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Straw Products Limited Vs. Income-tax Officer, 'A' Ward and Ors. (04.04.1966 - MPHC) - Court Judgment

LegalCrystal Citation
SubjectConstitution;Direct Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Petn. No. 4 of 1966
Judge
Reported inAIR1967MP34; [1967]63ITR689(MP)
ActsTaxation Laws (Merged States) Removal of Difficulties (Amendment) Order, 1962; Taxation Laws (Extension to Merged States and Amendment) Act, 1949 - Sections 3 and 6; Income Tax Act, 1922 - Sections 10(5) and 66(1); Removal of Difficulties Order, 1940; Removal of Difficulties (Amendment) Order, 1949; Income Tax Act, 1961 - Sections 297(2); Taxation Laws (Extension to Merged States and Amendment) Act, 1940 - Sections 6; Constitution of India - Article 14; Code of Civil Procedure (CPC) , 1908 - Sections 11
AppellantStraw Products Limited
Respondentincome-tax Officer, 'A' Ward and Ors.
Appellant AdvocateSidharth Ray and ;A.P. Sen, Advs.
Respondent AdvocateM. Adhikari, Adv. General and ;P.S. Khirwadker, Adv.
DispositionPetition dismissed
Cases Referred and Devilal Modi v. Sales Tax Officer Ratlam
Excerpt:
- - of income-tax [1963]50itr741(sc) to support his contention that before an order could be made by the central government under section 6 of the 1949 act, the central government had to be satisfied that a difficulty had actually arisen in giving effect to the provisions of any act, rule or order extended by s. he also referred us to several decisions of the supreme court and english decisions where, while considering the legality of detention orders made by the detaining authority on its 'satisfaction',it has been held that the word 'satisfied' does not import an arbitrary or irrational state of being satisfied but means a reasonable and honest satisfaction, and that though this satisfaction is of a subjective nature, yet the courts have power to see whether the satisfaction.....dixit, c.j. 1. by this application under article 226 of the constitution, the petitioner straw products ltd. a public company incorporated in the former state of bhopal, prays that the taxation laws (merged states) (removal of difficulties. amendment order, 1962, be declared ultra vires, inoperative and of no effect whatsoever, and seeks a writ of certiorari for quashing assessments of income-tax made on it on 4-3-1958 for the years 1952-53 and 1953-54, as also the assessments made for the assessment years 1954-55 to 1960-61. the petitioner also seeks a direction restraining the respondents from proceeding with the assessments for the assessment years 1961-62 to 1965-66. 2. the matter arises thus. the petitioner is a public limited company engaged in the manufacture of straw-boards and.....
Judgment:

Dixit, C.J.

1. By this application under Article 226 of the Constitution, the petitioner Straw Products Ltd. a public company incorporated in the former State of Bhopal, prays that the Taxation Laws (Merged States) (Removal of Difficulties. Amendment Order, 1962, be declared ultra vires, inoperative and of no effect whatsoever, and seeks a writ of certiorari for quashing assessments of income-tax made on it on 4-3-1958 for the years 1952-53 and 1953-54, as also the assessments made for the assessment years 1954-55 to 1960-61. The petitioner also seeks a direction restraining the respondents from proceeding with the assessments for the assessment years 1961-62 to 1965-66.

2. The matter arises thus. The petitioner is a public limited company engaged in the manufacture of straw-boards and other allied products. It was incorporated in the quondam State of Bhopal in 1938. Under an agreement concluded between the Company and the Government of the Bhopal State, the Company was exempted from payment of 'any sum by way of taxation to the State' for a period of ten years from the date on which it took over the land granted to it by the State for business purposes. This agreement was acted upon and the period of immunity from taxation expired on 31st October 1948. During this period no assessment on the company was made under the Income-tax Act, 1936, (No. VIII of 1936) of the Bhopal State. According to the applicant, in this period it did not even file any return of its total income before the income-tax authorities of the Bhopal State.

3. The Bhopal State merged in India on 1st August 1949 and became a Chief Commissioner's Province, On 26th August 1949 the Taxation Laws (Extension to Merged States) Ordinance, 1949, (hereinafter referred to as the Ordinance), was promulgated. Section 3 of the Ordinance extended to all the merged States the Indian Income-tax Act, 1922, along with all the Rules and Orders made thereunder, with effect from 1st April 1949. By virtue of Section 3 of the Finance Act, 1950, the merged States' territories become 'taxable territories' for any of the purposes of the Indian Income-tax Act, 1922, as respects any period after 31st March 1949. The result was that the Company became liable to pay income-tax under the Indian Income-tax Act, 1922, with effect from the assessment year 1949-50. Under Section 10(1) of the Indian Income-tax Act, 1922, the tax payable by an assessee under the head 'Profits and gains of business, profession or vocation' is in respect of the profit or gains of any business, profession or vocation carried on by him. Sub-section (2) of Section 10 laid down that such profit or gains shall be computed after making certain allowances, and one of these allowances is in respect of depreciation of such buildings, machinery, plant etc. as are used for the purpose of the business (vide Clause (vi) of Section 10(2)). The depreciation, except in certain cases, is calculated on the 'written down value' as explained in Section 10(5). Clause (b) of this Sub-section (5) states

'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.' This Clause (b) could not be applied to an assessee in a merged State as before the extension of the Indian Income-tax Act, 1922, to merged States no depreciation could have been actually allowed to any assessee under the Indian Income-tax Act, 1922, or any Act repealed by the Act of 1922. The Bhopal Income-tax Act was repealed by the Ordinance of 1949, and not by the Indian Income-tax Act, 1922. This and other difficulties led to the making of the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, (hereinafter called the Removal of Difficulties Order, 1949), by the Central Government in the exercise of the powers conferred on it by Section 8 of the Ordinance. Section 8 of the Ordinance ran as follows-

'8. If any difficulty arises in giving effect to the provisions of this Ordinance, the Central Government may by order make such provisions, or give such directions, as appear to it to be necessary for removal of the difficulty.' Section 2 of the Removal of Difficulties Order, 1949, is in the following terms-

'2. 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 supertax, 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 merged State in British India, the greater of the two sums allowed shall only be taken into account.'

