Suhas Chandra Sen, J.
1. The Tribunal has referred under Section 256(1) of the I.T. Act, 1961, the following three questions to this court:
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to get depreciation allowance under Rule 5 of the Income-tax Rules, 1962, even in respect of ships which had formed part of the assessee's fleet for more than 20 years
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no profit chargeable to tax within the meaning of Section 41(2) of the Income-tax Act, 1961, in respect of any of the ships sold by the assessee could be included in the computation of the total profits and gains of the assessee's business under Rule 10(ii) of the Income-tax Rules, 1962
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in the computation of the total profits and gains of the assessee's business under Rule 10(ii) of the Income-tax Rules, 1962, the assessee was entitled to deduction of a loss under Section 32(1)(iii) of the Income-tax Act, 1961, in respect of the ships sold by the assessee '
2. This reference relates to the assessment years 1962-63 and 1963-64 for which the relevant previous years were calendar years 1961 and 1962. The assessee, a Danish company, was assessed in India as a non-resident in each of the above two assessment years. There was no dispute before the Tribunal that the assessments were completed under Rule 10(ii) of the I.T. Rules, 1962, namely, its assessable income in India was determined in the same proportion to its total profits and gains from shipping business as the receipts so accruing or arising in India bore to the total receipts of the business. According to this sub-rule, the ITO first determined the assessee's income from shipping business and then determined its income accruing or arising in India. In the assessment year 1962-63, the entire income from the shipping business was determined at a loss of Kr. 7,213,432 and in the assessment year 1963-64 at a loss of Kr. 12,696,025. According to the above sub-rule, such losses were to be determined in accordance with the provisions of the Act. There is also no dispute that the ITO did apply theAct, while determining the above losses, to various items. The dispute relates only to the application of the Act to the determination of the depreciation which was allowed to the assessee. The ITO, in this connection, worked out the written down value of its vessels by taking into consideration the fact that a particular vessel would not enjoy the allowance for more than 20 years, as according to Section 32(1)(i) of the Act read with Appx. I under Rule 5 of the said Rules, it was entitled to depreciation of 5% on its actual cost. The claim of the assessee, on the other hand, was that it was entitled to depreciation for 20 years under the Indian I.T. Acts, and it was irrelevant to find out when the vessel or ship was actually acquired. The ITO in the assessment year 1962-63 found that the assessee's four vessels whose original cost was Kr. 18,025,592 had been acquired more than 20 years before the assessment year under reference. According to him, therefore, they did not have any written down value and the assessee could not claim any depreciation. Rejecting the contention of the assessee, he disallowed the claim of depreciation of Kr. 901,279 on the above amount. Similarly, in the assessment year 1963-64, he disallowed the depreciation of Kr. 460,550 on the original cost of two vessels which was stated to be Kr. 9,211,008.
3. Besides the above, the ITO also found that the assessee had sold two vessels in the assessment year 1962-63 and four vessels in the assessment year 1963-64. Some of these vessels had also been acquired more than 20 years before the assessment years under reference. As already stated above, he was of the view that the written down values had to be worked out by deducting depreciation allowable in different years even though actually not allowed. On this basis, he brought to tax certain sums to profit, the details of which have been given in the orders of the ITO. The assessee had actually claimed certain losses as per its own working of the written down values which were disallowed by the ITO for two reasons, the first being same which was adopted for disallowing depreciation on the running vessels and the second being that the entire deficiency had not been written off in the assessee's books of account.
4. The assessee appealed to the AAC against the aforesaid orders passed by the ITO but the AAC confirmed the orders of the ITO.
5. The assessee appealed to the Tribunal. On behalf of the assessee strong reliance was placed in the case of CIT v. With Wilhelmsen Lines Ltd. (ITA No. 11628 of 1960-61) relating to the assessment year 1958-59 and also in the assessee's own case in the earlier assessment year 1964-65. The assessee contended that the question raised in this appeal before the Tribunal was concluded by the decisions of the Tribunal in the aforesaid cases.
6. The Tribunal, after a consideration of the submissions placed before it, was of the view that the assessee was entitled to depreciation for all the 20 years even if the vessels were purchased and brought into use earlier to that. According to the Tribunal, the expression ' written down value' in Section 43(6) of the Act, meant, in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under the various Indian I.T. Acts. In the opinion of the Tribunal, therefore, the ITO would not be within his rights to deduct more than the above amount or the 'depreciation allowable' to the assessee in working out the written down value as he had done in the present case in the two years under reference.
7. As regards the disallowance of claim under Section 32(1)(ii) of the Act as also taxing the entire sale proceeds as the profit of the assessee under Section 41(2), it was contended by the learned counsel for the assessee that if the written down value was worked out in accordance with the decisions referred to above, there would be no profit at all and the question of taxing any such amount would not arise. With regard to the additional reason given by the ITO, viz., that the deficiency had actually not been written off in the books of the assessee, he pointed out that the assessee could not write off more than the amount at which a particular vessel appeared in its balance-sheet. He submitted that the vessels 'Lalandia ', and 'Meonia' in the assessment year 1962-63 and vessels 'India' and 'Selandia' in the assessment year 1963-64 appeared at a cost of Kr. 1.00 each in the balance-sheet of the assessee which amounts had actually been written off. Similar was the case with other vessels. He pointed out that it was impossible for the assessee to write off any higher amount.
8. The Tribunal accepted the above contention of the assessee. In its opinion if the written down values of the vessels sold out were worked out in accordance with the principles laid down by the Tribunal in the two decisions cited above, as it had done, there would actually be losses on the sales and the question of assessing any profit would not arise. It, therefore, deleted Kr. 2,811,653 from the assessment year 1962-63 and Kr. 4,236,752 from the assessment year 1963-64.
