vil Appeal No 612 NT of 1975
From the Judgment and Order dated 24259
1974 of the Gujarat High Court in Special Civil Application No 1797 of 1972
Harish N Salve Mrs AK Verma and Joel Pares for the Appellant
VS Desai MB Rao and Ms A Subhashini for the Respondents
The Judgment of the Court was delivered by KANIA J
This is an appeal from the judgment of a Division of 5 the High Court of Gujarat in Special Civil Application No 1797 of 1972 on a certificate granted under Article 1331 of the Constitution of India
The relevant facts are as follows The assessee is a Private Limited Company and carries on the business of manufacturing and selling textile at Porbun dar in Saurashtra in the Gujarat State
Before 1948 Porbun dar was a part of the Princely State of that name
No In come Tax was levied by the erstwhile Porbundar State prior to 1948
In 1948 there was a merger of several Princely States and as a result of the merger the State of Saurash tra was formed
No income tax was levied by the State of Saurashtra till 1949 when it promulgated the Saurashtra Income tax Ordinance
Under that Ordinance provision was made for 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actual cost to the assessee less all depreciation actually allowed to him under this Ordinance or allowed under an act repealed thereby or which would have been allowed to him if the Income tax Act 1922 was in force in past On 26th January 1950 State of Saurashtra became a part of Union of India as a Part B State
The Indian Income tax Act 1922 became applicable to the State of Saurashtra from 1st April 1950 under the provisions of the Fi nance 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By Section 13 of the Finance Act of 1950 which provides for repeals and savings the Saurashtra Income tax Ordinance was repealed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 Government may by order make such provision or give such direction as appears to it to be necessary for removing the difficulty
 In exercise of the powers conferred upon it by Section 12 of the 6 Finance Act 1950 the Central Government issued an order known as Taxation Laws Part B States Removal of Difficulties Order 1950
Clause 2 of the Order of 1950 reads as follows Computation of aggregate depreciation allow ance and the written down value In making any assessment under the Indian Incometax 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 prof its 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 Section 10 of the said Act
Provided that where in respect of any asset depreciation has been allowed for any year both in the assessment made in the Part B State and in the taxable territories the greater of the two sums allowed shall only be taken into account
 This order was made by the Central Govern ment on December 2 1950
Subsequently on March 9 1953 in exercise of the powers conferred upon it by Section 60A of the Indian Income tax Act 1922 an Explanation was added by the Central Government to the above Clause 2 of the Order of 1950 with effect from that date and that Explanation was in the following terms For the purpose of this paragraph the ex pression 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 or carried forward under the said laws or rules In Commissioner of Income tax Hyderabad vs DBR Mills Ltd the Hyderabad High Court held that this Explanation was ultra vires the powers of the Central Government under Section 60A of the Indian Income tax Act 1922
After the said decision of the High Court the Central Government issued a notifica 7 tion on 8th May 1956 in exercise of the powers conferred upon it by Section 12 of the Finance Act 1950 and under this notification an Explanation in identical terms as the earlier Explanation inserted 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 income of the assessee was computed on receipt basis but in calculating the world income depreciation was taken into consideration for arriv ing at the income outside British India
The assessee was also assessed for assessment year 1949 50 under the Saurash tra 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 thereafter on the original cost of the assets as reduced by the deprecia tion allowance given under the Saurashtra Income tax Ordi nance 1949
The respective written down values for assess ment years 1951 52 and 1952 53 were fixed on the basis of the written down value for assessment year 1950 51
However subsequently the Income tax Officer concerned having juris diction over the case of the petitioner rectified the calculations of depreciation allowance by further reducing the written down value of the assets of the assessee by adopting the procedure which has been set out in paragraph 7 of the petition filed by the assessee
What was done by the Income tax Officer was that the written down value taken for the assessment year 1940 41 by the Income tax Officer Bombay was taken as the starting point
From this written down value the depreciation that was actually allowed to the assessee in respect of the assessment years 1940 41 to 1944 45 was deducted
For the assessment years 194546 to 1948 49 the written down value was calculated after calcu lating the depreciation allowance which would be allowable under the rules
For the assessment year 1949 50 the depre ciation allowance as calculated under the Saurashtra Income tax Ordinance 1954 was deducted
For the assessment years 1950 51 to 1952 53 the depreciation allowance actual ly deducted under the assessment orders passed under the Indian Income tax Act was calculated and for the assessment year 1953 54 the depreciation allowance was calculated under Rule 8 of the 8 Indian Income tax Rules made under the Indian Income tax Act
