Case: The Mahalaxmi Mills Ltd Vs. The Commissioner Of Income-Tax,Bombay(And Connected Appeal

2. The controversy in all these cases is as regards the computation of written down value in calculating depreciating allowance.2. Both the assessees had from before 1949-50 been carrying on business in Bhavnagar which was formerly an Indian State. In 1948 Bhavnagar along with other Indian States of Kathiawar formed themselves into a union by the name of United States of Kathiawar. Later the name Kathiawar was changed to Saurashtra. On March 16, 1949 the Raj Pramukh of this newly-formed State instituted the Saurashtra Income-tax OrdinanceThis Ordinance was in force for one year only - the assessment year 1949-50. In assessing the profits of business by the two appellant-companies for the year 1949-50 the Income-tax Officer had therefore to proceed in accordance with the provisions of this Ordinance. For the purpose of calculating the depreciation allowance to which the assessee was entitled in computing the profits or gains of the business the written down value of the building, machinery and plants or furniture had first to he ascertained in accordance with S. 13(5) of the Ordinance which ran thusdown value" means:-"(a) in the case of assets acquired in the previous year, the actual cost to the assessees;(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actual cost to the assessee less all depreciation actually allowed to him under this Ordinance or allowed under any Act repealed hereby or which would have been allowed to him if the Indian Income-tax Act, 1922, was in force in the past.As the assets - of both the assessees had been acquired before the previous year S.13 (5) (b) applied. Reading the words in the last part of S. 13 (5) (b) as equivalent to "which would have been allowable to him if the Indian Income-tax Act, 1922 was in force" the Income-tax Officer, in ascertaining the written down value, deducted depreciation which would have been allowable under the Indian Income-tax Act, 1922 if it had been in force and a claim had been made supported by prescribed particulars. This amount in the case of the Mahalakshmi Mills Ltd., the appellant in C A. No. 599/62 was computed as Rs. 17,21,041/- and in the case of the Master Silk Mills Ltd., the appellant in C. A. No. 601/62 was calculated as Rs. 2,02,-500/-. This obvious result of deducting this amount was that the written down value became considerably lower than what it would have been otherwise and so the depreciation allowance became less. The assessees contention that no deduction should have been made on the strength of the words "which would have been allowed to him if the Indian Income-tax Act, 1922 was in fact in force in the past" as in fact no claim was made or could be made for such allowance, was rejected by the Income-tax Officer. The Appellate Assistant Commissioner as also the Income-tax Tribunal, however, took a different view and held that this expression "or which would have been allowed to him if the Indian Income-tax Act, 1922 was in force in the past" did not permit the Income-tax Officer to make any deduction under this head. The question of 1aw which was referred to the High Court under S. 66 (1) of the Indian Income-tax Act on the application of the Commissioner of Income-tax has therefore been framed thuson the above facts and circumstances of the case and upon a proper construction of the expression "or which would have been allowed to him if the Indian Income-tax Act, 1922, was in force in the past" in Section 13 (5) (b) of the Saurashtra Income-tax Ordinance, 1949 the written down value has to be computed by deduction from the actual cost of depreciation allowance which was allowable under the Indian Income-tax Act, 1922 even though notIn each of the cases the High Court answered the question in the affirmative, but gave a certificate that it was a fit case for appeal to the Supreme Court under S. 06-A-2 of the Indian Income-Tax Act. The present appeals have been filed on the basis of these certificates.For the assessment years 1951-52 the controversy arises in a different way. In 1950, Saurashtra became a Part B State of the Union of India; by S. 3 of the Indian Finance Act, 1950, the Indian Income-tax Act was extended to it. In 1951-52 therefore the Indian Income-tax Act, 1922 was in force in Saurashtra in which Bhavnagar was included. So, in calculating the written down value of assets acquired before the previous year the Income-tax Officer had to apply the provisions of S. 10 (5) (b) of the Indian Income-tax Act. 1922, which runs thusthe 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 order, issued when the Indian Income-tax Act 1886 (II of 1886) was in force.What the Income-tax Officer did was to deduct not only the depreciation allowed in the assessment year 1950-51 under the Indian Income-tax Act but also the depreciation allowed in the assessment year 1949-50 under the Saurashtra Income-tax Ordinance and the depreciation availed of in the previous years by the assessee under the Bhavnagar War Profits Act. There is or can be no dispute that the depreciation allowed in the assessment year 1950-51 was rightly deducted. There might have been a dispute about the depreciation allowed in 1949-50 under the Saurashtra Income-tax Ordinance, but, as before the High Court the assessee conceded that this amount was also rightly deducted and no controversy on this was raised either before the High Court or before us. The only dispute that remains is whether the depreciation availed of under the Bhavnagar War Profits Act-Rs. 5, 93,285 in C. A. No. 600/62 by the Mahalaxmi Mills Ltd., and Rs. 1,26,707 in C. A. No. 602/62 by the Master Silk Mills Ltd. -was deductible in law. The Appellate Assistant Commissioner agreed with the Income-tax Officer that this was allowable. The Appellate Tribunal, however, took a different view, but on the prayer of the Commissioner of Income-tax referred the following two questions to the High Court under S. 66 (1) of the Indian Income-taxWhether on the above facts and circumstances of the case and on a correct interpretation of the relevant provisions of S. 10 (5) (b) read with the Taxation Laws (Part B States, (Removal of Difficulties) Order, 1950, Para. 2 and the Notification No. 19 (SRO. 477), dated 9th March 1953 under S. 60A the written down value is to be computed after deducting depreciation allowance which could have been claimed under the Indian Income-tax Act,Whether the Notification No. 19 (SRO. 477), dated 9th March 1953 is ultra vires of the powers of the CentralThe High Court has answered the second question in the affirmative and the correctness of that is no longer in dispute before us.

