TMI Blog1989 (5) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... fficulty arose in allowing depreciation to an assessee in a 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 In the present case also, the Saurashtra Income-tax Ordinance having been repealed not by the Indian Income-tax Act but by section 13 of the Finance Act, 1950, a similar difficulty had come into existence, and hence we fail to see how it can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 difficulty had, in fact, arisen as contemplated in the case of Dewan Bahadur Ramgopal, Mills Ltd. Unable to accept the submissions of Mr. Salve, learned counsel for the assessee that the decision of this court in CIT v. Dewan Bahadur Ramgopal Mills Ltd. [supra] 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 dismissed. - - - - - Dated:- 3-5-1989 - Judge(s) : M. H. KANIA., R. S. PATHAK JUDGMENT The judgment of the court was delivered by M. H. KANIA J. -This is an appeal from the judgment of a Division Bench of the High Court of Gujarat in Special Civil Application No. 1797 of 1972 on a certificate granted under article 133(1) of the Constitution of India. The relevant facts are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 Government 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 purposes 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph 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 1945-46 to 1948-49, the written down value was calculated after calculating the depreciation allowance which would be allowable under the Rules. For the assessment year 1949-50, the depreciation allowance as calculated under the Saurashtra Income-tax Ordinance, 1949, was deducted. For the assessment years 1950-51 to 1952-53, the depreciation allowance actually 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 Indian Income-tax Rules, 1922, made under the Indian Income-tax Act. For the assessment years 1954-55 to 1956-57, depreciation was calculated on the basis of the above rectification order. The contention of the assessee is that the depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 CIT v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 had upheld the validity of the said Explanation. The Gujarat High Court noted that the decision of this court in Straw Products Ltd. v. ITO [1968] 68 ITR 227, arose from the merged State of Bhopal. Some of the arguments which did not find favour with this court in the case of CIT v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 were accepted by a Bench of seven learned judges of this court in the case of Straw Products [1968] 68 ITR 227. The Gujarat High Court pointed out that in its decision in the case of Straw Products [1968] 68 ITR 227 (SC), this court had considered the decision in the case of Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 (SC) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be that the written 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 during the assessment years 1945-46 to 1948-49. This result would follow from the manner in which the written 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 clause (15) of section 2 as meaning the total amount of income, profits and gains computed in the manner laid down in the Act. Chapter III 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 the profits and gains of business, profession or vocation carried on by the assessee. Subsection (2) of section 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, such as buildings, machinery, plants, etc., in accordance with clause (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 (i) depreciation at the rates applicable to such 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 up to 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, 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 makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 depreciation 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. 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 applicable and created no unequal treatment of persons in like situation. Accordingly, the notification did not contravene article 14 of the Constitution. In the course of the leading judgment, S. K. Das J. set out the chain of events which led to the notification dated May 8, 1956, under section 12 of the Finance Act, 1950, being issued which we have already set out earlier and went on to state as follows ([1961] 41 ITR 280 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation 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 this court in the case of Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 (SC). 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 v. Union of India [1975] 98 ITR 209 (SC). The said decision has been rendered by a majority of four learned judges out of five comprising 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 Territories) (Removal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [1968] 68 ITR 227 (SC), a challenge was made to the validity of sub-clause (b) of the Explanation to 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, 1962. It was held that the said sub-clause of the said Explanation was ultra vires the powers of 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 entitled 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 10(2)(vi) 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts Ltd. [1968] 68 ITR 227 (SC) has considered the decision of this court in Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 (SC) 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 pages 237 and 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. [1961] 41 ITR 280 (SC) by the Madhya Pradesh High Court, namely, that it was a matter for the subjective satisfaction of the Government to decide whether a difficulty had arisen and it was not open to the court to investigate that question. It was pointed out that in Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 (SC), 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 [1968] 68 ITR 227 (SC), along with the decision in the case of Dewan Bahadur Ramgopal Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to follow the decision in CIT v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 (SC), 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 CIT v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280, 287 (SC), 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 a Part B State. In the present case also, the Saurashtra Income-tax Ordinance having been repealed not by the Indian Income-tax Act but b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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