Depreciation basis under transitional tax rules must reflect actual allowance, and a later explanation cannot worsen the assessee's position.

Depreciation for assessment under the Indian Income-tax Act, 1922, had to be computed on actual cost less the depreciation actually allowed under the Hyderabad Income-tax Act, not on any higher written down value notionally worked out under that Act. The phrase "all depreciation actually allowed" in the Removal of Difficulties Order was construed as depreciation in fact granted by the assessing authority, and not depreciation merely allowable. The later explanation, which sought to substitute the aggregate allowance used for written down value under the Part B State law, was held to exceed the power under section 60A because that power could be used only to remove hardship or anomaly and not to prejudice the assessee. The explanation was therefore void.

---

---

Issues: Whether, for assessment under the Indian Income-tax Act, 1922, depreciation on assets previously assessed under the Hyderabad Income-tax Act was to be computed on the written down value as worked out under the Hyderabad Act or on the actual cost less the depreciation actually allowed under that Act, and whether the explanation added to the Removal of Difficulties Order could validly alter that basis.

Analysis: The expression "all depreciation actually allowed" in paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was held to mean depreciation in fact allowed by the assessing authority, not depreciation merely allowable under the Hyderabad Income-tax Act. The written down value under section 10(5)(b) of the Indian Income-tax Act, 1922, was therefore to be computed by deducting from actual cost only the depreciation actually allowed under the Hyderabad Act. The subsequent explanation, which treated the aggregate allowance used in computing written down value under the Part B State law as the relevant figure, was held to be beyond the power conferred by section 60A of the Indian Income-tax Act, 1922, because that power was to be exercised to remove hardship or anomaly and in favour of the assessee, not to its disadvantage. The Hyderabad Income-tax Act had ceased to be in force for the relevant assessment year, so its written down value could not govern depreciation under the Indian Act.

Conclusion: The assessee was entitled to depreciation on the basis of actual cost minus the depreciation actually allowed under the Hyderabad Income-tax Act, and the explanation added to the Removal of Difficulties Order was void.

---