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Dhrangadhra Chemical Works Ltd. Vs. Commissioner of Income-tax, Bombay City-ii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 11 of 1965
Judge
Reported in[1975]101ITR491(Bom)
ActsEffect of Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950; ;Income Tax Act, 1922 - Sections 10(5); Saurashtra Income Tax Ordinance, 1949 - Sections 13(5)
AppellantDhrangadhra Chemical Works Ltd.
RespondentCommissioner of Income-tax, Bombay City-ii
Appellant AdvocateR.J. Kolah, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
.....- computation of written down value for purpose of determining amount of depreciation to be allowed for assessment - under section 10 tax shall be payable by an assessee under head of profits and gains of business, profession or vocation - in case where income had been exempted from tax under any laws in part b state - depreciation that would have been allowed had income not been so exempted. - maharashtra scheduled castes, scheduled tribes, de-notified tribes (vimukta jatis), nomadic tribes, other backward classes and special backward category (regulation of issuance and verification of) caste certificate act (23 of 2001), sections 6 & 10: [s.b. mhase, a.p. deshpande & p.b. varale, jj] caste certificate petitioner seeking appointment against the post reserved for member of..........on march 31, 1949, the assessee was assessed under the saurashtra income-tax ordinance, 1949. written down value of its assets for the purpose of allowing depreciation in the said assessment year was determined under the said ordinance in accordance with the provisions contained in section 13(5)(b) thereof. under section 13(5)(b) the expression 'written down value' was defined as under : ''written down value ' means, -..... (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actual cost to the assessee less all depreciation actually allowed to him under this ordinance or allowed under any act repealed hereby or which would have been allowed to him if the indian income-tax act, 1922, was in force in the past.' 3. this ordinance was promulgated on june 16, 1949. on.....
Judgment:

Kantawala, C.J.

1. This is a reference under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the Act'), at the instance of the assessee, Messrs. Dhrangadhra Chemical Works Ltd. The assessee was incorporated in the then Dhrangadhra State of Saurashtra, situated in India. In respect of its business in British India as then constituted it was assessed to income-tax under thee Act in respect of the income liable to be assessed under section 4(1)(a) and/or section 4(1)(c) of the Act, as the case may be, the status for the purpose of assessment being taken as non-resident. In computing the total income liable to be so assessed under the Act proportionate allowance used to be made for depreciation of assets under section 10(2)(vi) of the Act on the basis of the world income to total income as determined in the assessment orders. Such assessments have been made on the assessee for and up to the assessment year 1949-50.

2. Dhrangadhra State became a part of the United States of Kathiawad some time in April, 1948. For the assessment year 1949-50, for which the accounting year ended on March 31, 1949, the assessee was assessed under the Saurashtra Income-tax Ordinance, 1949. Written down value of its assets for the purpose of allowing depreciation in the said assessment year was determined under the said Ordinance in accordance with the provisions contained in section 13(5)(b) thereof. Under section 13(5)(b) the expression 'written down value' was defined as under :

''written down value ' means, -.....

(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.'

3. This Ordinance was promulgated on June 16, 1949. On January 26, 1950, the Constitution of India came into force and the United States of Kathiawad, then known as the United States of Saurashtra, became a Part B State in the Union India.

4. On March 31,1950, Finance Act, 1950 (No. 25 of 1950), was enacted. By section 3 thereof with effect from April 1,1950, the provisions of the Act, i.e., the Indian Income-tax Act, 1922, were made applicable to the whole of the Union of India save and except the State of Jammu and Kashmir. Thus, with effect from that date, the Act became applicable to the United States of Saurashtra which was then a Part B State. Section 12 of the Finance Act, 1950, provided for removal of difficulties. It is as under :

'12. Removal of difficulties. - If any difficulty arises in giving effect to the provisions of any of the Acts, Rules or Order 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.'

5. Section 13 of the Finance Act, 1950, provided for repeals and under the provisions thereof the Saurashtra Income-tax Ordinance, 1949, was repealed.

