Appeal No 5 of 1959
Appeal from the judgment and order dated February 16 1954 of the former Hyderabad High Court in Reference No 347B 52 of 1953 54
C K Daphtary Solicitor General of India K N Rajagopala Sastri and D Gupta for the appellant
Sanat P Mehta and J B Dadachanji for the respondent
November 8
The Judgment of the Court was delivered by section K DAS J
This is an appeal on a certificate of fitness granted by the High Court of Judicature at Hyderabad under s66 A 2 of the Indian Income tax Act 1922
The Commissioner of Income tax Hyderabad is the appellant before us
The respondent is Dewan Bahadur Ramgopal Mills Ltd a public limited company incorporated in the erstwhile State of Hyderabad
The respondent company was assessed under the Hyderabad Income tax Act in respect of the assessment years 1357 F 1358 F and 1359 F
In the assessment for those years depreciation allowance was given to it on the basis of the written down value of its assets such as buildings machinery plant etc in accordance with the provisions of cl
c of section 125 of the Hyderabad Income tax Act
That clause provided that in the case of assets acquired before the previous year and before the commencement of the Act the written down value would be the actual cost to the assessee less i depreciation at the rates applicable to the assets calculated on the actual cost for the first year since acquisition and for the next year on the actual cost diminished by the depreciation allowance for one year and so on for each year upto the commencement of the Act and ii depreciation actually allowed to the assessee on such assets for each financial year after the commencement of the 321 Act
The erstwhile State of Hyderabad merged in the Union of India on January 26 1950 and became a Part B State
The Finance Act 1950 by section 13 thereof repealed the taxation laws in force in Part B States except for certain purposes not relevant to this case and by section 3 extended the Indian Income tax Act 1922 to the whole of India except the State of Jammu and Kashmir
In exercise of the powers conferred by section 12 of the Finance Act 1950 the Central Government was pleased to make the Taxation Laws Part B States Removal of Difficulties Order 1950 hereinafter referred to as the Removal of Difficulties Order 1950 by a notification dated December 2 1950
Paragraph 2 of the said Order in so far as it is relevant to this case was in these terms  Computation of aggregate depreciation allowance and written down value In making any assessment under the Indian Income tax Act 1922 all depreciation actually allowed under any laws or rules of a Part B State relating to Income tax and Super tax or any law relating to tax on profits of business 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 sec
10 of the said Act
For the assessment year 1951 52 which was in respect of the account year ending June 30 1950 the respondent was assessed for the first time under the Indian Income tax Act 1922 read with paragraph 5 of the Part B States Taxation Concessions Order 1950
Basing its claim on paragraph 2 of the Removal of Difficulties Order 1950 the respondent asked for depreciation allowance in respect of its assets such as buildings machinery plant etc to the tune of Rs812244
It worked out the value of the assets at their inception and deducted therefrom such depreciation as was allowed for the three assessment years in which the respondent was assessed under the Hyderabad Income tax Act and calculating the written down 322 value in that manner it claimed depreciation according to the prescribed rates
By his order dated November 30 1951 the Income tax Officer disallowed this claim
He held that the claim of the respondent was against the principle inherent in granting depreciation allowance which must decrease from year to year and further held that the word  allowed  in paragraph 2 of the Removal of Difficulties Order 1950 should be construed as meaning  considered  only
Accordingly he took the figures of the written down value from the income tax proceedings of 1359 F and allowed depreciation at the prescribed rate on those figures
Against the order of the Income tax Officer the respondent went in appeal to the Appellate Assistant Commissioner Hyderabad Division
That Officer by an order dated May 23 1952 upheld the view of the Income tax Officer and dismissed the appeal
Then there was an appeal to the Income tax Appellate Tribunal which was heard by the Bombay Bench of the said Tribunal
By its order dated December 12 1952 the Appellate Tribunal held that in view of the pro visions in paragraph 2 of the Removal of Difficulties Order 1950 the contention of the respondent must prevail and it pointed out that the words used in paragraph 2 were  depreciation actually allowed under any laws or rules of a Part B State  and those words did not mean the aggregate allowance for depreciation taken into account in computing the written down value under the Hyderabad Act therefore the respondent was entitled to the depreciation allowance which it claimed
It directed the Income tax Officer to compute the written down value on the basis of the actual cost to the assessee of the assets in question minus the depreciation allowance actually allowed to the assessee under the Hyderabad Income tax Act
The appellant herein then moved the Appellate Tribunal for a reference to the High Court under section 661 of the Indian Income tax Act
In the meantime that is on March 9 1953 the Central Government purporting to exercise its powers conferred by section 60 A of the Indian Income tax Act 1922 added an Explanation 323 to paragraph 2 of the Removal of Difficulties Order 1950
Explanation said  Explanation  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 to have always 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 or carried forward under the said laws or rules 