For the assessment years 1954 55 to 1956 57 the depre ciation was calculated on the basis of the above rectifica tion order
The contention of the assessee is that the depreciation for the previous years should have been calcu lated only on the basis of Clause 2 of the Taxation Laws Part B States Removal of Difficulties Order 1950 which provided for computation of the aggregate depreciation allowance on the basis of the deduction which was actually allowed under the provisions of Saurashtra Income tax Ordi nance 1949
Regarding the Explanation which was added as set out earlier the contention of the assessee was that it was ultra vires the powers of the Central Government as it was not necessary for the removal of any difficulty
This contention of the assessee was rejected by the Income tax authorities as well as 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 Explanation to Clause 2 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 The Commissioner of Income tax Hyderabad vs Dewan Bahadur Raingopal Mills Ltd   which upheld the validity of the Explanation was no longer good law in view of the decision of this Court in Straw Products Ltd vs Income tax Officer
A Ward Bhopal and Ors 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 ques tion 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 depre ciation allowance and written down value under Section 102vi of the Income tax Act 1922 This reference was numbered as Reference No 45 of 1970
On August 17 1972 the High Court held that in its advisory jurisdiction under the Income tax Act it could not go into the question of the vires of the said Explanation and an swered the question against the assesee
Thereafter the assessee filed Special Civil Application No 1797 of 1972 from the decision wherein this appeal arises
In this Spe cial Civil Application the vires of the Explanation added by the Central Government by its 9 notification dated May 8 1956 in exercise of the powers under Section 12 of the Finance Act of 1950 as well as the assessments made on the assessee for the assessment years 1957 58 to 1959 60 were challenged
The Division Bench of the Gujarat High Court in its impugned judgment pointed out that the decision of this Court in The Commissioner of Income tax Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd had upheld the validity of the said Explanation
The Gujarat High Court noted that the decision of this Court in Straw Products Ltd vs Income tax Officer arose from the merged State of Bhopal
Some of the arguments which did not find favour with this Court in the case of The Commissioner of Income tax Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd were accepted by a Bench of seven learned Judges of this Court in the case of Straw Products
The Gujarat High Court pointed out that in its decision in the case of Straw Products this Court had considered the decision in the case of Dewan Bahadur Ramgopal Mills Ltd and explained that decision by stating that the Supreme Court was satisfied that on the facts of that case a difficulty had arisen and it was for removing that difficulty that the Order of 1956 was issued
The Division Bench of the Gujarat High Court considered the decision of this Court in Dewan Bahadur Raingopal Mills Ltd as binding and following the same dismissed the Special Civil Application filed by the asses see
Mr Salve made two submissions before us
The first submission made by him was the same as made on behalf of the assessee before the High Court namely that there was no difficulty which had arisen in giving effect to the provi sions of the Indian Income tax Act in the State of Saurash tra and hence the pre condition on which the Central Govern ment 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 no legal ef fect
The next submission urged by Mr Salve was that it is the fundamental scheme of the Indian Incometax Act that generally speaking almost the entire cost of a capital asset used for purposes of business or profession should be allowed to be written off by way of depreciation
This could be done in more than one ways
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 assessment year relevant to the previ ous year in which the asset was 10 acquired and thereafter giving the same percentage of the written down value determined on the footing of the original cost less the depreciation already allowed
Taking into account the definition of the term written down value contained in Section 10 of sub section 5 of Indian Income tax Act 1922 the basic scheme under the said Act appears to be that in determining the written down value for depreciation allowance the taxing authority can deduct only such amounts as have been allowed earlier by way of deduc tion
It was submitted by him that this position was accept ed in the decision of this Court in Straw Products Ltd vs Income tax Officer
In the present case if the impugned Explanation was applied the result would be that the writ ten down value of the capital asset of the assessee acquired prior to 1949 would be determined by making deductions for depreciation allowance which was not actually allowed to the assessee between the assessment years 1945 46 to 1948 49
This result would follow from the manner in which the writ ten down value was calculated under the Saurashtra Income tax Ordinance of 1949
It was urged by him that in exercise of its delegated powers it was not open to the Central Government to enact such an Explanation
In order to examine this contention it would be useful to bear in mind some of the provisions of the Indian Income tax Act
