Removal-of-difficulties power upheld for transitional depreciation computation after State merger, including notional prior depreciation.

The delegated removal-of-difficulties power was validly used to address a genuine transitional difficulty after the merger of Part B States, where the earlier local tax law had to be harmonised with the Indian Income-tax Act, 1922. The Explanation inserted by the 1956 notification was upheld because the Central Government had a reasonable basis for concluding that the difficulty existed, and its satisfaction was not treated as conclusive in the absence of such basis. Depreciation for assets acquired before the relevant previous year could therefore be computed by taking into account depreciation under the Saurashtra regime, including notional depreciation, for written down value purposes.

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Issues: Whether the Explanation added to the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, by notification dated 8 May 1956 was within the Central Government's power and valid, and whether depreciation for assets acquired before the relevant previous year could be computed by taking into account depreciation not actually allowed under the Saurashtra Income-tax Ordinance, 1949.

Analysis: The governing scheme under the Indian Income-tax Act, 1922 allows depreciation on the basis of written down value, which is reduced by depreciation actually allowed in earlier years. The Court held that in the present transitional setting a real difficulty had arisen on the merger of Part B States, because the earlier local law had to be harmonised with the Indian Income-tax Act, 1922. The decision in Dewan Bahadur Ramgopal Mills Ltd. was treated as binding and not displaced by later decisions. Straw Products Ltd. and Madeva Upendra Sinai did not undermine that authority; rather, they were read as confirming that the existence of a relevant difficulty is a condition for the exercise of the removal-of-difficulties power, and that the Government's satisfaction is not conclusive if lacking a reasonable basis. On the facts, the Central Government had adequate basis to issue the 1956 notification.

Conclusion: The Explanation was valid, not ultra vires, and notional depreciation under the Saurashtra regime could be taken into account in computing written down value and aggregate depreciation allowance.

Final Conclusion: The assessee's challenge to the computation of depreciation failed, and the dismissal of the appeal left the Revenue's position undisturbed.

Ratio Decidendi: Where a genuine difficulty arises in giving effect to extended tax legislation after merger or extension of territories, the delegated removal-of-difficulties power may validly be used to harmonise depreciation computation, including by treating earlier depreciation as actually allowed where the statutory scheme and transitional context so require.

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