TaxTMI 
TaxTMI 
1964 (1) TMI 48
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....t years 1950-51, 1951-52, 1952-53 and 1953-54. The assessee is a company incorporated in the erstwhile Rampur State in 1943. Income-tax was introduced in Rampur State with effect from May 1, 1944, but on May 2, 1944, an agreement was entered into between the assessee and the Ruler of Rampur State under which the assessee was exempted from payment of all State taxes. Rampur State territory merged in India some time before April 1, 1949. On August 26, 1949, the Taxation Laws (Extension to Merged States) Ordinance No. XXI of 1949 was promulgated. Section 3 of it extended to all merged States the Indian Income-tax Act with all Rules and orders made thereunder with effect from April 1, 1949. With effect from the assessment year 1949-50 the territory became "taxable territory" within the meaning of the Indian Income-tax Act of 1922, by virtue of section 3 of the Finance Act, 1950. Under section 60A (reference to sections will henceforth be to the Income- tax Act, 1922, except where the contrary is indicated), the Central Government exempted the assessee's income for the period ending on April 30, 1949, from payment of the tax. The result was that the assessee became liable ....
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....tually allowed under any laws or rules of a merged State relating to income-tax and super-tax shall be taken into account in computing the aggregate depreciation allowance referred to in sub-clause (c) of the proviso to clause (vi) of sub-section (2), and the written down value under clause (b) of sub-section (5), of section 10 of the said Act." The 1949 Ordinance was replaced by the Taxation Laws (Extension to Merged States and Amendment) Act No. 67 of 1949. By section 3 it applied the Indian Income-tax Act along with all Rules and orders made under it to all merged States with effect from April 1, 1949. Section 6 contained a provision for removal of any difficulty arising in giving effect to the provisions of the Income-tax Act or Rules or orders made thereunder to the merged States. Section 34(1) repealed the 1949 Ordinance and section 34(2) laid down that notwithstanding this repeal "anything done or any action taken in the exercise of any power conferred by it shall for all purposes be deemed to have been done or taken in the exercise of the powers conferred by this Act as if this Act were in force on the day on which such thing was done or action was taken." ....
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....owed to it under either of the Acts previously for the reasons already given and not on the written down values noted in its accounts of 1949-50. The Income-tax Officer rejected its claim on the ground that it amounted to claiming allowances admissible under section 10(2)(vi) in respect of past years and allowed it depreciation on the written down values. On appeal the Appellate Assistant Commissioner reversed the Income-tax Officer's order holding that "no depreciation had been 'actually allowed' to the appellant. The words 'actually allowed' mean that which has been in fact allowed by the assessing authority, as opposed to that which could have been allowed or allowable under an Act.....the written down value in this case would be the cost price of the original assets". On an appeal by the Income-tax Officer, the Income-tax Appellate Tribunal restored the Income-tax Officer's assessment order. It held as follows: "The assets not having been acquired in the previous year, the Income- tax Officer could not take the cost price of such assets as the written down value....the Income-tax Officer treated the assessee's assets as having been a....
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....ducting all depreciation actually allowed under the Indian Income-tax Act and the sole purpose behind the 1949 Removal of Difficulties Order was to substitute in section 10(5)(b) for the words "under this Act" the words "under this Act or under a Merged State Income-tax Act". The question that arises here is whether the written down value should be calculated after deducting the depreciation, even though it was not actually allowed to the assessee on account of its being exempted from income-tax and it arises from the words used in section 10(5) and not from any words used in the 1949 Removal of Difficulties Order. I would proceed to answer the question as if it were: "Whether the written down value of the assets of the assessee for the purpose of calculation of depreciation allowance under section 10(2)(vi) for the assessment year 1950-51 is the original cost of the assets or the original cost less all depreciation that would have been allowed to it under the Indian Income-tax Act and the Rampur State Income-tax Act if it had not been exempted from income-tax by the Central Government and the Ruler of Rampur State." It may be assumed that the asset....
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.... value and in the latter case the actual cost less all depreciation actually allowed under an Income- tax Act. The assets in the instant case were acquired in 1942-43 and in any case, prior to 1949-50, the previous year relevant to the assessment year in question. Therefore, the written down value had to be the original cost less all depreciation actually allowed under the Income-tax Acts. The sole question is whether any depreciation was "actually allowed" under any Income-tax Act within the meaning of section 10(5)(b). The answer is, strictly according to the facts, "no". No income-tax was payable by the assessee previous to the assessment year 1950-51 and, consequently, there had been no occasion for its being allowed depreciation in the previous years. The written down value of the assets in the accounting year 1949-50 was the original cost less nil, i.e., the original cost. The argument advanced on behalf of the Commissioner of Income-tax that the original cost can be the written down value only when the assets were acquired in the accounting year is not quite correct; if the assets were acquired in the accounting year the original cost will certainly be t....
