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PETITIONER: STRAW PRODUCTS LTD.

       Vs.

RESPONDENT: INCOME-TAX OFFICER, BHOPAL & ORS.

DATE OF JUDGMENT: 20/10/1967

BENCH: SHAH, J.C. BENCH: SHAH, J.C. WANCHOO, K.N. (CJ) HIDAYATULLAH, M. BACHAWAT, R.S. RAMASWAMI, V. MITTER, G.K. HEGDE, K.S.

CITATION:  1968 AIR  579            1968 SCR  (2)   1  CITATOR INFO :  R          1975 SC 797  (27,29,31,40,41,42,48,50,53,56  E&R        1989 SC1719  (6,7,8,17,18,19)

ACT: Taxation Laws (Extension to Merged States and Amendment) Act 67  of 1949, s. 6-Power given to Central Government to  pays appropriate  orders in order to remove difficulties  in  the application  of  the Indian Income-tax Act, 1922  to  merged States-Nature    of   difficulties   which   justify    such order--Taxation  Laws (Merged States) (Removal of  Difficul- ties)  Amendment Order, 1962--Order prescribing that in  the case  of  assessees  exempted  from paying  tax  by  law  or agreement  in merged States notional depreciation on  assets to  be taken into account in computing written  down  value- Validity of Order.

HEADNOTE: The appellant company was formed in 1937 in Bhopal State and was exempted by the Ruler of that State from payment of  all taxes  till  October 31, 1948.  The State of  Bhopal  merged with India on August 1, 1949.  Ordinance 21 of 1949 and  the "Taxation  Laws (Extension to Merged States  and  Amendment) Act"  67  of  1949  which replaced  it  had  the  effect  of extending  the  Indian Income-tax Act, 1922  to  the  merged States.  at the same time repealing the corresponding  State laws.    Under  the  Ordinance  and  the  Act  the   Central Government  was  given power to pass appropriate  orders  to remove difficulties in the application  of the Indian Act to the merged States. The "Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949 provided that in making any assessment under the Indian  Income-tax  Act,  1922  all  depreciation   actually allowed  under any laws or rules of a merged State  relating to  income-tax and super-tax shall be taken into account  in computing the depreciation allowance under s. 10(2) (vi) (c) and the written down value under s. 10(5) (b) of the  Indian Income-tax  Act.   In  1962 another such  Order  was  passed

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namely  the  "Taxation  Laws  (Merged  States)  (Removal  of Difficulties)   Amendment   Order,  1962.    It   added   an Explanation  to  the Removal of  Difficulties  Order,  1949. Clause  (b) of the Explanation provided that in cases  where income  had been, exempted from tax under any laws or  rules ill  force in a merged State or under any agreement  with  a Ruler, the depreciation that would have been allowed had the income  not  been  so exempted shall be  deemed  to  be  the depreciation "actually allowed" for the purpose of computing depreciation  allowance  and written down  value.   For  the assessment  year  1949-50 the depreciation  allowed  to  the appellant company was taken as a percentage of the  original cost  of  its assets and in the four  subsequent  years  the written  down  value of the assets was  determined  on  that footing.   However,  the  Income-tax  Officer  after  giving notice  under  s. 34 recomputed the taxable  income  on  the footing  that  since the commencement of  the  business  the assessee  must  be deemed nationally to  have  been  allowed depreciation   under  the  Bhopal  Income-tax  Act.    These assessments were challenged by the appellant company  before the  appropriate authorities under the Act but by  the  time anneal  was  heard before the Supreme Court the  Removal  of Difficulties Order, 1962  had been  passed.   Following  the decision  in K. S. Venkataraman & Co. (P) Ltd. v.  State  of Madras, [1966] 2 S.C.R. 229, the Supreme Court     did   not entertain   the  argument  as to the validity  of  the  1962 Order.  The 2 appellant company then filed a writ petition under Art.  226 of the Constitution.  The High Court dismissed the petition, and the company appeald to this Court by certificate. HELD  : (i) Exercise of the power to make provisions  or  to 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, rule  or order.   Section  6  of Act 67 of 1949  does  not  make  the arising   of   the  difficulty  a   matter   of   subjective satisfaction of the Government; it is a condition  precedent to  the exercise of power and existence of the condition  if challenged must be established as an objective fact. Commissioner  of  Income-tax,  Hyderabad  v.  Dewan  Bahadur Ramgopal Mills Ltd,.[1961] 2 S.C.R. 318, explained. [10-C]. (ii) The  impungned order sought, in purported  exercise  of the  power under s. 6, to remove a difficulty which had  not arisen.   The  fact  that  Courts  had  not  accepted   the- contention  of the department that notional  Computation  of depreciation  should be allowed in cases where the  assessee had been exempt from tax in a merged State, was not the kind of difficulty for the removal of which the power under s.  6 could be used.It  was also impossible on the words used  in s. 10(5) cl. (b) read withthe  1949 Order to  hold  that the written down value of the assets ofthe  assessee  in  a merged State could not be determined. [11H; 12G-H] The  1962  Order  was invalid because  no  "difficulty"  was proved to have arisen justifying the invocation of the power under s. 6 of Act67 of 1949. Commissioner of Income-tax, Madhya Pradesh v. Strew Products Ltd., [1966] 2 S.C.R. 881, K. S. Venkataraman & Co. (P) Ltd. v.  State  of Madras, [1966] 2 S.C.R. 229,  Commissioner  of Income-tax,  Bombay  V. Dharampur Leather  Cloth  Co.  Ltd., (19661  2 S.C.R. 859, Commissioner of Imcome-tax, v.  Kamala mills   Ltd,.  (1949)  17   17  I.T.R.  130   and   Venkadam Lakshminarayana   v.  Commissioner  of  Income-tax,   Andhra Pradesh , (1961) 43 I.T.R. 526. referred to.

