The Commissioner of Income-Tax,
Hyderabad Vs. Dewan Bahadur Ramgopal Mills Ltd. [1960] INSC 191 (8 November
1960)
DAS, S.K.
HIDAYATULLAH, M.
GUPTA, K.C. DAS SHAH, J.C.
AYYANGAR, N. RAJAGOPALA
CITATION: 1961 AIR 338 1961 SCR (2) 318
CITATOR INFO :
MV 1966 SC1026 (2,16) R 1967 SC 266 (15) F
1968 SC 162 (18) E 1968 SC 579 (15) E 1975 SC 797 (2,3,5,7,30,57,60,62) F 1989
SC1719 (6,7,10,16,17,18,19,20) RF 1992 SC1782 (10)
ACT:
Income Tax--Depreciation allowance--Written
down value-Hyderabad Income-tax law--Repeal and extension of Indian Income-tax
law--Central Government's notification Providing for removal of difficulties in
such extended law--Validity--Retrospective effect--Taxation Laws (Part B
States) (Removal of Difficulties) Order, 1950, Para 2, Explanation--Finance
Act, 1950 (25 of 1950), ss. 3, 12, 13--Constitution of India, Art. 14.
HEADNOTE:
Prior to January 26, 1950, when the erstwhile
State of Hyderabad merged in the Union of India and became a Part B State the
respondent company was assessed to income-tax under the Hyderabad Income-tax
Act, by which depreciation allowance was given to it on the basis of the
written down value of its assets, such as buildings, machinery, plants, etc.,
in accordance with cl. (C) of S. 12(5) of that Act, which provided that in the
case of assets acquired before the previous year and before the commencement of
the Act, the written down value would be the actual cost to the assessee less
(1) depreciation at the rates applicable to the assets calculated on the actual
costs for the first year since acquisition and for the next year on the actual
cost diminished by the depreciation allowance for one year and so on, for each
year upto the commencement of that Act, and, (ii) depreciation actually allowed
to the assessee on such assets for each financial year after the commencement
of the Act. After the merger of Hyderabad with the Union of India, by ss. 3 and
13 of the Finance Act, 950, the taxation laws in force in the State were
repealed and the Indian Incometax Act, 1922, was extended to that area; and in
exercise of the powers conferred by S. 12 of the Finance Act, 1950, the Central
Government issued a notification dated December 2, 1950, called the Taxation
Laws (Part B States) (Removal of Difficulties) Order, 1950. Paragraph 2 of the
Order provided that " in making any assessment under the Indian Income-tax
A ct, 1922, all depreciation actually allowed under any laws or rules of a Part
B State...... shall be taken into account in computing the aggregate
depreciation allowance referred to in proviso (c) to s. 10(2)(vi) and the
written down value under s. 10(5)(b) of the said Act ".
For the assessment year 1951-52 the
respondent was assessed for the first time under the Indian Income-tax Act, and
basing its claim on para. 2 of the aforesaid Order it asked for 319 the value
thereof at their inception and deducting there from such depreciation as was
allowed for the three assessment years in which it was assessed under the
Hyderabad Incometax Act. 7 By order dated November 30, 1951, the Income-tax
Officer disallowed the respondent's claim on the ground that it was against the
principle inherent in granting depreciation allowance which must decrease from
year to year. The matter was taken up to the Supreme Court and while it was
pending there, on May 8, 1956, the Central Government issued a notification in
exercise of its powers conferred on it by s. 12 of the Finance Act, 1950,
whereby an explanation was added to the aforesaid para. 2 as follows: "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 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." The respondent
challenged the validity of the notification of 1956 and also its applicability
to the present case on the grounds (1) that it was ultra vires the powers
conferred on the Central Government by s. 12 of the Finance Act, 1950, (2) that
it contravened Art. 14 of the Constitution, and (3) that, in any case, it could
have no retrospective effect.
Held : (1) that the true scope and effect of
s. 12 was that 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, the legislature having left the matter to the executive.
Pandit Banarsi Das Bhanot v The State of
Madhya Pradesh and Others, [1959] S.C.R. 427, relied on.
In the present case, a difficulty had arisen,
because if depreciation actually allowed under the Hyderabad Income-tax Act was
taken into account in computing the aggregate depreciation allowance and the
written down value, an anomalous result would follow, namely, depreciation
allowance to be allowed to the assessee in the accounting year under the Indian
Income-tax Act would be more than what was allowed in previous years under the
Hyderabad Income-tax Act.