In that Act the charge of Income tax is in respect of total income of the previous year
The expression total income very briefly stated is defined in sub section 15 of Section 2 as meaning the total amount of income profits and gains com puted in the manner laid down in the Act
Chapter 3 of the Act deals with the various Heads of Income chargeable to Income tax and Section 10 deals with the Head of Income in respect of profits or gains of business profession or vocation carried on by the assessee
Sub section 2 of Section 10 deals with the allowances which have to be made in the computation of the profits and gains from business profession or vocation and Clause vi of the said sub section provides for depreciation
The relevant portion of Clause vi ran as follows In respect of depreciation of such buildings machinery plant or furniture being the property of the assessee a sum equivalent where the assets are ships other than ships ordinarily plying on inland waters to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case to such percentage on the written down value thereof as may in any case or class or cases be pre scribed
 The expression written down value as used in sub section 2 11 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
X X X X Provided that in the case of a building previously the property of the asses see 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 build ing 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 acquisition
 In The Commissioner of Income tax Hyderabad vs Dewan Bahadur Ramgopal Mill Ltd the very Explanation added by the notification dated 851956 which is challenged before us came up for consideration before a Constitution Bench of this Court
The facts in that case were that prior to January 26 1950 when the erstwhile State of Hyderabad merged in the Union of India and became a Part B State the respondent company was assessed to Income tax under the Hyderabad Income tax Act under which depreciation allowance was given to it on the basis of the written down value of its assets such as buildings machinery plants etc in accordance with clause c of section 125 of that Act which 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 calculat ed on the actual costs 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 that Act and ii depreciation actually allowed to the assessee 12 on such assets for each financial year after the commence ment of the Act
After the merger of Hyderabad with the Union of India by sections 3 and 13 of the Finance Act 1950 the taxation laws in force in that State were repealed and the Indian Income tax Act 1922 was extended to that area and in exercise of the powers conferred by section 12 of the Finance Act 1950 the Central Government issued a notification dated December 2 1950 called the Taxation Laws Part B States Removal of Difficulties Order 1950
Paragraph 2 of the Order provided that in making any as sessment under the Indian Income tax Act 1922 all depreci ation actually allowed under any laws or rules of a Part B State   shall be taken into account in computing the aggregate depreciation allowance referred to in proviso c to section 102vi and the written down value under section 105b of the said Act
For the assessment year 195 1 52 the respondent was assessed for the first time under the Indian Income tax Act and basing its claim on paragraph 2 of the aforesaid Order it asked for depreciation allowance in respect of its assets by working out the value thereof 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 30 195 1 the Incometax 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 ex pression all depreciation actually allowed under any law 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 respondent challenged the validity of the notification of 1956 and also its applicability to the present case on grounds 1 that it was ultra vires the powers conferred on the Central Government by section 12 of the Finance Act 1950 2 that it contravened Article 14 of the Constitu tion and 3 that in any case it could have no retrospec tive effect
13 It was held by this Court that the true scope and effect of Section 12 of the Finance Act 1950 was that it was for the Central Government to determine if any difficulty of the nature indicated in the section arises and then to make such order or give such direction as appeared to it to be neces sary to remove the difficulty the legislature having left the matter to the executive
In the present case a difficulty had arisen because if depreciation actually allowed under the Hyderabad Income tax Act was taken into account in computing the aggregate depre ciation allowance and the written down value an anomalous result would follow 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
Conse quently the Central Government was within its power under section 12 in making the notification dated May 8 1956
It was also held that the notification of 1956 applied to all those to whom paragraph 2 of the Taxation Laws Part B States Removal of Difficulties Order 1950 was ap plicable and created no unequal treatment of persons in the like situation
Accordingly the notification did not con travene Article 14 of the Constitution
In the course of the leading judgment SK Das J set out the chain of events which led to the notification dated May 8 1956 under sec tion 12 of the Finance Act 1950 being issued which we have already set out earlier and went on to state as follows 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 succeeding years actual cost less all depreciation actually allowed under the Income tax Act or any Act repealed thereby etc
