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Commissioner of Income-tax, Vs. D.B.R. Mills Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Reported in195629ITR210(Hyd.)
AppellantCommissioner of Income-tax,
RespondentD.B.R. Mills Ltd.
Excerpt:
.....is a reference made on an application by the income-tax commissioner under section 66(1) of the indian income-tax act, 1922, for the determination of the following question by this court, namely : "whether in making the assessment for the year 1951-52 under the indian income-tax act is the assessee company entitled to claim depreciation allowance on the basis of the written down value computed at the time of the assessment for the year 1359 f. or is it to be computed on the basis of the actual cost minus the depreciation allowance granted under the hyderabad income-tax act ?" the tribunal has in its order of reference stated that the applicant who was assessed under the hyderabad income-tax act in respect of the assessment years 1357, 1358 f. had been given certain depreciation.....
Judgment:
P. JAGANMOHAN REDDY, J. - This is a reference made on an application by the Income-tax Commissioner under section 66(1) of the Indian Income-tax Act, 1922, for the determination of the following question by this Court, namely : "Whether in making the assessment for the year 1951-52 under the Indian Income-tax Act is the assessee company entitled to claim depreciation allowance on the basis of the written down value computed at the time of the assessment for the year 1359 F. or is it to be computed on the basis of the actual cost minus the depreciation allowance granted under the Hyderabad Income-tax Act ?" The Tribunal has in its order of reference stated that the applicant who was assessed under the Hyderabad Income-tax Act in respect of the assessment years 1357, 1358 F. had been given certain depreciation allowance under section 12(5) of the said Act. Now for the year 1951-52 assessable under the Indian Income-tax Act, 1922, which was made application under section 13 of Indian Finance Act, 1950, read with paragraph 5 of the Part B States (Taxation Concessions) Order 1950, the written down value is sought to be computed by the Income-tax authorities on the basis of the assessment for 1359 F.The assessee contended before the Income-tax authorities that by reason of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, he was entitled to depreciation not on the written down value as computed in 1359 F. but upon the actual cost minus the depreciation allowance. In other words, he contends that the written down value should be taken to be the actual cost to the assessee minus the depreciation allowance admissible under the Hyderabad Income-tax Act for the 1359 F. assessment should be taken as the value of the asset for the purposes of depreciation under the Indian Income-tax Act for the year of assessment 1951-52. Section 12(5)(c) of the Hyderabad Income-tax Act provides that in the case of assets acquired before the previous year and before the commencement of the Act, the written down value should be worked out on the actual cost to the assessee less depreciation at the rates applicable to such assets calculated on the actual cost for the first year since acquisition and for the year and so on for each year up to the commencement of the Act, and the depreciation actually allowed to the assessee on such assets for each financial year. The net result of the contention of the Income-tax Department would be to allow a much less allowance on account of depreciation, because the written down value will be considerably reduced due to the applicability of the provision in section 12(5)(c) of the Hyderabad Income-tax Act. This can easily be illustrated by taking an asset purchased in October, 1940, for a sum of Rs. 3,00,000. The written down value of this asset for the first assessment year 1947-48, under the Hyderabad Income-tax Act, would, by applying the principle of section 12(5)(c) of the Act, say at 10% depreciation each year, amount to Rs. 2,79,62 2 and for the assessment year 1949-50 (1359 F.) would be Rs. 2,71,318. The depreciation actually allowed to the assessee for the three years would be Rs. 8,304. If the contention of the assessee is accepted, the written down value for the year 1949-50(which is the previous year) would be the cost of Rs. 3,00,000 minus Rs. 8,304, the actual depreciation allowed, i.e., Rs. 2,91,696. The Appellate Tribunal after considering these rival contentions accepted the contention of the assessee by its order dated December 12, 1952, and held that the depreciation calculated under section 12(5)(c)(i) is not the depreciation which is actually allowed to the assessee under the Hyderabad Income-tax Act. The words used in paragraph 2 of the Taxation Laws (Part B States)(Removal of Difficulties) Order, 1950, are "actually allowed" and in the view the Tribunal had taken of the matter, it directed the Income-tax Officer to compute the written down value on the basis of the actual cost of the asset minus the depreciation allowance actually allowed to the assessee under the Hyderabad Income-tax Act.

In our view, the Tribunal in so holding was correct. Section 10(5)(b) of the Indian Income-tax Act defines "written down value" as meaning "in the case of assets acquired before the previous year the actual costs 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 Income-tax Act, 1886, was in force." According to this provision the assessee would have been entitled ordinarily to claim depreciation on the actual cost of the asset where the asset was in existence before the previous year less the depreciation actually allowed to him under the Act. But, as the Indian Income-tax Act was not in force, no depreciation was actually allowed nor could depreciation under the Hyderabad Income-tax Act, which was repealed not by that Act but by the Finance Act 1950, could be taken into account, as would be seen presently. Consequently, depreciation for the year of assessment would have been ordinarily allowed on the cost of the asset.