Consequently, the Central Government was
within its power under s. 12 in making the notification dated May 8, 1956.
(2) that the notification of 1956 applied to
all those to whom para. 2 of the Taxation Laws (Part B States) (Removal of
Difficulties) Order, 1950, was applicable and created no unequal treatment of
persons in the like situation.
Accordingly, the notification did not
contravene Art. 14 of the Constitution.
(3) that the Central Government had the power
under S. 12 of the Finance Act, 1950, to make an order or give a direction so
as to remove difficulties which arose in the very beginning 320 and, therefore,
the notification, though added in 1956, was valid and was applicable to the
assessment of 1951-52.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 5 of 1959.
Appeal from the judgment and order dated
February 16, 1954, of the former Hyderabad High Court in Reference No. 347/B5/2
of 1953-54.
C. K. Daphtary, Solicitor-General of India,
K. N. Rajagopala Sastri and D. Gupta, for the appellant.
Sanat P. Mehta and J. B. Dadachanji, for the
respondent.
1960. November 8. The Judgment of the Court
was delivered by S. K. DAS J.-This is an appeal on a certificate of fitness
granted by the High Court of Judicature at Hyderabad under s.66-A (2) of the
Indian Income-tax Act, 1922. The Commissioner of Income-tax, Hyderabad, is the
appellant before us. The respondent is Dewan Bahadur Ramgopal Mills Ltd., a
public limited company incorporated in the erstwhile State of Hyderabad.
The respondent company was assessed under the
Hyderabad Income-tax Act in respect of the assessment years 1357-F, 1358-F and
1359-F. In the assessment for those years depreciation allowance was given to
it on the basis of the written down value of its assets, such as buildings,
machinery, plant, etc., in accordance with the provisions of cl. (c) of s.
12(5) of the Hyderabad Income-tax Act. That clause provided that in the case of
assets acquired before the previous year and before the commencement of the
Act, the written down value would be the actual cost to the assessee less (i)
depreciation at the rates applicable to the assets calculated on the actual
cost for the first year since acquisition and for the next year on the actual
cost diminished by the depreciation allowance for one year and so on, for each
year upto the commencement of the Act, and (ii) depreciation actually allowed
to the assessee on such assets for each financial year after the commencement
of the 321 Act. The erstwhile State of Hyderabad merged in the Union of India
on January 26, 1950, and became a Part B State.
The Finance Act, 1950, by s. 13 thereof
repealed the taxation laws in force in Part B States except for certain
purposes not relevant to this case, and by s. 3 extended the Indian Income-tax
Act, 1922, to the whole of India except the State of Jammu and Kashmir. In
exercise of the powers conferred by s. 12 of the Finance Act, 1950, the Central
Government was pleased to make the Taxation Laws (Part B States) (Removal of
Difficulties) Order, 1950 (hereinafter referred to as the Removal of
Difficulties Order, 1950), by a notification dated December 2, 1950. Paragraph
2 of the said Order, in so far as it is relevant to this case, was in these
terms:
" Computation of aggregate depreciation
allowance and 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 Supertax, 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 sec. 10 of the said Act".
For the assessment year 1951-52 which was in
respect of the account year ending June 30, 1950, the respondent was assessed
for the first time under the Indian Income-tax Act, 1922, read with paragraph 5
of the Part B States (Taxation Concessions) Order, 1950. Basing its claim on
paragraph 2 of the Removal of Difficulties Order, 1950, the respondent asked
for depreciation allowance in respect of its assets such as buildings,
machinery, plant, etc., to the tune of Rs.8,12,244. It worked out the value of
the assets at their inception and deducted there from such depreciation as was
allowed for the three assessment years in which the respondent was assessed
under the Hyderabad Income-tax Act and calculating the written down 322 value
in that manner, it claimed depreciation according to the prescribed rates. By
his order dated November 30, 1951, the Income-tax Officer disallowed this
claim. He held that the claim of the respondent was against the principle
inherent in granting depreciation allowance which must decrease from year to
year, and further held that the word " allowed " in paragraph 2 of
the Removal of Difficulties Order, 1950, should be construed as meaning "
considered " only. Accordingly, he took the figures of the written down
value from the income-tax proceedings of 1359-F and allowed depreciation at the
prescribed rate on those figures.