6. In exercise of the powers conferred, inter alia, by section 12 of the Finance Act, 1950, by a notification dated December 2,1950, the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was made. Under the said Order paragraph 2 thereof provided for computation of aggregate depreciation allowance and the written down value and it is as under :

'2. Computation of aggregate depreciation allowance and the 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 section 10 of the said Act : Provided that where in respect of any assets, 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.'

7. Thus, initially, paragraph 2 did not contain any Explanation. By a notification dated March 9,1953, in exercise of the powers conferred by section 60A of the Act, the following Explanation was added to paragraph 2 in the aforesaid order.

'Explanation,-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 the written down value under any laws or rules of a Part B State or carried forward under the said laws or rules.'

8. The Hyderabad High Court by its decision reported in S. V. Naik v. Commissioner of Income-tax declared this Explanation made under section 60A of the Act to be ultra vires. Thereafter, by a notification dated May 8,1956 in exercise of the powers conferred by section 12 of the Finance Act, 1950, the Central Government made an amendment in paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order 1950, by inserting the following Explanation :

'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 always to have 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.'

9. The wording of this Explanation was identical, Later on by a notification dated August 20,1962, in exercise of the powers conferred by section 12 of the Finance Act, 1950, the Explanation in paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was substituted by the following Explanation :

'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 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 Part B 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 Part B State or under any agreement with a Ruler, the depreciation that would have been allowed had the income not been so exempted.'

10. When the assessee was assessed for the assessment year 1949-50 under the Saurashtra Income-tax Ordinance, 1949, it raised two disputes, one regarding its liability to payment of tax and the other regarding the determination of the written down value of its assets. The assessee claimed total exemption of tax by virtue of an agreement entered into by it with the then Maharaja of Dhrangadhra State dated January 29,1939. With regard to the second question the assessee's case was that the original cost of the assets should be taken as the written-down value and not the assets as reduced by the depreciation which would have been allowed to the assessee if the Indian Income-tax Act, 1922, was in force in the past as laid down in section 13(5)(b) of the Saurashtra Income- tax Ordinance, 1949. The ultimate order passed by the Tribunal for that assessment year came to the Bombay High Court for its opinion in a reference, and both these contentions of the assessee were rejected by the High Court in Income-tax Reference No. 69 of 1956 decided by Chagla C.J. and Tendolkar J. on February 14,1957. The High Court took the view that on a construction of the definition of 'written down value' in section 13(5) of the Ordinance, for the purpose of depreciation, that if the asset was acquired in the earlier years and do depreciation was actually allowed under the Ordinance or any Act repealed by the Ordinance, the written down value ought to be determined by deducting from the actual cost, depreciation which would have been allowed to the assessee if the Indian Income-tax Act was in force in the past and if the assessee had claimed depreciation. Accordance to the High Court the definition in section 13(5)(b) did not contemplated the case where no depreciation was claimed and no depreciation could have been allowed. The expression 'would have been allowed' must be equated with the expression 'allowable under the Indian Income-tax Act'. The Ordinance assumes that the Indian Income-tax Act was in force and that claim was made for depreciation and also assumes that that claim has been allowed. The written down value of the assets should, therefore, be calculated on the basis of depreciation allowable under the Indian Income-tax Act. The judgment of the High Court in Income-tax Reference No. 69 of 1956 is to be found in Volume of Unreported Income-tax Judgments of the Bombay High Court, book 2, at page 82.