The Hyderabad Income tax Act not having been repealed by the Incometax Act but by the Finance Act 1950 there was a difficulty in 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 14 case namely depreciation allowance to be allowed to the assessee in the accounting year under the Indian Incometax 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 Remov al of Difficulties Order 1950 to assimilate or harmonise the position regarding deprecia tion 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 fol lowed both the contentions urged by the 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 it issued the said notification in 1956 adding the said Explanation to resolve the difficulty
The Court took the view that under the scheme of the Indian Income tax Act in respect of assets acquired before the relevant previous year depreciation is to be allowed on the basis of the original cost less depreciation in respect of earlier years
viz the years intervening between the relevant previous year and the year of acquisition
Where any tax on income was levied during any of these intervening years the actual cost would have to be reduced by the depreciation actually allowed but in respect of such intervening years when there was no tax levied on income depreciation on a notional basis would have to be deducted from the actual cost of the asset
In deducting an amount on account of such notional depreciation there seems to be nothing against the basic scheme of the Income tax Act
These are the conclusions which flow from the said decision of Court in the case of Dewan Bahadur Ramgopal Mills Ltd The said decision has been rendered by a Bench comprising five learned Judges of this Court and must normally be regarded as binding
upon us
The question however is whether the said decision needs to be reconsidered in view of two later decisions of this Court which we shall presently discuss
The first of the said two decisions cited by Mr Salve is that in the case of Madeva Upendra Sinai vs Union of India  Ors The said decision has been rendered by majority comprising four learned Judges out of five compris ing the Bench which decided the case
In that case the challenge was to the validity of the second Proviso to Clause 2 of the Taxation Laws Extension to Union Territo ries Removal of Difficulties Order No 2 of 1970 which was deemed to have come into force on 1st April 15 1963
In brief this clause provided that in making any assessment under the Indian Income tax Act 1961 all depre ciation actually allowed under the local laws shall be taken into account in computing the written down value
The second Proviso to that Clause was as follows Provided further that where in respect of any period no depreciation was actually allowed under the local law or the depreciation actu ally allowed cannot be ascertained deprecia tion in respect of that period shall be calcu lated at 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 a 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 diffi culty arising in giving effect to the provisions of the Act etc and not a difficulty arising aliunde or an extra neous difficulty
Further the Central Government could exercise the power under 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 Central Government under Clause 7 of the 1963 Regulation and the Revenue was not entitled to lay tax on the basis of the depreciation allow ance computed in accordance with that proviso
It was fur ther held that the said second proviso to Clause 2 of the 1970 order would in the implementation of the Act create difficulties rather than remove them
It was further held that the key word in Clause b of Section 436 of the Income tax Act 1961 is actually
11 is the antithesis of that which is merely speculative theoretical or imaginary
Actually contra indicates a deeming construction of the word allowed which it qualifies
It cannot be stretched to mean notionally allowed or merely allowable on a notional basis
In Straw Products Ltd a challenge was made to the validity of sub clause b of paragraph 2 of the Taxation Laws Merged States Removal of Difficulties Order 1949 inserted therein by the Taxation Laws Merged States Removal of Difficulties Amendment Order 19621t was held that the said sub clause of the said Explanation was ultra vires 16 the Central Government under Section 6 of the Taxation Laws Extension to Merged States and Amendment Act 1949 under which it was purported to be made since no difficulty was proved to have arisen justifying the invocation of the power under Section 6 and the revenue authorities were not enti tled to levy tax on the basis of depreciation allowance computed in accordance with sub clause b of the said Explanation to paragraph 2 of the Order
It was held that the expression depreciation actually allowed connotes under Section 102vi of the Indian Income tax Act 1922 under Clause 2 of the Taxation Laws Merged States Removal of Difficulties Order 1949 and the notification under Section 60A of the Income tax Act depreciation taken into account in assessing the income of an assessee arising from carrying on business and does not mean depreciation merely allowable or applicable under the taxing provision at p 236
The Court took the view that the exercise of the power under Section 6 of the Taxation Laws Extension to Merged States and Amendment Act 1949 to make provisions or to issue directions as may appear necessary to the Central Government is conditioned by the existence of a difficulty arising in giving effect to the provisions of any Act rule or order extended by Section 3 to the Merged States
