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PETITIONER: MAHARANA MILLS PVT. LTD.

       Vs.

RESPONDENT: INCOME TAX TRIBUNAL, AHMEDABAD & ORS.

DATE OF JUDGMENT03/05/1989

BENCH: PATHAK, R.S. (CJ) BENCH: PATHAK, R.S. (CJ) KANIA, M.H.

CITATION:  1989 AIR 1719            1989 SCR  (3)   1  1989 SCC  Supl.  (2) 210 JT 1989 (2)   399  1989 SCALE  (1)1447

ACT:     Income Tax Act 1922--Sections 10(2)(vi) and  60A--Depre- ciation   allowance  and  written  down   value--Computation of--Saurashtra Income Tax Ordinance 1949--Effect of.

HEADNOTE:     The  appellant-assessee  is a company  carrying  on  the business  of manufacturing and selling Textile at  Porbunder (formerly  a princely State) in Saurashtra in the  State  of Gujarat.  No income tax was levied by the  former  Porbunder State prior to 1948. In 1949 the princely State of, Porbund- er  integrated into newly formed Saurashtra State.  In  1949 the  State of Saurashtra promulgated the  Saurashtra  Income Tax  Ordinance wherein provision for grant  of  depreciation based on written down value was made. On 26.1.1950, State of Saurashtra became a part of the Union of India as a Part ’B’ State and thus the Income Tax Act, 1922 became applicable to the  State of Saurashtra from 1st April 1950 under  the  Fi- nance  Act, 1950. The said Saurashtra Income  Tax  Ordinance was repealed under Sec. 13 of the Finance Act, 1950. Section 12 of that Act provided for removal of difficulties, if any, arising in giving effect to the Income Tax Act. The  Central Govt.  on  2.12.50 issued an order known as  "Taxation  Laws (Part B States) Removal of Difficulties) Order 1950". Clause 2 of the said order provided the manner in which the  aggre- gate  depreciation allowance and written down value were  to be computed. On March 9, 1953, the Central Government in the exercise  of its powers under Sec. 60A of the Indian  Income Tax Act, 1922, added an Explanation to the said clause  (2). The vires of the said Explanation was challenged before  the Andhra  Pradesh High Court which held that  the  Explanation referred to above was ultra vires the powers of the  Central Government under Sec. 60A of the Income Tax Act.     Commissioner  of Income-Tax, Hyderabad v.  D.B.R.  Mills Ltd., [1956] 29 I.T.R. 210.     Thereupon, the Central Government issued another notifi- cation  dated  the 8th May, 1956 in exercise of  its  powers under Section 12 of the Finance Act 1950, whereby an  Expla- nation  in  identical terms as the earlier  Explanation  was added  to Clause (2) of the Removal of  Difficulties  Order, 1950.  The  validity of the said Explanation  added  by  the