Court's reasoning:
In our opinion, the words which according to Mr. Kolah were necessary to give effect to the above intention are implicit in the very language that has been used though they have not been expressly used. The authority which made the Ordinance should be credited with having appreciated the position that no depreciation would have been allowed even if the Indian Income-tax Act, 1922 had been in force. if no claim supported by proper particulars had been made. When therefore the words "which would have been allowed to him" were used they were used to mean "which should have been allowed if proper claim had been made. For, it would be meaningless to speak of a depreciation allowance being allowed without a claim. The words used, in our opinion, are apt and sufficient to express the intention that if the Income-tax Act, 1922 which was not in force in the State before, had been in force, the depreciation that would have been allowed if proper claim had been made should be deducted in ascertaining the written downis not unreasonable to think however that when making this Ordinance the Raj Pramukh thought that if the Indian Income-tax Act, 1922, had been in force a proper claim would ordinarily have been made and whatever was allowable under that law would have been allowed as depreciation. The words used not only leave no doubt as regards the intention of the authority, but as we have already stated, are apt and sufficient to give effect to thatwords used do not however leave any doubt about the meaning and whether or not any hardship has been caused is beside the point.8. Neither of the two cases cited by Mr. Kolah in support of his argument is of any assistance.For the reasons we have already given, we are of opinion that the High Court was right in answering the question referred in these cases out of which Civil Appeals Nos. 599 and 601 have arisen, in the affirmative.The High Court has answered the second question in the affirmative and the correctness of that is no longer in dispute before us.As regards the first question it appears to us that the matter in controversy between the parties which was actually considered by the High Court is not clearly brought out by the question as framed.It will be noticed that the validity of the notification referred to in the question was the subject-matter of the second question and the correctness of the High Courts answer that it was invalid, was not questioned beforereally remained to be considered by the High Court was the effect of Para. 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1930-to which we shall later refer as the "Removal of Difficulties Order".In our opinion, the High Court rightly rejected this contention. The consequence of the Removal of Difficulties Order being validly made under S. 12 of the Finance Act, 1950, is that Para. 2 of the Order (as also the other paragraphs) have to be applied and no exception can be made.We are of opinion that whether any difficulty did actually arise in the cases now under consideration in applying the Indian Income-tax Act 1922, in this Part B State or not, Para. 2 of the Removal of Difficulties Order must be applied according to its terms. It is, therefore, not necessary to examine whether any such difficulty did arise in these cases.After careful consideration we have however come to the conclusion that the omission of the words "of a Part B State" in this paragraph is not by way of ellipsis but a deliberate omission with the intention of including laws which could not be stated to be laws of a Part B State but had been laws in the same area at a time before they formed part of a Part B State. If the omission had been by way of ellipsis, as argued by Mr. Kolah, it would be reasonable to think that the words "any law relating to tax" would also have been omitted and this part of the paragraph would have read as all depreciation actually allowed under any laws or rules of a Part B State relating to Income-tax and super tax or tax on profits of business." It also appears to us that if the intention had not been to include the depreciation allowed under a law which had been law in a component part of the Part B State before it became included in the Part B State, it was unnecessary to add the words "or any law relating to tax on profits of business." For, "a law relating to tax on profits of business" is also a law relating to Income-tax and. so, depreciation actually allowed under a law relating to tax on profits of business which was law of a Part B State would come within the first portion of the clause. It is worth noticing In this connection that in 1949 when by an ordinance certain taxation laws were extended to Merged States the Central Government made under S. 8 of that Ordinance "The Taxation Laws (Merged States) (Removal of Difficulties) Order 1949". Paragraph 2 of that Order merely said "all depreciation actually allowed under any laws or rules of a merged State relating to Income-tax and super tax shall be taken into account." Nothing was said in that Order as regards "any law relating to tax on profits of business. The Removal of Difficulties Order add the words "any law relating to tax on profits of business". This appears to have been done with the deliberate intention of including depreciation allowed under such laws even though tines were not laws of a Part B State" but of a component State.20. We have come to the conclusion that the Bhavnagar War Profits Act is within the words "any law relating to tax on profits of business" in Para. 2 of the Removal of Difficulties Order. We hold that the High Court has rightly decided that the depreciation availed of by the assessee under the Bhavnagar War Profits Act was a deductible amount in computing the written down value of the assets.