1964 (1) TMI 48 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949.
2. Calculation of depreciation under Section 10 of the Indian Income-tax Act, 1922.
3. Determination of the "written down value" of assets.
4. Applicability of the 1962 Amendment to the Removal of Difficulties Order.
5. Jurisdiction and scope of the High Court under Section 66 of the Income-tax Act, 1922.

Detailed Analysis:

1. Interpretation of the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949:
The case revolves around the interpretation of the 1949 Removal of Difficulties Order, particularly whether the written down value of the assets should be the book value or the original cost. The court clarified that the purpose of the 1949 Order was to substitute the words "under this Act" with "under this Act or under a Merged State Income-tax Act" in Section 10(5)(b) of the Indian Income-tax Act, 1922. The court concluded that the difficulties in this case did not arise from the language of the 1949 Order but from the interpretation of Section 10(5).

2. Calculation of Depreciation under Section 10 of the Indian Income-tax Act, 1922:
The court examined Section 10(2)(vi) and Section 10(5) of the Indian Income-tax Act, 1922, which deal with the calculation of depreciation. The court noted that depreciation is allowed on the written down value of assets, which is defined as the actual cost less all depreciation "actually allowed" under the Act. The court emphasized that "actually allowed" means depreciation that has been factually granted by the assessing authority, not merely notional or allowable depreciation.

3. Determination of the "Written Down Value" of Assets:
The court held that the written down value of the assets for the assessment year 1950-51 should be the original cost of the assets since no depreciation had been "actually allowed" to the assessee in previous years due to its exemption from income tax. The court rejected the argument that the book value maintained by the assessee could be considered the written down value, as it was not allowed under any income-tax provision.

4. Applicability of the 1962 Amendment to the Removal of Difficulties Order:
The court discussed the 1962 Amendment to the Removal of Difficulties Order, which introduced an Explanation stating that depreciation that would have been allowed if the income had not been exempted should be considered as "actually allowed." However, the court concluded that this Explanation could not be applied retrospectively to the case at hand because it was enacted after the Tribunal had decided the appeal. The court noted that the Explanation was not in force when the Tribunal made its decision and, therefore, could not be considered in answering the reference.

5. Jurisdiction and Scope of the High Court under Section 66 of the Income-tax Act, 1922:
The court reiterated that its jurisdiction under Section 66 of the Income-tax Act, 1922, is limited to answering questions of law arising out of the Tribunal's order. The court cannot consider new laws or amendments that were not in existence when the Tribunal made its decision. The court emphasized that it must answer the question based on the law as it existed at the time of the Tribunal's decision.

Conclusion:
The court concluded that the written down value of the assets for the purpose of calculating depreciation for the assessment year 1950-51 is the original cost of the assets, as no depreciation had been "actually allowed" in previous years. The court also held that the 1962 Amendment to the Removal of Difficulties Order could not be considered in this case. The assessee was awarded costs of Rs. 200.