Against the order of the Income-tax Officer,
the respondent went in appeal to the Appellate Assistant Commissioner,
Hyderabad Division. That Officer by an order dated May 23, 1952, upheld the
view of the Income-tax Officer and dismissed the appeal. Then there was an
appeal to the Income-tax Appellate Tribunal which was heard by the Bombay Bench
of the said Tribunal. By its order dated December 12, 1952, the Appellate
Tribunal held that in view of the provisions in paragraph 2 of the Removal of
Difficulties Order, 1950, the contention of the respondent must prevail, and it
pointed out that the words used in paragraph 2 were " depreciation
actually allowed under any laws or rules of a Part B State ", and those
words did not mean the aggregate allowance for depreciation taken into account
in computing the written down value under the Hyderabad Act; therefore, the
respondent was entitled to the depreciation allowance which it claimed. It
directed the Income-tax Officer to compute the written down value on the basis
of the actual cost to the assessee of the assets in question minus the depreciation
allowance actually allowed to the assessee under the Hyderabad Income-tax Act.
The appellant herein then moved the Appellate Tribunal for a reference to the
High Court under s. 66(1) of the Indian Income-tax Act. In the meantime, that
is, on March 9, 1953, the Central Government purporting to exercise its powers
conferred by s. 60-A of the Indian Income-tax Act, 1922, added an Explanation
323 to paragraph 2 of the Removal of Difficulties Order, 1950.
Explanation said:
" 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 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 ".
The Explanation in terms gave effect to the
contention urged on behalf of the Department and said that what has to be
allowed is the aggregate allowance for depreciation taken into account in
computing the written down value under any law or rules of a Part B State. In
support of the application for a reference, the appellant relied on the
aforesaid Explanation and contended that in view of the Explanation the
respondent could not claim depreciation allowance on the basis of actual cost
minus the depreciation allowances actually allowed under the Hyderabad
Income-tax Act. On this application the Tribunal expressed the view that if the
Explanation applied to the case on hand, then the contention of the Department
was correct and must be upheld. It said, however, that it had no power to
review its own order and, therefore, considered it unnecessary to express any
opinion whether the Explanation was valid and affected the case before it. It
said finally that the following question of law did arise out of its order and
accordingly stated a case thereon:
" 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 to be computed on the
basis of the actual cost minus the depreciation allowances granted under the
Hyderabad Income-tax Act".
The reference was then heard by the High
Court of Judicature at Hyderabad which by its order dated February 16, 1954,
held that the Explanation added 324 to paragraph 2 of the Removal of
Difficulties Order, 1950, by the notification dated March 9, 1953, was void on
certain grounds one of which was that the Explanation was ultra vires the
powers of the Central Government under s. 60-A of the Indian Income-tax Act.
Therefore, it answered the question in favour of the respondent. The appellant
then obtained the necessary certificate of fitness and preferred the present
appeal.
In the meantime, there was a further change
of law. On May 8, 1956, the Central Government made a notification (No. S. R.
O. 1139) in exercise of the powers conferred on it by s. 12 of the Finance Act,
1950, whereby an Explanation in identical terms as the earlier Explanation made
under s. 60A of the Indian Income-tax Act, was added to paragraph 2 of the
Removal of Difficulties Order, 1950. The arguments before us have proceeded on
the basis of the Explanation added by the notification aforesaid and it is not
disputed that if the Explanation is valid and applies to the present case, then
the appeal must be allowed and the question of law answered in favour of the
appellant. If, on the contrary, the Explanation is not valid or it does not
apply to the present case, then the appeal must be dismissed.
We proceed now to a consideration in detail
of the different contentions urged before us on behalf of the appellant and the
respondent. We may first read s. 12 of the Finance Act, 1950, under which
notification No. S. R. O. 1139 dated May 8, 1956, was made. Section 12 reads:
" If any difficulty arises in giving
effect to the provisions of any of the Acts, rules or orders 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 ".