The Section does not make the arising of a difficul ty a matter of subjective satisfaction of the Government it is a condition precedent to the exercise of power and existence of the condition if challenged must be estab lished as an objective fact
It may be mentioned that the decision in the case of The Commissioner of Income tax Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd 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 insofar as 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 the learned Counsel that unless we took the view that the decision of this Court in The Commissioner of Income Tax Hyderabad vs Dewan Baha dur Ramgopal Mills Lid 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 dis missed
It is the undisputed position that the very provi sion which is challenged before us was earlier challenged before a Constitution Bench of this Court in 17 the aforementioned case and that challenge was negatived
The mainplank of learned Counsel s argument is that in the case of Straw Products Ltd vs Income tax Officer a view has been taken which is inconsistent with the view taken in The Commissioner of Income tax Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd Now in fact we find that a Bench comprising seven learned Judges of this Court in this case of Straw Products Ltd has considered the decision of this Court in Dewan Bahadur Ramgopal Mills Ltd and has observed that the case could be distinguished because in that case there was a difficulty which had in fact arisen and hence it was necessary to issue the Removal of Difficulties Order 1956
The observations of this Court in that case at page 237 to 238 of the aforesaid Report only show that this Court disapproved the interpretation given to the decision in the case of Dewan Bahadur Ramgopal Mills Ltd by the Madhya Pradesh High Court namely that it was a matter for subjective satisfaction of the Government to decide whether a difficulty has arisen and it was not open to the Court to investigate that question
It was pointed out that in Dewan Bahadur Ramgopal Mills Ltd this Court was satisfied that in fact a difficulty had arisen and that difficulty had to be removed and for removing the difficulty the Order of 1956 was issued
On a fair reading of the decision in the case of Straw Products along with the decision in the case of Dewan Bahadur Ramgopal Mills Ltd it appears to us that the view taken in Straw Products Ltd is that although it is for the Government to subjectively satisfy itself that a difficulty has arisen of the kind set out in those decisions before an order can be issued under the power to issue orders for removal of difficulties but that satisfaction is not conclusive as suggested by the High Court of Madhya Pradesh and it is the duty of the Court concerned to examine for itself whether there was a reasonable basis for the Government to have come to such a conclusion
Anyway al though it is not for the Court to determine for itself in the first instance whether such a difficulty as contemplat ed 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 therefore in no way casts doubt the deci sion of this Court in Dewan Bahadur Ramgopal Mills Ltd The other case relied upon by Mr Salve
namely Madeva Sinai v Union Of India has cast no doubt whatever on the decision of this Court in Dewan Bahadur Ramgopal Mills Ltd but the Court there took the view that the existence of a difficulty was sine qua non for the exercise of the power in Clause 7 of the Taxation Laws Extension to Union Territories Removal of Difficulties Regulation 1963
18 It is not disputed that the decision of the Constitution Bench of this Court in the case of Dewan Bahadur Ramgopal Mills Ltd 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 a larger Bench so that the decision in Dewan Bahadur Ramgopal Mills Ltd could be reconsidered
In fact in the case of Straw Products a larger Bench of this Court did consider that decision and came to the conclusion that on the facts of that case the decision was correct
In view of this we fail to see how any useful purpose would be served by referring this appeal to a larger Bench
Moreover problems of the type which have arisen in these cases are not likely to recur hereafter except very rarely
In view of this we would prefer to follow the decision in The Commissioner of Income tax Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd and the appeal of the assessee must stand dismissed
Even apart from what we have stated in the foregoing paragraph we may point out that in the present case the Saurashtra Income tax Ordinance was repealed by Section 13 of the Finance Act 1950 and not by any provision of the Indian Income tax Act
As observed in the case of The Com missioner of Income Tax Hyderabad vs Dewan Bahadur Ramgopal Mills Ltd at page 326 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 succeeding years actual cost less all depreciation actually allowed under the Indian Income tax Act or any Act repealed thereby etc
In that case an anomalous situation arose because the Hyderabad Income tax Act was not repealed by the Indian Income tax Act but by the Finance Act 1950 and hence a difficulty arose in allowing depreciation to an assessee in Part B State
In the present case also the Saurashtra Income tax Ordinance having been repealed not by the Indian Income tax Act but by Section 13 of the Finance Act 1950 a similar difficulty had come into existence and hence we fail to see how it can be said that the Government had no good basis to come to the conclusion that a difficul ty had