4. The Ordinance of 1949 was replaced by the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, (hereinafter referred to as the 1949-Act). Section 3 of this Act extended inter alia the Indian Income-tax Act, 1922, along with all the Rules and Orders made thereunder, to all the merged States with effect from 1st April 1949. Section 6 contains a provision for removal of difficulties. It says-

'5. If any difficulty arises in giving effect to the provisions of any Act, rule or order extended by Section 3 to the merged States, the Central Government may, by order, make such provisions or give such directions as appear to it to be necessary for removal of the difficulty.' Section 34 repealed the Ordinance providing that notwithstanding the repeal, anything done or any action taken in the exercise of any power conferred by the Ordinance 'shall for all purposes be deemed to have been done or taken in the exercise of the powers conferred by this Act as if this Act were in force on the day on which such thing was done or action was taken.'

5. For the assessment year 1949-50, the Income-tax Officer allowed to the Company depreciation on the basis of the original cost of the plant, machinery and other assets owned by it, that is, the cost paid by the Company therefor in 1939. For the assessment years 1950-51, 1951-52, 1952-53 and 1953-54, the Income-tax Officer first allowed depreciation on the basis of the written down value calculated after taking into account the depreciation actually allowed in each respective previous assessment year. The assessments for all these years were, however, reopened by giving to the Company notices under Section 34(1)(b) of the Indian Income-tax Act. 1922. The assessments for the years 1949-50, 1950-51, and 1951-52 were, however, allowed to become final. But in regard to the assessment years 1952-53 and 1953-54, the Income-tax Officer, by two separate orders passed on 4th March 1958, redetermined the amount of the depreciation granted and refused to allow depreciation on the basis of the original costs paid by the Company in 1939. He held that-

'the written down value of the assets of the company will have to be redetermined as on 1-1-1951. This would be done by first determining the written down value of assets as on 1-11-1948 under the Bhopal Income-Tax Act. From the written down values so ascertained, all depreciation actually allowed till 31-12-1950 would be deducted. The net figures thus arrived at would show the written down value of the assets in the beginning of the assessment year 1952-53.'

As a result, the depreciation allowed in the original assessments for the years 1952-53 and 1953-54 was reduced.

6. In appeal, the Appellate Assistant Commissioner disagreed with the Income-tax Officer and held that the assessee had not been allowed excess depreciation allowance as per the original assessment and there was no basis for initiating proceedings under Section 34 of the Indian Income-tax Act, 1922. The Appellate Assistant Commissioner took the view that 'depreciation actually allowed could not imply depreciation allowed by a mental phenomenon''. The order of the Appellate Assistant Commissioner was upheld by the Appellate Tribunal. When the matter came up to this Court on a reference under Section 66(1) of the Indian Income-tax Act, 1922, at the instance of the Commissioner of Income-tax, the answer which we rendered in terms of the question posed was that

'in the circumstances of this case, the correct basis for computing the written down value of depreciable assets of the company is the one adopted by the Appellate Assistant Commissioner'.

7. Thereafter the Commissioner of Income-tax, after obtaining Special Leave from the Supreme Court, filed an appeal from our judgment delivered on the reference made under Section 66(1) of the Indian Income-tax Act, 1922. During the pendency of this appeal before the Supreme Court, the Central Government in exercise of its powers under Section 6 of the 1949-Act passed another Order called the Taxation Laws (Merged States) (Removal of Difficulties) (Amendment) Order, 1962, (Hereinafter referred to as the 1962-order). This order runs as follows:

'1. This order may be called the Taxation Laws (Merged States) (Removal of Difficulties) (Amendment) Order, 1962.

2. In the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949. after the proviso to paragraph 2, the following Explanation shall be inserted, namely:

'Explanation--For the purpose of this paragraph, the expression 'all depreciation actually allowed under any laws or rules of a Merged 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 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.''

It was held by the Supreme Court that the Revenue was not (sic) entitled to rely on the 1962-Order and the reference must be answered in accordance with the amendment made by that Order. The Supreme Court further held that the 1962-Order was retrospective and applied to the assessments in question and accordingly observed that 'the answer to the question referred must be that the correct basis for computing the written-down value of the depreciable assets as on November 1, 1948, is the one which was adopted by the Income-tax Officer'. Before the Supreme Court, the petitioner attempted to challenge the validity of the 1962-Order. But the Supreme Court held that in view of the decision in K. S. Venkataraman and Co. (P) Ltd. v. State of Madras C. A. No. 618 of 1963 dated 18-10-1965: : [1966]60ITR112(SC) , the petitioner could not be allowed to challenge the validity of the 1962-Order in the appeal before them. As we read the Supreme Court's decisions dated the 3rd December 1965 in the appeal filed by the Commissioner, and that in C. A. No. 618 of 1963 dated 18-10-1965 : : [1966]60ITR112(SC) , it appears to us that in disallowing the petitioner to attack the validity of the 1962-Order in the appeal arising out of the reference proceedings the Supreme Court proceeded on the basis that as the validity of the Order could not have been questioned before the income-tax authorities or in the reference in this Court under Section 66, it could not, therefore, be questioned in the appeal before them from the judgment pronounced by this Court in the reference.