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notification dated 8th May, 1956 was upheld by this Court in The  Commissioner of Income-tax, Hyderabad v. Dewan  Bahadur Ramgopal  Mills Ltd., [1961] 2 SCR 318. On the  appeal  from the said decision of the High Court 2 of the Andhra Pradesh in Commissioner of Income-tax, Hydera- bad v. D.B.R. Mills, [1956] 29 I.T.R. 210.     The  assessee was assessed under the Indian  Income  Tax Act from 1940-41 in respect of the income arising or  deemed to  arise in British India from 1940-41 onwards.  For  these years its income was assessed on receipt basis but in calcu- lating the world income depreciation was taken into  consid- eration  for arriving at the income outside  British  India. The  assessee  was  also assessed for  the  assessment  year 1949-50  under  the Saurashtra Income Tax  Ordinance,  1949. From  1950-51 it was assessed under the Income Tax Act.  The assessment years concerned in this case are 1957-58, 1958-59 and  1959-60,  the corresponding previous  years  being  the Calender years 1956, 1957 and 1958 respectively. The case of the assessee is that during the course of the assessment  of its income, depreciation was allowed for the assessment year 1950-51 and thereafter on the original cost of the assets as reduced  by the depreciation allowance given under the  Sau- rashtra  Income Tax Ordinance 1949. The  respective  written down  values  for the assessment years 1951-52  and  1952-53 were  fixed on the basis of the written down value  for  the assessment year 1950-51. But later the concerned Income  Tax Officer rectified the calculations of depreciation allowance by further reducing the written down value of the assets  of the  assessee. The Income Tax Officer took the written  down value  for  the  assessment years 1940-41  as  the  starting point.     The assessee was not satisfied with this  rectification. Its  contention was that the depreciation for  the  previous years  should  have  been calculated only on  the  basis  of Clause (2) of the Taxation Laws (Part B States) (Removal  of Difficulties) Order 1950, which provided for computation  of the  aggregate  depreciation allowance on the basis  of  the deduction  which was actually allowed under  the  Saurashtra Income  Tax Ordinance, 1949. Regarding the explanation,  the assessee contended that it was ultra rites the powers of the Central  Government as it was not necessary for the  removal of any difficulty.      The  contentions of the assessee were rejected  by  the Income  Tax authorities as well as by Income  Tax  Appellate Tribunal. It was contended by the assessee before the Tribu- nal  that  the  decision of this Court  in  Commissioner  of Income  Tax Hyderabad v. Dewan Bahadur Ramgopal Mills  Ltd., [1961] 2 SCR 318 was no longer good law in view of the later decision of this Court in Straw Products Ltd. v. Income  Tax Officer  "A" Ward, Bhopal and Ors., [1968] 68, ITR 227.  The Tribunal  having rejected the said contentions, at  the  in- stance  of the assessee a reference was made to the  Gujarat High Court in which the -following question was raised: 3               "Whether on the facts and in the circumstances               of  the  case. the Tribunal was  justified  in               holding  that the depreciation  allowable  and               not  ’actually allowed’ under  the  Saurashtra               Income-tax  Ordinance, 1949, should  be  taken               into account in computing the aggregate depre-               ciation allowance and written down value under               Sec. 10(2)(vi) of the Income Tax Act 1922." The High Court held that in its advisory jurisdiction  under the Income Tax Act, it could not go into the question of the