in fact arisen as contemplated in the case of Dewan Bahadur Ramgopal Mills Ltd In the result the appeal fails and is dismissed
Howev er considering the facts and circumstances of the case there will be no order as to costs
YL Appeal dis missed


Summary:
Clause a of section 2 of the Gujarat Tax on Luxuries Hotels and Lodging Houses Act 1977 defines charges for lodging to include charges for airconditioning telephone television radio music and extra beds and the like
The Explanation appended thereto makes the decision of the State Government on any dispute in that behalf final
Clause e defines luxury provided in a hotel  to mean accommodation the charges for which including charges for airconditioning etc
but excluding charges for food and other amenities is not less than thirty five rupees per person per day
Section 3 prescribes the rates of tax at certain percentage of the lodging charges per person per day recovered by proprietors of hotels and lodging houses from persons lodging therein
Sub section 3 of section 4 provides that where luxury provided in a hotel to any person not being an employee of the hotel is not charged at all or is charged at concessional rate then also there shall be levied and collected the tax on such luxury as if full charges for such luxury were paid to the proprietor of the hotel
894 It was contended for the appellants that Entry 62 of List II of Schedule VII to the Constitution providing for taxes on luxuries contemplates and takes within its sweep a tax on goods and articles in their aspect and character as luxuries  which does not include services and activities the levy on the services for lodging provided at the hotels was therefore ultra vires the State power under the said entry that the leaf criterion distinguishing luxury being a special attribute or quality of the commodity Or the services as the case may be and not the quantitative difference in the price the impost has no relation to the concept of luxuries in the legislative entry that the scheme of the Act in so far as it makes no distinction between the components of the services which include both necessities and comforts as distinguishable from luxuries the levy on such composite subject matter was bad that the expression and the like in the definition of charges for lodging in section 2a was vague and irrational and read with the explanation thereto which renders the decision of the State Government on what constitutes lodging charges final was an unreasonable restriction
violative of Article 191g that section 43 which provides that the luxury provided free or at concessional rates be taxed as if the full charges were deemed to have been received was unreason able and offends Article 191g and that the luxury tax imposed on the charges for lodging has the direct and imme diate effect of restricting the freedom under Article 301 of the Constitution as it directly impedes the right of inter course throughout the territories of India
Similar contentions were raised in the writ peti tions challenging the analogous provisions of the Tamil Nadu Tax on Luxuries in Hotels and Lodging Houses Act 1981 and the Karnataka Tax on luxuries Hotels and Lodging Houses Act 1979
In the writ petition challenging section 4 of the West Bengal Entertainments and Luxuries Hotels and Restaurants Tax Act 1972 which fixes the liability to pay tax on the pro prietor of the hotel anti restaurant on the basis of the floor area as well it was contended that the means of providing luxury by itself does not provide the nexus be tween the taxing power and the subject of tax and that the power to levy a tax on the mere existence of the provision for luxury without its actual and not merely a notional or potential consumption or utilisation was beyond the scope of the legislative entry and also violative of the fundamental right under Article 191g
Dismissing the appeals and writ petitions 895 HELD 11 The entries in the Legislative List should not be read in a narrow or pedantic sense but must be given their fullest meaning and the widest amplitude and be held to extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in them
906F 12 So read the concept of a tax on luxuries  in Entry 62 List II cannot be limited merely to tax things tangible and corporeal in their aspect as luxuries 
The entry encompasses all the manifestations or emanations the notion of luxuries  can fairly and reasonably be said to compre hend
The element of extravagance or indulgence that differ entiates luxury  from necessity  cannot be confined to goods and articles
It can also be found in the quality of services and activities
An airconditioned space whether in a hotel or in a restaurant is a luxury by itself
People enter into these spaces with a view to enjoy amuse or entertain themselves
908CE 906C AB Abdul Kadir  Ors
vs State of Kerala   Western India Theatres Ltd vs The Cantonment Board Poona Cantonment 1959 2 Supp
SCR 63 and State of Bombay vs RMD Chamarbaugwalia   referred to
Spences Hotel Private Ltd  Anr
vs State of West Bengal  approved
AS Bava vs State of Kerala  overruled
21 The ideas of luxury or necessity are necessarily relative ideas and require to be understood in the context of contemporary standards of living
What might have been a luxury some decades ago might cease to partake of that character now
What is luxury today might be considered a necessity a decade or so later
A number of factors have to be taken into account in adjudging a luxury
911H 912C AB Abdul Kadir  Ors
vs State of Kerala   referred to
22 In the instant case legislature has chosen to identify the luxury by the statutory standards prescribed by it
