Rule 33 income computation includes receipts accruing in India, while foreign tax allowances cannot be imported without statutory support.

Rule 33 of the Income-tax Rules, 1922 permits computation of a non-resident's Indian income by reference to receipts accruing or arising in the taxable territories, or by applying the proportion of such receipts to total business profits. Destination freight collected at Indian ports was treated as earned and received in India, so it formed part of Indian earnings for the statutory proportion. The commentary also notes that an investment allowance under a U.K. ratio certificate could not be imported into Indian computation as a substitute for development rebate under the Indian Income-tax Act, 1922, because the foreign allowance was not covered by the relevant circular or binding statutory directions.

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Issues: (i) Whether destination freight collected at Indian ports formed part of the assessee's Indian earnings for computation under rule 33 of the Income-tax Rules, 1922. (ii) Whether the assessee was entitled, while computing Indian income under rule 33, to deduction of investment allowance under the U.K. ratio certificate as corresponding to development rebate under the Indian Income-tax Act, 1922.

Issue (i): Whether destination freight collected at Indian ports formed part of the assessee's Indian earnings for computation under rule 33 of the Income-tax Rules, 1922.

Analysis: Rule 33 permitted estimation of the income of a non-resident by reference to receipts accruing or arising in the taxable territories and, under the second method, by applying the ratio of such receipts to the total profits of the business computed under the Indian Act. The destination freight was found as a fact to be earned and received in India. Since the receipts had accrued or arisen in India, they were required to be treated as Indian earnings for the purpose of the statutory proportion under rule 33.

Conclusion: The issue was answered in favour of the Revenue and against the assessee.

Issue (ii): Whether the assessee was entitled, while computing Indian income under rule 33, to deduction of investment allowance under the U.K. ratio certificate as corresponding to development rebate under the Indian Income-tax Act, 1922.

Analysis: The circular governing foreign shipping assessments referred to wear and tear allowance and related adjustments, but did not cover investment allowance in terms. Development rebate was a distinct allowance under the Indian Act and could be claimed only in accordance with Indian law. The court declined to undertake interpretation of U.K. tax law to equate the U.K. investment allowance with Indian development rebate, and further held that the private departmental letter relied on could not be elevated into binding statutory directions under section 5.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Final Conclusion: The reference was disposed of with one question answered in favour of the Revenue and the other against the assessee, leaving the parties to bear their own costs.

Ratio Decidendi: For computation under rule 33, receipts found to have accrued or arisen in India must be included as Indian earnings, while a tax allowance under a foreign law cannot be imported into Indian computation unless the Indian statutory framework or binding departmental instructions expressly so provide.

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