The Explanation in terms gave effect to the contention urged on behalf of the Department and said that what has to be allowed is the aggregate allowance for depreciation taken into account in computing the written down value under any law or rules of a Part B State
In support of the application for a reference the appellant relied on the aforesaid Explanation and contended that in view of the Explanation the respondent could not claim depreciation allowance on the basis of actual cost minus the depreciation allowances actually allowed under the Hyderabad Income tax Act
On this application the Tribunal expressed the view that if the Explanation applied to the case on hand then the contention of the Department was correct and must be upheld
It said however that it had no power to review its own order and therefore considered it unnecessary to express any opinion whether the Explanation was valid and affected the case before it
It said finally that the following question of law did arise out of its order and accordingly stated a case thereon  Whether in making the assessment for the year 1951 52 under the Indian Income tax Act is the assessee company entitled to claim depreciation allowance on the basis of the written down value computed at the time of the assessment for the year 1359 F or is to be computed on the basis of the actual cost minus the depreciation allowances granted under the Hyderabad Income tax Act
The reference was then heard by the High Court of Judicature at Hyderabad which by its order dated February 16 1954 held that the Explanation added 324 to paragraph 2 of the Removal of Difficulties Order 1950 by the notification dated March 9 1953 was void on certain grounds one of which was that the Explanation was ultra vires the powers of the Central Government under section 60 A of the Indian Income tax Act
Therefore it answered the question in favour of the respondent
The appellant then obtained the necessary certificate of fitness and preferred the present appeal
In the meantime there was a further change of law
On May 8 1956 the Central Government made a notification No section R O 1139 in exercise of the powers conferred on it by section 12 of the Finance Act 1950 whereby an Explanation in identical terms as the earlier Explanation made under section 60 A of the Indian Income tax Act was added to paragraph 2 of the Removal of Difficulties Order 1950
The arguments before us have proceeded on the basis of the Explanation added by the notification aforesaid and it is not disputed that if the Explanation is valid and applies to the present case then the appeal must be allowed and the question of law answered in favour of the appellant
If on the contrary the Explanation is not valid or it does not apply to the present case then the appeal must be dismissed
We proceed now to a consideration in detail of the different contentions urged before us on behalf of the appellant and the respondent
We may first read section 12 of the Finance Act 1950 under which notification No section R O 1139 dated May 8 1956 was made
Section 12 reads  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 Government may by order make such provision or give such direction as appears to it to be necessary for removing the difficulty 
On behalf of the appellant it has been argued that the notification was validly made in exercise of the powers conferred on the Central Government under section 12 aforesaid that it does not suffer from any of the defects pointed out by the High Court in regard 325 to the earlier notification of 1953 made under section 60 A of the Income tax Act and that it adds an Explanation which in terms gives effect to the contention of the appellant and this Court must consider the change in law made thereby and give effect to it in answering the question of law arising out of the Tribunal s order
On the other hand the validity of the notification has been very strenuously contested before us by learned Counsel for the respondent
He has challenged its validity and also its applicability to the present case on the following grounds  1 that it is ultra vires the powers conferred on the Central Government by section 12 2 that it can have no retrospective effect and 3 that it contravenes article 14 of the Constitution
We shall consider these arguments in the order in which we have stated them
The first question is whether the notification is validly made under section 12 or is it ultra vires the powers conferred on the Central Government by that section  On behalf of the respondent it is urged that a condition for the exercise of the power under section 12 is contained in the opening clause which says   If any difficulty arises in giving effect to the provisions of any of the Acts rules or orders extended by section 3 or section II to any State etc
 The contention is that no difficulty arose in giving effect to the provisions of any of the Acts rules or orders referred to in the opening clause to any State etc
and therefore the condition for the exercise of the power is not fulfilled and on that ground the notification is invalid
We are unable to accept this argument as correct
Section 10 of the Income tax Act says in its first subsection that the tax shall be payable by an assessee in respect of the profits or gains of any business profession or vocation carried on by him
Sub section
2 thereof says that such profits or gains shall be computed after making certain allowances and one of these allowances is in respect of the depreciation of such buildings machinery plant etc
as are used for the purpose of the business cl
The depreciation except in certain cases is calculated on the written down value which expression is explained 326 in sub section
5 of section 10
Clause b of the sub section states S105 a        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 Act or any Act repealed thereby or under executive orders issued when the Indian Income tax Act 1886 11 of 1886 was in force 