According to the legislative assumption price does become evidence of the special quality on the basis of which luxuries could be distinguished and that some special quali ty is attributable to goods and services through the means of the price
Quality and price in the legislative assess ment can thus be 896 assumed to have a logical interrelationship
This cannot be held to suffer from the vice of irrationality
912DE 23 In the context of lodging accommodation and the services that go with it the concept of luxury would neces sarily be a comprehensive idea taking into account the various components of the services
Differences of degree can at particular stage become differences of kind
The composite elements of lodging accommodation and services associated with it cannot be broken into components so as to distinguish some components as necessities some others as comforts and yet others as luxuries
Even necessities and comforts which have to them the additional element of undue elegance to a point of extravagance and indulgence might become luxuries
912G 913A It cannot therefore be said that there is nothing in the law which identifies or distinguishes luxury on the basis of any special attribute apart from the price factor
913B 31 The mere absence of a corrective machinery by way of appeal or revision to rectify an adverse order made by an authority on whom power is conferred or the existence of a provision imparting finality in a statute by themselves would not be conclusive so as to render the conferment of power per se unreasonable and arbitrary rendering the provi sion unconstitutional
913F Babu Bhai vs State of Gujarat  referred to
Corporation of Calcutta vs Calcutta Tramways Co   distinguished
32 In the instant case there are in built checks on the power under Explanation to section 2a
The expression and the like occurring in the section when construed ejusdem generis indicates that the class of items envisaged by the preceding words was not exhaustive of the genus
The Legis lature therefore has supplied these words so as to bring in any other item of the same class of genus
This by itself is a clear guide for the exercise of the power
914B 33 Another relevant consideration is the identity and status of the repository of the power
The power in the instant case is given to a high authority like the State Government
It cannot therefore be said that the power is an uncanalised power and is an arbitrary or unreasonable one so as to fall under Article 191g
There are statutory guides 897 governing its exercise and the guidelines are covered by well settled principles of interpretation
914C 4
The deeming provision in section 43 of the Act does not apply to cases where accommodation is provided free or at concessional rates to the employees of the hotel
This provision which merely states that where the usual lodging charges are not collected for providing the lodging accommo dation tax shah be payable as if the usual charges had been collected is a provision against evasion
It cannot there fore be said to he unreasonable
914EF 51 Freedom under Article 301 is a great freedom one of the utmost significance to economic unity of the nation
However taxes can and do sometimes constitute restrictions on the said freedom
But such restrictions must stem from the provisions of the law imposing the tax which could be said to have a direct and immediate effect of restricting the free flow of trade commerce and intercourse
916F E 52 In the instant case it has not been shown how a tax on luxuries enjoyed by a person in a hotel was either dis criminatory or has the direct and immediate effect of imped ing the freedom of intercourse
It cannot thus be said to offend Article 301 of the Constitution
916G Atiabari Tea Co vs State of Assam   Firm ATB Mehtab Majid  Co vs State of Madras 1963 Supp
2 SCR 435 Gratwick vs Johnson   Baldwin vs GAF Inc and Grannall vs Marrick ville Margarine Pty Ltd   referred to
61 Section 4 of the West Bengal Act cannot be said to be beyond the legislative entry
The taxable event need not necessarily be the actual utilisation or the actual consump tion as the case may be of the luxury
So long as the legislation has reasonable nexus with the concept of lux uries in the broad and general sense in which the expres sions in legislative tests are comprehended the legislative competence extends to all matters with respect to that field of topic of legislation
In the instant case provision for luxury  in a hotel or restaurant amenable to a potential consumption does provide the nexus
909C 910F E H Bhagwan Dass Jain vs Union of India   re ferred to
Ramesh Waman Toke  Ors
vs The State of Maharashtra AIR 1984 Bombay 345 overruled
898 62 If the provider of the luxury is also independently amenable to the tax the further restriction on the power would tend to cut into the plenitude of the field of legis lation
If the idea of luxuries  is required to be so wide as to comprehend in it every aspect which can fairly and reasonably be said to be embraced by it then the said taxing power under the Entry cannot be limited or condi tioned in any manner whatsoever
911A 63 Once the legislative competence and the nexus be tween the taxing power and the subject of taxation is estab lished the other incidents are matters of fiscal policy behind the taxing law
The actual measure of the tax which is a matter of legislative policy and convenience is not the same thing as and must be kept distinguished from the subject of the tax
911B 64 The mere excessiveness of a tax or the fact that it affects the earnings cannot pre se be held to violate Arti cle 191g
911 C