and record. We find that prior to coming into force of section 44B as well as the amendment to section 172 of the Act made by the Finance Act, 1975, the taxable profits of the foreign shipping enterprises were determined by suitably apportioning their profits between their Indian business and foreign business or on the basis of voyage accounts. Section 44B reads as follows :
'(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 an a half percent 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.'
7. Circular No. 7 of 1942 permitted a British shipping company to be assessed on the basis of ratio certificate granted by the UK authorities regarding income or loss and wear and tear allowance. Provisions of section 44B override the provisions of section 28 to 43A of the Act, which includes section 32 providing for depreciation allowance. Provisions of section 44B are applicable to all non-resident assesses engaged in the business of operation of ships. It does not make any distinction between a British company and any other non-resident company. That distinction has been provided in Circular No. 7 of 1942. But since special provision has been made for competitions of profit and gains of an assessee, who is non-resident and who; is engaged in the business of operation of ships, provisions of the earlier circular, which contained directions of an altogether different nature, must be deemed to have been superseded. Certainly, a circular issued by the CBDT would be binding on all officers and person in the execution of the Act, but no instruction of a circular can go against the provision of the Act. The CBDT can, no doubt, relax the rigour of existing law or grant relief which is not to be found in the term of the statute and such circulars would be considered as on the date of the circular. However, when specific statutory provisions is subsequently inserted in the Act, the earlier circular cannot override those provisions. In view of this legal position, we are unable to accept the contention of the learned counsel for the assessee to the effect that Circular No. 7 of 1942 would be binding on the assessing authorities even after insertion of section 44B by the Finance Act, 1975.
8. We, however, find that Circular, No. 169, dated 23-6-1975, contains elaborate directions regarding the manner in which the assessment of the non-resident assessees engaged in the business of operation of ships should be made alter insertion of section 44B in the Act and make the amendment to section 172 thereof. These instructions do not make distinction between a British shipping company and any other non-British shipping company. These instructions must be deemed to have superseded the earlier instructions contained in Circular No. 7 of 1942. Consequently, even if Circular No. 7 of 1942 may not have been withdrawn by an express direction to the effect, yet in view of the subsequent circular, it must be held to have been impliedly withdrawn.
9. The learned counsel for assessee invited our attention to provisions in section 297(2) (a) of the Act. It has been mentioned therein that notwithstanding the repeal of the India Income-tax Act, 1922 (the 1922 Act), any direction or instruction issued under any provisions of the repealed Act shall, so far as they are not in consistent with the corresponding under the provisions aforesaid and shall continue in force accordingly.
10. According to the learned counsel for the assessee, since Circular No. 7 of 1942 had been issued under section 5(8) of the Act, that circular continued to be in force after the 1961 Act came in force, because there was a corresponding provision for section 5(8) of the 1922 Act in section 119(1) in the 1961 Act. His further contention was that no subsequent amendment in the 1961 Act would render the said circular ineffective and that the only way in which the said circular could be rendered ineffective was by express withdrawal of the said circular.
11. We are unable to accept this contention of the assessee. As indicated by us, a circular can be withdrawn either expressly or by implication. When a new statutory provision is inserted in the Act, which is contrary to the directions given in circular issued prior to the insertion of the said provision, the circular in question must be deemed to have been withdrawn by implication. Consequently, in the present case, insertion of section 44B had the effect of rendering Circular No. 7 of 1942 ineffective.
12. We shall now consider three decisions on which strong reliance is placed by the learned counsel for the assessee. The first decision in that of Navnit Lal C. Javeri v. K. K. Sen : 56ITR198(SC) . What all that has been laid down in that decision is that the circular issued by the CBDT would be binding on all officer and persons in the execution of the 1922 Act under section 5(8). It does not lay down that such circulars would be binding even when a contrary provisions is made in the statues subsequently after the issue of the said circular.
13. The next decision on which reliance is placed on behalf of the assessee is that of Ellerman Lines Ltd. v. CIT  82 ITR 931 . It is necessary to give factual background of that case in order to understand the ratio of that decision. Under rule 33 of the India Income-tax Rules, 1922 (the 1922 Rules) there were three alternate basis on which the income of non-resident shipping company could be computed for levy if income-tax in India. The first was on the basis of such percentage of the turnover as the ITO might consider reasonable; the second was on the basis of an amount which more the same proportion to the total profits of the business as the receipts so accruing or arising bore to the total receipts of the business; the third basis was such other manner as the ITO may deem suitable.
14. The Supreme Court in that case held that the computation of profits in the case had been made on the basis of the third alternative given in rule 33. The Court observed that while making assessment on that basis, the ITO was bound to follow instructions contained in the circular to the effect that since after the issue of the said circular, a proviso had been added to section 10(2) (vi-b) of the 1922 Act, the instructions need not be strictly complied with. The Court observed that, in the circumstances of the case, the fact that proviso to section 10(2) (vi-b) was incorporated in the 1922 Act, after the CBDT had issued its instructions, did not affect either the validity of rule 33 or the instructions issued by the CBDT. The reason given by the Supreme Court in this observation was that neither rule 33 nor the instructions issued by the CBDT were strictly in accordance, with section 10(2); they merely laid down certain just and fair methods of an approach to difficult problem.
15. It would, thus, by seen that even after the insertion of that provision rule 33 still remained in force and that rule still gave option to the ITO to make assessment in the circular of the CBDT pertained to the mode of assessment in rule 33. There was no amendment in rule 33 so as to render the Supreme Court held that the addition of proviso did not affect either the validity of rule 33 or the force of the instructions. It may be notes rigour of the law as was in force at that time and to simplify the otherwise complicated task of assessment of profits of non-resident shipping companies. There was nothing in the subsequently added provisions which rendered the assessment in accordance with rule 33 nugatory.
16. The aforesaid decision of the Supreme Court is of no assistance in the present case. This is became the provision contained in the subsequently inserted section 44B of the 1961 Act was materially inconstant with the method prescribed in rule 33 of the 1922 rules. On account on the said provision, three alternate modes of assessment came to an end. In these circumstances, Circular No. 7 of 1942 cannot have effect after insertion of section 44B in the Act.
17. The third decision on which reliance is placed is that of K. P. Varghese v. ITO : 131ITR597(SC) . It was laid down in that decision that the two circulars of the CBDT issued on 7-7-1964 and 14-1-1974 explaining the scope and object of section 52(2) of that Act were binding on the department in the administration and implementation of section 52(2). It was observed :
'... These two circulars ... are, as well shall presently point out, binding on the tax department in administering or executing the provision enacted in sub-section (2), but quite apart from their binding character, they are clearly in the nature of contemporanea expositio furnishing legitimate aid in the construction of sub-section (2) ...' (p. 612)
This decision is no authority for the proposition that an earlier circular is binding on the assessing authorities, even after a contrary provision is made in the Act by a subsequent amendment. Considering all the circumstances, we hold that profits of the assessee were liable to be determined in accordance with the provisions of section 44B.
18. In the result, the appeal fails and is dismissed.