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....s deduction by itself does not amount to depreciation being "allowed" to it under the Income-tax Acts. The depreciation that it deducted every year from its profits was not deducted under any provision of any Income-tax Act. The only depreciation allowed under an Income-tax Act is the depreciation allowed by any Income-tax Officer when computing its profits and gains of business for assessment purposes. "Actually allowed" means allowed by an income-tax authority; depreciation claimed by the assessee itself in its own accounts is not depreciation allowed to it. Unabsorbed depreciation, e.g. depreciation which cannot be deducted from profits and gains of the business because there is a loss, is not deemed to be actually allowed. If the written down value of assets in a year is ₹ 100 and the prescribed percentage of depreciation is ₹ 10, ₹ 10 will be deducted from the profits of the year. But if there were no profits in the year there was nothing from which ₹ 10 could be deducted and from the next year's profits, if any, ₹ 10 will be deducted in addition to the depreciation of the next year. This means that depreciation was not ac....
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....Income-tax [1962] 43 I.T.R. 526, Nandlal Bhandari Mills Ltd. v. Commissioner of Income-tax [1962] 45 I.T.R. 468 and Dharampur Leather Cloth Co. Ltd. v. Commissioner of Income-tax [1965] 55 I.T.R. 329. In the first case of Kamala Mills Ltd. [1949] 17 I.T.R. 130, in the accounting year 1941, no depreciation was allowed on the written down value because the business suffered a loss and Dass and Mukherjea JJ. of the Calcutta High Court held that the written down value in the next accounting year 1942 was the same as in the accounting year 1941, because no depreciation had actually been allowed. The learned judges observed at page 134: "The words 'actually allowed' are unambiguous and connote the idea that the allowance was in fact given effect to....... In the present case, as there was loss, the depreciation allowance of Rs........... was not set off and cannot be said to have been actually allowed." There is no distinction between a depreciation not set off on account of a loss and a depreciation not set off because of exemption from income- tax and if in one case the depreciation cannot be said to have been actually allowed, in the other case also it cannot be....
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.... cost of the assets. While this reference was pending here, the 1949 Removal of Difficulties Order was amended on August 20, 1962, by the Taxation Laws (Merged States) (Removal of Difficulties) Amendment Order, 1962. Section 2 of it reads as follows: "In the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, after the proviso to paragraph 2, the following Explanation shall be inserted, namely: Explanation.--For the purpose of this paragraph, the expression 'all depreciation actually allowed under any laws or rules of a Merged State' means and shall be deemed always to have meant-- (a) the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules in force in a merged State or carried forward under the said laws or rules, and (b) in cases where income had been exempted from tax under any laws or rules in force in a merged State or under any agreement with a ruler, the depreciation that would have been allowed had the income not been so exempted." The Income-tax Act of 1922 was repealed by the Income-tax Act, No. 43 of 1961. Section 32 of it deals with depreciation allowance and sec....
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....ed an Explanation to section 2 of the 1949 Removal of Difficulties Order and whatever may be the words used in the Explanation it has been added only prospectively and not with retrospective effect. The Explanation is to be read only in a case which is governed by the Amendment Order and the Amendment Order governs future cases and pending cases but does not govern past or closed cases. The Explanation deals with the definition of "written down value" in section 10(5). The question what was the written down value in the instant case could be said to be pending so long as the assessment proceedings were pending either before the Income-tax Officer or before the Appellate Assistant Commissioner or before the Tribunal. When the Tribunal decided the appeal its order became final. But there was no finality in respect of any question of law decided by it and its decision was subject to the judgment passed by this court on reference. The reference, however, had to arise out of the order passed by it; no question not decided by it could be referred by it to this court and this court has no jurisdiction whatsoever to decide it. All questions decided by it had to be decided in acco....