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vires  of  the said Explanation and therefore  answered  the question  against  the assessee.  Therefore,  the  appellant filed  Special  Civil Application 1797 of 1972 in  the  High Court.     The  Division  Bench of the High Court in  its  judgment disposing of the said special Civil Application pointed  out that  the  decision  of this Court in  the  Commissioner  of Income Tax, Hyderabad v. Dewan Bahadur Ramgopal Mills, case, referred to above had upheld the validity of the Explanation in question. The High Court further opined that some of  the arguments  which did not find favour with this court in  the said  case were accepted by a Bench of 7 Learned  Judges  in the  Straw Products Ltd. v. Income- Tax Officer,  "A"  Ward, Bhopal  and Ors., [1968] 68 I.T.R. 227. The High Court  fur- ther  pointed out that in its decision in the said  case  of Straw  Products  this court had considered the  decision  in Dewan Bahadur Ramgopal Mills Ltd. and explained that on  the facts  of that case a difficulty had arisen and it  was  for removing that difficulty that the Order of 1956 was  issued. For the said reason the High Court considered that  decision was  good law and following the same, it dismissed the  Spe- cial Civil Application. Hence this appeal by the assessee.     In  this  appeal the Explanation added  by  the  Central Government by its notification dated May 8, 1956 as well  as the assessments made on the assessee for the assessment year 1957-58  to  1959-60 have been assailed. It  was  inter-alia contended on behalf of the assessee that there was no diffi- culty which had arisen in giving effect to the provisions of the  Indian  Income Tax Act in the State of  Saurashtra  and hence the pre-condition on which the Central Government  was authorised  to make an Order under the Removal of  Difficul- ties  Order  and add the Explanation in question  had  never come into existence and as such the Explanation was  without the authority of Law, invalid and of no legal effect. It was further  contended by the assessee that under the scheme  of the  Income Tax Act, generally speaking, almost  the  entire cost  of  a capital asset used for purposes of  business  or profession should 4 be allowed to be written off by way of depreciation, whether worked on the basis of straight line method or written  down value. The assessee disputed the mode of assessment and  the applicability of the Explanation.     Following this Court’s decision in Dewan Bahadur  Ramgo- pal  Mills’ Ltd. [1961] 2 SCR 318 this Court dismissing  the appeal,     HELD:  The Saurashtra Income Tax Ordinance was  repealed by Section 13 of the Finance Act 1950 and not by any  provi- sion  in  the Indian Income Tax Act. The  basic  and  normal scheme  of depreciation under the Indian Income Tax  Act  is that  it  decreases every year, being a  percentage  of  the written  down  value which in the first year is  the  actual cost and in succeeding years actual cost less all  deprecia- tion  actually allowed under the Income Tax Act or  any  Act repealed thereby etc. [18D-E]     Commissioner  of Income Tax Hyderabad v.  Dewan  Bahadur Ramgopal Mills Ltd., [1961] 2 SCR 318.     The Saurashtra Income Tax Ordinance having been repealed not  by  the  Indian Income Tax Act but by Sec.  13  of  the Finance Act 1950, a difficulty had come into existence,  and hence  it could not be said that the Government had no  good basis  to come to the conclusion that a difficulty  had,  in fact, arisen. [18F-G] Madeva  Upendra  Sinai v. Union of India & Ors.,  [1975]  98 I.T.R.

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209.

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 612  (NT) of 1975.     From  the Judgment and Order dated 24/25.9. 1974 of  the Gujarat High Court in Special Civil Application No. 1797  of 1972.     Harish N. Salve, Mrs. A.K. Verma and Joel Pares for  the Appellant.     V.S.  Desai,  M.B.  Rao and Ms. A.  Subhashini  for  the Respondents. The Judgment of the Court was delivered by KANIA, J. This is an appeal from the judgment of a  Division of 5 the  High Court of Gujarat in Special Civil Application  No. 1797  of 1972 on a certificate granted under Article  133(1) of  the  Constitution of India. The relevant  facts  are  as follows:     The assessee is a Private Limited Company and carries on the business of manufacturing and selling textile at Porbun- dar in Saurashtra in the Gujarat State. Before 1948  Porbun- dar  was a part of the Princely State of that name.  No  In- come-Tax  was levied by the erstwhile Porbundar State  prior to  1948.  In 1948 there was a merger  of  several  Princely States and as a result of the merger, the State of  Saurash- tra  was  formed. No income-tax was levied by the  State  of Saurashtra  till  1949 when it  promulgated  the  Saurashtra Income-tax  Ordinance.  Under that Ordinance  provision  was made  for the grant of depreciation allowance based  on  the written down value. The said Ordinance defined "written down value" as follows:               "Written down value" means:               (a) in case of assets acquired in the previous               year, the actual cost to the assessee; and               (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 Ordinance or allowed under an  act               repealed  thereby  or which  would  have  been               allowed to him if the Income-tax Act, 1922 was               in force in past."                   On 26th January, 1950 State of  Saurashtra               became  a part of Union of India as a  Part  B               State. The Indian Income-tax Act, 1922  became               applicable to the State of Saurashtra from 1st               April,  1950 under the provisions of  the  Fi-               nance Act, 1950. By Section 13 of the  Finance               Act  of 1950, which provides for  repeals  and               savings,  the Saurashtra Income-tax  Ordinance               was repealed. Section 12 of that Act  provided               for the removal of difficulties as follows:               "If any difficulty arises in giving effect  to               the  provisions of any of the Acts,  rules  or               orders extended by Section 3 or Section 11  to               any  State  or merged territory,  the  Central               Government may, by order, make such provision,               or give such direction, as appears to it to be               necessary for removing the difficulty."               In exercise of the powers conferred upon it by               Section 12 of the               6