8. It is in these circumstances that the Company has now filed this application contending that the 1962-Order is unconstitutional and ultra vires and that as it could not raise this contention before the Supreme Court in the appeal filed by the Commissioner of Income-tax, it is now entitled to raise the same independently by an application under Article 226 of the Constitution. Shri Siddhartha Ray, learned counsel appearing for the petitioner, assailed the validity of the 1962-Order on five grounds, namely, first, that the power under Section 6 of the 1949-Act could be exercised only in the case of any difficulty arising in giving effect to the provisions of any Act, Rule or Order extended by Section 3 thereof to the merged State; that no such difficulty had arisen in giving effect to the provisions either of the Indian Income-tax Act, 1922, or the provisions of the Removal of Difficulties Order, 1949; and that, therefore, in the absence of any such difficulty the power under Section 6 of the 1949-Act could not be exercised for the purpose of passing the 1962-Order.

Secondly, the 1962-Order purported to amend substantially the Indian Income-tax Act, 1922; that Section 6 of the 1949-Act did not empower the Government so to amend or alter the provisions of the Indian Income-tax Act, 1922; that the Indian Income-tax Act, 1922, having been repealed by the Income-tax Act, 1961, did not exist at the time when the 1962-Order was passed; and that consequently the Indian Income-tax Act, 1922, could not be amended by the 1962-Order.

Thirdly, if Section 6 of the 1949-Act conferred power on the Government to pass the 1962-Order and to amend the Indian Income-tax Act, 1922, then the said Section 6 would be ultra vires and void amounting to unauthorised delegation of legislative power. Fourthly, the 1962-Order amended the Removal of Difficulties Order, 1949; and that Section 6 of the 1949-Act did not confer on the Government the power to remove any difficulty arising in giving effect to the provisions of the Ordinance or the Removal of Difficulties Order, 1949. Lastly, the 1962-Order violated Article 14 of the Constitution in that it made a discrimination between the same class of assessees residing in the former State of Bhopal.

9. Taking first the attack on the validity of the 1962 Order on the ground that there did not exist any 'difficulty' for the removal of which it was necessary for the Central Government to pass the Order, the argument of the learned counsel for the applicant was that the existence of any 'difficulty' as to the matter mentioned in Section 6 of the 1949 Act was a condition precedent to the exercise of the power of making an Order conferred upon the Central Government; it followed, therefore, that unless this condition was fulfilled no Order made under Section 6 would be valid, and when this Court had the power to enquire into the validity of an Order made under Section 6, it had necessarily the power to see whether this condition was fulfilled. Learned counsel proceeded to say that if, for instance, an Order was made in the absence of any difficulty whatever or for a purpose wholly unconnected with the removal of any difficulty, it could not be maintained that this Court had no power to declare the Order to be invalid inasmuch as the Central Government was the sole judge of the fact whether any difficulty did or did not exist. It was pointed out that the 1962 Order did not anywhere recite that any difficulty had arisen in giving effect to the provisions of any Act, Rule or Order extended by S. 3 of the 1949 Act to the merged States, and that even the return filed by the respondents did not disclose the difficulty or difficulties for the removal of which the impugned Order was passed. It was said that at the time of the making of the 1962 Order no difficulty existed in giving effect to the provisions of the Indian Income-tax Act, 1922; that the 1962 Order was passed solely for the purpose of bringing into the sweep of Section 2 of the Removal of Difficulties Order, 1949, the assessees whose income had been exempted from tax under any law or rules in force in a merged State or under any agreement with a Ruler; that the fact that certain classes of persons did not fall under the Removal of Difficulties Order, 1949, was not any 'difficulty' contemplated by Section 6 of the 1949 Act; and that assuming that this was a difficulty, then it was a difficulty arising in giving effect to Section 2 of the Removal of Difficulties Order, 1949.

Learned counsel relied on Mahalaxmi Mills Ltd. v. Commr. of Income-tax : [1963]50ITR741(SC) to support his contention that before an Order could be made by the Central Government under Section 6 of the 1949 Act, the Central Government had to be satisfied that a difficulty had actually arisen in giving effect to the provisions of any Act, Rule or Order extended by S. 3 to the merged States. He also referred us to several decisions of the Supreme Court and English decisions where, while considering the legality of detention orders made by the detaining authority on its 'satisfaction', it has been held that the word 'satisfied' does not import an arbitrary or irrational state of being satisfied but means a reasonable and honest satisfaction, and that though this satisfaction is of a subjective nature, yet the courts have power to see whether the satisfaction necessary for making of the Order is real or illusory and have, also the power to declare the Order to be invalid if it is found to have been made by the authority concerned in mala fide exercise of its power.

10. We are unable to accede to the contention that in the making of the 1962 Order under Section 6 of the 1949 Act, the condition for the exercise of the power under that provision is not fulfilled, and for that reason the Order is invalid. It is no doubt true that the power of the Central Government to make an Order under Section 6 depends on the condition of the existence of any difficulty arising in giving effect to the provisions of any Act, Rule or Order extended by Section 3 to the merged States and the Order can be made for the removal of the difficulty. Section 6 is undoubtedly a provision giving to the Central Government the power of subordinate legislation, namely, that of making an Order for the removal of any difficulty spoken of by that section. That being the nature of that provision, according to the well-settled principles of subordinate and delegated legislation the Central Government, when seeking to made use of the powers conferred upon it by Section 6, must keep itself within the scope of the authority granted to it by that provision, and the courts have clearly the authority to declare an order made under Section 6 to be ultra vires if in the making of that Order the Central Government exceeds the limits imposed thereunder.

