1963 (10) TMI 5 - SC - Income Tax

Whether the Bhavnagar War Profits Act is covered by the word any law relating to tax on profits of business ? Held that - The Bhavnagar War Profits Act is within the words any law relating to tax on profits of business in paragraph 2 of the Removal of Difficulties Order. We hold that the High Court has rightly decided that the depreciation availed of by the assessee under the Bhavnagar War Profits Act was a deductible amount in computing the written down value of the assets. Appeal dismissed.

Issues Involved:
1. Computation of written down value for depreciation allowance under the Saurashtra Income-tax Ordinance, 1949.
2. Deduction of depreciation availed under the Bhavnagar War Profits Act in computing written down value for the assessment year 1951-52.

Detailed Analysis:

1. Computation of Written Down Value for Depreciation Allowance under the Saurashtra Income-tax Ordinance, 1949

The controversy centers on the interpretation of section 13(5)(b) of the Saurashtra Income-tax Ordinance, 1949, which defines the "written down value" for assets acquired before the previous year. The key issue is whether the written down value should be computed by deducting depreciation that "would have been allowed" under the Indian Income-tax Act, 1922, even if no claim was made.

Arguments by the Assessee:
- The assessees contended that no deduction should be made for depreciation that "would have been allowed" under the Indian Income-tax Act, 1922, as no claim was made or could be made for such allowance.
- They argued that the Ordinance did not explicitly state that depreciation "would have been allowable" if a claim had been made, and thus, such words should not be read into the Ordinance.

Court's Reasoning:
- The court held that the words "which would have been allowed to him" implicitly mean "which should have been allowed if a proper claim had been made."
- The intention of the Raj Pramukh in using these words was to ensure that the depreciation that could have been allowed, assuming the Indian Income-tax Act, 1922, was in force, should be deducted in ascertaining the written down value.
- The court found that the words used were apt and sufficient to express this intention, and any hardship caused to the assessee was irrelevant to the interpretation.

The High Court's affirmative answer to the question of law was upheld, confirming that the written down value must be computed by deducting depreciation that "would have been allowed" under the Indian Income-tax Act, 1922, even if not claimed.

2. Deduction of Depreciation Availed under the Bhavnagar War Profits Act in Computing Written Down Value for the Assessment Year 1951-52

For the assessment year 1951-52, the issue arose differently due to the extension of the Indian Income-tax Act, 1922, to Saurashtra by the Indian Finance Act, 1950. The controversy was whether depreciation availed under the Bhavnagar War Profits Act should be deducted in computing the written down value of assets.

Arguments by the Assessee:
- The assessees argued that the Bhavnagar War Profits Act was not a law of a Part B State and thus depreciation availed under it should not be deducted.
- They contended that the words "of a Part B State" should also qualify the phrase "any law relating to tax on profits of business," implying that only laws of a Part B State were relevant.

Court's Reasoning:
- The court held that the omission of the words "of a Part B State" was deliberate, intending to include laws that were in force in the same area before it became part of a Part B State.
- The court noted that the Bhavnagar War Profits Act fell within the phrase "any law relating to tax on profits of business."
- The Removal of Difficulties Order, 1950, which was validly made under section 12 of the Finance Act, 1950, required all depreciation allowed under any such law to be deducted in computing the written down value.

The High Court's decision was upheld, confirming that depreciation availed under the Bhavnagar War Profits Act was deductible in computing the written down value of the assets.

Conclusion:
All appeals were dismissed with costs, and the High Court's decisions on both issues were affirmed. The written down value for depreciation allowance must be computed by deducting depreciation that "would have been allowed" under the Indian Income-tax Act, 1922, even if not claimed, and depreciation availed under the Bhavnagar War Profits Act must be deducted in computing the written down value for the assessment year 1951-52.

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