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JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 303 of 1967. Appeal  from the judgment and order dated April 4,  1966  of the  Madhya Pradesh High Court in Misc.  Petition No.  4  of 1966. A.K.  Sen,  H. R. Gokhala, Rameshwar  Nath  and  Mahindar Narain, for the appellant. Niren  De,  Addl.  Solicitor-General, G.  R.  Rajagopal,  R. Ganapathy Iyer and R. N. Sachthey, for the respondents. Niren  De, Addl.  Solicitor-General and R. N. Sachthey,  for the Attorny-General for India. The Judgment of the Court was delivered by Shah, J. This case is a sequel to the judgment pronounced by this  Court  on December 3, 1965 : Commissioner  of  Income- lay,. Madhya Pradesh v. Stravv Products Ltd.(1). (1)[1966] 2 S.C.R. 881. 3 The  assessee was incorporated in August 1935 with its  Head Office in the Indian Stale of Bhopal, and commenced business as  a manufacturer of wrapping paper in 1939.  The  assessee entered  into  an agreement with the Ruler of  Bhopal  under which the assessee was exempted from payment of all taxes to the State for a period of ten years expiring on October  31, 1948. The  State  of Bhopal merged with India on August  1,  1949. The  territory was constituted into a  Chief  Commissioner’s Province,  and  was later merged with the  State  of  Madhya Pradesh  under  the States Reorganisation  Act,  1956.   The GovernorGeneral   of   India  issued  the   "Taxation   Laws (Extension  to Merged States) Ordinance" 21 of 1949 to  make certain  taxation laws applicable to the merged States.   By cl.  3  of  the Ordinance, amongst other  Acts,  the  Indian Income-tax  Act,  1922 and all the orders and  rules  issued thereunder were extended to the merged States, and by cl.  7 the  corresponding laws in force in the merged  States  were repealed.  By el. 8 the Central Government was invested with the  power  to  make provisions or  give  directions,  which appeared to the Government to be necessary, for removing any difficulty arising in giving effect to the provisions of the Ordinance. Ordinance  21  of  1949 was repealed  and  replaced  by  the "Taxation  Laws (Extension to Merged States  and  Amendment) Act" 67 of 1949.  Section 3 of the Act extended with  effect from  April  1, 1949, to the merged  States,  amongst  other Acts,  the  Indian Income-tax Act and the orders  and  rules made thereunder, and by s. 7 the laws in force in the merged States  corresponding  to the Acts mentioned in s.  3  stood repealed.  Section 6 provided:               "if any difficulty arises in giving effect  to               the  provisions  of  any Act,  rule  or  order               extended  by section 3 to the  merged  States,               the  Central Government may, by  order,  make,               such  provisions  or give such  directions  as               appear  to it to be necessary for  removal  of               the difficulty." The  relevant provisions of the Indian Income-tax  Act  1922 which have a bearing on the determination of depreciation in respect of buildings, machinery, plant and furniture used by the assessee in carrying on business were these:               S.10  "(1) The tax shall be payable by  an               assessee under the head "Profits and gains  of               business,  profession or vocation" in  respect               of  the  profit  or  gains  of  any  business,

