Commissioner of Income Tax, Bombay City-III vs Saudi Arabian Airlines

Desai, J.—The assessee''s Indian income was computed in accordance with the provisions contained in rule 10(ii). For this purpose, the world income of business of the assessee was required to be computed. At that stage, the ITO applied the limitation to head office expenses contained in s. 44C which was inserted by the Finance Act, 1976, with effect from June 1, 1976. When this limitation was applied, the world profits stood enhanced, which resulted in enhancement of Indian income when the proportion was worked out. The assessee, aggrieved by the application of s. 44C to this method of computation of income, carried the matter further and succeeded both before the Commissioner of Income Tax (Appeals) and the Tribunal. The Commissioner very positively stated that the application of s. 44C to the calculations was under a misconception of the legal position, and the Tribunal has upheld this approach substantially. Mr. Dastur took us through the provision and we are of the opinion that the application of s. 44C in the circumstances was not all all warranted where the computation is made under rule 10(ii). If that be so, the rule in the instant case has to be discharged. Order accordingly. Parties to bear their own costs.