COMMISSIONER OF INCOME TAX Vs. INTERNATIONAL COMPUTERS LIMITED

JUDGEMENT

(1.) THE assessee is admittedly not an Indian company and is a company registered under the United Kingdom Companies Act. It manufactures data processing equipments and these machines are sent overseas on hire. The assessee had a wholly owned subsidiary company in India by the name of M/s International Computers and Tabulators (India) Private Ltd. The data processing machines are let out by the assessee company to its Indian subsidiary and rental is charged by the assessee company. The Indian subsidiary company hires out the equipments and the machines to other customers in India on rental basis. Out of the hire amount earned by the Indian subsidiary, from each customer in India, 45% of the rental charges are paid by the subsidiary company in India to the company in U.K. for obtaining from them the machines on hire. In the relevant assessment years, i. e., from 1963 64, the entire hire charges payable by the Indian subsidiary to the assessee company have been remitted to U. K. in full every year.

(2.) THE assessee company does not draw up a separate profit and loss account and balance sheet for its Indian business but keeps a consolidated profit and loss account of its entire global activity in the U. K. Thus, the rental received by the assessee company from its Indian subsidiary company forms part of the total rentals shown in its consolidated profit and loss account maintained in the U.K. However, in the consolidated balance sheet in the U.K., the assessee company created a separate development rebate reserve in regard to its Indian business under the head "Appropriation to Reserves" with a sub head "Development Rebate Reserve (India)" from year to year. In respect of the five assessment years in question, the assessee company's claim for grant of development rebate was rejected by the ITO on four grounds, one of the grounds being that the Indian company had remitted the rentals as profits to the assessee company. The ITO also held that the data processing machines were office appliances which were excluded from the benefit of development rebate from the year 1960 61 onwards.

(3.) WHEN the matter was taken in appeal to the Tribunal, the Tribunal considered the provisions of s. 10(2)(vi) of Indian IT Act, 1922, and S. 34(3)(a) of the IT Act, 1961. The Tribunal found that it was not the Revenue's case that any amount was specifically utilised for the creation of any asset outside India. With regard to the remittance of profits relied upon and the circumstances which disabled the company from claiming development rebate, the Tribuual found that there was no indication in the accounts anywhere that the reserves of 76,000, as they stood at the end of Sept., 1962, were at any time utilised for remittance outside India as profits. The Tribunal found that since all the hire charges paid by the Indian subsidiary were remitted to the assessee company in U.K., and these hire charges had an element of profit in them, such remittances went into the general pool of revenue of the assessee company out of which amounts were appropriated to various reserves and, thus, though it may be that the reserves might have, in part, come out of the remittances, it could not be said that reserves, having once been created, were utilised as remittance of profits. The Tribunal, therefore, held that cl. (b) of the first proviso to S. 10(2)(vib) of the Indian IT Act, 1922, or S. 34(3)(a)(ii) of the IT Act, 1961, was not attracted. The Tribunal, therefore, held that the AAC was not right in sustaining the disallowance of the assessee's claim for grant of development rebate.