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             profession or vocation, carried on by him.               (2)Such profits or gains shall be  computed               after   making   the   following   allowances,               namely:-               4               (vi)in  respect  of  depreciation  of   such               buildings,  machinery,  plant,  or   furniture               being  the  property of the  assessee,  a  sum               equivalent, where the assets are ships  ,other               than ships ordinarily plying on inland  waters               to  such  percentage  on  the  original   cost               thereof to the assessee as may in any case  or               class of cases, be prescribed and in any other               case,  to such percentage on the written  down               value  thereof as may in any case or class  of               cases be prescribed.. . . . .               "Provided that-               (a). . . . . .               (b). . . . . . .               (c)   the  aggregate  of all  such  allowances               made  under  this  Act  or  any  Act  repealed               hereby,  or under the Indian  Income-tax  Act,               1886,  shall, in no case, exceed the  original               cost   to  the  assessee  of  the   buildings,               machinery,  plant, or furniture, as  the  case               may be;"               ’The  expression  "written  down  value"   was               defined  in  s. 10(5) which insofar as  it  is               material provided :               "In  sub-section (2) . . . . .        ’written               down value’ means-               (a)   in  the case of assets acquired  in  the               previous   year,  the  actual  cost   to   the               assessee:               provided.  .  .  .  .               (b)   in  the case of assets  acquired  before               the  previous  year  the actual  cost  to  the               assessee   less  all   depreciation   actually               allowed  to  him  under this Act  or  any  Act               repealed  thereby  or under  executive  orders               issued  when the Indian Income-tax Act,  1886,               was in force :               Provided.  .  .  .  .  .  .               Provided.  .  .  .  .  .  . The taxation laws in the merged States were not repealed  by the  Indian  Income-tax  Act : they stood  repealed  by  the Taxation Laws (Extension to Merged States and Amendment) Act 67 of 1949.  In the application of the scheme of the Income- tax  Act  1922  for ,computing  the  depreciation  allowance difficulties  clearly  arose.  On the plain  words,  of  the Income-tax Act, in the computation of the taxable income  of an assessee the depreciation actually allowed under the Act, or  Acts repealed thereby or under executive orders  ’issued under the Indian Income-tax Act, 1886, could alone be 5 taken  into  account: depreciation allowed under  the  State laws   could  not  be  taken  into  account.   The   Central Government therefore in exercise of its authority under  cl. 8 of Ordinance 21 of 1949 issued the "Taxation Laws" (Merged States) (Removal of Difficulties) Order, 1949".  By cl. 2 of that Order, it was provided :               "In  making  any assessment under  the  Indian               Income-tax   Act,   1922,   all   depreciation               actually allowed under any laws or rules of  a               merged State relating to income-tax and super-