9. As regards the additional reason for the disallowance of losses claimed on the vessels sold out also, the Tribunal agreed with the contention of the assessee that it could not write off more than the amount at which the respective vessels appeared in its balance-sheet. The reason for such lower valuation, the Tribunal pointed out, obviously, was that the company had been writing off the depreciation at a higher rate or for a longer period which would also show that the deficiencies had actually been writtenoff in earlier years which would also satisfy is not directly at least indirectly the condition laid down in the proviso to Section 32(1)(iii) that the deficiency should actually be written off in the books of account of the assessee. The Tribunal observed that the proviso did not lay down that such deficiency must be written off in the year in which the allowance was claimed. Looked at from either angle it appeared to the Tribunal that the assessee was entitled to claim a loss under Section 32(1)(iii) of the Act. It, accordingly, directed a further deduction of Kr. 822,719 for the assessment year 1962-63. The figure for the assessment year 1963-64 was not available on record. The Tribunal, therefore, directed the ITO to work it out and allow it from the total income of the assessee.
10. The case of CIT v. Wilh Wilhelmsen Lines Ltd. : 115ITR10(Cal) , and also the assessee's own case in the earlier assessment years, on which strong reliance was placed by the Tribunal, have now been disposed of by this court on reference. In the case of CIT v. Swedish East Asia Co. Ltd. : 127ITR148(Cal) , it was held that in a case where the assessee had not suffered any taxation at all in India during the war years from April, 1940, to December, 1945, no depreciation had been 'actually allowed' to it for those years and there was no question of the assessee enjoying double depreciation once in the computation of its world income and again in the computation of its Indian income in respect of the ships in question even though these ships might have been part of the world fleet of the assessee-company. It was held that in view of Sections 32, 34(3) and 43 of the I.T. Act, 1961, the Tribunal was right in its conclusion that the assessee was entitled to claim depreciation in respect of ships which had been on its fleet for more than 20 years.
11. This principle was reiterated in the case of the assessee for the earlier assessment year by this court in Income-tax Reference No. 430 of 1974, by a judgment delivered on April 28, 1980.
12. It has been contended on behalf of the Revenue that the case of the assessee in the earlier assessment year which has been decided by a Bench of this court is not conclusive as it is distinguishable on facts. It has been contended that in that case there was a clear finding that the ships, which had been on the fleet of the assessee, a non-resident shipping company, had not touched Indian ports during the war years, that is, from April 1940, to December, 1945, and were not allowed any depreciation for that period. The AAC found as a fact that the assessee had not suffered any tax in India at all for the period from April, 1940, to December, 1945, but relying on the instructions issued by the Central Board of Revenue under the Act of 1922, he held that the assessee was not entitled to any deprecia-tion, as the ships had been on its fleet for more than 20 years. The Tribunal, however, reversed the decision of the AAC in that case on a point of law: It has been argued that there is no finding similar to that in the case before us.
13. We are unable to accept this contention. The assessee's case before the ITO was that the assessee's first year of assessment in India was 1950-51 and the assessee was entitled to depreciation for its vessels for 20 years. It was argued that if the depreciation was calculated on the basis of what was actually allowed under the Indian I.T. Act and since no depreciation was allowed under the Indian I.T. Act for the earlier years, there could not be any question of stretching the span of depreciation from such earlier years. The ITO, however, rejected this argument on the ground that depreciation was allowable from the time when the asset was acquired and it could not be postponed simply because Indian assessment (under the Indian I.T. Act) took place in the subsequent years. The assessee company's case before the AAC was that the first year of assessment of the company in India was 1950-51 and 20 years for calculation of depreciation would run from 1950-51. The ships might have been acquired earlier but the ships did not come into the Indian waters and were not assessed in India and depreciation was not allowed on the ships in question at all before 1950-51. These facts were not in dispute before the AAC.
14. In view of the aforesaid facts, the distinction sought to be made by the learned counsel on behalf of the Revenue is without any substance. The ratio of the decision in the case of CIT v. Swedish East Asia Co. Ltd. : 127ITR148(Cal) , was that in a case where no depreciation had been ' actually allowed ', there was no question of the assessee enjoying double depreciation once in the computation of its world income and again in the computation of its Indian income. It was further held that the mere fact that the ships had been acquired earlier will not make any difference because of the clear wording of Sections 32, 34(3) and 43 of the I.T. Act of 1961. We are of the view that the Tribunal was right in holding that the assessee was entitled to claim depreciation on the ships in spite of the fact that the ships were acquired more than 20 years ago. We are of the view that the first question must be answered in the affirmative and in favour of the assessee.
15. The second question is really consequential to the first question as pointed out by the Tribunal and in view of the answer given to the first question, the second question must also be answered in favour of the assessee and in the affirmative.
16. So far as the third question is concerned, the Tribunal has pointed out that the wording of Section 32(1)(iii) is very clear. The Tribunal observed that the proviso had not laid down that the deficiency must be written off in the year in which the allowance was claimed. The Tribunal further observed that the assessee was entitled to claim the loss under Section 32(1)(iii) because the ships were sold at a price less than the written down value. The requirement of the proviso is that the deficiency must be actually written off in the books of the assessee. In our view, the Tribunal was right in holding that the proviso did not lay down that such deficiency must be written off in the year in which the allowance is claimed. In that view of the matter, the third question is also answered in the affirmative and in favour of the assessee.
17. In the facts and circumstances of the case, the parties will pay and bear their own costs.
Sabyasachi Mukherji, J.
18. I agree.