It is obvious that in applying cl
b to an assessee in a Part B State there would be an initial difficulty in as much as prior to 1950 when the Indian Income tax Act came into force in a Part B State no depreciation could have been actually allowed to such an assessee under the Income tax Act or under any Act repealed thereby for example the Hyderabad Income tax Act was repealed by the Finance Act 1950 and not by the Income tax Act and would not therefore be covered by cl
Such and other difficulties led to the Removal of Difficulties Order 1950 which has not been seriously challenged before us
Indeed the High Court said that it was not open to the respondent to challenge the validity of the Removal of Difficulties Order 1950 because such a point was not taken before the Tribunal
Learned Counsel for the respondent has then submitted that what
ever initial difficulty there might have been in giving effect to the Indian Income tax Act in a Part State that difficulty was solved by paragraph 2 of the Removal of Difficulties Order 1950 and in any view there was no fresh difficulty which could necessitate the addition of an Explanation in 1953 or 1956
Here again we think that the submission is not correct
The basic and normal scheme of depreciation under the Indian Income tax Act is that it decreases every year being a percentage of the written down value which in the first year is the actual cost and in suc ceeding years actual cost less all depreciation actually allowed under the Income tax Act or an Act repealed thereby etc
The Hyderabad Income tax Act not having been repealed by the Income tax Act but by the Finance Act 1950 there was a difficulty in 327 allowing depreciation to an assessee in a Part B State in the first year of assessment under the Indian Income tax Act
This difficulty was sought 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
Furthermore the true scope and effect of section 12 seems to be that it is for the Central Government to determine if any difficulty of the nature indicated in the section has arisen and then to make such order or give such direction as appears to it to be necessary to remove the difficulty
Parliament has left the matter to the executive but that does not make the notification of 1956 bad
In Pandit Banarsi Das Bhanot vs The State of Madhya Pradesh  Ors
1 we said at page 435  Now the authorities are clear that it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws such as the selection of persons on whom the tax is to be laid the rates at which it is to be charged in respect of different classes of goods and the like 
We are therefore of the view that the notification of 1956 was validly made under section 12 and is not ultra vires the powers conferred on the Central Government by that section
The second question is does the notification apply 1  328 to the assessment in the present case which is an assessment for the year 1951 52  The notification was made in 1956 and it added an Explanation to paragraph 2 of the Removal of Difficulties Order 1950
It says that a particular expression occurring in that paragraph means and shall be deemed always to have meant the aggregate allowance for depreciation taken into account in computing the written down value etc under any law of a Part B State
The argument on behalf of the respondent is that the law which governs an assessment for the assessment year 1951 52 is the law in force at the time when the Finance Act 1951 came into force accordingly so the argument proceeds paragraph 2 of the Removal of Difficulties Order 1950 as it stood on April 28 1951 when the Finance Act 1951 came into force will apply in the present case
We consider this argument to be unsound
The Explanation though added in 1956 explains the meaning of paragraph 2 of the Removal of Difficulties Order 1950 and says in express terms that the paragraph shall be deemed always to have had that meaning
Section 12 by the very nature of its intent and purpose confers on the Central Government power to make an order to remove a difficulty which has already arisen and the power to re
move the difficulty must necessarily include the power to remove the difficulty from the time it arose
The Central Government has therefore the power to make an order or give a direction so as to remove the difficulty from the very beginning and that is what the notification of 1956 does
It applies to the assessment of 1951 52 indeed it applies to all assessments made under the Indian Income tax Act in which paragraph 2 of the Removal of Difficulties Order 1950 operates
The last challenge to the validity of the notification of 1956 is that it contravenes article 14 of the Constitution because it discriminates between different classes of tax payers
Learned Counsel for the respondent has asked us to consider the cases of assessees in three different areas which subsequently come in a Part B State in one area there was no law relating to 329 income tax in the second there was a law relating to income tax under which written down value was computed on the basis of depreciation actually allowed year after year while in the third the written down value was computed in the manner provided under the Hyderabad Income tax Act it is pointed out that on the extension of the Indian Income tax Act read with paragraph 2 of the Removal of Difficulties Order 1950 and the Explanation to those areas the assessee in the first area will get depreciation allowance on the actual cost in the second area he will get such allowance on the basis of actual cost less depreciation actually allowed and in the third area he will get such allowance on the actual cost less depreciation taken into account
It is contended that this resultant discrimination is arbitrary and without any rational justification We think that learned Counsel for the respondent has ignored one essential consideration which clearly vitiates his argument