The difficulty, the existence of which is a condition precedent for the making of an Order under Section 6, must be a difficulty arising in giving effect to the provisions mentioned in that section. The difficulty envisaged by Section 6 is not any mental difficulty felt by a taxing officer or the Government in understanding the provisions of the Acts extended to merged States by Section 3 of the 1949 Act. It is clearly an obstacle or an impediment in giving effect to the provisions of any Act, Rule or Order extended by Section 3. The language of the section clearly shows that it is for the Central Government to decide, as a pure act of administration, whether an obstacle or impediment exists in giving effect to the provisions of the Act, Rule or Order referred to in Section 6 which calls for an Order for surmounting the obstacle or removing the impediment. No doubt Section 6 does not expressly say that the Central Government should be satisfied as to the existence of any 'difficulty' for the removal of which the making of an Order is necessary. But it is implicit in the language of Section 6 that the Central Government should be satisfied that a difficulty exists in giving effect to the provisions of any Act, Rule or Order extended by Section 3 to the merged States. If the existence of any 'difficulty' depends on the satisfaction of the Central Government, then it follows that the condition about the existence of any difficulty, for the removal of which the Central Government is empowered to make an Order, is a subjective condition incapable of being determined by anyone other than the Central Government which has to take action in the matter.

That being so, according to the principles enunciated in the very decisions relied on by the learned counsel for the applicant dealing with the detention orders passed on satisfaction of the detaining authority, while deciding whether in making an Order under Section 6 the Central Government has kept itself within those provisions, the Court's power in looking into the existence of a difficulty is confined to seeing whether the 'difficulty' is relevant or extraneous to the scope or purpose of the legislative provision contained in Section 6. The propriety or reasonableness of the decision or satisfaction of the Central Government, upon which an Order for removal of a difficulty under Section 6 is based, cannot be challenged in a court of law.

11. Now, it is true that the 1962 Order does not contain a recital of the difficulty for the removal of which it was passed. It does not, as the Removal of Difficulties Order, 1949, stated vaguely, even say 'Whereas certain difficulties have arisen in giving effect to the provisions. ...' It is also true that the return of the respondents does not contain any averment as regards the difficulty which led to the passing of the 1962 Order. The respondents should have expounded the difficulty which induced the Central Government to make the 1962 Order. But it is not in any way incumbent on the Government to give, as a matter of law, a recital as to the existence of a difficulty leading to the waking of an Order under Section 6, and an averment in the return as to the existence of a difficulty, though it would have helped the Court in seeing whether the difficulty was relevant or extraneous to the scope and purpose of Section 6, would not have been conclusive of the matter. It cannot therefore be held that as the impugned Order does not contain a recital about the existence of any difficulty and the return filed by the respondents also does not disclose any, therefore, none existed for the making of the impugned Order, and consequently it is bad. If the, difficulty, for the removal of which the 1961 Order was made, is manifest from the Order itself, then the absence of recital in the Order as regards the existence of the difficulty or the omission of the respondents to state the difficulty in their return is of no consequence.

12. The difficulty, for the removal of which the 1962 Order was passed, manifests itself it the said Order is examined along with the earlier Order, namely, the Removal of Difficulties Order, 1949. It has been stated earlier that as the laws relating to income-tax in force in the merged States were repealed not by the Indian Income-tax Act, 1922, but by the 1949 Ordinance, an initial difficulty arose in giving effect to the provisions of Clause (b) of Section 10(5) of the Indian Income-tax Act, 1922. That difficulty was removed by the Removal of Difficulties Order. 1949, making it possible to take into account all depreciation actually allowed under any laws or rules of a merged State relating to income-tax and super-tax 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 Indian Income-tax Act, 1922.

Thus the Removal of Difficulties Order, 1949, gave effect to the scheme of depreciation embodied in Section 10(5)(b) of the Act of 1922 under which depreciation decreases every year, being a percentage of the written-down value which in the first year is the actual cost and in succeeding years is the actual cost less all depreciation actually allowed under the relevant Income-tax Act. At the time when the Removal of Difficulties Order, 1949, was made, it was not realised that in many of the merged States, where laws relating to income-tax and super-tax were in force, the Sovereign power in those States had granted total exemption from State tax to some industrial concerns. In the case of these exemptees, in the first assessment year after the extension of the Indian Income-tax Act, 1922, depreciation had, therefore, to be computed on the original cost of the plant, machinery and other assets. Thus in their case the provision contained in Section 10(5)(b) of the Indian Income-tax Act, 1922, namely, the depreciation being a percentage of the written-down value, namely, the actual cost in the first year and in succeeding years the actual cost less all depreciation actually allowed under the relevant law relating to income-tax, could not be given effect to. It is obvious from Clause (b) of the Explanation inserted in paragraph 2 of the Removal of Difficulties Order, 1949, by Section 2 of the 1962 Order that it was inter alia for the purpose of giving effect to the provisions of Section 10(5)(b), in the case of such exemptees that the 1962 Order was passed. The effect of Clause (b) of the Explanation inserted in the Removal of Difficulties Order, 1949, is that 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 can 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 Indian Income-tax Act, 1922, Thus there was a difficulty in giving effect to the provisions of the Indian Income-tax Act. 1922, just referred to, in the case of persons or bodies exempted from lax under any laws or rules in force in a merged State or under any agreement with a Ruler, for the removal of which the impugned Order was passed.

