Judgment Case ID: 993

Judgment:
Appeal No. 5 of 1959. Appeal from the judgment and order dated February 16	 1954	 of the former Hyderabad High Court in Reference No. 347/B 5/2 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 s.66 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 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 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 The Finance Act	 1950	 by section 13 thereof repealed the taxation laws in force in Part B States except for certain purposes not relevant to this case	 and by section 3 extended the Indian Income tax Act	 1922	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 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 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 66(1) 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: "S.10(5) (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:
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	 by 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 cl. (C) of section 12(5) 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 (1) depreciation at the rates applicable to the assets calculated 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 on such assets for each financial year after the commencement of the Act. After the merger of Hyderabad with the Union of India	 by sections 3 and 13 of the Finance Act	 950	 the taxation laws in force in the 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 assessment under the Indian Income tax A ct	 1922	 all depreciation 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 10(2)(vi) and the written down value under section 10(5)(b) of the said Act ". For the assessment year 1951 52 the respondent was assessed for the first time under the Indian Income tax Act	 and basing its claim on para. 2 of the aforesaid Order it asked for 319 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. 7 By order dated November 30	 1951	 the Income tax Officer disallowed the respondent 's claim on the ground that it was against the principle inherent in granting depreciation allowance which must decrease from year to year. The matter was taken up to the Supreme 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 para. 2 as follows: "For the purpose of this paragraph	 the expression "all depreciation actually allowed under any laws or rules of a Part B State " means and shall be deemed 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 the 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 Constitution	 and (3) that	 in any case	 it could have no retrospective effect. Held : (1) that the true scope and effect of section 12 was that it was for the Central Government to determine if any difficulty of the nature indicated in the section had arisen and then to make such order	 or give such direction	 as appeared to it to be necessary to remove the difficulty	 the legislature having left the matter to the executive. Pandit Banarsi Das Bhanot v The State of Madhya Pradesh and Others	 ; 	 relied on. 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. Consequently	 the Central Government was within its power under section 12 in making the notification dated May 8	 1956. (2) that the notification of 1956 applied to all those to whom para. 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order	 1950	 was applicable and created no unequal treatment of persons in the like situation. Accordingly	 the notification did not contravene article 14 of the Constitution. (3) that the Central Government had the power under section 12 of the Finance Act	 1950	 to make an order or give a direction so as to remove difficulties which arose in the very beginning 320 and	 therefore	 the notification	 though added in 1956	 was valid and was applicable to the assessment of 1951 52.