11. For the assessment year 1950-51 for which the accounting year ended on March 31,1950, the assessment was made under the Act. Similar contentions as were raised by the assessment year 1950-51. The Tribunal rejected both these contentions even though the assessment was made under the Indian Income-tax Act, 1922. An application for reference against this order of the Tribunal had been made and four questions are referred to us for our determination. We need not refer to question No. 1 as Mr. Kolah appearing on behalf of the assessee has not pressed that question for determination. Questions Nos. 2 to 4 are as under :

'(2) Whether the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, is invalid and ineffective as being in excess of the powers conferred on the Central Government by section 12 of the Finance Act, 1950

(3) Whether the Central Government could validly exercise the powers conferred on it by section 12 of the Finance Act, 1950, after the repeal of the Indian Income-tax Act, 1922, and the notification dated August 20, 1962, issued by it exercising such powers is accordingly valid

(4) Whether, on the facts and in the circumstances of the case, the written down value of the assets for the purpose of making the assessment under the Indian Income-tax Act, 1922, for the assessment year 1950-51 was correctly computed by deducting from the written down value of the assets as determined under the Saurashtra Income-tax Ordinance, 1949, the depreciation actually allowed under the said Ordinance.'

12. As arguments relating to questions Nos. 2 and 3 are germane to each other, we will deal with them together and we will deal with question No. 4 separately.

13. Mr. Kolah on behalf of the assessee contended that the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, is ultra vires the powers the Central Government because when in exercise of the powers conferred by section 12 of the Finance Act, 1950, notification was issued on May 8, 1956, for introducing an Explanation in paragraph 2 thereof, there was no difficulty. Similarly, he contended that when notification dated August 20, 1962, was issued for substituting the Explanation in place of the earlier one in paragraph 2 there existed no difficulty nd as no such difficulty existed for the assessment year 1950-51, the Explanations so introduced are ultra vires the powers of the Central Government under section 12 of the Finance Act, 1950. In support of this contention he strongly relied upon the decision of the Supreme Court in Straw Products Ltd. v. Income-tax Officer. Where, according to his submission, a similar Explanation added in paragraph 2 of the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, was declared ultra vires by the Supreme Court in a writ petition filed under article 226 of the Constitution.

14. Mr. Joshi on behalf of the revenue, on the other hand, has contended that when question are referred to this court under section 66 of the Act this court merely exercise advisory jurisdiction conferred upon it by the Act; that when such advisory jurisdiction is exercised by the High Court questions relating to constitutionality or validity of the provision of statutes, orders and notifications cannot be gone into. As the authorities under the Income-tax Act while passing assessment orders have no jurisdiction to go into the validity of such statutes, notifications and orders, equally according to the submission of Mr. Joshi, the High Court in exercise of its advisory jurisdiction can have no larger powers. He, therefore, submitted that this court has no jurisdiction to answer questions Nos. 2 and 3. In support of this contention he relied upon three decisions of the Supreme Court, viz., K. S. Venkataraman and Co. (P.) Ltd. v. State of Madras. Commissioner of Income-tax v. Straw Products Ltd. and C. T. Senthilnathan Chettiar v. State of Madras. Alternatively, he submitted that the validity of clause (a) of the Explanation which was introduced by the notification dated August 20,1962, which was identical to the Explanation introduced by the notification dated May 8,1956, was gone into and it had been held to be valid in Commissioner of Income-tax v. Dewan Bahadur Ramgopal Mills Ltd.

15. It is well settled if regard be had to the decisions of the Supreme Court that the jurisdiction that is possessed by this court in exercise of its advisory jurisdiction under a taxing statute is not the same as the one that is conferred upon it under article 226 of the Constitution of India. When a question has to be considered in exercise of advisory jurisdiction, the jurisdiction is confined to assessment of the income and the tax under the provisions of the Act but there is no jurisdiction to go into the question whether the relevant provisions offend the fundamental rights or are made for want of legislative competence or not made in exercise of the powers in exercise of which they are made. In Venkataraman & Co.'s case the Supreme Court, inter alia, held that the three authorities under the Indian Income-tax Act, viz., the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal are the creatures of the Act and they function thereunder. They cannot ignore any source of income on the ground that the relevant provisions offend the fundamental rights or are bad for want of legislative competence. The Act does not confer any such right on them. Their jurisdiction is confined to the assessment of the income and the tax under the provisions of the Act. Whether the provisions are good or bad is not their concern. As the Tribunal is a creature of the statute it can only decide the dispute between the assessee and the Commissioner in terms of the provisions of the Act. The question of ultra vires is foreign to the scope of its jurisdiction. If an assessee raises such a question, the Tribunal can only reject it on the ground that it has no jurisdiction to entertain the said objection or decide on it. As no such question can be raised or can arise in the Tribunal's order, the High Court cannot possibly give any decision on the question of the vires of a provision. At the most the only question that it may be called upon to decide is whether the Tribunal has jurisdiction to decide the said question. On the express provision of the Act it can only hold that it has no such jurisdiction. The appeal under section 66A(2) to the Supreme Court does not enlarge the scope of the said jurisdiction. The Supreme Court can only decided on what the High Court can do.

