TaxTMI 
TaxTMI 
1989 (5) TMI 53
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....r the grant of depreciation allowance based on the written down value. The said Ordinance defined "written down value" as follows "Written down value" means : (a) in case of assets acquired in the previous year, the actual cost to the assessee ; and (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Ordinance or allowed under any act repealed thereby or which would have been allowed to him if the Indian Income-tax Act, 1922, was in force in the past." On January 26, 1950, the State of Saurashtra became a part of the Union of India as a Part B State. The Indian Income-tax Act, 1922, became applicable to the State of Saurashtra from April 1, 1950, under the provisions of the Finance Act, 1950. By section 13 of the Finance Act of 1950 which provides for repeals and savings, the Saurashtra Income-tax Ordinance was repealed. Section 12 of that Act provided for the removal of difficulties as follows : "If any difficulty arises in giving effect to the provisions of any of the Acts, rules or orders extended by section 3 or section 11 to any State or merged territory, the Central Governme....
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....ted by an order made under section 60A of the Indian Income-tax Act, 1922, was added to clause 2 of the Removal of Difficulties Order, 1950. As far as the appellant-assessee is concerned, it was assessed under the Indian Income-tax Act from 1940-41 in respect of the income arising or deemed to arise in British India from 1940-41 onwards. For these years, the income of the assessee was computed on receipt basis, but in calculating the world income, depreciation was taken into consideration for arriving at the income outside British India. The assessee was also assessed for the assessment year 1949-50 under the Saurashtra Income-tax Ordinance, 1949. From the assessment year 1950-51 onwards, the assessee was assessed under the Indian Income-tax Act, 1922 (referred to hereinafter as "the Indian Income-tax Act"). The assessment years with which we are concerned are the assessment years 1957-58, 1958-59 and 1959-60, the corresponding previous years being the calendar years 1956, 1957 and 1958, respectively. It is the case of the assessee that, during the course of the assessment of the assessee's income under the Act of 1922, depreciation was allowed for the assessment year 1950-51 and t....
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....ee was rejected by the income-tax authorities as well as by the Income-tax Appellate Tribunal. For the assessment years 1957-58 and 1959-60, the assessee again contended before the income-tax authorities and the Tribunal that the Explanation to clause as notified in 1956 was ultra vires the powers of the Central Government. It was contended by the assessee before the Tribunal that the decision of this court in CIT v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 ; [1961] 2 SCR 318, which upheld the validity of the Explanation, was no longer good law in view of the decision of this court in Straw Products Ltd. v. ITO [1968] 68 ITR 227. The contention of the assessee was rejected by the Tribunal by its order dated April 16, 1969. From this decision of the Tribunal, at the instance of the assessee, a reference was made to the Gujarat High Court in which the following question was raised : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the depreciation allowable and not 'actually allowed' under the Saurashtra Income-tax Ordinance, 1949, should be taken into account in computing the aggregate depreciation allowance and writ....
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....e Central Government was authorised to make an order under the Removal of Difficulties Order and add the Explanation had never come into existence and hence adding of the Explanation was without any authority of law and invalid and of no legal effect. The next submission urged by Mr. Salve was that it is the fundamental scheme of the Indian Income-tax Act that, generally speaking, almost the entire cost of a capital asset used for purposes of the business or profession should be allowed to be written off by way of depreciation. This could be done in more than one way. It could be done by allowing a fixed percentage of the actual cost to be deducted as depreciation allowance every year till the entire cost is written off. This is known as the straight line method. The other is the method of calculating the depreciation on the basis of written down value. Written down value would be determined by deducting a fixed percentage of the original cost of the asset in the assessment year relevant to the previous year in which the asset was acquired and thereafter giving the same percentage of the written down value determined on the footing of the original cost less the depreciation already....
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....percentage on the written down value thereof as may in any case or class of cases be prescribed." The expression "written down value" as used in sub-section (2) of section 10 of the Act has been defined in sub-section (5) of section 10. The relevant part of clause (b) of the said sub-section runs as follows : "in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or any Act repealed thereby, or under executive orders issued when the Indian Income-tax Act, 1886 (II of 1886), was in force ... Provided that in the case of a building previously the property of the assessee and brought into use for the purposes of the business, profession or vocation after the 28th day of February, 1946, 'written down value' means the actual cost to the assessee reduced by an amount equal to the depreciation calculated at the rate in force on that date that would have been allowable had the building been used for the aforesaid purposes since the date of its acquisition by the assessee and had the provisions of this Act relating to the allowance for depreciation been in force on and from the date of acquis....
