JUDGMENT
Suhas Chandra Sen, J.
1. The Tribunal has referred the following two questions of law under Section 256(1) of the Act :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the deferred rebate of Rs. 10,30,731 allowed to the shippers was not admissible as a deduction from the gross amount of freight earnings before computation of the applicant’s income from shipping business under Section 44B of the Income-tax Act ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the special rebate of Rs. 2,36,024 allowed
to Government and semi-Government shippers was not deductible from the amount of freight earnings for the purpose of determining the applicant’s income from shipping business under Section 44B of the Income-tax Act, 1961 ?”
2. The relevant year of assessment is 1978-79 for which the accounting year ended on December 31, 1977. In the statement of case, the Tribunal has recorded the following facts :
“The Income-tax Officer noted that the business of the assessee was in operation of ships at various Indian ports. It claimed the deferred rebate of Rs. 10,30,731 on amounts payable in and outside India. The Income-tax Officer disallowed the claim, as, according to him, the provisions of Section 44B did not provide for deduction on account of such deferred rebate.
The assessee took up the matter before the Commissioner of Income-tax (Appeals), who noted that this point was covered by his earlier decision dated December 30, 1980, which was against the assessee. The Commissioner of Income-tax (Appeals) also noted that the Income-tax Officer was justified in excluding another sum of Rs. 2,36,024 by way of special rebate allowed to Government and semi-Government shippers because this was an application of the actual freight already accrued.
In respect of the claim for deduction relating to deferred rebate, it was pointed out before the Appellate Tribunal at the time of the hearing of the appeal that the points were decided by the Appellate Tribunal in the case of the assessee for the assessment year 1976-77, which was against the assessee. The assessee’s learned counsel, however, pointed out that a reference is still pending and the assessee wanted to keep the matter alive. Accordingly, the Appellate Tribunal, considering the facts of the case, declined to allow the appeal by the assessee for the year under appeal after considering the order of the Appellate Tribunal for the earlier year.”
3. The claim for deduction of deferred rebate and special rebate was considered in the assessee’s own case for the assessment year 1976-77. In that case, it was held by the Tribunal that the assessee’s claim for any rebate after the freight was actually earned could not be allowed. The Tribunal, following its decision for the assessment year 1976-77, decided the case against the assessee. From the order of the Tribunal, a reference came up before this court but no answer was given to the question because no paper book had been filed at all.
4. It has been contended on behalf of the assessee that the question of law has not been decided and we should go into the question now and decide the case in accordance with law. A copy of the Tribunal’s order was handed up in court.
5. The case of the assessee is that it is a member of a shipping conference and the shippers who despatched their goods only by the ships belonging to the lines which were members of the conference were given a rebate on the freight payable, which was known as “immediate rebate”. This rebate had been deducted from the gross freight earnings of the assessee. The Income-tax Officer has deducted this amount for arriving at the total freight income of the assessee for the purpose of computing taxes.
6. There is no dispute on this aspect of the matter. But, there is another type of rebate granted by the assessee to the shippers who have not entered into any agreement with the shipping conference, but have subsequently filed claims stating that in fact they have not despatched their goods by any ship belonging to any line which is not a member of the conference and also got similar rebate. This is known as “deferred rebate”. This claim for deduction of deferred rebate was rejected by the Income-tax Officer. The Commissioner of Income-tax (Appeals) sustained this disallowance on the ground that the assessee had in fact received the full freight earnings but some amount was given back to the shippers who had furnished proper evidence and this was not a case of the amount being diverted before becoming part of the earnings. It was a case where some amount was given as a discount after accrual of income. Since the deferred rebate was allowed only from the freight earnings that had already accrued to the assessee, there was no question of deduction of this rebate from the freight earnings. The assessment was made by taking the deemed income at 7 1/2 per cent. of the gross freight earnings. Therefore, there could not be any deduction from the gross earnings.