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             Finance  Act,  1950,  the  Central  Government               issued an order known as "Taxation Laws  (Part               B  States)  (Removal of  Difficulties)  Order,               1950".  Clause (2) of the Order of 1950  reads               as follows:               "Computation of aggregate depreciation  allow-               ance and the written down value:                        In  making any assessment  under  the               Indian  Incometax 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  prof-               its 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               Part  B State and in the taxable  territories,               the greater of the two sums allowed shall only               be taken into account."                   This order was made by the Central Govern-               ment  on  December 2, 1950.  Subsequently,  on               March  9,  1953,  in exercise  of  the  powers               conferred upon it by Section 60A of the Indian               Income-tax Act, 1922, an Explanation was added               by the Central Government to the above  Clause               (2) of the Order of 1950 with effect from that               date and that Explanation was in the following               terms:               "For  the purpose of this paragraph,  the  ex-               pression  ’all depreciation  actually  allowed               under  any  laws or rules of a Part  B  State’               means and shall be deemed always to have meant               the aggregate allowance for depreciation taken               into  account  in computing the  written  down               value  under  any laws or rules of  a  Part  B               State  or carried forward under the said  laws               or rules."     In Commissioner of Income-tax, Hyderabad v. D.B.R. Mills Ltd.,  [1956]  29 I.T.R. 210 the Hyderabad High  Court  held that  this  Explanation was ultra vires the  powers  of  the Central  Government under Section 60A of the Indian  Income- tax Act, 1922. After the said decision of the High Court the Central Government issued a notifica- 7 tion  on 8th May, 1956 in exercise of the  powers  conferred upon  it  by Section 12 of the Finance Act, 1950  and  under this  notification an Explanation in identical terms as  the earlier Explanation inserted by an order made under  Section 60A  of the Indian Income-tax Act, 1922 was added to  Clause (2)  of the Removal of Difficulties Order, 1950. As  far  as the  appellant-assessee is concerned, it was assessed  under the  Indian  Income-tax Act from 1940-41 in respect  of  the income  arising  or deemed to arise in  British  India  from 1940-41 onwards. For these years income of the assessee  was computed  on  receipt basis, but in  calculating  the  world income, depreciation was taken into consideration for arriv- ing  at the income outside British India. The  assessee  was also assessed for assessment year 1949-50 under the Saurash- tra  Income-tax  Ordinance, 1949. From the  assessment  year 1950-51  onwards the assessee was assessed under the  Indian