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             tax, shall be taken into account in  computing               the aggregate depreciation allowance  referred               to  in subclause (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  merged               State and in British India, the greater of the               two  sums  allowed shall only  be  taken  into               account." Ordinance 21 of 1949 was repealed by sub-s. (1) of S. 34  of the Taxation Laws (Extension to Merged States and Amendment) Act 67 of 1949, but by virtue of sub-s. (2) of that section, the  Removal of Difficulties Order remained in  force.   The Order  was  clearly intended to  provide  that  depreciation "actually  allowed"  under the Merged State Acts was  to  be taken into account for determining the written down value of assets  of  an assessee in bringing into effect  the  Indian Income-tax  Act to the assessees in the merged  States.   In computing  the profits and gains of the business carried  on by  the assessee for determining the tax payable by him  for the  assessment year 1949-50, depreciation allowed under  S. 10(2) (vi) was taken as a percentage of the original cost to the   assessee  of  the  buildings,  machinery,  plant   and furniture,  and in the four subsequent assessment years  the written down value of the asse’s admissible for depreciation was  determined  on that footing.  The  Income-tax  Officer, Bhopal  thereafter commenced proceedings  for  re-assessment under  S.  34(1)  (b) of the Indian  Income-tax  Act,  1922, against  the  assessee in respect of  the  assessment  years 1952-53  and  1953-54  and by order  dated  March  3,  1958, recomputed the taxable income on the footing that since  the commencement  of  the business the assessee must  be  deemed nationally  to  have  been allowed  depreciation  under  the Bhopal Income-tax Act.  The Appellate Assistant Commissioner and  the  Income-tax Appellate Tribunal disagreed  with  the Income-tax Officer and restored the original assessment.  On a  reference made by the Appellate Tribunal, the High  Court of Madhya Pradeh held in favour of the assessee. 6 During  the pendency of an appeal filed by the  Commissioner of  Income-tax  in  this Court, the  Central  Government  in exercise  of  the power conferred by S. 6 of the Act  67  of 1949  issued  an  Order called the  "Taxation  Laws  (Merged States)  (Removal of Difficulties) Amendment  Order,  1962", and added the following, Explanation to cl. 2 of the Removal of Difficulties Order, 1949 :               "Explanation.-For   the   purpose   of    this               paragraph,  the expression  "all  depreciation               actually allowed under any laws or rules of  a               Merged State" means and shall be deemed always               to have meant:               (a)   the aggregate allowance for depreciation               taken  into account in computing  the  written               down value under any laws or laws in force  in               a merged State or carried forward tinder  0the               said laws or rules, and               (b)   in cases where income had been  exempted               from tax under any laws or rules in force in a               merged  State  or under any agreement  with  a               Ruler,  the depreciation that would have  been               allowed had the income not been so exempted." This  Court held in the appeal filed by the Commissioner  of

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Income-tax  that the expression.  ’actually allowed" in  the Removal   of  Difficulties  Order,  1949,  meant   allowance actually  given effect to, but by virtue of the  Explanation added  by  the  Taxation Laws (Merged  States)  (Removal  of Difficulties)  Amendment Order, 1962, the correct basis  for computing  the written down value of the depreciable  assets for  the relevant period was the one adopted by the  Income- tax  Officer.   Counsel  for  the  assessee  challenged  the validity  of the Taxation Laws (Merged States)  (Removal  of Difficulties)  Amendment Order, but the Court  declined.  to consider  that  plea  holding that  an  authority  or  court administering the Act cannot permit a challenge to be raised against  the vires of the Act: K.S. Venkataraman &  Co.  (P) Ltd. v. State of Madras(1). The assessee then moved in the High Court of Madhya Pradesh a petition, under Art. 226 or. the Constitution, inter alia, for a writ declaring the 1962 Order ultra vires the  Central Government,  and for injunction restraining  enforcement  of the  Order.  The High Court rejected the petition,  and  the assessee has appealed to this Court with certificate granted by the High Court. In.  this  appeal  counsel  for  the  assessee  raised   the following contentions:               (1)  that  S. 6 of Act 67 of  1949  makes  the               "arising  of  difficulty" a condition  of  the               exercise of the               (1)   [1966]  2 S.C.R. 229.               7               power to issue an order contemplated  thereby,               and  since no difficulty in fact is proved  to               have  arisen,  the Central Government  had  no               power to issue the impugned Order;               (2)   that  under s. 6 of Act 67 of 1949,  the               Central  Government is authorised to  make  an               order which is consistent with the scheme  and               the  essential  provisions of  the  Income-tax               Act,  1922,  and  since  the  impugned   Order               operates  to  amend the scheme  and  essential               provisions  of the Income-tax Act it is  ultra               vires the provisions of s. 6 of the Act;               (3)   that  if S. 6 is construed to  invest  a               power  authorising the Central  Government  to               make  orders amending or altering the  Income-               tax  Act,  it  is  void,  for  it  amounts  to               excessive delegation of legislative power;               (4)  that after the repeal of  the  Income-tax               Act,  1922, by the Income-tax Act 43 of  1961,               the  power to remove difficulties  arising  in               the  application  of  the former  Act  can  be               exercised  only under sub-s. (2) of s. 298  of               the Income-tax Act, 1961; and               (5)   that  the orders of assessment  made  by               the  Income-tax authorities or intended to  be               made  by them are violative of Art. 14 of  the               Constitution. Since  we are of tile view that the 1962 Order  is  invalid, because no "difficulty," is proved to have arisen justifying the invocation of the power under S. 6 of Act 67 of 1949, we do  not  propose  to express our opinion  on  the  remaining contentions. By  cl.  8 of the agreement with the Ruler  of  Bhopal,  the assessee  was  excluded from the operation of  the  taxation laws  of the State.  Accordingly no return was filed by  the assessee,  no proceedings for assessment were taken, and  no depreciation was allowed to the assessee for the purpose  of

