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1989 (5) TMI 53 - SC - Income TaxWhether the depreciation for the previous years should have been calculated only on the basis of clause 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, which provided for computation of the aggregate depreciation allowance on the basis of the deduction which was actually allowed under the provisions of the Saurashtra Income-tax Ordinance, 1949 ? Held that - As observed in the case of CIT v. Dewan Bahadur Ramgopal Mills Ltd. 1960 (11) TMI 12 - SUPREME Court 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and in succeeding years actual cost less all depreciation actually allowed under the Indian Income-tax Act or any Act repealed thereby, etc, In that case, an anomalous situation arose because the Hyderabad Income-tax Act was not repealed by the Indian Income-tax Act but by the Finance Act, 1950, and hence, a difficulty arose in allowing depreciation to an assessee in a Part B State. In the present case also, the Saurashtra Income-tax Ordinance having been repealed not by the Indian Income-tax Act but by section 13 of the Finance Act, 1950, a similar difficulty had come into existence, and hence we fail to see how it can be said that the Government had no good basis to come to the conclusion that a difficulty had, in fact, arisen as contemplated in the case of Dewan Bahadur Ramgopal, Mills Ltd. Unable to accept the submissions of Mr. Salve, learned counsel for the assessee that the decision of this court in CIT v. Dewan Bahadur Ramgopal Mills Ltd. supra was not good law or, at least, that it needed reconsideration by a larger Bench, we must follow that decision and the appeal of the assessee must be dismissed.
Issues Involved:
1. Validity of the Explanation added to clause 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. 2. Whether the Central Government had the authority to add the Explanation under section 12 of the Finance Act, 1950. 3. Whether the Explanation contravened the fundamental scheme of the Indian Income-tax Act, 1922. 4. Whether the Explanation violated Article 14 of the Constitution of India. Issue-wise Detailed Analysis: 1. Validity of the Explanation Added to Clause 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950: The Explanation added by the Central Government on May 8, 1956, was challenged by the assessee on the grounds that it was ultra vires the powers of the Central Government under section 12 of the Finance Act, 1950. The assessee argued that no difficulty had arisen which necessitated the addition of the Explanation, making it invalid and of no legal effect. The Supreme Court, however, upheld the validity of the Explanation, referencing its earlier decision in CIT v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280, where the Explanation was deemed necessary to harmonize the depreciation allowance scheme under the Indian Income-tax Act with the provisions of the erstwhile Hyderabad Income-tax Act. 2. Authority of the Central Government to Add the Explanation under Section 12 of the Finance Act, 1950: The Supreme Court examined whether the Central Government had the authority to add the Explanation under section 12 of the Finance Act, 1950. The Court found that section 12 empowered the Central Government to make provisions or give directions necessary for removing difficulties in giving effect to the provisions of any Act extended to Part B States. The Court concluded that a difficulty had indeed arisen due to the transition from the Saurashtra Income-tax Ordinance to the Indian Income-tax Act, justifying the Central Government's action in adding the Explanation. 3. Compatibility with the Fundamental Scheme of the Indian Income-tax Act, 1922: The assessee contended that the Explanation contravened the fundamental scheme of the Indian Income-tax Act, 1922, which allowed for depreciation based on the actual cost of assets, reduced by depreciation actually allowed in previous years. The Supreme Court, however, held that the Explanation was consistent with the scheme of the Indian Income-tax Act. The Court noted that the Explanation ensured that depreciation allowances were computed in a manner that avoided anomalies and disparities, thereby maintaining the integrity of the depreciation scheme under the Indian Income-tax Act. 4. Violation of Article 14 of the Constitution of India: The assessee argued that the Explanation violated Article 14 of the Constitution by creating unequal treatment among taxpayers. The Supreme Court dismissed this contention, stating that the Explanation applied uniformly to all taxpayers in Part B States and did not result in unequal treatment. The Court reiterated its position from CIT v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280, where it was held that the Explanation did not contravene Article 14 as it applied equally to all similarly situated taxpayers. Conclusion: The Supreme Court dismissed the appeal, upholding the validity of the Explanation added to clause 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. The Court affirmed that the Central Government had the authority to issue the Explanation under section 12 of the Finance Act, 1950, and that the Explanation was consistent with the fundamental scheme of the Indian Income-tax Act, 1922, and did not violate Article 14 of the Constitution. The appeal was dismissed with no order as to costs.
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