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TMI Blog1985 (9) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... s a non-resident, except in 1948-49 when it was assessed as a resident. The assessee became liable to be assessed as a resident from the assessment year 1950-51. One of the questions which arose in respect of the assessment of the assessee for the years following the assessment year 1950-51 was in respect of the determination in the assessment of the proper written down value of the buildings, machinery, etc., of the assessee for calculating the depreciation allowance under section 10(2)(vi) of the Indian Income-tax Act, 1922 (referred to hereinafter as "the Act of 1922"). The assessee relied upon section 10(5)(b) of the Act of 1922 and contended that the original cost of the machinery, etc., should be taken into account for calculation of depreciation in the first assessment year in which the assessee was regularly assessed as a resident in India, namely, 1950-51, and depreciation should be calculated on that footing for that assessment year with appropriate adjustments in the succeeding assessment years. It was contended by the assessee that as the assessee had not been allowed any depreciation under the Act of 1922, it was the original cost of machinery, etc., which had to be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a half annas per rupee). (b) On all incomes above Rs. 50,000-annas 2 1/2 (two and a half annas per rupee) ........." The rest of the notification shows that rules and regulations for the recovery of the tax referred to in the notification were to be framed and sanctioned. On November 18/19, 1926, another Notification was issued to the effect that the Cabinet of the Holkar State in their Resolution No. 3085 dated November 17, 1926, had approved and accorded sanction to the Rules for recovery of industrial tax levied on cotton mills appended thereto. The concluding portion of the said notification runs thus : " Under Cabinet Resolution No. 373 dated the 22nd March 1926, Holkar Government having decided to levy a tax called the 'Industrial Tax' on the cotton mills in the State, the following Rules have been framed for the levy of the tax and for the ascertainment and determination of the income of the cotton mills for the said purpose." The said Notification was published in the Gazette of November 29, 1926. By a notification dated December 6, 1927, it was notified that the Cabinet had approved of certain revised rules for recovery of industrial tax levied on cotton mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue, is that if the true nature of the tax levied under the Industrial Tax Rules is taken into account, it is a tax not on a particular business or industry but it is a tax on profits or income. In order to examine the correctness of this contention, it is necessary to take note of certain statutory provisions and historical background. Subsection (2) of section 10 of the Act of 1922 provides for allowances to be made in computing the profits or gains of the profession, business or vocation of an assessee for the purposes of levy of income-tax under that Act. Clause (vi) of sub-section (2) which deals with depreciation on buildings, machinery, plant or furniture referred to in the said section, inter alia, provides for an allowance at the appropriate percentage on the written down value thereof. It is not necessary to deal with the provisions of subsection (2) of section 10 in further detail in this connection, because it is an admitted position that if the depreciation allowed to the assessee prior to the assessment year 1950-51 under the Industrial Tax Rules was depreciation allowed under a law or rule of a Part B State relating to income-tax or super-tax or any law rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of a particular industry was not material. We find it difficult to accept this argument. It is true that the historical background in which the tax is imposed is not decisive or of primary importance in determining the true nature of the tax. But it would certainly not be improper to keep it in mind. In this regard, it is significant that, as found by the Tribunal, there was no tax on income as such in the Holkar State. Even when the industrial tax was levied, no tax was levied on the income or profits of any other industry or business. The notifications to which we have referred earlier clearly show that the industrial tax was levied in place of the cotton cloth excise duty which was abolished because of the hardships pointed out by the traders concerned. Although the Industrial Tax Rules undoubtedly had the force of law in the Holkar State, it is significant that the legal enforceability of these Rules was the result of the notifications to which we have referred earlier. A perusal of the Notification dated May 3, 1926, shows that the order of the Government of the Ruler of the Holkar State was that a tax to be called industrial tax should be levied on cotton mills and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy pointed out, although the tax was on cotton mills, the amount of tax payable was to be determined with reference to the income of the cotton mills, and hence the return prescribed was bound to have some similarities with the returns prescribed under the Act of 1922. But that would not make a difference to the true nature of the tax. Moreover, even if the form of return is to be looked at, it is significant that industrial tax has been referred to separately from income-tax and super-tax in item No. 5 of that form which relates to the amounts debited in the accounts which had to be added back for determination of income, profits or gains. This would definitely suggest that the authorities which framed the said Rules treated industrial tax as different from income-tax and super-tax. In our view, a fair analysis of the said notifications and the said Industrial Tax Rules shows that the industrial tax was not a tax on income or profits of a business but was tax on a particular business, namely, that of the cotton mills industry. This conclusion finds support from the circumstance that a State, if it wanted to levy a tax on income, would not normally choose to levy tax only on the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the land and not on the actual income. But it does not follow from that proposition that every statute which charges a tax in relation to annual value of land is charging a tax on income. Kania J. (as he then was), in the course of his concurring judgment, observed as follows (at p. 691) : " The adoption of the annual letting value as the standard for fixing the rate maybe one which is convenient and does not necessarily make the tax income-tax. Although it may not be overlooked that the same standard is adopted for income-tax purposes, it does not necessarily follow that the nature of the tax is also the same." Mr. Jetly tried to distinguish this judgment on the ground that that judgment was based on the doctrine of " pith and substance " which, according to him, only applies in connection with the constitutional validity, of statutes and in such a case, where the competence of a Legislature to enact a law is called in question, the judicial approach adopted is to give a broad interpretation to the relevant entry or entries in the relevant legislative list ; and hence, according to him, the judgment is not of any assistance in the present case. He referred to the observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the Tax Rules up to the end of the accounting period ending on or before March 31, 1949. " The Tax Rules referred to by the Supreme Court are the Industrial Tax Rules which we have discussed earlier. It was submitted by Mr. Jetly that this observation amounted to a decision or, in any event, an obiter dicta of the Supreme Court to the effect that the said Rules levied a tax in the nature of income-tax or super-tax or tax on profits of business and, hence, the question raised before us was concluded against the assessee. It was pointed out by him that obiter dicta of the Supreme Court is binding on us. The question, however, is whether the observations can be considered to be the ratio of the Supreme Court judgment or even obiter dicta. In our view, it can be regarded as neither. It is an admitted position that the question as to the true nature of the said Industrial Tax Rules was not in question before the Supreme Court at all. There is nothing to show that there was even a discussion as to what was the true nature of these Rules or the tax levied thereunder nor is there anything to suggest that the Supreme Court even applied its mind to that question. The observation re ..... 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