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Income-tax Act, 1922 (referred to hereinafter as "the Indian Income-tax  Act").  The assessment years with which  we  are concerned  are  the assessment years  1957-58,  1958-59  and 1959-60, the corresponding previous years being the calendar years  1956, 1957 and 1958 respectively. It is the  case  of the assessee that during the course of the assessment of the assessee’s  income under the Act of 1922,  depreciation  was allowed  for the assessment year 1950-51 and  thereafter  on the original cost of the assets as reduced by the  deprecia- tion  allowance given under the Saurashtra Income-tax  Ordi- nance, 1949. The respective written down values for  assess- ment  years 1951-52 and 1952-53 were fixed on the  basis  of the written down value for assessment year 1950-51. However, subsequently, the Income-tax Officer concerned having juris- diction  over  the  case of the  petitioner,  rectified  the calculations  of depreciation allowance by further  reducing the  written  down value of the assets of  the  assessee  by adopting the procedure which has been set out in paragraph 7 of the petition filed by the assessee. What was done by  the Income-tax Officer was that the written down value taken for the  assessment  year  1940-41 by  the  Income-tax  Officer, Bombay  was taken as the starting point. From  this  written down  value, the depreciation that was actually  allowed  to the  assessee in respect of the assessment years 1940-41  to 1944-45  was  deducted. For the assessment years  194546  to 1948-49  the written down value was calculated after  calcu- lating  the depreciation allowance which would be  allowable under the rules. For the assessment year 1949-50, the depre- ciation   allowance  as  calculated  under  the   Saurashtra Income-tax Ordinance, 1954 was deducted. For the  assessment years 1950-51 to 1952-53, the depreciation allowance actual- ly  deducted  under the assessment orders passed  under  the Indian Income-tax Act was calculated and for the  assessment year 1953-54 the depreciation allowance was calculated under Rule 8 of the 8 Indian  Income-tax  Rules made under the  Indian  Income-tax Act. For the assessment years 1954-55 to 1956-57 the  depre- ciation was calculated on the basis of the above  rectifica- tion  order.  The  contention of the assessee  is  that  the depreciation for the previous years should have been  calcu- lated  only on the basis of Clause (2) of the Taxation  Laws (Part B States) (Removal of Difficulties) Order, 1950, which provided  for  computation  of  the  aggregate  depreciation allowance  on the basis of the deduction which was  actually allowed under the provisions of Saurashtra Income-tax  Ordi- nance,  1949. Regarding the Explanation which was  added  as set out earlier, the contention of the assessee was that  it was  ultra vires the powers of the Central Government as  it was  not necessary for the removal of any  difficulty.  This contention  of the assessee was rejected by  the  Income-tax authorities  as well as the Income-tax  Appellate  Tribunal. For  the assessment years 1957-58 and 1959-60  the  assessee again  contended before the Income-tax authorities  and  the Tribunal that Explanation to Clause (2) as notified in  1956 was ultra vires the powers of the Central Government. It was contended  by  the  assessee before the  Tribunal  that  the decision  of this Court in The Commissioner  of  Income-tax, Hyderabad  v. Dewan Bahadur Raingopal Mills Ltd.,  [1961]  2 S.C.R.  318; (1961) 41 I.T.R. 280 which upheld the  validity of  the  Explanation was no longer good law in view  of  the decision of this Court in Straw Products Ltd. v.  Income-tax Officer.  "A" Ward, Bhopal, and Ors., [1968] 68 I.T.R.  227. The contention of the assessee was rejected by the  Tribunal by its order dated April 16, 1969. From this decision of the