16. The principle laid down in Venkataraman and Co.'s case by the Supreme Court has been later on followed by it when the validity of the Explanation to paragraph 2 to the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, was challenged before it in the case of Commissioner of Income-tax v. Straw Products Ltd. The Supreme Court, inter alia, held in this case that the assessee could not challenge the vires of the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, as it was in fact an amendment of the Income-tax Act in so far as it was applicable to the Merged States. Had it not been for the order only the provisions of section 10(5) of the Act would have been applied for the purpose of working out the depreciation. In view of the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, as explained by the 1962 Order, a different rule was directed to be applied and the Income-tax Officer was bound to follow this statutory direction. Thus, in this case a contention similar to the one raised before us by Mr. Kolah was canvassed before the Supreme Court, but the Supreme Court, in view of the decision in Venkataraman and Co's case declined to hear the counsel in support of such a contention. The same view is reiterated by the Supreme Court in C. T. Senthilnathan Chettiar v. State of Madras In this case the question of vires of section 9(1) of the Madras Agricultural Income-tax Act, 1955, was canvassed and the Supreme Court took the view that the assessee could not be allowed to question the views of section 9(1) in this appeal since the question could not be raised before the agricultural income-tax authorities and neither the High Court nor the Supreme Court could go into that question in a revision or reference from the decision of those authorities. These decisions, therefore, clearly show the Supreme Court has consistently taken the view that in a reference under the Income-tax Act or any other taxing statute since the taxing authorities would have no jurisdiction to go into the vires of a statutory provision, order or notification, so neither the High Court on a reference nor the Supreme Court in an appeal from the decision of the High Court will be entitled to go into such a question. Mr. Kolah has not invited our attention to any decision of the Supreme Court where a contrary view has been taken. In that view of the matter, Mr. Joshi is right when he contends that this court, upon a reference under section 66(1) of the Act, has no jurisdiction to answer questions Nos. 2 and 3 referred by the Tribunal.

17. This takes us to the alternative contention urged by Mr. Joshi in relation to questions Nos. 2 and 3. Relying upon the decision of the Supreme Court in Commissioner of Income-tax v. Dewan Bahadur Ramgopal Mills. Ltd. Mr. Joshi contends that clause (a) of the Explanation added by the notification dated August 20,1962, is intra vires the powers of the Central Government under section 12 of the Finance Act, 1950, as according to his submission such a question has been gone into and decided in favour of the revenue by the Supreme Court in the above case where an identical Explanation introduced in paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, introduced by the notification dated May 8,1956, was gone into and was held to be intra vires as in the opinion of the Supreme Court difficulties existed which enable the Central Government to issue such an order in exercise of the powers conferred by section 12 of the Finance Act, 1950. As we have taken the view that we have no jurisdiction to go into such a question as the taxing it is unnecessary to express any opinion on this question.

18. This takes us to question No. 4 which relates to computation of the written down value for the purpose of determining the amount of depreciation to be allowed for the assessment year 1950-51. Under section 10 of the Act, the tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. Sub-section (2) of section 10 of the Act provides the mode of computation of such profits or gains. We are concerned with clause (vi) of sub-section (2) thereof and it provides as under :

'(2) Such profits or gains shall be computed after making the following allowances, namely :-.....