13. It is erroneous to say that the 1962 Order purports to remove a difficulty in giving effect to the provisions of the Removal of Difficulties Order, 1949. If the provisions now inserted in the Removal of Difficulties Order, 1949, by the 1962 Order had been incorporated originally in the Removal of Difficulties Order, 1949, itself when it was made, it could not have been then contended with any degree of force that those provisions were not for the purpose of removal of a difficulty arising in giving effect to the provisions referred to earlier of the Indian Income-tax Act, 1922. The fact that the provisions contained in the 1962 Order were not embodied in the Removal of Difficulties Order, 1949, originally but were inserted subsequently cannot, however, alter this purpose of those provisions. The amendment made in the Removal of Difficulties Order, 1949, by the 1962 Order is only the mode by which the difficulty arising in giving effect to the provisions of the Act of 1922 has been removed. The amendment can-not be construed in any way as implying that thereby a difficulty arising in giving effect to the provisions of the Removal of Difficulties Order, 1949, has been removed.

14. Again, it may be that the effect of the 1962 Order is to remove the disparity that existed regarding the depreciation allowance between persons who were liable to pay income-tax under the merged State's income-tax laws and those who were exempted from the payment of tax under any laws or rules in force in a merged State or under any agreement with a Ruler. But this is the result of the 1962 Order and not the cause for the making of that Order. It was the difficulty which arose in giving effect to the provisions of the Indian Income-tax Act, 1922, that led to the passing of the 1962 Order. Learned counsel for the applicant said that the 1962 Order was passed some thirteen years atter the Removal of Difficulties Order, 1949, was issued, and all this time, as is plain from the decisions in this case of the Appellate Assistant Commissioner, the Appellate Tribunal, and of this Court and even the Supreme Court, no difficulty was felt in the computation of the aggregate depreciation allowance in regard to the petitioner-assessee; and that consequently it could not be said that there was any difficulty in giving effect to the provisions of the Indian Income-tax Act, 1922, justifying the making of the 1962 Order.

This submission is not sound. The obstruction or impediment in giving effect to the scheme contained in the relevant provisions of the Indian Income-tax Act, 1922, with regard to computation of aggregate depreciation allowance existed till the making of the 1962 Order. The computation of aggregate depreciation allowance in the case of the petitioner by the Appellate Assistant Commissioner, Appellate Tribunal, and this Court under Section 10(5) of the Indian Income-tax Act, 1922, read with the Removal of Difficulties Order, 1949, did not in any way remove the difficulty. No doubt the Appellate Assistant Commissioner, the Appellate Tribunal and this Court did not find any difficulty in applying to the case of the petitioner the relevant provisions as they were regarding the computation of the aggregate depreciation allowance on the basis of the written-down value calculated after taking into account the depreciation allowance actually allowed in each respective previous assessment year. But, as has been pointed out earlier, the difficulty contemplated by Section 6 of 1949 Act is not any difficulty felt in understanding or applying a relevant statutory provision as it is, but is an obstruction or an impediment in giving full effect to the provisions of any Act, Rule or Order extended by Section 3 of the 1949 Act. The application of a provision regarding depreciation is one thing and removal of a difficulty so as to make computation of the aggregate depreciation in consonance with Section 10(5)(b) of the 1922 Act is quite different. The fact that the Central Government took nearly thirteen years for removing the difficulty that it did by passing the 1962 Order is only a comment on the Government's inaction. But, as we have endeavoured to point out earlier, the questions whether any difficulty spoken of in Section 6 of the 1949 Act has arisen and whether that difficulty should be removed by an Order under that provision, and if so, when and how, are matters for the Government to decide.

15. It would be pertinent to refer at this stage to the decision of the Supreme Court in Commr. of Income-tax Hyderabad v. Dewan Bahadur Ramgopal Mills. Ltd. : [1961]41ITR280(SC) where the question of the validity of the Explanation added to paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, by an order made on 8th May 1956 by the Central Government in exercise of the power conferred on it by Section 12 of the Finance Act, 1950, was considered. The said Order of 1950 was made by the Central Government in exercise of the powers conferred on it by Section 12 of the Finance Act, 1950, for removal of certain difficulties which arose in giving effect to the provisions inter alia of the Indian Income-tax Act, 1922, after the extension of the Indian Income-tax Act, 1922, to Part B States. Section 12 of the Finance Act, 1950, is as follows:

'If any difficulty arises in giving effect to the provisions of any of the Acts, rules or orders extended by S. 8 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.'