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....tion and cannot answer the question after giving effect to it. Its position is different from that of an appellate court or even a court of revision; its jurisdiction is very limited, it being confined to answering a question of law arising out of the order passed by the Tribunal on appeal whether the 1962 Amendment Order is applicable in the instant case or not is itself a question of law and is a question of law that does not arise out of the order passed by the Tribunal or the statement of the case submitted by it. This court cannot consider the Explanation unless it holds first that the Explanation is applicable and if it is precluded from deciding that it is applicable it follows that it cannot consider it. According to the Explanation the depreciation that would have been allowed if the income had not been exempted is to be treated as depreciation actually allowed. What depreciation would have been allowed raises some questions of fact, namely, what assets were used in the business and for what period, what was the law in the Rampur State Income-tax Act regarding depreciation and written down value and what were the percentages fixed by the Rampur State for allowing deprecia....
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....e the effect of effacing the result brought about by the decision of the Income-tax Appellate Tribunal....unless there are clear and express words to that effect." The scope of an inquiry before a High Court acting on reference under section 66 has been explained by the Supreme Court in Kusumben D. Mahadevia v. Commissioner of Income-tax [1960] 39 I.T.R. 540, 544; [1960] 3 S.C.R. 417, in the following words: "Section 66....only permits a reference of a question of law arising out of the order of the Tribunal. It does not confer jurisdiction on the High Court to decide a different question of law not arising out of such order. It is possible that the same question of law may involve different approaches for its solution, and the High Court may amplify the question to take in all the approaches. But the question must still be one which was before the Tribunal and was decided by it. It must not be an entirely different question which the Tribunal never considered." The 1962 Amendment Order is amendatory and not clarificatory and it cannot be contended that the Explanation added by it simply makes clearer that "actually allowed" includes what would have bee....
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....oval of Difficulties Order. Another difficulty in applying the provisions was that an assessee might have been exempted from income-tax in the merged State and that consequently, there was no occasion for his being actually allowed depreciation in previous years; this difficulty was sought to be removed by the 1962 Removal of Difficulties Order. The provisions of section 10(2) and (5) of the 1922 Act relate to assessment orders and so long as they were kept in force notwithstanding the repeal of the 1922 Act and the 1949 Act was in force, the Central Government retained the power to remove difficulties arising in applying the provisions of section 10(2) and (5) to assessee of the merged States. The 1962 Order was not, and could not be, made in exercise of the powers conferred by section 298(2) of the 1961 Act. Another contention advanced on behalf of the assessee was that section 298(2) of the Act of 1961 impliedly repeals section 6 of the 1949 Act, but I am unable to accept it. The two provisions occupy different fields and the doctrine of implied repeal is not applicable. Section 298 confers power upon the Central Government to make an order for removal of difficulties arising i....
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.... by the Central Government under section 298 of it. There would, therefore, have been no difficulty in the Tribunal's acting upon the Explanation if it had been added before it disposed of the appeal. Just as difficulties were apprehended to arise in applying the Act to the merged States so also difficulties were apprehended to arise in applying it to Part B States and the Central Government made the Taxation of Part B States (Removal of Difficulties) Order. Section 2 of it is similar to section 2 of the 1949 Removal of Difficulties Order but contains an Explanation, added in 1956, which is similar to sub-section (a) added by the 1962 Removal of Difficulties Amendment Order. The Explanation does not contain part (b) of our Explanation. It was discussed by the Supreme Court in Commissioner of Income-tax v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 I.T.R. 280; [1961] 2 S.C.R. 318, but the judgment contains nothing helpful in the instant case. In the result, I conclude that the question should be answered without regard to the Explanation added in the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, by the Amendment Order of 1962. The answer will be that t....
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....; in section 66 have formed the subject-matter of numerous decisions by the Supreme Court and other courts in India. The present case is again one which raises the same question but under different facts and circumstances which do not seem to have formed the subject-matter of any direct decision by the Supreme Court. The interpretation which is sought to be placed by this court as to the jurisdiction of the High Court under section 66 undoubtedly raises serious implications and makes retrospective amendatory legislation after the Tribunal has given its decision in appeal of little or no avail to the department so far as that particular case is concerned, even though a reference may be pending at the time when the fresh provision or amendment is enacted. The jurisdiction of the High Court under section 66 undoubtedly is a narrow one but is it so narrow as to prevent it from considering a provision which did not exist when the Tribunal decided the case but which if considered would provide a complete answer to the question referred? No decision has been brought to our notice which goes to the extent of saying that a retrospective amendatory legislation which did not exist when the ....