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the  Bhopal Income-tax Act.  This Court in  Commissioner  of Income-tax  v.  Strew  Products Ltd.(1)  observed  that  the expression "all depreciation actually allowed under the laws or rules of a Merged State" in paragraph 2 of the 1949 Order could  not, be given an artificial meaning. It did not  mean depreciation  allowable under  the provisions of any law  or rules : ’it connoted an idea that the allowance was actually given effect to. (1) [1966] 2 S.C R. 881. 8 By the extension of the Income-tax Act, 1922, the rules  and the  orders  made  thereunder to the  areas  of  the  merged States,  undoubtedly  numerous difficulties arose,  for  the Income-tax  Act,  the rules and the orders  made  thereunder contemplated   situations   peculiar   to   the   conditions prevailing in British India which were not and could not  be prevailing in the merged States.  It was necessary therefore to  devise machinery for removing those difficulties.   This was  sought  to  be achieved by conferring  power  upon  the Central  Government  to make orders for that  purpose.   The power was, however, to be exercised by making provisions  or giving directions a,% may appear to be necessary for removal of  difficulties and no more.  By s. 10(2) (vi) proviso  (c) read  with  S.  10(5)  of  the  Income-tax  Act,  1922,  the depreciation  allowable in computing the profits. and  gains of  an  assessee from business carried on by him had  to  be computed by aggregating all such allowances, made under  the Indian Income-tax Act, or under any Act repealed thereby  or under  executive  orders issued when the  Indian  Income-tax Act,  1886 was in force.  On the express terms of  the  Act, for  determining  the written down value in  any  assessment year  only  that  much depreciation was  to  be  taken  into account as was actually allowed under the Indian  Income-tax Act,  or under any Act repealed thereby or  under  executive orders  issued  under the Indian Income-tax Act,  1886,  and since the Income-tax Acts of the merged States were repealed not by the Indian Income-tax Act, 1922, but by Ordinance  21 of 1949 and by Act 67 of 1949, in computing the written down value of the buildings, machinery, plant and furniture of an assessee in a merged State, allowances of depreciation under the  Merged  States Acts could not be  taken  into  account. This  gave a benefit to the assessees in the  merged  States which  was  inconsistent with the scheme of  the  Income-tax Act.   The Central Government therefore issued the  Taxation Laws  (Merged States) (Removal of Difficulties Order,  1949, and thereby all depreciation actually allowed under any laws or rules of a merged State relating to income-tax and super- tax was to be taken into account in computing the  aggregate depreciation  allowance  referred to in sub-cl. (c)  of  the proviso  to  cl. (vi) of sub-s. (2).  The  language  of  the Order  was  clear.   If under the laws  of  a  merged  State relating  to income-tax and super-tax any  depreciation  was actually  allowed,  it  was  to be  taken  into  account  in determining  the  written  down  value.   The   depreciation actually  allowed did not connote depreciation which  might, if  the assessee had been subjected to tax under  the  State law, have been allowed, but was not in fact allowed.  It was so held by this Court in Commissioner of Income-tax v. Straw Products  Ltd.(1).  The  expression  "depreciation  actually allowed"  was  also so interpretated in a case in  which  an assessee  who under an agreement with the Ruler of a Part  B State was exempt- (1)  [1966] 2 S.C.R 881. 9 ed  from payment of income-tax, and the  Central  Government

