Written down value depreciation must reflect actual prior allowances; later removal-of-difficulties amendment did not apply.

For computing written down value under section 10(5)(b) of the Indian Income-tax Act, 1922, depreciation had to reflect amounts actually allowed in earlier years, not a notional allowance during exempt periods. The Court held that income-tax exemption granted under the merged States taxation concessions order arose under the Act through section 60A, not under any independent agreement, so the 1962 amendment to the Removal of Difficulties Order did not apply. As a result, depreciation could not be recomputed on original cost and had to be worked out on the written down value basis, with the issue answered for the Revenue.

---

---

Issues: Whether depreciation, for the purpose of computing written down value, had to be taken as actually allowed in earlier exempt years under section 10(5)(b) of the Indian Income-tax Act, 1922, and whether the 1962 amendment to the Removal of Difficulties Order altered that position.

Analysis: The assessment year in question was the first year in which the factory was assessed after it commenced working, but the statutory scheme required the written down value to be computed by reference to depreciation actually allowed in earlier years. The expression used in section 10(5)(b) was construed in the same manner as in the contemporaneous removal-of-difficulties order, so as to exclude a merely notional allowance of depreciation during years when income was exempt. The exemption granted under the merged States taxation concessions order was traced to the authority of section 60A of the Indian Income-tax Act, 1922, and was held to arise under the Act and not under any agreement with the ruler. For that reason, the amendment made in 1962 to the Removal of Difficulties Order did not apply to the assessee's case.

Conclusion: Depreciation could not be recomputed on original cost; it had to be worked out on the written down value basis, and the question was answered in favour of the Revenue.

Final Conclusion: The appeal failed, and the High Court's answer on the reference was sustained.

Ratio Decidendi: For computing written down value under section 10(5)(b), depreciation that was not actually allowed in earlier exempt years cannot be treated as having been allowed by a legal fiction, and a later amendment to the removal-of-difficulties order does not apply where the exemption was granted under the Act itself.

---