1960 (11) TMI 12 - SC - Income Tax

Whether the notification is validly made under section 12 or is it ultra vires the powers conferred on the Central Government by that section? Does the notification apply to the assessment in the present case which is an assessment for the year 1951-52 ? Held that - The notification of 1956 was validly made under section 12 and is not ultra vires the powers conferred on the Central Government by that section. The Central Government has therefore the power to make an order or give a direction so as to remove the difficulty from the very beginning and that is what the notification of 1956 does. It applies to the assessment of 1951-52; indeed it applies to all assessments made under the Indian Income-tax Act in which paragraph 2 of the Removal of Difficulties Order 1950 operates. The notification of 1956 creates no unequal treatment of persons in a like situation; it applies to all who are in a like situation namely all those to whom paragraph 2 of the Removal of Difficulties Order 1950 applies. We consider that the challenge to the notification based on article 14 is wholly unsubstantial. Appeal allowed.

Issues Involved:

1. Validity of the Explanation added to paragraph 2 of the Removal of Difficulties Order, 1950.
2. Applicability of the Explanation to the assessment year 1951-52.
3. Alleged contravention of Article 14 of the Constitution by the Explanation.

Detailed Analysis:

1. Validity of the Explanation added to paragraph 2 of the Removal of Difficulties Order, 1950:

The respondent company was assessed under the Hyderabad Income-tax Act for the years 1357F, 1358F, and 1359F. Upon the merger of Hyderabad into the Union of India, the Indian Income-tax Act, 1922, became applicable. The respondent claimed depreciation allowance based on paragraph 2 of the Removal of Difficulties Order, 1950. The Income-tax Officer disallowed this claim, leading to appeals and eventually a reference to the High Court, which held the Explanation added in 1953 to be void. The Central Government subsequently issued a similar Explanation in 1956 under section 12 of the Finance Act, 1950.

The Supreme Court held that the notification of 1956 was validly made under section 12 of the Finance Act, 1950, which allows the Central Government to make provisions or give directions to remove difficulties in giving effect to the extended Acts, rules, or orders. The Court rejected the argument that no difficulty arose, stating that the difficulty was inherent in applying the Indian Income-tax Act to Part B States. The Explanation was necessary to harmonize the depreciation allowance scheme and remove disparities.

2. Applicability of the Explanation to the assessment year 1951-52:

The respondent argued that the law applicable to the assessment year 1951-52 was the law in force when the Finance Act, 1951, came into effect, and thus the Explanation added in 1956 should not apply. The Court found this argument unsound, stating that section 12's purpose is to remove difficulties from the time they arose, and the Explanation, although added in 1956, clarified the meaning of paragraph 2 from its inception. Therefore, the Explanation applied to the assessment year 1951-52 and all assessments under the Indian Income-tax Act where paragraph 2 of the Removal of Difficulties Order, 1950, was relevant.

3. Alleged contravention of Article 14 of the Constitution by the Explanation:

The respondent contended that the Explanation discriminated between taxpayers in different areas that became Part B States. The Court dismissed this argument, noting that taxpayers in areas with no prior income-tax law, those with laws computing written down value based on actual depreciation, and those under the Hyderabad Income-tax Act were not similarly situated. Treating them alike would result in unequal treatment. The Court concluded that the Explanation did not contravene Article 14, as it applied uniformly to all similarly situated taxpayers.

Conclusion:

The Supreme Court allowed the appeal, setting aside the High Court's judgment. The notification of 1956 was deemed valid and applicable to the present case, and the question referred to the High Court was answered in favor of the appellant. The Court directed that there would be no order for costs for the hearing in the Supreme Court.

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