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....Court on a reference under section 66 of the Act had not looked into or considered the provisions of the newly enacted section 34(4) by the Income-tax (Amendment) Act of 1959, it was open to the Supreme Court on appeal to look into the validity of the provision which existed at the time when the High Court gave its decision but which was overlooked and which by itself furnished the answer to the question referred for the opinion of the High Court. The question which confronts this court, however, is somewhat different and that is that when a provision is amendatory, though retrospective, but it was never considered by the Tribunal as it could not have been, then is it open to the High Court, not on appeal but on a reference, to take that amendatory provision into consideration in answering the question referred to it for its opinion? The answer will depend on whether the question posed can be said to arise out of the order of the Tribunal. It is well-settled and the statute is clear on the point that only those questions can be referred and answered by the High Court which arise from the order of the Tribunal. In Chatturam Horilram Ltd. v. Commissioner of Income-tax [1955] 27 I.T....
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.... such a situation the order of 1949 had obviously made no provision. The amendment of 1962 was in order to remove that lacuna in the order of 1949 which existed at the time when the Tribunal gave its decision. When that provision of law did not exist nor was it considered by the Tribunal, it would be difficult to press into service the doctrine of continuity of proceedings in its application to a reference under section 66 of the Act. It is not enough to say that the High Court must answer the question referred to it but it must answer the question referred to it as arising out of the Tribunal's order. No question, not arising out of the Tribunal's order, can be referred to it nor can be answered by it. The question of law can only arise out of an order if it is in respect of a law then in force. It would be difficult to hold that a law which did not exist on the date of the Tribunal's order but enacted subsequently can be said to give rise to a question of law arising out of the Tribunal's order, particularly when it cannot be said to be merely a different aspect of the same question. Such a question would be on a different provision of law and it might well be con....
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....nt had specifically exempted the assessee from payment of tax. Therefore, up to that stage neither under the Rampur Income-tax Act, nor under the Income-tax Act or the Rules, was the assessee obliged to claim depreciation as an allowance for purposes of its assessment. The assessee, however, as a prudent business man, and according to well recognised principles of accountancy depreciated his assets and created a reserve fund for the ultimate replacement of its assets whose wear and tear was inevitable. The factual position, therefore, was that no depreciation under the Rampur Act or Rules had actually been allowed to the assessee because of the existence of the exemption agreement with the Ruler. The Removal of Difficulties Order, 1949, was also of no assistance to the revenue as it never provided for a contingency such as arising in the present case where the assessee was exempt from tax by the Ruler of the State. There was, therefore, no alternative for the Tribunal but to have taken the original cost as provided in sections 10(5) and 10(2)(vi) of the Act, for the purposes of computing the written down value and the depreciation allowed when the Act of 1922 came to be applied fo....
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....ified purposes. The present case is saved by section 297(2)(c) of the Act of 1961, which provides, inter alia, that any proceeding in reference pending at the time when the Act of 1961 came into force shall be continued and disposed of under the Act of 1922, and the Rules and Orders made thereunder and not under the Act of 1961. In other words the present reference which was pending when the Act of 1961 came into force had to be disposed of not under the Act of 1961, but under the Act of 1922 and the Rules and Orders made thereunder. The repealed Act, i.e., the Act of 1922, is declared to be dead and buried by virtue of section 297(1) of the Act of 1961, but it is again resuscitated and kept alive under section 297(2)(c) of the Act of 1961 for certain purposes. If any difficulty is experienced in giving effect to the provisions of section 297(2)(c) of the Act of 1961, which again brings to life the repealed Act of 1922, then the Central Government is given the power under section 298 of the Act of 1961, to remove that difficulty so long as that order is not inconsistent with the provisions of the 1961 Act. The legislature, after giving the general power to remove difficulties under....
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....ifficulties Order, 1949, was passed, known as the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949. Section 2 of this Order removed the difficulty in giving effect to the provisions of sections 10(2)(vi) and 10(5) of the Act of 1922 relating to depreciation that was to be allowed in a case where no depreciation was allowed under the Income-tax Act, 1922, but under the State income-tax law. This section of the Order provided for taking into consideration under the Indian Income-tax Act all depreciation which may have been allowed under the State Income-tax Act or Rules. The Ordinance of 1949 in due course gave way to Act 67 of 1949. By section 3 of that Act, the Indian Income-tax Act of 1922 was made applicable to all merged territories as from April 1, 1949. Section 6 contained a provision similar to section 8 of the Ordinance of 1949 for the removal of difficulties. The Ordinance was repealed but all action taken under the provisions were saved and all such action taken thereunder were deemed to have been taken under Act 67 of 1949. There was, as already noticed, no provision in the Removal of Difficulties Order, 1949, to cover a situation that arose as in the p....