The Central Government, in exercise of the power vested in it under section 12 of the Finance Act, issued the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, purported to remove the above difficulties by clause 2 of the said Order which is as follows : "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 10 of the said Act." Section 12 of the Indian Finance Act, 1950, under which this Order was issued, authorises the Central Government by order to make such provision or give such direction as appears to it to be necessary for removing any difficulty arises in giving effect to the provisions of any of the Acts, Rules or Orders extended by section 3 or section II to any State or merged territory. Section 3 of the said Act makes certain amendments in the Indian Income-tax Act, At any rate, the power given by section 13 of the Indian Finance Act to the Central Government is only to enable it to remove difficulties if such difficulties arise in giving effect to the provisions of the Indian Income-tax Act or any other Act specified therein. A contention was sought to be raised at the Bar by the learned advocate for the assessee that no difficulty can be envisaged in giving effect to the provisions of clause (b) of sub-section (5) of section 10 of the Indian Income-tax Act and as such paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order could not be issued in the proper exercise of the power conferred by the Indian Finance Act. In our view, this question is not open to us for determination, because it was neither raised before the Appellate Tribunal under section 66(1), nor was it made the basis of any contention by the assessee founded upon this argument before the Appellate Tribunal in a appeal. Under sub-section (1) of section 66 of the Indian Income-tax Act, an assessee or the Commissioner of Income-tax can by application require the Tribunal to refer a case to the High Court on any question of law arising out of an order of the Tribunal. If the Tribunal refuses to refer a case then the High Court can be moved under sub-section (2) of section 66. Where, however, neither the assessee nor the Commissioner has chosen to move the Tribunal to refer a case on any point of law arising out of the order of the Tribunal within the period prescribed, he cannot raise it before the High Court nor move the High Court to refer a question by the Tribunal is a sine qua non, a condition precedent, for moving the High Court to direct the Tribunal to state a case thereon. If no question has been raised by the assessee before the Tribunal challenging the validity of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, issued under section 12 of the Indian Finance Act, 1950, he cannot be permitted to raise it in this reference, nor can the Income-tax Department be allowed to raise any new question or ask for a reference thereon.

The only question that is open to us is to determine whether under paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, the assessee is entitled to depreciation on the actual cost of the asset minus the depreciation actually allowed under the Hyderabad Income-tax Act, or whether depreciation is allowable only on the written down value computed at the time of assessment for 1359F.The learned advocate for the Income-tax Department has further argued that the order of the Central Government issued after the Appellate Tribunals order in appeal under section 60A of the Indian Income-tax Act adding an explanation to paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, makes the position clear, and reinforces his contention.

"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 any laws or rules of a Part B State or carried forward under the said laws or rules." The question for determination is whether the Central Government could by the issue of such an order given effect retrospectively to any provision which will adversely affect the assessee or could set at naught an order of the Appellate Tribunal. The learned advocate for the Income-tax Department contends that the Central Government has always the power to issue such orders under section 60A, until the final determination of the matter, which had by then not been concluded. The Determination of the matter, which had by then not been concluded. The Department had already filed an application for reference under section 66(i) before the Appellate Tribunal to refer a case to the High Court, and since it is only when that application Tribunal to refer a case to the High Court, and since it is only when that application was pending that the said order was issued, it cannot be said that the order had affected a concluded matter. In support of this contention he has cited Chatturam v. Commissioner of Income-tax, Bihar. In this case, the question that fell for determination was whether the Governor in an emergency can issue an Ordinance by virtue of the power conferred under section 92 of the Government of India Act, and incidentally the retrospective nature of the impugned laws also fell for consideration.

Now it cannot be denied that where a legislative authority competent to make laws desires that the law promulgated by it should be of a retrospective character, it can be made to take effect retrospectively.