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after  the merger of the State gave effect to the  agreement by a notification under s. 60A of the Income-tax Act,  1922: Commissioner  of  Income-tax, Bombay  v.  Dharampur  Leather Cloth  Co. Ltd.(1), it has also been held by the  Courts  in India-and  in  our  Judgment  the  view  is  right  that  in determining   the   written  down  value  of   assets.   the depreciation  not allowable but actually allowed was  to  be taken  into  account    under s. 10(2) (vi)  of  the  Indian Income-tax  Act, 1922, after that clause was amended by  Act 23  of  1941 : Commissioner of Income-tax  v.  Kamala  Mills Ltd,. Vankadam Lakshminarayana v. Commissioner of     Income tax,  Andhra Pradesh (3). The  expression  "depreciation actually  allowed"  therefore connotes  under s. 10(2) (vi) of the Income-tax  Act,  under cl. (2) of the Removal of Difficulties Order, 1949, and  the notification   under   s.  60A  of   the   Income-tax   Act, depreciation  taken into account in assessing the income  of an assessee arising from carrying on business, and does  not mean  depreciation merely allowable or applicable under  the taxing provision. But  the  impugned Order seeks to alter the  connotation  of that  expression.  The assessee contends that no  difficulty arose  or  could arise in giving effect  to  the  provisions relating  to the allowance of depreciation under the  Indian Income-tax  Act to the merged States after the  promulgation of   the   Taxation  Laws  (Merged   States)   (Removal   of Difficulties)  Order,  1949,  and  the  Central   Government assumed, in issuing the impugned Order under s. 6 of Act  67 of  1949, powers which were not invested by the Act, and  on that  account  the  Order is invalid.  The  Union  of  India resists  that plea.  The High Court of Madhya  Pradesh  held that the Central Government having issued the 1962 Order, it must  be deemed to be held that difficulties had  arisen  in giving  effect to the provisions of Act 67 of 1949  and  the opinion  of  the  Central  Government  in  that  behalf  was conclusive.  The Court   observed :               "The  language  of the section  clearly  shows               that  it  is  for the  Central  Government  to               decide,  as  a  pure  act  of  administration,               whether  an obstacle or impediment  exists  in               giving  effect to the provisions of  the  Act,               Rule or Order referred to in s. 6 which  calls               for  an order for surmounting the obstacle  or               removing  the impediment.  No doubt s. 6  does               not expressly say that the Central  Government               should  be satisfied as to the  "existence  of               any "difficulty" for tile removal of which the               making  of an Order is necessary.  But  it  is               implicit  in  the language of s. 6  that  tile               Central Government               (1)   (1966) 2 S.C.R. 859.               (3) (1961) 43 I.T.R. 526.               L:10 Sup CI/68-2  (2) (1949) 17 1.T. R. 13 30               10               should  be satisfied that a difficulty  exists               in  giving  effect to, the provisions  of  any               Act,  Rule  or Order extended by s. 3  to  the               Merged  States.   If  the  existence  of   any               "difficulty"  depends on the  satisfaction  of               the  Central Government, then it follows  that               the  condition  about  the  existence  of  any               difficulty,  for  the  removal  of  which  the               Central  Government  is empowered to  make  in               Order, is a subjective condition incapable  of               being  determined  by any one other  than  the