In the matter of depreciation allowance the assessee in the three areas in the example given by him do not stand on the same footing they are not situated alike so as to be entitled to be treated alike
It is obvious that an assessee from an area where there was no income tax law at all can never say that in the matter of depreciation allowance as respects buildings machinery plant etc he is on a par with a person in an area where there was a law relating to income tax allowing depreciation on such buildings machinery plant etc
The same would be the position with regard to areas where the previous law as to depreciation was different
Indeed to treat all these persons alike would be tantamount to unequal treatment
In our view the notification of 1956 creates no unequal treatment of persons in a like situation  it applies to all who are in a like situation namely all those to whom paragraph 2 of the Removal of Difficulties Order 1950 applies
We consider that the challenge to the notification based on article 14 is wholly unsubstantial
It has not been disputed before us that a change in 42 330 law validly made and applicable to a case pending in appeal must be considered and given effect to by the Appellate Court
The conclusion we have reached is that the notification of 1956 was validly made and applies to the present case
In view of this conclusion we have considered it unnecessary to examine the notification of 1953 or the reasons for which the High Court held that notification to be bad
For the reasons given above we allow this appeal and set aside the judgment and order of the High Court dated February 16 1954
The question referred to the High Court is answered in favour of the appellant
The appellant has succeeded by reason of the notification of 1956 and taking that circumstance into consideration we direct that there will be no order for costs for the hearing in this Court
Appeal allowed


Summary:
The Government of U P appointed a Court of enquiry under sections 6 and 10 of the United Provinces  and referred to it the present dispute
The Court of enquiry submitted its report to the Government whereupon the Government issued a notification in July 1950 directing the various sugar factories to pay bonus to their workmen for the years 1948 49 as well as to pay certain amounts as bonus for the years 1947 48
331 Court against the Government prohibiting it from enforcing the notification
The State Government came up in appeal urging that the provisions of cl
b of section 3 of the United Provinces  were wide enough to permit it to issue such a direction to the employer because by doing so the State Government would be imposing a condition of employment in future
The respondents inter alia contended that 1 clause b of section 3 of the Act does not operate retrospectively  2 bonus could only be a term of employment by agreement and could not be imposed by statute  3 where there was an industrial dispute cl
d and not cl
b of section 3 of the Act would apply and 4 if cl
b was applicable it was ultra vires being discriminatory and violative of article 14 of the Constitution and also violative of article 19i of the Constitution as it confers arbitrary powers on the State Government
Held that i though cl
b of section 3 of the United Provinces  could not be given a retrospective effect yet there was nothing therein which prohibited the State Government from giving a direction with regard to the payment of bonus and by giving such a direction the State Government was not giving retrospective effect to the provisions of that clause nor did it add a new term or a condition for a period which was over it merely required the employer to pay an additional sum of money to their employees as a term and condition of employment in future ii though normally wage is a term of contract it can be made a condition of employment by statute and it was open to the State Government under cl
b of section 3 to make the payment of bonus to workmen a condition of their employment in future iii where the employees bargained in their collective capacity the fact that the personnel of the factory when the order for the payment of bonus was made by the Government and in the year to which dispute related were not the same did not affect the power of the Government as the order would apply only to those employees who had worked during the period in question and not to new employees  iv the normal way of dealing with an industrial dispute would be to have it dealt with judicially and not by resort to executive action but cl
b of section 3 empowers the Government to act promptly in case of an emergency and arms it with additional powers to deal with such an emergency in the public interest v when the Government had made an executive or per under cl
b of section 3 on the ground that it was in the public interest to do so it was open to the aggrieved party to move the Government to refer the industrial dispute for conciliation or adjudication under cl
b of section 3 of the Act
332 vi the provisions of cl
b of section 3 are not in any sense alternative to those of cl
d and the former could be availed of by the State Government only in an emergency and as a temporary measure
The right of the employer or the employee to require the dispute to be referred for conciliation or adjudication would still be there and could be exercised by them by taking appropriate steps vii clause b of section 3 of the Act is not violative of the provisions of article 191g of the Constitution as it permits action to be taken thereunder by the Government only in an emergency and in the public interest
The restriction placed upon the employer is only a temporary one and having been placed in the public interest falls under cl
6 of article 19 of the Constitution
Ram Nath Koeri and Anr
vs Lakshmi Devi Sugar Mills and Ors  approved
L D Mills vs U P Government AIR 1954 All 705 overruled