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Tribunal  at  the instance of the assessee a  reference  was made to the Gujarat High Court in which the following  ques- tion was raised:               "Whether on the facts and in the circumstances               of  the  case, the Tribunal was  justified  in               holding  that the depreciation  allowable  and               not  ’actually allowed’ under  the  Saurashtra               Income-tax  Ordinance,  1949 should  be  taken               into account in computing the aggregate depre-               ciation allowance and written down value under               Section  10(2)(vi)  of  the  Income-tax   Act,               1922?"     This reference was numbered as Reference No. 45 of 1970. On August 17, 1972 the High Court held that in its  advisory jurisdiction  under the Income-tax Act it could not go  into the  question of the vires of the said Explanation  and  an- swered  the  question against the  assesee.  Thereafter  the assessee  filed Special Civil Application No. 1797  of  1972 from  the decision wherein this appeal arises. In this  Spe- cial Civil Application the vires of the Explanation added by the Central Government by its 9 notification  dated  May 8, 1956 in exercise of  the  powers under  Section 12 of the Finance Act of 1950 as well as  the assessments  made on the assessee for the  assessment  years 1957-58  to 1959-60 were challenged. The Division  Bench  of the Gujarat High Court in its impugned judgment pointed  out that  the  decision  of this Court in  The  Commissioner  of Income-tax, Hyderabad v. Dewan Bahadur Ramgopal Mills  Ltd., had upheld the validity of the said Explanation. The Gujarat High  Court noted that the decision of this Court  in  Straw Products  Ltd. v. Income-tax Officer, arose from the  merged State  of Bhopal. Some of the arguments which did  not  find favour  with this Court in the case of The  Commissioner  of Income-tax, Hyderabad v. Dewan Bahadur Ramgopal Mills  Ltd., were  accepted  by a Bench of seven learned Judges  of  this Court in the case of Straw Products. The Gujarat High  Court pointed  out  that  in its decision in  the  case  of  Straw Products, this Court had considered the decision in the case of  Dewan  Bahadur Ramgopal Mills Ltd., and  explained  that decision  by  stating that the Supreme Court  was  satisfied that  on the facts of that case a difficulty had arisen  and it  was for removing that difficulty that the Order of  1956 was  issued.  The Division Bench of the Gujarat  High  Court considered  the  decision  of this Court  in  Dewan  Bahadur Raingopal  Mills  Ltd., as binding and  following  the  same dismissed the Special Civil Application filed by the  asses- see.     Mr.  Salve  made two submissions before  us.  The  first submission made by him was the same as made on behalf of the assessee  before the High Court, namely, that there  was  no difficulty  which had arisen in giving effect to the  provi- sions of the Indian Income-tax Act in the State of  Saurash- tra and hence the pre-condition on which the Central Govern- ment  was authorised to make an order under the  Removal  of Difficulties  Order and add the Explanation had  never  come into  existence  and  hence adding of  the  Explanation  was without  any authority of law and invalid and no  legal  ef- fect. The next submission urged by Mr. Salve was that it  is the  fundamental  scheme of the Indian Incometax  Act  that, generally  speaking,  almost the entire cost  of  a  capital asset used for purposes of business or profession should  be allowed to be written off by way of depreciation. This could be done in more than one ways. It could be done by  allowing a  fixed  percentage of the actual cost to  be  deducted  as

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depreciation  allowance every year till the entire  cost  is written off. This is known as the Straight Line Method.  The other  is the method of calculating the depreciation on  the basis  of  written down value. Written down value  would  be determined  by deducting a fixed percentage of the  original cost of the asset in assessment year relevant to the  previ- ous year in which the asset was 10 acquired  and thereafter giving the same percentage  of  the written down value determined on the footing of the original cost  less  the depreciation already  allowed.  Taking  into account  the  definition of the term  "written  down  value" contained  in  Section  10  of  sub-section  (5)  of  Indian Income-tax  Act, 1922, the basic scheme under the  said  Act appears to be that in determining the written down value for depreciation allowance, the taxing authority can deduct only such amounts as have been allowed earlier by way :of  deduc- tion. It was submitted by him that this position was accept- ed  in the decision of this Court in Straw Products Ltd.  v. Income-tax  Officer.  In the present case, if  the  impugned Explanation was applied, the result would be that the  writ- ten down value of the capital asset of the assessee acquired prior  to 1949 would be determined by making deductions  for depreciation allowance which was not actually allowed to the assessee  between the assessment years 1945-46  to  1948-49. This result would follow from the manner in which the  writ- ten  down value was calculated under the Saurashtra  Income- tax Ordinance of 1949. It was urged by him that in  exercise of  its  delegated  powers it was not open  to  the  Central Government to enact such an Explanation. In order to examine this  contention it would be useful to bear in mind some  of the provisions of the Indian Income-tax Act. In that Act the charge of Income-tax is in respect of "total income" of  the previous  year. The expression "total income", very  briefly stated,  is  defined  in sub-section (15) of  Section  2  as meaning  the total amount of income, profits and gains  com- puted  in the manner laid down in the Act. Chapter 3 of  the Act  deals  with the various Heads of Income  chargeable  to Income-tax  and Section 10 deals with the Head of Income  in respect  of  profits  or gains of  business,  profession  or vocation  carried  on by the assessee.  Sub-section  (2)  of Section  10 deals with the allowances which have to be  made in  the computation of the profits and gains from  business, profession  or  vocation and Clause (vi) of  the  said  sub- section  provides for depreciation. The relevant portion  of Clause (vi) ran as follows:               "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 or cases be  pre-               scribed."               The expression "written down value" as used in               sub-section (2)               11               of  Section 10 of the Act has been defined  in               sub-section  (5) of Section 10.  The  relevant               part  of  Clause (b) of the  said  sub-section               runs as follows:               "In  the  case of assets acquired  before  the

