Case: The Commissioner Of Income-Tax,Hyderabad Vs. Dewan Bahadur Ramgopal Mills Ltd

2. The respondent company was assessed under the Hyderabad Income-tax Act in respect of the assessment years 1357F, 1358F and 1359F. In the assessment for those years depreciation allowance was given to it on the basis of written down value of its assets, such as buildings, machinery, plant, etc., in accordance with the provisions of cl. (c) of S. 12 (5) 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 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 The Finance Act, 1950, by S. 13 thereof repealed the taxation laws in force in Part B States except for certain purposes not relevant to this case, and by S. 3 extended the Indian Income-tax Act, 1922, to the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 S. 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 cl. (vi) of sub-sec. (2) and the written down value under cl (b) of sub-sec. (5) of S. 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 Rs. 8,12,244. 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 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 1359F 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 provisions 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 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 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 S. 66 (1) of the India Income-tax Act. In the meantime, that is, on March 9, 1953, the Central Government purporting to exercise its powers conferred by S. 60A of the Indian Income-tax Act, 1922, added an Explanation to paragraph 2 of the Removal of Difficulties Order, 1950. That 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 :3. 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 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 S. 60A 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.

Reasoning:
It is obvious that in applying cl. (b) to an assessee in a Part B State there would be an initial difficulty, inasmuch 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. (b). 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 TribunalThe 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 Income-tax Act but by the Finance Act, 1950, there was a difficulty in allowing depreciation to an assessee in 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 ActThis would create a disparity and be against the scheme of the 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 disharmonyThe 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 that 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 remove 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, operatesWe think that learned Counsel for the respondent has ignored one essential consideration which clearly vitiates his argument. In the matter of depreciation allowance, the assessees 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.It has not been disputed before us that a change in 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.