The question in this case is whether the authority vested with the power to make orders under any statute can, without specific power or necessary intendment, make orders having retrospective effect. In order to enable us to ascertain whether an authority has been vested with the power to make orders with retrospective effect, it is necessary to look into the content of the power in section 60A of the Indian Income-tax Act which is in the following words : "If the Central Government considers it necessary or expedient, so to do for avoiding any hardship or anomaly, or removing any difficulty, that may arise as a result of the extension of this Act to the merged territories or to any Part B State the Central Government may, by general or special order, make an exemption, reduction in rate or other modification in respect of income-tax in favour of any class of income, or in regard to the whole or any part of the income of any person or class of persons." Then follows a proviso with which we need not concern ourselves. A cursory examination of the language of section 60A might show that there is nothing in its content from which an intention to authorise the Central Government to make retrospective orders can be inferred, but any order made thereunder will have to deal with matters relating to income earned and depreciation to be allowed before the Act came into force. It is useful in this connection to cite the observations of Patanjali Sastri, C.J., in Union of India v. Madangopal. After stating that in strictness the Finance Act, 1950, is not retrospective legislation, his Lordship observed : "The case is thus one where the statute purports to operated only prospectively, but such operation has, under the scheme of the Indian Income-tax law to take into account income earned before the statute came into force. Such an enactment cannot, strictly speaking, be said to be retroactive legislation, though its operation may affect acts done in the past." Now the explanation which has been added to the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, has been challenged on the ground that it was not permissible to the Central Government, in exercise of the powers under section 60A of the Indian Income-tax Act, to amend an order which was made in exercise of the power conferred under a different Act, viz., section 12 of the Indian Finance Act, 1950, nor has the power under section 60A been exercised in order to remove any difficulty or make any modification or grant reduction in favour of the assessee or to remove any hardship as there was no hardship in the application of section 10(5)(b) of the Indian Income-tax Act or paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. In our view, there is force in the objection of the learned advocate. The Central Government is authorised under section 60A of the Indian-tax Act to make an exemption, reduction or modification as regards liability to tas in favour of any class of income or in regard to the whole or any part of the income of any person or class of person for the purpose of avoiding any hardship or anomaly, or for removing any difficulty arising from the extension of the Act to the merged territories or any Part B State.

It is therefore implied in the content of section 60A, which is somewhat similar of section 60, that the power given to the Central Government is to be exercised in favour of any class of income or in regard to the whole or any part of the income of any person or class of person. There is, therefore, nothing to warrant the Central Government to exercise its power under the said section to the disadvantage of an assessee on the ground that a difficulty has arisen. The difficulty envisaged by the section is not the difficulty to the Income-tax Department in not being able to collect more tax or in not being able to allow less depreciation allowance, but a difficulty which comes in the way of an assessee not having some advantage which is deemed to be equitable.

According to section 10(2)(vi) of the Indian Income-tax computing profits or gains, an allowance is made in respect of depreciation on plant, machinery, etc., of a sum equivalent to such percentage on the written down value thereof to the assessee as may for any asset or class of assets be prescribed. The manner in which written down value for the purposes of the above provision is to be computed is laid down in section 10(5)(b) of the Indian Income-tax Act, that is, in the case of assets acquired in any year before the accounting yea r, actual cost less the aggregate of all the amounts actually allowed under that Act and not merely allowable by way of depreciation to the assessee in the preceding year or years. Depreciation allowance, therefore, is only a percentage on the original cost to the assessee or on the written down value and the amount of depreciation will diminish each year. The assessees contention based on paragraph 2 of the (Part B States) (Removal of Difficulties) Order, 1950. But the learned advocate for the Income-t ax Department contends that this method of computation would allow much more depreciation in the accounting year and is against the principle of granting depreciation allowance laid down and inherent in the scheme of the Income-tax act, according year and is against the principle of granting depreciation allowance laid down and inherent in the scheme of the Income-tax Act, according to which the depreciation allowance should be on the decrease from year to year. The validity of this contention would depend upon the language of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. It is, therefore, necessary to ascertain what is meant by "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 a business. The words "actually allowed" mean that which has been in fact allowed by the assessing authority, the benefit of which has already been received by the assessee, as opposed to that which could have been allowed or allowable under an Act which has been repealed and has since ceased to have effect. It should be noted that depreciation allowance is an amount which is calculated on the written down value computed in accordance with the provisions of law fore any year of assessment according to a prescribed percentage; in other words, the written down value is the basis of working out the depreciation to be allowed to the allow to the assessee for any year of assessment. Section 12(5)(c) of the Hyderabad Income-tax Act, however, provided for the method of computing the written down value progressively year by year till the date of the enforcement of that Act and thereafter. The depreciation for the purposes of working out the written down value up to the date of the enforcement of the Act for the purpose of giving an allowance on account of depreciation in the year of assessment on the coming into force of the Act is one thing and depreciation actually allowed on that written down value is another thing. In our view, there can be no doubt that the depreciation which has been actually allowed by the assessing authority under the provisions of the Hyderabad Income-tax Act are to be deducted from the actual cost of the assets after which the depreciation for the assessment year will have to be work out under section 10(5)(b) of the Indian Income-tax Act, 1922, on the written down value so computed. This is clear from the language.