On behalf of the appellant it has been argued
that the notification was validly made in exercise of the powers conferred on
the Central Government under s. 12 aforesaid;
that it does not suffer from any of the
defects pointed out by the High Court in regard 325 to the earlier notification
of 1953 made under s. 60-A of the Income-tax Act; and that it adds an
Explanation which in terms gives effect to the contention of the appellant and
this Court must consider the change in law made thereby and give effect to it
in answering the question of law arising out of the Tribunal's order. On the
other hand, the validity of the notification has been very strenuously
contested before us by learned Counsel for the respondent.
He has challenged its validity and also its
applicability to the present case on the following grounds : (1) that it is
ultra vires the powers conferred on the Central Government by s. 12; (2) that
it can have no retrospective effect; and (3) that it contravenes Art. 14 of the
Constitution.
We shall consider these arguments in the
order in which we have stated them. The first question is whether the
notification is validly made under s. 12 or is it ultra vires the powers
conferred on the Central Government by that section ? On behalf of the
respondent it is urged that a condition for the exercise of the power under s.
12 is contained in the opening clause, which says : " If 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 etc." The contention is
that no difficulty arose in giving effect to the provisions of any of the Acts,
rules or orders referred to in the opening clause, to any State etc. and,
therefore, the condition for the exercise of the power is not fulfilled and on
that ground the notification is invalid. We are unable to accept this argument
as correct. Section 10 of the Income-tax Act says, in its first subsection,
that the tax shall be payable by an assessee in respect of the profits or gains
of any business, profession or vocation carried on by him. Sub-s.
(2) thereof says that such profits or gains
shall be computed after making certain allowances, and one of these allowances
is in respect of the depreciation of such buildings, machinery, plant, etc. as
are used for the purpose of the business (cl. vi). The depreciation except in
certain cases is calculated on the written down value, which expression is
explained 326 in sub-s. (5) of s. 10. Clause (b) of the sub-section states:
"S.10(5)--(a)................................................
(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 (11 of 1886), was in force
".
It is obvious that in applying cl. (b) to an
assessee in a Part B State there would be an initial difficulty, in as much as
prior to 1950 when the Indian Income-tax Act came into force in a Part B State
no depreciation could have been actually allowed to such an assessee under the
Income-tax Act or under any Act repealed thereby; for example, the Hyderabad
Income-tax Act was repealed by the Finance Act, 1950 and not by the Income-tax
Act, and would not therefore be covered by cl. (b). Such and other difficulties
led to the Removal of Difficulties Order, 1950, which has not been seriously
challenged before us. Indeed, the High Court said that it was not open to the
respondent to challenge the validity of the Removal of Difficulties Order,
1950, because such a point was not taken before the Tribunal. Learned Counsel
for the respondent has then submitted that what.
ever initial difficulty there might have been
in giving effect to the Indian Income-tax Act in a Part State, that difficulty
was solved by paragraph 2 of the Removal of Difficulties Order, 1950, and, in
any view, there was no fresh difficulty which could necessitate the addition of
an Explanation in 1953 or 1956. Here again we think that the submission is not
correct. The basic and normal scheme of depreciation under the Indian
Income-tax Act is that it decreases every year, being a percentage of the
written down value which in the first year is the actual cost and in succeeding
years actual cost less all depreciation actually allowed under the Income-tax
Act or an Act repealed thereby etc. The Hyderabad Income-tax Act not having
been repealed by the Income-tax Act but by the Finance Act, 1950, there was a
difficulty in 327 allowing depreciation to an assessee in a Part B State in the
first year of assessment under the Indian Income-tax Act. This difficulty was
sought to be removed by paragraph 2 of the Removal of Difficulties Order, 1950.
If, however, depreciation actually allowed under the Hyderabad Income-tax Act
was taken into account in computing the aggregate depreciation allowance and
the written down value, an anomalous result would follow as in the present
case, namely, depreciation allowance to be allowed to the assessee in the
accounting year under the Indian Income-tax Act would be more than what was
allowed in previous years under the Hyderabad Income-tax Act. This would create
a disparity and be against the scheme of the Indian Income-tax Act. It was
therefore necessary to explain paragraph 2 of the Removal of Difficulties
Order, 1950, to assimilate or harmonise the position regarding depreciation
allowance, and the Explanation added in 1953 or 1956 was obviously intended to
remove the difficulty arising out of that disparity or disharmony.
Furthermore, the true scope and effect of s.
