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TMI Blog1961 (9) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... n Income-tax Act to Part B States, the company was assessed for the first time for the assessment year 1950-51. In those assessment years, the assessee asked for the grant of depreciation allowance in respect of its assets such as building, machinery, plant, etc. and so the question of computing the written down value of its assets as on 1st January, 1949, in accordance with the provisions of section 10(5) of the Act read with the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, arose for determination. In working out the written down value for 1st January, 1949, the Income-tax Officer applied the proviso to the second paragraph of the Order of 1950, and took into account the greater of the depreciation allowances allowed under the Indian Income-tax Act and in the assessments made at Indore. On this basis for the years ending up to the accounting year 1944, the figures of depreciation allowance under the Indian Income-tax Act were taken and the written down value for 1st January, 1945, as computed under the Income-tax Act was arrived at. Thereafter for the subsequent four years the depreciation allowed under the Indore Industrial Tax Rules, 1927, was taken into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Tribunal also. Rejecting it the Tribunal observed: The last contention of the assessee is that the Income-tax Officer should not have taken the full depreciation availed of in the preceding years, but that the depreciation should be apportioned in the same manner as the income brought to assessment. The deduction should only be made in respect of that depreciation which can reasonably be attributable to the Indian income. We think that the law does not make any distinction as to the part of income which was brought to assessment under the Indian Income-tax Act. If depreciation has in fact been availed of by the assessee either under the Indian Income-tax Act or under the Industrial Rules of the State deduction has to be made. The four questions that the Tribunal has stated for our decision are: (1)Whether the computation of the written down value of the assets of the applicant in the light of the provisions of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, is legal and valid? (2)Whether the provisions of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, and the subsequent modifications thereof were vali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (II of 1886), was in force. Some difficulty was felt in applying this clause to an assessee in a Part B State. For, before the extension of the Income-tax Act to Part B States, no depreciation could have been allowed to an assessee in a Part B State under the Income-tax Act or under any Act repealed thereby. In order to remove this difficulty, the Central Government issued an order, namely, the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, in exercise of the powers conferred by section 12 of the Finance Act, 1950. Paragraph 2 of that Order is as follows: In making any assessment under the Indian Income-tax Act, 1922, all depreciation actually allowed under any laws or rules of a Part B State relating to income-tax and super-tax, or any law relating to tax on profits of business, shall be taken into account in computing the aggregate depreciation allowance referred to in sub-clause (c) of the proviso to clause (vi) of sub-section (2) and the written down value under clause (b) of sub-section (5) of section 10 of the said Act: Provided that where in respect of any asset, depreciation has been allowed for any year both in the assessment made in the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that in any assessment under the Income-tax Act the depreciation to be deducted under section 10(5)(b) from the actual cost would be the depreciation actually allowed; that the proviso also said that the greater of the depreciations allowed in the assessments made in the Part B State and in the taxable territories shall only be taken into account ; that the word allowed meant actually allowed ; and that this construction of the word allowed could not be wiped out by giving to the word assessment the wider meaning of computation of the total world income so as to take allowed as meaning considered only. It was further said that so to construe the proviso would be to render the explanation otiose and to modify the substantive provision in section 10(5)(b) about the deduction of the depreciation actually allowed in an assessment made under the Income-tax Act in respect of the years prior to 1950 when the Act came into force in Part B States, and thus the proviso would be invalid. Learned counsel proceeded to say that the explanation was applicable only to the depreciation allowance in computing the written down value under any laws or rules of a Part B State in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original cost of the assets to the assessee, all depreciation actually allowed under a Part B State's law or rule shall be taken into account. It must be noted that the Explanation to paragraph 2 was added in 1956. It will be seen that where depreciation has been allowed under the Income-tax Act, then under section 10(5)(b) all depreciation actually allowed under the Act has to be deducted from the actual cost for reaching the written down value. Likewise paragraph 2, as it stood till the time of the introduction of the explanation thereto in 1956, provided that where depreciation was allowed under any laws or rules of a Part B State, then all depreciation actually allowed under those laws or rules shall be taken into account in computing the written down value under section 10(5)(b). The proviso to paragraph 2 deals with a case where prior to the extension of Income-tax Act to Part B States the same asset had been allowed depreciation both in the Part B State concerned and in the taxable territories in India, and lays down that the higher of the two allowances shall be taken into account. In other words, the proviso says that where in respect of any asset depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset, the proviso meant that it was not all depreciation actually allowed but all depreciation taken into account against the total world income that should be considered. It will be noticed that on the construction put by the taxing authorities on the words assessment made , the Explanation to paragraph 2 is rendered altogether superfluous. We have no doubt that under the proviso it is the greater of the two depreciation allowances actually allowed that has to be taken into account. This meaning of the proviso is in no way altered by the explanation so far as the taking into account of all depreciation actually allowed under the Income-tax Act in computing the written down value under section 10(5)(b) is concerned. The explanation has a limited purpose. It says in plain words that for the purpose of paragraph 2 the expression all depreciation actually allowed under any laws or rules of a Part B State shall mean and shall be deemed always to have meant the aggregate allowance of depreciation taken into account in computing the written down value under a Part B State's laws or rules. It does not touch the provision in section 10(5)(b) with regard to the deduction of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to be allowed to the assessee in the accounting year under the Indian Income-tax Act would be more than what was allowed in previous years under the Hyderabad Income-tax Act. This would create a disparity and be against the scheme of the Indian Income-tax Act. It was therefore necessary to explain paragraph 2 of the Removal of Difficulties Order, 1950, to assimilate or harmonise the position regarding depreciation allowance, and the Explanation added in 1953 or 1956 was obviously intended to remove the difficulty arising out of that disparity or disharmony. The explanation is thus intended to prevent the anomalous result of a depreciation allowance being allowed to an assessee in the accounting year under the Indian Income-tax Act higher than what was allowed to him in previous years under a Part B States Act. The explanation brought about conformity with the principle that the depreciation decreases every year. By it the assimilation and harmony that was secured was that the depreciation allowance allowed to an assessee in an accounting year under the Indian Income-tax Act after its extension to Part B States would be less than the depreciation allowed to him in the previ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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