1967 (10) TMI 2 - SC - Income Tax

Central Govt. notification providing that depreciation allowable under State Law shall be taken into account are ultra vires to IT Act, 1922, ss. 10(2)(vi), (5), 60A - Assessee s appeal is allowed

Issues Involved:
1. Validity of the Taxation Laws (Merged States) (Removal of Difficulties) Amendment Order, 1962.
2. Condition of "arising of difficulty" for exercising power under section 6 of Act 67 of 1949.
3. Consistency of the 1962 Order with the scheme and essential provisions of the Income-tax Act, 1922.
4. Excessive delegation of legislative power under section 6 of Act 67 of 1949.
5. Applicability of section 298 of the Income-tax Act, 1961, for removing difficulties.
6. Violation of Article 14 of the Constitution by the assessment orders.

Issue-wise Detailed Analysis:

1. Validity of the Taxation Laws (Merged States) (Removal of Difficulties) Amendment Order, 1962:
The Supreme Court found the 1962 Order invalid because no "difficulty" was proved to have arisen justifying the invocation of the power under section 6 of Act 67 of 1949. The court emphasized that the expression "depreciation actually allowed" connotes depreciation taken into account in assessing the income of an assessee and does not mean depreciation merely allowable under the taxing provision. The impugned Order sought to alter this connotation, which was not justified as no actual difficulty had arisen.

2. Condition of "arising of difficulty" for exercising power under section 6 of Act 67 of 1949:
The court held that the exercise of power to make provisions or issue directions as may appear necessary to the Central Government is conditioned by the existence of a difficulty arising in giving effect to the provisions of any Act, rule, or order. This is not a matter of subjective satisfaction of the Government but an objective fact that must be established if challenged. The High Court erred in holding that the decision of the Central Government regarding the arising of a difficulty was conclusive.

3. Consistency of the 1962 Order with the scheme and essential provisions of the Income-tax Act, 1922:
The court noted that the impugned Order was unauthorized as it sought to remove a difficulty that had not arisen. The 1949 Order had already addressed the issue of determining the depreciation allowance under section 10(2)(vi) of the Income-tax Act, 1922, for assessees in merged States. The 1962 Order, therefore, was not consistent with the scheme and essential provisions of the Income-tax Act, 1922.

4. Excessive delegation of legislative power under section 6 of Act 67 of 1949:
Since the court found the 1962 Order invalid on other grounds, it did not express an opinion on whether section 6 of Act 67 of 1949 amounted to excessive delegation of legislative power.

5. Applicability of section 298 of the Income-tax Act, 1961, for removing difficulties:
The court did not find it necessary to determine whether the power to remove difficulties should have been exercised under section 298 of the Income-tax Act, 1961, after the repeal of the Income-tax Act, 1922.

6. Violation of Article 14 of the Constitution by the assessment orders:
The court did not express an opinion on whether the assessment orders violated Article 14 of the Constitution, as it had already found the 1962 Order invalid on other grounds.

Conclusion:
The appeal was allowed, and the order passed by the High Court was set aside. The Supreme Court declared that clause (b) of the Explanation in the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1962, was ultra vires the Central Government when exercising the power under section 6 of Act 67 of 1949. The revenue authorities were not entitled to levy tax based on depreciation allowance computed in accordance with that clause. The assessee was awarded costs from the respondents in both the Supreme Court and the High Court.

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