It will be noticed that the language of Section 12 of the Finance Act, 1950, is not different from that of Section 6 of the 1949 Act. Paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, as it stood before the insertion of the Explanation, and paragraph 2 of the Removal of Difficulties Order, 1949, are in identical terms. It may be noted that on the same date on which the 1962 Order was made an order amending the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, and called the Taxation Laws (Part B States) (Removal of Difficulties) Amendment Order, 1962, was issued by which a new Explanation, in place of the Explanation added to paragraph 2 of the 1950 Order on 8th May 1956 by an order made under Section 12 of the Finance Act, 1950, was substituted. The language of this new Explanation, substituted in Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, and the Explanation inserted in the Removal of Difficulties Order, 1949, by the impugned 1962 Order is similar. In : [1961]41ITR280(SC) it was urged before the Supreme Court that the condition for the exercise of power under Section 12 of the Finance Act, 1950, was the existence of any difficulty in giving effect to the provisions of the Acts, rules or orders extended by Section 3 of the Finance Act to Part B States; that no difficulty existed in giving effect to the provisions of Section 10(2)(vi) and Section 10(5)(b) of the Indian Income-tax Act, 1922; and that, therefore, the Explanation to paragraph 2 of the 1950 Order was invalid. The Supreme Court repelled this contention after pointing out how there was a difficulty in the application of Section 10(5)(b) to an assessee in a Part B State and the object of paragraph 2, and the Explanation thereto, of the 1950 Order. It was held by the Supreme Court that by giving effect to paragraph 2 of the 1950 Order, as originally passed, a disparity was created and depreciation would have had to be allowed against the scheme of the Indian Income-tax Act, 1922, and it was, therefore, necessary to explain paragraph 2 and the Explanation was intended to remove the difficulty. It was further held that under Section 12 of the Finance Act, 1950, 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, and Parliament had left the matter to the executive; but that, did not make the notification of 1956 bad. In : [1963]50ITR741(SC) the Supreme Court reiterated this construction of Section 12 of the Finance Act, .1950, and made the following observations:

'What is necessary in law is that before an order can be made by the Central Government under Section 12, the Central Government must be satisfied that in certain cases difficulties have actually arisen in giving effect to the provisions of the Indian Income-tax Act.'

The view we have expressed earlier about the Court's power to examine the validity of an Order made under Section 6 of the 1949 Act is fully fortified by these two decisions of the Supreme Court. The decision in the case of Ramgopal Mills : [1961]41ITR280(SC) also supports the view that an obstruction or impediment in the allowance of depreciation in accordance with the scheme of the Indian Income-tax Act, 1922, would be a 'difficulty' within the meaning of Section 12 of the Finance Act,' 1950, or Section 6 of the 1949 Act justifying an order under those provisions for the removal of the difficulty. Learned counsel for the applicant sought to distinguish the case of Ramgopal Mills : [1961]41ITR280(SC) by saying that in that case the difficulty arose because of the peculiarity of the Hyderabad Income-tax Act, which was in force in the erstwhile State of Hyderabad when the Indian Income-tax Act, 1922, was extended to that State. This, in our opinion, is not a valid distinction. The Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was passed for the removal of difficulties that arose in all Part B States in giving effect to the provisions of the Indian Income-tax Act, 1922, after that Act was extended to those States. The ratio of the Ramgopal Mills Case : [1961]41ITR280(SC) , the exposition given therein by the Supreme Court of the scope and effect of Section 12 of the Finance Act, 1950, and the difficulty pointed out justifying the making of the 1950 Order and the insertion of an Explanation in 1956 to paragraph 2 of that Order, do not rest on any special features of the Hyderabad Income-tax Act. The contention advanced on, behalf of the petitioner that the impugned 1962 Order is invalid for the reason that in the making of that Order under Section 6 of the 1949 Act the condition for the exercise of power under that provision was not fulfilled cannot, therefore, be accepted.

16. Turning to the next three contentions advanced on behalf of the petitioner, the argument that the Indian Income-tax Act, 1922, having been repealed by the Income-tax Act, 1961, there could be no amendment of the repealed Act and, therefore, the 1962 Order purporting to amend the Indian Income-tax Act, 1922, was invalid, is altogether unsubstantial. A repealed Act cannot, of course, be amended unless it is first revived. But by Section 297 of the Income-tax Act, 1961, the Indian Income-tax Act, 1922, was not repealed totally for all purposes. It was saved to the extent specified in Sub-section (2) of Section 297, and applied inter alia to any proceeding pending on the commencement of the 1961 Act before an income-tax authority or any court by way of appeal, reference or revision, as if the 1961 Act had not been passed. It is not contested that the assessment on the petitioner Company is governed by the 1922 Act. For the purposes for which the 1922 Act continues to operate, it can be amended.

17. Learned counsel for the applicant is no doubt right in his submission that Section 6 of the 1949 Act does not empower the Central Government to alter radically or to amend substantially the Indian Income-tax Act, 1922, for the removal of any difficulty arising in giving effect to the provisions of that Act. The power to make a provision or give a direction for the removal of any difficulty arising in giving effect to the provisions of any Act necessarily implies that the provisions of the Act to which effect is to be given cannot be amended substantially. The provisions of any Act are given effect to not by amendment but by making a provision for its implementation. To amend the Act is not to give effect to the Act but to negative the effect.

18. Learned counsel did not dispute that if any difficulty of the nature indicated in Section 6 of the 1949 Act existed, the power conferred by that provision could be used for making such alterations in the Indian Income-tax Act, 1922, as clo not affect the essential features of that Act or bring about a 'change of policy.' He, however, relying on the observation made by the Supreme Court in the judgment disposing of the appeal filed by the Commissioner of Income-tax, namely, 'The order is in effect an amendment of the Indian Income-tax Act insofar as it is applicable to the merged States', contended that the 1962 Order substantially amended the Indian Income-tax Act, 1922. We do not agree. The observation made by the Supreme Court in the appeal preferred by the Commissioner of Income-tax in the present case, and relied on by the learned counsel, cannot be read as meaning that the 1962 Order has substantially amended the Indian Income-tax Act, 1922. The observation only means that the application to the merged States of the Indian Income-tax Act, 1922, has been modified by the Order. The modification made by the 1962 Order is in regard to the details relating to the working of the depreciation allowance provisions 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 1922 Act. The modification is thus not one substantially amending the Indian Income-tax Act, 1922, or altering its policy. On this point, considerable light is thrown by the decision of the Supreme Court in : [1961]41ITR280(SC) . In that case, the Supreme Court did not regard the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, as originally made, or the Explanation added to paragraph 2 of that Order in 1956, as in any way amending radically or substantially the Indian Income-tax Act, 1922. On the other hand, the Supreme Court observed:

''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 Banarsi Das v. State of Madhya Pradesh : [1959]1SCR427 we said at p. 435 (of SCR): (at p. 913 of AIR): '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 resemblance between the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, Section 12 of the Finance Act, 1950, and the Removal of Difficulties Order, 1949, and Section 6 of the 1949 Act has already been pointed out. On that resemblance, following the decision of the Supreme Court in Ramgopal Mills Case. : [1961]41ITR280(SC) , it cannot be held that the 1962 Order substantially amends the Indian Income-tax Act, 1922.

19. Learned counsel referred us to the observations made by the Supreme Court : [1961]41ITR280(SC) in the the case of Ramgopal Mills, (supra) explaining the purpose of the Explanation added to paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, and pointing out how an anomaly would have resulted if depreciation actually allowed under the Hyderabad Income-tax Act had been taken into account in computing the aggregate depreciation allowance and the written down value. It was said that on the basis of those observations the Supreme Court 'held that the modification made by the Explanation added in 1956 to paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was relating to details of the working of the 1922 Act, and that, therefore, the decision in Ramgopal Mills case : [1961]41ITR280(SC) has no applicability here. The distinction drawn by the learned counsel is not tenable. As is abundantly plain from the judgment of the Supreme Court in Ramgopal Mills : [1961]41ITR280(SC) , what the Supreme Court said about the scope, effect and nature of Section 12 of the Finance Act, 1950, and the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was on a construction of those provisions, independently of any provisions of the Hyderabad Income-tax Act which were referred to while explaining the purpose of the Explanation to paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. In our opinion, the contention that the impugned 1962 Order is invalid inasmuch as it substantially amends the Indian Income-tax Act, 1922, is concluded by the decision of the Supreme Court in Ramgopal Mills Case, : [1961]41ITR280(SC) and must, therefore, be rejected.

20. If, as we think, the 1962 Order does not effect any essential change in the Indian Income-tax Act, 1922, or an alteration in its policy, then it cannot be struck down as a piece of unauthorised delegated legislation. As pointed out by the Supreme Court in : [1959]1SCR427 and the Ramgopal Mills case : [1961]41ITR280(SC) , it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws. The 1962 Order does no more than determine details relating to the working of the depreciation allowance provisions. It was, therefore, validly made under Section 6 of the 1949 Act.

21. It was further argued by the learned counsel for the petitioners that the 1962 Order amended the Removal of Difficulties Order. 1949, and that Section 6 of the 1949 Act did not empower the Central Government to amend the Removal of Difficulties Order, 1949. It was also said that after the replacement of the 1949 Ordinance by the 1949-Act, a reference to the 1949-Ordinance in the recital of the Removal of Difficulties Order, 1949, must, as provided by Section 8 of the General Clauses Act, 1897, be construed as a reference to the 1949-Act, and so construed the amending order of 1962 would become one made for removal of certain difficulties arising in giving effect to the provisions of the 1949-Act; but Section 6 of the 1949-Act did not confer on the Government the power to make any Order or provision for removal of any difficulty arising in giving effect to the provisions of the 1949-Act. For these reasons, it was contended that the 1962-Order was bad. This argument is fallacious, and cannot be accepted. It has already been pointed out that the 1962-Order does not purport to remove any difficulty in giving effect to the provisions of the Removal of Difficulties Order, 1949: that it only removed a difficulty which arose in giving effect to the depreciation allowance provisions in the Indian Income-tax Act, 1922; and that the amendment made in the Removal of Difficulties Order 1949, by the 1962-Order is only the mode by which the difficulty has been removed. Section 6 of the 1949-Act, when it says that the Government may make such provisions or give such directions as appear to it to be necessary for the removal of the difficulty indicated therein, does not preclude the Government from amending the Removal of Difficulties Order, 1949, for that pur pose. Again, a difficulty arising in giving effect to the provisions of 1922-Act would be a difficulty in giving effect to the extension of an Act extended by Section 3 of the 1949-Act. The difficulty would thus become a difficulty indirectly arising in giving effect to Section 3 of the 1949-Act, and would thus be a difficulty in giving effect to the provisions of the 1949-Act. There is, therefore, no substance in the contention that the 1962-Order is invalid inasmuch as it having been made for the removal of certain difficulty arising in giving effect to the provisions of the 1949-Ordinance or 1949-Act was beyond the scope of Section 6 of the 1949-Act.

22. It remains to consider the last contention put forward on behalf of the petitioner, namely, that the impugned 1962 Order violated Article 14 of the Constitution in that it discriminated between the same class of assessees residing in the former State of Bhopal. On this point, the averments made by the petitioner in paragraph 38 of the petition run thus:

'The Income-tax Act was applied to merged States as early as in 1949. The second older has been issued 13 years after that. During this period many persons of merged States having been assessed from the assessment year 1949-50 to 1960-61 on the basis of the said first order. On the passing of the second order the past assessments of such persons may at the best be re-opened under Section 147(b) of Income-tax Act 1961 (corresponding to old Section 34(b) of Income-lax Act 1922) in respect of only the last four assessment years and the earlier assessment years will remain final. By making the second order retrospective with effect from 1949, those persons in merged States, whose assessments have not become final due to pending proceedings in reference to the Hon'ble High Court or the Hon'ble Supreme Court will be affected in respect of such assessments even though the period of four years might have elapsed long ago. Thus the second order discriminates between persons falling in the same group and/or belonging to the same class and there is no nexus whatsoever between the object of such discrimination with the said discrimination itself. By reason ot the second order, whereas your petitioner will be affected retrospectively for a much longer period of (sic) four years other assessees similarly situated as your petitioner and belonging to the same class can only be affected for a period of four years as aforesaid. There is no reasonable basis or nexus for such discrimination.'