It will thus be seen that the explanation added to paragraph 2 of the said Taxation Laws (Removal of Difficulties) Order, 1950, was not made to secure an advantage to the assessee nor had it been made to avoid any hardship or anomaly or for removing any difficulty that may arise as a result of the extension of the Indian Income-tax Act to the merged territories or Part B States. As we have pointed out there is no hardship to the assessee nor is there any anomaly for that matter or any difficulty which would arise out of the application of section 10(5)(b) of the Indian Income-tax Act, whether applied by itself or read with paragraph 2 of the Taxation Laws (Part B States)(Removal of Difficulties) Order. The assessee under both these provisions has an advantage which is sought to be taken away by the explanation subsequently added, which explanation in our view is ultra vires the powers vested in the Central Government under section 60A. An added reason for declaring the explanation in our view is ultra vires the powers vested in the Central Government under section 60A. An added reason for declaring the explanation to be bad is that it is not permissible for the Central Government in exercise of the powers under section 60A to amend an order made under section 12 of the Finance Act.

The contents of these two section are different. The only power that may at first sight appear to be common to both these sections is the power to remove difficulties, that under section 60A of the Income-tax Act is to be exercise specifically in favour of any class of income or in regard to the whole or any part of the income of any person or class of persons while that under section 12 of the Finance Act is vested merely to surmount obstacles or difficulties which may arise in the application of the Indian Income-tax Act to Part B States or merged States, though even this power which is merely an enabling one does not prima facie appear (though we do not wish to express any definite view of the matter) to authorise the Central Government to make any order to the disadvantage of the assessee who would be securing a benefit under the provision of the Act. For the aforesaid reason, we hold the explanation added to paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, to be void.

The further contention that the written down value as worked out under the Hyderabad Income-tax Act for 1359F., i.e., October 1, 1949, to September 1, 1950, should be the basis of depreciation for an assessment under Income-tax Act, in our view, has also no validity. It is clear that the Indian Fiance Act, 1950, has by viture of section 13 repealed all laws relating to income-tax and super-tax or tax on profits of business which were in force immediately before the April 1, 1950, in any of the Part B States other than Jammu and Kashmir, or in Manipur, Tripura or Vindhya Pradesh or in the merged territory of Cooch-Behar except for the purposes of levy, assessment and collection of income-tax and super-tax in respect of any period not included in the previous years for the purposed of assessment under the Indian Income-tax Act, 1922 (XI of 1922), for the year ending on March 31, 1951, or for any subsequent year, or as the case may be, the levy, assessment and collection of the tax on profits of business for any chargeable accounting period ending on or before March 31, 1949. This section fell for consideration in the case of Union of India v.Madangopal, in which Patanjali Sastri, C.J., observed at p. 67 : "A close reading of that provision (section 13) will show that it saves the operation of the State law only in respect of 1948-49 or any earlier period which is the period not included in the previous year (1949-50) for the purposes of assessment for the year 1950-51. In other words, there remained no State law of income-tax in operation in any part B State in the year 1949-50." Dealing with the argument that the words "or for any subsequent year" immediately following the words "for the year ending on the March 31, 1951," would save any law relating to income-tax in 1949-50 "for the purposes of the levy, assessment and collection of income-tax and super-tax in respect of that period," his Lordship observed : "On this construction of section 13, the State law of income-tax would continue to operate for an indefinite period even after the commencement of the Constitution during which period the Indian income-tax and super-tax would be leviable....a result manifestly repugnant to the policy underlying the Finance Act, 1950. No argument, therefore, could be jlogically based on the words or for any subsequent period, which evidently were added with a view to catch the income of any broken period prior to April 1, 1950, which might otherwise escape assessment both under the replaced State law and the newly introduced Indian Act." It is, therefore, clear that the Hyderabad Income-tax Act had ceased to be in force from 1949-50 and the written down value of assets worked out in accordance with section 12(5)(c)(i) of the said repealed Act cannot ensure for the purpose of computing depreciation under the Indian Income-tax Act. The result is that depreciation would have been, but for paragraph 2 of the Removal of Difficulties Order, worked out in accordance with section 10(2)(vi), read with section 10(5)(b) of the Indian Income-tax Act, with would effect depreciation on the actual cost of the asset.

Further, the learned advocate for the Income-tax Department tried to raise a new question, namely, that in the view we have taken, the allowance actually allowed to the assessee under the Hyderabad Excess Profits Tax Act should also be taken into account. This question was neither raised nor urged before the Income-tax Tribunal, either in appeal or on the application for reference, and cannot therefore be allowed to be urged in this reference nor would it be open to us for the reasons already given to direct the Tribunal to make a reference on a fresh question. The specific question referred to us pertains only to depreciation actually allowed on the basis of the written down value computed at the time of assessment for 1359 F., namely, under the Hyderabad Income-tax Act, and we, therefore, confine our judgment only to that question.

In the result, out answer to the first part of the question is in the negative and the second part is in the affirmative, that is, in our view, the assessee is entitled to claim depreciation on the basis of actual cost minus the depreciation allowance actually allowed under the Hyderabad Income-tax Act. We answer the reference accordingly with costs to the respondent, which we assess at Rs. 100.


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