'(vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent, where the assets are ships other than ships ordinarily plying on inland waters to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and, in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed.'

19. The definition of the expression 'written-down value' is given in section 10(5)(b) of the Act as under :

''Written-down value' means - .......

(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 (II of 1886), was in force.'

20. If these were the only provisions then naturally regard can be had to depreciation actually allowed to an assessee under this Act or any Act repealed thereby or under executive orders issued when the Indian Income-tax Act, 1886, was in force. The Saurashtra Income-tax Ordinance, 1949, was repealed by section 13 of the Finance Act, 1950. Section 12 of this Finance Act empowered the Central Government to make orders for removal of difficulties. In exercise of such powers conferred by section 12 the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was amended by the Taxation Laws (Part B States) (Removal of Difficulties) Amendment Order, 1962. The relevant provisions of paragraph 2 thereof are as under :

'2. Computation of aggregate depreciation allowance and the 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 States 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 assets, 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. 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 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 Part B 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 Part B State or under any agreement with a Ruler, the depreciation that would have been allowed had the income not been so exempted.'

21. Prior to the assessment year 1950-51, i.e., for the assessment year 1949-50, the assessee was to be assessed in accordance with the provisions of the Saurashtra Income-tax Ordinance, 1949. Section 13(5) (b) of that Ordinance defines the expression 'written down value'. Under that definition 'written down value' means 'in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation acutely 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'. In the present case, therefore, for the assessment year 1950-51, the written down value has to be ascertained by reference to the provisions of section 10(5)(b) of the Act read with those of section 13(5)(b) of the Saurashtra Income-tax Ordinance, 1949, read with clause (a) of the Explanation to paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order as amended by the Order of the year 1962. The cumulative effect of these provisions is that in the case of assets the written down value for the assessment year 1950-51 has to be ascertained by deducting the aggregate amount of depreciation which would have been allowed to the assessee if the Indian Income-tax Act, 1922, was in force in the past in Dhrangadhra State and the depreciation allowed for the assessment year 1949-50. After deducting this aggregate amount from the actual cost the written down value for the assessment year 1950-51 can be ascertained and the quantum of the depreciation climbable for the assessment year can be determined accordingly in accordance with the provisions of section 10(2)(vi) of the Act. This is what the Tribunal has done in determining the written down value and, in our opinion, rightly.

22. It was urged by Mr. Kolah that as prior to the assessment year 1949-50, no income-tax was payable by the assessee in respect of its income in Dhrangadhra State there was no depreciation actually allowed to it qua that income. He urged that under the definition under section 13(5)(b) of the 1949 Ordinance, it is only depreciation which would have been allowed to it under the Indian Income-tax Act, 1922, as if it was in force that had to be taken into account. It is open to an assessee not to claim any depreciation even though there are profits and in such a contention is not open to him as it is concluded by a decision of this court in the case of this very assessee for the assessment year 1949-50. In Income-tax Reference No. 69 of 1956, dispossessed of by Chagla C.J. and Tendolkar J. on February 14,1957, an identical contention was advanced but it was rejected by the High Court. This court, inter alia, held that the expression 'would have been allowed' must be equated with the expressing 'allowable under the Indian Income-tax Act'. The Ordinance assumes that the Indian Income-tax Act'. The Ordinance assumes that the Indian Income-tax Act was in force and that claim was made for depreciation and also assumes that that claim has been allowed. Mr. Kolah submitted that this is not a correct decision and it is open to him to argue to the contrary. In our opinion, a decision of a court of co-ordinate jurisdiction is clearly binding on us and it is not open to us to differ therefrom. Thus, in our opinion, the Tribunal has correctly ascertained the written down value of the assets of the assessee for the purpose of making assessment for the assessment year 1950-51.

23. In the result, the questions referred to us are answered as under :

Questions Nos. 2 and 3 :

As we have no jurisdiction to decide the questions referred to, we express no opinion thereon. Question No. 4 is answered in the affirmative.

24. The assessee shall pay the costs of the revenue.


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