TMI Blog1967 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... h the State of Madhya Pradesh under the States Reorganization Act, 1956. The Governor-General of India issued the Taxation Laws (Extension to Merged States) Ordinance, 1949 (21 of 1949) to make certain taxation laws applicable to the merged States. By clause 3 of the Ordinance, amongst other Acts, the Indian Income-tax Act, 1922, and all the orders and rules issued thereunder were extended to the merged States, and by clause 7 the corresponding laws in force in the merged States were repealed. By clause 8 the Central Government was invested with the power to make provisions or give directions, which appeared to the Government to be necessary, for removing any difficulty arising in giving effect to the provisions of the Ordinance. Ordinance 21 of 1949 was repealed and replaced by the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 (67 of 1949). Section 3 of the Act extended with effect from April 1, 1949, to the merged States, amongst other Acts, the Indian Income-tax Act and the orders and rules made thereunder, and by section 7 the laws in force in the merged States corresponding to the Acts mentioned in section 3 stood repealed. Section 6 provided : "If a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme of the Income-tax Act, 1922, for computing the depreciation allowance difficulties clearly arose. On the plain words of the Income-tax Act, in the computation of the taxable income of an assessee the depreciation actually allowed under the Act, or Acts repealed thereby or under executive orders issued under the Indian Income-tax Act, 1886, could alone be taken into account : depreciation allowed under the State laws could not be taken into account. The Central Government therefore in exercise of its authority under clause 8 of Ordinance 21 of 1949, issued the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949. By clause 2 of that Order, it was provided : "In making any assessment under the Indian Income-tax Act, 1922, 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 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be deemed always to have meant-- (a) the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules in force in a merged State or carried forward under the said laws or rules, and (b) in cases where income had been exempted from tax under any laws or rules in force in a merged State or under any agreement with a Ruler, the depreciation that would have been allowed had the income not been so exempted." This court held in the appeal filed by the Commissioner of Income-tax that the expression "actually allowed" in the Removal of Difficulties Order, 1949, meant allowance actually given effect to, but by virtue of the Explanation added by the Taxation Laws (Merged States) (Removal of Difficulties) Amendment Order, 1962, the correct basis for computing the written down value of the depreciable assets for the relevant period was the one adopted by the Income-tax Officer. Counsel for the assessee challenged the validity of the Taxation Laws (Merged States) (Removal of Difficulties) Amendment Order but the court declined to consider that plea holding that an authority or court administering the Act cannot permit a chall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhopal Income-tax Act. This court in Commissioner of Income-tax v. Straw Products Ltd. observed that the expression "all depreciation actually allowed under the laws or rules of a merged State" in paragraph 2 of the 1949 Order could not be given an artificial meaning. It did not mean depreciation allowable under the provisions of any law or rules : it connoted an idea that the allowance was actually given effect to. By the extension of the Income-tax Act, 1922, the rules and the orders made thereunder to the areas of the merged States, undoubtedly numerous difficulties arose, for the Income-tax Act, the rules and the orders made thereunder contemplated situations peculiar to the conditions prevailing in British India which were not and could not be prevailing in the merged States. It was necessary therefore to devise machinery for removing those difficulties. This was sought to be achieved by conferring power upon the Central Government to make orders for that purpose. The power was, however, to be exercised by making provisions or giving directions as may appear to be necessary for removal of difficulties and no more. By section 10(2)(vi), proviso (c), read with section 10(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax v. Dharampur Leather Cloth Co. Ltd. It has also been held by the courts in India--and in our judgment the view is right--that in determining the written down value of assets, the depreciation not allowable but actually allowed was to be taken into account under section 10(2)(vi) of the Indian Income-tax Act, 1922, after that clause was amended by Act 23 of 1941 : Commissioner of Income-tax v. Kamala Mills Ltd. and Venkedam Lakshminarayana v. Commissioner of Income-tax. The expression "depreciation actually allowed" therefore connotes under section 10(2)(vi) of the Income-tax Act, under clause (2) of the 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. But the impugned Order seeks to alter the connotation of that expression. The assessee contends that no difficulty arose or could arise in giving effect to the provisions relating to the allowance of depreciation under the Indian Income-tax Act to the merged States after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Mills Ltd. on which reliance was placed by the High Court, do not support the view that "the arising of a difficulty" is a matter for the subjective satisfaction of the Central Government. In Dewan Bahadur Ramgopal Mills' case this court was called upon to consider the validity of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. On behalf of the assessee it was contended in that case that the notification No. S.R.O. 1139 dated May 8, 1956, issued under section 12 of the Finance Act of 1950, which was couched in terms substantially the same as section 6 of Act 67 of 1949, was invalid. This court rejected the contention observing that in applying the provisions of clause (b) of sub-section (5) of section 10 of the Income-tax Act to an assessee in a Part B State there was an initial difficulty, because the laws in force in the Part B States were repealed not by the Indian Income-tax Act, but by the Finance Act, 1950, and to remove that difficulty the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was passed. That Order was amended by an Explanation issued by the Central Government in exercise of the powers under section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us a "noting" made by the Secretary of the Finance Department on which the Central Government was persuaded to issue the 1962 Order. But that "noting" merely recited that the High Courts in India had not accepted the contention of the income-tax department that in cases where the depreciation had to be computed in respect of buildings, machinery, plant and furniture used for the purpose of the business by an assessee who had, under an agreement with the Ruler of an Indian State, been exempted from payment of income-tax, a notional computation of depreciation which would have been allowed, if he had been assessed to pay the tax, should be taken into account for determining the written down value of the assets at the date on which the Income-tax Act was made applicable. Refusal of the courts to accept a contention raised on behalf of the revenue arising contrary to the plain words of the statute cannot be regarded as a difficulty arising in giving effect to the provisions of the Act. The difficulty contemplated by the Order is not merely the inability of the Central Government to collect tax which the taxpayer could, in the view of the Government, have been made to pay but which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a merged State could not be determined, and with a view to remove that difficulty the impugned Order was promulgated. The fact that the assets were acquired by a person at a time when he was not an assessee under the Indian Income-tax Act or under the State Act will not disable him when he is assessed to tax on the profits of the business, from claiming the benefit of the depreciation allowance on those assets if used for the purpose of the business. Section 6 of Act 67 of 1949, authorises the Central Government to make provisions or to give directions as may appear to be necessary for removal of difficulties which had arisen in giving effect to the provisions of any Act, rule or order extended by section 3 to the merged States. By the application of the Indian Income-tax Act to the merged States a difficulty did arise in the matter of determining the depreciation allowance under section 10(2)(vi). The difficulty was removed by the enactment of Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949. Even by that Order all depreciation actually allowed under any laws or rules of a merged State relating to income-tax was to be taken into account in computing the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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