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             Central  Government which has to take,  action               in the matter." In  so  observing, in our judgment, the High  Court  plainly erred.  Exercise of the power to make provisions or to 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. The  section does not make the arising of the  difficulty  a matter of subjective satisfaction of the Government: it is a condition  precedent to the exercise of power and  existence of  the  condition if challenged must be established  as  an objective fact. The  observations  made  by this Court  in  Commissioner  of Income-tax,  Hyderabad  v.  Dewan  Bahadur  Ramgopal   Mills Ltd.(1)  On which reliance was placed by the High  Court  do not support the view that "the arising of a difficulty" is a matter  for  the  subjective  satisfaction  of  the  Central Government.  In Dewan Bahadur Rajagopal Mills  case(")  this Court was called upon to consider the validity of  Paragraph 2   of  the  Taxation  Laws  Part  B  States)  (Removal   of Difficulties) Order, 1950.  On behalf of the assessee It was contended  in  that case that the notification  S.R.O.  1139 dated  May 8, 1956 issued under s. 12 of the Finance Act  of 1950,  which was couched in terms substantially the same  as s.  6 of Act 67 of 1949, was invalid.  This  Court  rejected the contention observing that in applying the provisions  of cl.  (b) of sub-s. (5) of s. 10 of the Income-tax Act to  an assessee in a Part B State there was an initial  difficulty, because the laws in force in the Part B States were repealed not  by the Indian Income-tax Act, but by the Finance,  Act, 1950, and to remove that difficulty the Taxation Laws  (Part B States) (Removal of Difficulties) Order, 1950, was passed. That  Order  was  amended by an Explanation  issued  by  the Central Government in exercise of the powers under s. 60A of the  Income-tax Act, ’but the amendment was  declared  ultra vires by the High Court of Hyderabad, and thereafter another Removal of Difficulties Order was issued in 1.956 reenacting the  Explanation.   This Court held that by the  Removal  of Difficulties Order, 1950 an anomalous result followed,  and. the depreciation allowance allowed to the assessee under the Indian Income-tax Act was more than the (1)[1961] 2 S. C.R. 318. 11 depreciation  allowance under the Hyderabad Income-tax  Act, and  it was necessary to issue the Removal  of  Difficulties Order  1956.   In the view of the Court, in  that  case  the condition precedent to the exercise of the power did  exist. After  recording that a difficulty requiring removal  by  an Order  under s. 12 of the Finance Act had arisen, the  Court proceeded to observe at P.327:               "Furthermore,  the  true scope and  effect  of               section seems to be that it is for the Central               Government to determine if any difficulty  has               arisen  and then to make Such order,  or  give               Such  directions,  as  appears  to  it  to  be               necessary    to   remove    the    difficulty.               Parliament   has  left  the  matter   to   the               executive   but   that  does  not   make   the               notification of 1956 bad." The  High Court of Madhya Pradesh held, relying  upon  these observations,  that the decision of the  Central  Government that  a  difficulty had arisen was a  matter  of  subjective satisfaction  of the Government and that it was not open  to the Courts to investigate that question. We  are  unable to hold that the observations made by this Courtare

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Susceptible  of that interpretation. It is clear from thesequence of  the observations made by this Court meet the  Court  was satisfied  that  in fact a difficulty had  arisen  and  that difficulty had to be removed and for removing the difficulty the  Order of 1956 was issued. It  was  expressly  averred in the  petition  filed  by  the assessee that  "no difficulty had arisen in giving effect to the  provisions of either the Indian Income-tax Act.,  1922, or  the provisions of the first order and as such there  was no  question of the exercise of any power under s. 6 of  the Merged  States  act for the purpose of  passing  the  second order."  The only reply to this plea in the affidavit  filed on behalf of the respondents was that "the contention raised on  behalf  of the petitioners is unsound and  is  therefore denied".  The learned Solicitor-General appearing on  behalf of   the respondents read out before us a "noting"  made  by the Secretary of the finance Department on which the Central Government was persuaded  to issue the 1962 Order. but  that "noting"  merely recited that the High Court’s in India  had not  accepted  the contention of the  Income-tax  Department that in cases where the depreciation had to be  computed  in respect  of  the business by an assessee who had,  under  an agreement  with the ruler of an Indian state, been  exempted from  payment  of  Income-tax,  a  national  computation  of depreciation  which would have been allowed, if he had  been assessed  to pay the tax, should be taken into  account  for determining the written down value of the assets at the date on which the Income-tax act was made applicable. Refusal  of the  Courts to accept a contention raised on behalf  of  the Revenue arising contrary to the plain words of 12 the  statute cannot be regarded as a difficulty  arising  in giving effect to the provisions of the Act.  The  difficulty contemplated by the Order is not merely the inability of the Central Government to collect tax which the tax-payer could, in  the  view of the Government, have been made to  pay  but which has not been imposed by adequate legislation. The Solicitor-General contended that on the tern-is of s. 10 sub-s. (5) (b) a difficulty arose in the application of  the Income-tax  Act  to merged States, because no  written  down value  of  the assets acquired by assessees  in  the  merged States  before  the previous year relevant to  the  year  in which  the Indian Income-tax Act was applied for  the  first time  could be determined.  Relying upon the  definition  of "assessee"  in  S.  2(2) and S. 10(1)  under  which  tax  is payable by an assessee under the head "Profits and gains  of business,  profession or vocation" in respect of the  profit or gains of any business, profession or vocation carried  on by him, counsel submitted that since under cl. (a) of sub-s. (5)  of  S.  10 in respect of the  assets  acquired  in  the previous  yes the actual cost to the assessee would  be  the written down value, and under cl. (b) in the case of  assets acquired  before  the previous year the actual cost  to  the assessee less all depreciation actually allowed to him under the  Act  would be the written down value, a  person  to  be entitled to claim depreciation allowance in the  computation of  his taxable income must have been an assessee under  the Income-tax  Act prior to the previous year in which  he  was being  assessed under the Indian Income-tax Act : if he  was not an assessee no written down value under cl. (b) of  sub- s. (5) of S. 10 could be determined.  Counsel submitted that the  impugned Order was issued by the Central Government  to remove that difficulty in the administration of the Act.  In our  judgment,  the argument is wholly  misconceived.   Sub- section (5) of S. 10 is merely a definition clause : it does