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....reof at their inception and deducting therefrom such depreciation as was allowed for the three assessment years in which it was assessed under the Hyderabad Income-tax Act. By an order dated November 30, 1951, the Income-tax Officer disallowed the respondent's claim on the ground that it was against the principle inherent in granting depreciation allowance which must decrease from year to year. The matter was taken up to this court and while it was pending there, on May 8, 1956, the Central Government issued a notification in exercise of its powers conferred on it by section 12 of the Finance Act, 1950, whereby an Explanation was added to the aforesaid paragraph 2 as follows : "For the purpose of this paragraph, the expression 'all depreciation actually allowed under any laws or rules of a Part B State' means and shall be deemed always to have meant the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules of a Part B State carried forward under the said laws or rules." The respondent challenged the validity of the notification of 1956 and also its applicability to the present case on grounds (1) that it was ultra vire....
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.... to be removed by paragraph 2 of the Removal of Difficulties Order, 1950. If, however, depreciation actually allowed under the Hyderabad Income-tax Act was taken into account in computing the aggregate depreciation allowance and the written down value, an anomalous result would follow as in the present case, namely, depreciation allowance to be allowed to the assessee in the accounting year under the Indian Income-tax Act would be more than what was allowed in previous years under the Hyderabad Income-tax Act. This would create a disparity and be against the scheme of the Indian Income-tax Act. It was, therefore, necessary to explain paragraph 2 of the Removal of Difficulties Order, 1950, to assimilate or harmonise the position regarding depreciation allowance, and the Explanation added in 1953 or 1956 was obviously intended to remove the difficulty arising out of that disparity or disharmony." It is not disputed that, if this decision is to be followed, both the contentions urged by learned counsel, Mr. Salve, before us must be negatived. The decision clearly lays down that a difficulty had come into existence and the Central Government had, in exercise of the power delegated to ....
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....t the rate for the time being in force under the Income-tax Act, 1961, or under the Indian Income-tax Act, 1922, . . . and the depreciation so calculated shall be deemed to be the depreciation actually allowed under the local law." The majority judgment took the view that the existence or arising of difficulty was the sine qua non for the exercise of the power under clause 7 of the Taxation Laws (Extension to Union Territories) Regulation, 1963. The "difficulty" contemplated by that clause had to be a difficulty arising "in giving effect to" the provisions of the Act, etc., and not a difficulty arising aliunde or an extraneous difficulty. Further, the Central Government could exercise the power tinder the clause only to the extent it was necessary for applying or giving effect to the Act, etc., and no further. The second proviso to clause 2 of the said Order of 1970 sought to raise the taxable income of the assessee inconsistently with the scheme of the Income-tax Act, and was ultra vires the powers of the Central Government under clause 7 of the 1963 Regulation and the Revenue was not entitled to levy tax on the basis of the depreciation allowance computed in accordance with that....
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....ective satisfaction of the Government: it is a condition precedent to the exercise of power, and existence of the condition, if challenged, must be established as an objective fact. It may be mentioned that the decision in the case of CIT v. Dewan Bahadur Ramgopal Mills Ltd. 1961] 41 ITR 280 (SC) was noticed and discussed in this judgment but it was pointed out that in that case the difficulty had arisen because, as pointed out by the court in that case, but for the Explanation, a difficulty would have arisen in that the depreciation allowance allowed to assessee under the Indian Income-tax Act would have been more than the depreciation allowance under the Hyderabad Income-tax Act. After giving our anxious consideration to the matter, we find ourselves unable to accept the submissions of Mr. Salve, learned counsel for the assessee. As pointed out by us earlier, it was frankly conceded by learned counsel that unless we took the view that the decision of this court in CIT v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 (SC) was not good law or, at least, that it needed reconsideration by a larger Bench, we must follow that decision and the appeal of the assessee must be dismi....
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....r the court to determine for itself in the first instance whether such difficulty, as contemplated, had arisen, it is open to the court to see whether the Government had a sound basis to come to the conclusion that such a difficulty had arisen. The decision in the case of Straw Products Ltd. [1968] 68 ITR 227 (SC), therefore, in no way casts a doubt on the decision of this court in Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 (SC). The other case relied upon by Mr. Salve, namely, Madeva Upendra Sinai v. Union of India [1975] 98 ITR 209 (SC) has cast no doubt whatever on the decision of this court in Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 (SC), but the court there took the view that the existence of a difficulty was the sine qua non for the exercise of the power under clause 7 of the Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Regulation, 1963. It is not disputed that the decision of the Constitution Bench of this court in the case of Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280, is binding on us. In the light of What we have discussed earlier, we do not feel that it is necessary to direct this matter to be placed before large....