7. There was a further dispute regarding disallowance of deduction on account of special rebate allowed to Government and semi-Government shippers. The assessee allowed a special rebate of 5 per cent. on the freight in respect of goods imported into India where the shippers were Government or semi-Government organisations and this special rebate like the deferred rebate was allowed only subsequent to the accrual of the freight earnings. Accordingly, there could not be any question of excluding it from the freight earnings in computing the tax under Section 44B of the Income-tax Act, 1961. Accordingly, the Commissioner of Income-tax (Appeals) held that there could not be any question of excluding it from
the freight earnings in computing the taxable income under Section 44B of the Income-tax Act.
8. On behalf of the assessee, our attention was drawn to a notice to shippers issued by the Calcutta/Continental Conference under the heading “Westbound Deferred Commission Circular”. It was stated that this communication was noted in the decision of the Tribunal and the Tribunal has also referred to it. In our view, this argument does not advance the case of the assessee in any way. The notice merely speaks of deferred commission to shippers on fulfilment of certain conditions by way of furnishing a signed declaration while claiming such commission.
9. Section 44B provides as follows :
“44B. Special provision for computing profits and gains of shipping business in the case of non-residents.–(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 amounts paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carnage 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.”
10. This section applies notwithstanding anything to the contrary contained in Sections 28 to 43A. In the case of a non-resident, engaged in the business of operation of ships a sum of 7 1/2 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. A legal fiction has been introduced. The aggregation that has to be made under Sub-section (2) of Section 44B is of the amount paid or payable to the assessee or to any other person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India and 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.
11. The total freight income of the assessee for the relevant years has not changed in any way because of granting of any rebate or commission. These expenditures may be allowable deductions under Section 37 of the Income-tax Act, 1961. But that has got no relevance for the purpose of calculating chargeable income under Section 44B. Moreover, the assessee has been unable to show that there has been any diversion of income by overriding title even before such income had accrued to the assessee.
12. The Tribunal in its order for the assessment year 1976-77 has dealt with the questions raised in this reference at length in the following manner:
“We have considered the facts of the case and the terms and conditions under which the deferred commission was to be paid by the shipping lines to the shippers. As it would appear from the scheme, it was nothing automatic and there was no diversion of income at source of the deduction at the point of receipt of income. For the purpose of claiming the deferred commission, certain conditions had to be fulfilled and the claim to be made and, on the satisfaction of all the conditions and the claim having been found to be correct, the deferred commission was to be paid. When we consider the language of Section 44B, we find that what has to be taken as the basis is the amount paid or payable to the assessee and the amount received or deemed to be received in India by the assessee. The amount which has to be included is the gross amount and any later liability or expenditure cannot be considered for this purpose. The nature of the deferred commission is different from the immediate commission and the assessee became entitled only to the reduced income after the deduction of the immediate commission. If an assessment was to be made in the normal manner, the deferred commission could be claimed as an expenditure under the relevant provisions of law. Now, for the purpose of Section 44B, the computation has to be made notwithstanding anything to the contrary contained in Sections 28 to 43A. Therefore, the assessee’s claim for deducting the deferred commission could not be accepted and the gross amount before the deduction of the above expenditure could alone be taken as the basis for computing the assessee’s income. We, therefore, uphold the order of the lower authorities on this point.
The next ground is that the Commissioner of Income-tax (Appeals) erred in upholding the Income-tax Officer’s order that the special rebate
fallowed to Government and semi-Government shippers was not deductible in computing the freight earnings for the purpose of determining the appellant’s income. The Commissioner of Income-tax (Appeals) has not accepted the claim of the assessee on the ground that a special rebate like the deferred rebate its allowed only subsequent to the accrual of the freight earnings. Before us, learned counsel for the assessee has not placed any inaterial to show/throw light on the nature of the special rebate and, on the basis of what has been stated by the Commissioner of Income-tax (Appeals) in his order, we uphold his order.”
13. We are of the view that the Tribunal has come to the correct conclusion oh the facts of this case.
14. The questions are answered in the affirmative and in favour of the Revenue.
15. There Will be no order as to costs.