Court affirms depreciation on plant/machinery pre-1953 cost.

The Supreme Court dismissed the appeal and affirmed the High Court's decision that depreciation should be allowed on the original cost of plant and machinery acquired before July 1, 1953. The court held that the exemption granted was under the Income-tax Act and not under any agreement, rejecting arguments based on the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, and its 1962 amendment. The case clarified that depreciation must be computed on the actual cost of assets when no depreciation had been allowed in previous years, emphasizing that "actually allowed" does not include notional allowance.

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Issues:
1. Allowability of depreciation on the original cost of plant and machinery acquired before July 1, 1953.

Analysis:
The case involved the question of whether depreciation is allowable on the original cost of plant and machinery acquired and used prior to July 1, 1953. The appellant, an assessee-company, contended that since no depreciation had been actually allowed in any earlier assessment year, the depreciation should be computed on the original cost of the assets. However, the Income-tax Officer, Appellate Assistant Commissioner, and Appellate Tribunal held that depreciation must be computed on the written down values of machinery. The High Court ruled that if no depreciation had been actually allowed in prior years, the actual cost incurred by the assessee for acquiring the machinery would be considered the written down value. The appellant argued that depreciation should be deemed to have been allowed in the years when the income was exempted. The court, referring to a previous judgment, held that "actually allowed" does not include notional allowance and must be interpreted accordingly.

The appellant further contended that the exemption granted under the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, applied to the case as a continuance of the agreement with the Ruler of Dharampur State. However, the court disagreed, stating that the exemption was granted under paragraph 15 of the Merged States (Taxation Concessions) Order, 1949, issued under the Indian Income-tax Act, 1922. The court concluded that the case should be determined with reference to section 10(5)(b) of the Act, unaffected by the amendment made by the 1962 Order. Consequently, the court upheld the High Court's decision that depreciation should be computed on the original cost of the assets acquired before July 1, 1953.

In conclusion, the Supreme Court dismissed the appeal, affirming the High Court's decision that depreciation should be allowed on the original cost of the plant and machinery and other assets acquired and used prior to July 1, 1953. The court held that the exemption granted was under the Act and not under any agreement, thus rejecting the appellant's arguments based on the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, and its amendment in 1962.

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