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Issues Involved:
1. Nature of the Industrial Tax under the Industrial Tax Rules, 1927. 2. Calculation of depreciation allowance under section 10(2)(vi) of the Indian Income-tax Act, 1922. 3. Applicability of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. 4. Interpretation of foreign law and its implications on the case. Issue-wise Detailed Analysis: 1. Nature of the Industrial Tax under the Industrial Tax Rules, 1927: The primary issue was whether the levy and charge under the Industrial Tax Rules, 1927, in the erstwhile Holkar State of Indore amounted to income-tax, super-tax, or tax on profits of business. The Tribunal concluded that the industrial tax was not a tax on income and profits of textile mills but a tax on textile mills calculated with reference to their income or profits. The court found it difficult to accept the Revenue's argument that the tax was on income or profits. The historical background and the notifications clearly showed that the industrial tax replaced the cotton excise duty and was levied on cotton mills, not on income or profits. The court emphasized that the tax was on the cotton mills industry, and the calculation of the tax was based on the income of the mills. This conclusion was supported by the fact that no deductions were allowed for losses in other businesses, indicating that the tax was not on the overall income of the assessee but specifically on the cotton mills. 2. Calculation of Depreciation Allowance under Section 10(2)(vi) of the Indian Income-tax Act, 1922: The assessee contended that the original cost of the machinery should be taken into account for calculating depreciation for the first assessment year (1950-51) when it was assessed as a resident in India. The Revenue argued that depreciation allowed under the Industrial Tax Rules should be deducted to arrive at the written down value. The court noted that under the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, depreciation allowed under laws or rules of a Part B State relating to income-tax or super-tax, or any law relating to tax on profits of business, should be taken into account. However, since the Industrial Tax was not a tax on income or profits, the depreciation allowed under these rules should not be considered for calculating depreciation under the Indian Income-tax Act, 1922. 3. Applicability of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950: The court examined whether the depreciation allowed under the Industrial Tax Rules should be taken into account under the provisions of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. The Order stipulated that depreciation allowed under laws or rules relating to income-tax or super-tax should be considered. Since the Industrial Tax was not a tax on income or profits but a tax on the cotton mills industry, the depreciation allowed under these rules was not to be taken into account for calculating depreciation under the Indian Income-tax Act, 1922. 4. Interpretation of Foreign Law and Its Implications on the Case: Mr. Palkhivala contended that the Industrial Tax Rules and the notifications constituted foreign law, which had to be proved as a fact. The Tribunal's finding that the tax was on cotton mills and not on income or profits was a finding of fact. The court did not delve into this argument, as it had already decided the primary issue in favor of the assessee. The court concluded that the industrial tax was not a tax on income or profits but a tax on the cotton mills industry, and thus, the depreciation allowed under these rules should not be considered for calculating depreciation under the Indian Income-tax Act, 1922. Conclusion: The court answered the question referred to it in the negative and against the Revenue, concluding that the industrial tax under the Industrial Tax Rules, 1927, was not a tax on income or profits but a tax on the cotton mills industry. The applicant was ordered to pay the costs of the reference to the respondent.
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