These averments do not at all give any indication about the assessees similarly situated as the petitioner, who have been said to be treated differently as a result of the 1962 Order, and the manner in which they have been so treated. They only show that the main' complaint of the petitioner on this score is that the effect of the 1962 Order is that it discriminates between the assessees against whom assessment proceedings are pending, and the assessees whose assessments became final before the Order was made. Learned counsel did not dispute that the assessees against whom assessment proceedings were pending could constitute as a class by themselves. But he contended that in relation to the 1962 Order the classification into two categories of the assessees whose assessments had become final and those against whom assessments were pending was not rational.

23. In our opinion, the impugned Order does not contravene Article 14 of the Constitution. It applies to all persons who come within its ambit from the date on which it became operative. The Explanation added to paragraph 2 of the Removal of Difficulties Order, 1949, by the 1962 Order is no doubt retrospective. It applies to pending proceedings and does not affect assessments which have become final. But it is well settled that it is for the legislature to decide from what date a law should be given operation and the law cannot be challenged as discriminatory if it does not affect the prior or closed transactions and affects only pending proceedings or post-enactment transactions (see Inder Singh v. State of Rajasthan : [1957]1SCR605 and Hathisingh Mfg. Co. v. Union of India. : (1960)IILLJ1SC ). If the 1962 Order has the effect of classifying assessees into two categories, namely, those against whom assessments have become final and those against whom assessments are pending, then that classification is reasonable, as is clear from the decision of the Supreme Court in Ramjilal v. I.T. Officer Mohindargarh : [1951]19ITR174(SC) . That was a case where after the formation of Pepsu Union all laws in force in the Patiala State were applied to the Union, with a proviso that all proceedings pending before courts and other authorities of any of the Covenanting States shall be disposed of in accordance with the laws governing such proceedings in force in such Covenanting States immediately before 20th August 1948. In Kapurthala, one of the Covenating States, there was a law of income-tax in force on the said date, under which the rate of tax was lower than that payable under the Patiala Income-tax Act. In another Covenanting State, Nabha, there was no law of income-tax at all. An assessee, who resided in the Nabha territory and was assessed under the Patiala Income-tax Act at a rate higher than that at which Kapurthala assessees were assessed, applied to the Supreme Court under Article 32 of the Constitution for a writ of certiorari for quashing the assessment made on him on the ground that he had been denied the fundamental right of equality before the law and equal protection of the law guaranteed by Article 14 of the Constitution. The Supreme Court rejected the assessee's contention based on Article 14 of the Constitution and held that the discrimination, if any, between the assessees of Kapurthala and Nabha was not brought about by the Ordinance by which Patiala laws were extended to Nabha, but by the circumstance that there was no income-tax law in Nabha, and there was no case of assessment pending against any Nabha assessee. It was also observed that the provision that pending proceedings should be concluded according to the law applicable at the time when the rights or. liabilities accrued and the proceedings commenced, was a reasonable law founded upon a reasonable classification of the assessees which is permissible under Article 14 of the Constitution. In our view, the present case falls within the principle laid down in the case of Ramjilal : [1951]19ITR174(SC) and applying that principle it must be held that the 1962 Order, which applies to all those who come within its ambit from the date it became operative, cannot be challenged as discriminatory on the ground that it does not affect the assessees whose assessments have become final but affects those against whom assessment proceedings are pending.

24. In our view we have taken of the matter, it is unnecessary for us to deal at length with the contention of the learned Advocate General appearing for the respondents that the decision or the Supreme Court in the appeal preferred by the Commissioner of Income-tax that the correct basis for computing the written-down value of the depreciable assets as on 1st November 1948 is the one which was adopted by the Income-tax Officer operates res judicata and the petitioner is precluded from challenging the validity of the 1962 Order. It is sufficient to say that when the Supreme Court, following its decision in C. A. No. 618 of 1963 dated 18-10-1965: : [1966]60ITR112(SC) held that in assessment proceedings before the taxing authority as also in the High Court in the reference proceedings under Section 66 of the Indian Income-tax Act, 1922, and in the appeal to the Supreme Court from the judgment pronounced by the High Court in the reference no objection as regards the vires of any taxing provision could be entertained, it is impossible to contend that the judgment pronounced by the Supreme Court allowing the appeal preferred by the Commissioner of Income-tax taking the 1962 Order as valid for the purposes of the appeal operates as res judicata. If the argument of the learned Advocate General were to be accepted, the result would be that the validity of any provision relating to income-tax cannot at all be challenged anywhere. This clearly is not the effect of the decisions of the Supreme Court in Amalgamated Coalfields v. Janapada Sabha Chhindwara, : AIR1964SC1013 and Devilal Modi v. Sales Tax Officer Ratlam : [1965]1SCR686 to which the learned Advocate General drew our attention.

25. For the foregoing reasons, this petition is dismissed with costs. Counsel's fee isfixed at Rs. 200. The outstanding amount ofsecurity deposit, if any after deduction of costs,shall be refunded to the petitioner.


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