Depreciation actually allowed means depreciation deducted in taxable income, not full depreciation used only in world income computation.

The expression "depreciation actually allowed" under the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 is explained as depreciation deducted in arriving at taxable income, not the full depreciation used only in computing world income. Read with the proviso and Explanation, the terms "actually allowed", "allowed", and "taken into account" were treated as having the same sense. For non-residents assessed under rule 33, only the proportion of depreciation attributable to Indian taxable income is treated as allowed for written down value purposes, even if the computation first applies full depreciation to world profits. A dissenting view treated the full depreciation as allowed once used in the overall profit computation.

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Issues: Whether, for computing written down value under the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, the expression "depreciation actually allowed" refers to depreciation deducted in arriving at the taxable income or depreciation taken into account in arriving at the world income.

Analysis: The substantive part of paragraph 2 of the Order, the proviso, and the Explanation were read together as using the expressions "actually allowed", "allowed", and "taken into account" in the same sense. For assets acquired before the relevant previous year, the written down value under the Indian Income-tax Act, 1922 depended upon depreciation actually allowed under the Act. In the case of a non-resident assessed by the formula in rule 33 of the Indian Income-tax Rules, 1922, the total depreciation might first enter the computation of world income, but only the proportion attributable to the taxable Indian income was in truth allowed in the assessment. The mere computational method of first reducing world profits by full depreciation and thereafter applying the statutory proportion did not mean that the whole depreciation had been actually allowed in the taxable assessment. The dissenting view treated depreciation as fully allowed once it had been availed of in the computation of total profits, irrespective of the fraction ultimately subjected to tax.

Conclusion: The expression "depreciation actually allowed" means depreciation deducted in arriving at the taxable income, and not the full depreciation taken into account only in computing world income.

Dissenting Opinion: Shah J. held that depreciation allowed in the taxable territories included depreciation actually availed of in computing total profits, and that no warrant existed for restricting it to a fraction attributable to Indian taxable income.

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