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not   deal  with  the  determination  of  the   quantum   of depreciation  "Depreciation" in respect of specified  assets is allowed under s. 10 (2) (vi) of the Income-tax Act.  That clause  was  applied  to the merged States  subject  to  the modification made by the 1949 Order, and the amount actually allowed  under the law of the merged State was to  be  taken into account in determining the written down value, and  the depreciation allowance referred to in cl. (c) of the proviso to  cl.  (vi) of S. 10(2).  It is impossible, on  the  words used  in s. 10(5) cl. (b) read with the 1949 Order. to  hold that  the written down value of the assets of the   assessee in  a  merged  State could not be  determined,  and  with  a view to  remove  that  difficulty  the  impugned  Order  was promulgated.   The  fact that the assets were acquired by  a person at a time  when   he  was not an assessee  under  the Indian  Income-tax  Act  or under the  State  Act  will  not disable  him, when he is assessed to tax on the  profit,  of tile business, from claiming the benefit of the 13 depresiation  allowance  on  those assets if  used  for  the purpose of the business. Section  6 of Act 67 of 1949 authorises the Central  Govern- ment to make provisions or to give directions as may  appear to be necessary for removal of difficulties which had arisen in giving effect to the provisions of any Act, rule or order extended  by s. 3 to the merged States.  By the  application of  the  Indian  Income-tax  Act  to  the  merged  States  a difficulty  did  arise  in the  matter  of  determining  the depreciation allowance under s. 10(2) (vi).  That difficulty was  removed by the enactment of the Taxation  Laws  (Merged States) (Removal of Difficulties) Order, 1949.  Even by that Order  all depreciation actually allowed under any  laws  or rules  of  a merged State relating to income-tax was  to  be taken  into account in computing the aggregate  depreciation allowance.   Thereafter  there survived  no  difficulty  in. giving effect to the provisions of the Indian Income-tax Act or  the  rules  or orders extended by S.  3  to  the  merged States. To sum up : the power conferred by s. 6 of Act 67 of 1949 is a  power  to  remove  a  difficulty  which  arise,  in   the application of the Income-tax Act to the merged States :  it can  be exercised in the manner consistent with  the  scheme and essential provisions of the Act and for the purpose  for which  it is conferred.  The impugned Order which seeks,  in purported  exercise  of the power, to  remove  a  difficulty which had not arisen was, therefore, unauthorised. We  do  not  in  the circumstances  think  it  necessary  to determine  to what extent, if any, it would be open  to  the Central  Government  by an order issued in exercise  of  the power  conferred  by  s.  6 of Act 67 of  1.949  to  make  a provision  which is inconsistent with the provisions of  the Indian Income-tax Act.  We also need not express any opinion on  the  other  contentions raised  by  the  assessee,  i.e. whether the Order, if any, should have been issued under  s. 298 of the Indian Income-tax Act, 1961, or whether by reason of  the  enactment of the impugned order  the  guarantee  of equality before the law was violated. The appeal is allowed and the order passed by the High Court is set aside. It   is   declared  that  cl.  (b)   of   the Explanation in the  Taxation Laws(Merged States)  (Removal of  Difficulties)  Order, 1962, is ultra vires  the  Central Government when exercising the power under s. 6 of Act 67 of 1949  and the Revenue authorities are not entitled  to  levy tax  on  the  basis of depreciation  allowance  computed  in accordance with that clause in the Order.  The assessee will

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get  its  costs from the respondents in this Court  and  the High Court. G.C.                                      Appeal allowed. 14