1954 (2) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to claim depreciation allowance.
2. Basis for computing written down value.
3. Validity of the Central Government's explanation to the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950.
4. Retrospective effect of the Central Government's orders.
5. Application of section 60A of the Indian Income-tax Act.

Issue-wise Detailed Analysis:

1. Entitlement to Claim Depreciation Allowance:

The primary issue was whether the assessee company was entitled to claim depreciation allowance based on the written down value computed during the assessment year 1359 F. under the Hyderabad Income-tax Act or based on the actual cost minus the depreciation allowances granted under the Hyderabad Income-tax Act. The court held that the assessee is entitled to claim depreciation on the basis of the actual cost minus the depreciation allowance actually allowed under the Hyderabad Income-tax Act.

2. Basis for Computing Written Down Value:

The court analyzed the method for computing the written down value. It was contended by the Income-tax Department that the written down value should be computed based on the assessment for 1359 F. under the Hyderabad Income-tax Act, which would result in a lower depreciation allowance. However, the court agreed with the assessee's contention that the written down value should be the actual cost minus the depreciation actually allowed. The court stated, "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."

3. Validity of the Central Government's Explanation to the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950:

The court examined the explanation added by the Central Government to paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. The explanation stated that "all depreciation actually allowed under any laws or rules of a Part B State" includes the aggregate allowance for depreciation taken into account in computing the written down value. The court found this explanation to be ultra vires, stating, "The explanation in our view is ultra vires the powers vested in the Central Government under section 60A."

4. Retrospective Effect of the Central Government's Orders:

The court considered whether the Central Government could issue orders with retrospective effect that adversely affect the assessee. It concluded that the Central Government does not have the authority to issue retrospective orders to the disadvantage of the assessee, stating, "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."

5. Application of Section 60A of the Indian Income-tax Act:

The court analyzed the scope of section 60A of the Indian Income-tax Act, which allows the Central Government to make orders to avoid hardship or remove difficulties. The court concluded that section 60A is intended to be exercised in favor of the assessee and not to their disadvantage. It stated, "There is, therefore, nothing to warrant the Central Government to exercise its power under the said section to the disadvantage of an assessee."

Conclusion:

The court answered the reference by stating that the assessee is entitled to claim depreciation on the basis of the actual cost minus the depreciation allowance actually allowed under the Hyderabad Income-tax Act. The court also declared the explanation added to paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, to be void and ultra vires. The judgment concluded with costs awarded to the respondent, assessed at Rs. 100.