1975 (1) TMI 15 - HC - Income Tax

Summary

Issues Involved:

1. Validity of the "Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Order No. 2 of 1970".
2. Existence of difficulty in applying the Income-tax Act to Pondicherry.
3. Consistency of the impugned order with Section 294A.
4. Alleged discrimination under Article 14 of the Constitution.
5. Retroactive effect of the impugned order.

Issue-wise Detailed Analysis:

1. Validity of the "Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Order No. 2 of 1970":

The petitioner challenged the constitutional validity of the impugned order, arguing that there was no difficulty in applying the Income-tax Act to Pondicherry, thereby rendering the order invalid. The court noted that the power to remove difficulties under clause 7 of the Regulation could not be exercised when no difficulty existed. The Supreme Court's decision in Madeva Upendra Sinai v. Union of India was cited, which emphasized that the existence of a difficulty is a condition precedent for exercising such power. The court concluded that there was no inherent difficulty in applying the definition of "written down value" under the Act to Pondicherry, thus accepting the petitioner's contention and invalidating the impugned order.

2. Existence of difficulty in applying the Income-tax Act to Pondicherry:

The respondents argued that the application of the Income-tax Act to Pondicherry created a real difficulty as the assets were old and depreciated, yet depreciation had to be allowed on the full original costs. This was seen as providing an unintended benefit to assessees in Pondicherry. The court, however, found that the difficulty pointed out was inherent in the scheme of the Act itself and not peculiar to its application to Pondicherry. The court held that the difficulty did not arise from the application of the Act to Pondicherry and thus, the impugned order was not justified.

3. Consistency of the impugned order with Section 294A:

The petitioner contended that the impugned order was inconsistent with Section 294A of the Act, which was introduced by the Presidential Regulation. The court noted that Section 294A allowed the Central Government to remove difficulties, hardships, and anomalies arising from the application of the Act to Pondicherry. However, the court found that clause 7 of the Regulation could not be invoked to overcome difficulties that were not related to the application of the Act. The court concluded that the impugned order was not valid under clause 7 of the Regulation.

4. Alleged discrimination under Article 14 of the Constitution:

The petitioner argued that the impugned order was discriminatory as it resulted in inequality among assessees similarly situated. The respondents countered that without the impugned order, there would be hostile discrimination against residents of other parts of India. The court, however, did not find it necessary to address this contention in detail, as the petitioner's first and fourth contentions were sufficient to invalidate the impugned order.

5. Retroactive effect of the impugned order:

The petitioner contended that the retrospective effect given to the impugned order was without the authority of law. The court, referring to the Supreme Court's decision, held that the Central Government could not change the scheme and essential provisions of the Act under the guise of removing a difficulty. The court concluded that the impugned order, with its retrospective effect, was not valid.

Conclusion:

The court accepted the petitioner's first and fourth contentions, holding that there was no difficulty in applying the Income-tax Act to Pondicherry and that the Central Government could not change the scheme and essential provisions of the Act under the guise of removing a difficulty. The impugned assessment order was set aside, and a direction was given to make a fresh assessment without considering the Removal of Difficulties Order No. 2 of 1970. The writ petition was allowed, and no costs were awarded.