Written down value computation turns on depreciation actually allowed under the Act, with Part B States rules applying only on requisite findings.

For computing written down value under section 10(5)(b), "depreciation actually allowed" means depreciation actually taken into account in computing income chargeable to tax under the Act, not depreciation merely used in determining world income; the assessee's contention was accepted on this point. Paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 was recognised as a valid provision requiring Part B State depreciation actually allowed under relevant income-tax or business profits rules to be brought into the written down value computation, but its application depended on factual findings that depreciation had in fact been allowed under the Industrial Tax Rules and that those rules fell within the paragraph.

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Issues: (i) Whether, for computing written down value under section 10(5)(b), the expression "all depreciation actually allowed" refers only to depreciation allowed in computing income taxable under the Indian Income-tax Act. (ii) Whether paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 applies to the case and, if so, in what manner.

Issue (i): Whether, for computing written down value under section 10(5)(b), the expression "all depreciation actually allowed" refers only to depreciation allowed in computing income taxable under the Indian Income-tax Act.

Analysis: The written down value under section 10(5)(b) is reduced by depreciation actually allowed under the Act in prior assessment years. Where the assessee's taxable income in earlier years was computed only after applying the machinery of the Act to arrive at the income chargeable to tax, the depreciation that entered that taxable computation is the depreciation actually allowed. Full depreciation taken into account only in calculating world income does not amount to full depreciation being allowed under section 10(5)(b).

Conclusion: This issue is answered in favour of the assessee.

Issue (ii): Whether paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 applies to the case and, if so, in what manner.

Analysis: Paragraph 2 requires that depreciation actually allowed under Part B State laws or rules relating to income-tax, super-tax, or tax on profits of business be taken into account in computing aggregate depreciation allowances and written down value. Its validity is accepted. Its application depends on factual determination whether depreciation was in fact allowed under the Industrial Tax Rules and whether those rules fall within the paragraph. The matter is therefore conditional upon those findings being made in favour of the department.

Conclusion: The paragraph is a valid provision of law, but its application to the present case is contingent upon the requisite factual and legal findings being returned in favour of the department.

Final Conclusion: The reference is answered by upholding the assessee's contention on the first question and by recognising the validity of the Part B States removal of difficulties provision, while leaving its application dependent on further findings.

Ratio Decidendi: For section 10(5)(b), "depreciation actually allowed" means depreciation actually taken into account in computing income chargeable to tax under the Act, not depreciation merely used in determining world income.

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