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 Pandit
Banarsi Das Bhanot v. The State of Madhya Pradesh & Ors. (1) we said at
page 435: " 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 s. 12 and is not ultra vires the
powers conferred on the Central Government by that section.
The second question is-does the notification
apply (1) [1959] S.C.R. 427.
328 to the assessment in the present case,
which is an assessment for the year 1951-52 ? The notification was made in 1956
and it added an Explanation to paragraph 2 of the Removal of Difficulties
Order, 1950. It says that a particular expression occurring in that paragraph
means and shall be deemed always to have meant the aggregate allowance for
depreciation taken into account in computing the written down value etc., under
any law of a Part B State. The argument on behalf of the respondent is that the
law which governs an assessment for the assessment year 1951-52 is the law in
force at the time when the Finance Act, 1951, came into force; accordingly, so
the argument proceeds, paragraph 2 of the Removal of Difficulties Order, 1950,
as it stood on April 28, 1951, when the Finance Act, 1951, came into force,
will apply in the present case. We consider this argument to be unsound. The
Explanation, though added in 1956, explains the meaning of paragraph 2 of the
Removal of Difficulties Order, 1950 and says in express terms that the
paragraph shall be deemed always to have had that meaning.
Section 12 by the very nature of its intent
and purpose confers on the Central Government power to make an order to remove
a difficulty which has already arisen, and the power to re. move the difficulty
must necessarily include the power to remove the difficulty from the time it
arose. The Central Government has, therefore, the power to make an order or
give a direction so as to remove the difficulty from the very beginning, and
that is what the notification of 1956 does. It applies to the assessment of
1951-52 indeed it applies to all assessments made under the Indian Income-tax
Act in which paragraph 2 of the Removal of Difficulties Order, 1950, operates.
The last challenge to the validity of the
notification of 1956 is that it contravenes Art. 14 of the Constitution,
because it discriminates between different classes of tax payers. Learned
Counsel for the respondent has asked us to consider the cases of assessees in
three different areas which subsequently come in a Part B State: in one area
there was no law relating to 329 income-tax; in, the second there was a law
relating to income-tax under which written down value was computed on the basis
of depreciation actually allowed year after year, while in the third the
written down value was computed in the manner provided under the Hyderabad
Income-tax Act; it is pointed out that on the extension of the Indian Income tax
Act (read with paragraph 2 of the Removal of Difficulties Order, 1950 and the
Explanation) to those areas, the assessee in the first area will get
depreciation allowance on the actual cost; in the second area he will get such
allowance on the basis of actual cost less depreciation actually allowed; and
in the third area he will get such allowance on the actual cost less
depreciation taken into account. It is contended that this resultant
discrimination is arbitrary and without any rational justification, We think
that learned Counsel for the respondent has ignored one essential consideration
which clearly vitiates his argument. In the matter of depreciation allowance,
the assessee in the three areas in the example given by him do not stand on the
same footing; they are not situated alike so as to be entitled to be treated
alike. It is obvious that an assessee from an area where there was no
income-tax law at all can never say that in the matter of depreciation
allowance as respects buildings, machinery, plant etc., he is on a par with a
person in an area where there was a law relating to income-tax allowing
depreciation on such buildings, machinery, plant etc. The same would be the
position with regard to areas where the previous law as to depreciation was
different. Indeed, to treat all these persons alike would be tantamount to
unequal treatment. In our view, the notification of 1956 creates no unequal
treatment of persons in a like situation ; it applies to all who are in a like
situation, namely, all those to whom paragraph 2 of the Removal of Difficulties
Order, 1950, applies. We consider that the challenge to the notification based
on Art. 14 is wholly unsubstantial.
It has not been disputed before us that a
change in 42 330 law validly made and applicable to a case pending in appeal
must be considered and given effect to by the Appellate Court. The conclusion
we have reached is that the notification of 1956 was validly made and applies
to the present case. In view of this conclusion we have considered it
unnecessary to examine the notification of 1953 or the reasons for which the
High Court held that notification to be bad.
For the reasons given above, we allow this
appeal and set aside the judgment and order of the High Court dated February 16, 1954. The question referred to the High Court is answered in favour of the
appellant. The appellant has succeeded by reason of the notification of 1956
and taking that circumstance into consideration, we direct that there will be
no order for costs for the hearing in this Court.
Appeal allowed.
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