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             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 (II of 1886),  was               in force.               X                    X                       X               X                         Provided  that  in  the  case  of  a               building previously the property of the asses-               see  and brought into use for the purposes  of               the business, profession or vocation after the               28th  day  of February,  1946,  ’written  down               value’  means the actual cost to the  assessee               reduced by an amount equal to the depreciation               calculated  at the rate in force on that  date               that would have been allowable had the  build-               ing been used for the aforesaid purposes since               the  date of its acquisition by  the  assessee               and had the provisions of this Act relating to               the  allowance for depreciation been in  force               on and from the date of acquisition."     In  The Commissioner of Income-tax, Hyderabad  v.  Dewan Bahadur  Ramgopal Mill Ltd., the very Explanation  added  by the notification dated 8.5.1956, which is challenged  before us, came up for consideration before a Constitution Bench of this Court.     The  facts in that case were that prior to  January  26, 1950,  when the erstwhile State of Hyderabad merged  in  the Union  of  India and became a Part B State,  the  respondent company  was  assessed  to Income-tax  under  the  Hyderabad Income-tax Act, under which depreciation allowance was given to it on the basis of the written down value of its  assets, such  as  buildings, machinery plants, etc.,  in  accordance with clause (c) of section 12(5) of that Act, which provided that in the case of assets acquired before the previous year and  before  the commencement of the Act, the  written  down value  would  be the actual cost to the  assessee  less  (i) depreciation at the rates applicable to the assets calculat- ed on the actual costs for the first year since  acquisition and  for the next year on the actual cost diminished by  the depreciation allowance for one year and so on, for each year upto  the  commencement of that Act  and  (ii)  depreciation actually allowed to the assessee 12 on  such assets for each financial year after the  commence- ment  of  the Act. After the merger of  Hyderabad  with  the Union  of  India, by sections 3 and 13 of the  Finance  Act, 1950, the taxation laws in force in that State were repealed and  the Indian Income-tax Act, 1922, was extended  to  that area; and, in exercise of the powers conferred by section 12 of  the Finance Act, 1950, the Central Government  issued  a notification  dated  December 2, 1950, called  the  Taxation Laws (Part B States) (Removal of Difficulties) Order,  1950. Paragraph  2 of the Order provided that "in making  any  as- sessment under the Indian Income-tax Act, 1922, all depreci- ation  actually allowed under any laws or rules of a Part  B State   ........  shall be taken into account  in  computing the aggregate depreciation allowance referred to in  proviso (c)  to section 10(2)(vi) and the written down  value  under section 10(5)(b) of the said Act".     For  the  assessment year 195 1-52  the  respondent  was assessed for the first time under the Indian Income-tax Act, and  basing its claim on paragraph 2 of the aforesaid  Order it asked for depreciation allowance in respect of its assets

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by  working  out the value thereof at  their  inception  and deducting therefrom such depreciation as was allowed for the three  assessment years in which it was assessed  under  the Hyderabad Income-tax Act. By an order dated November 30, 195 1,  the Incometax Officer disallowed the respondent’s  claim on the ground that it was against the principle inherent  in granting  depreciation  allowance which must  decrease  from year  to  year. The matter was taken up to  this  Court  and while  it  was pending there, on May 8,  1956,  the  Central Government  issued a notification in exercise of its  powers conferred  on  it by section 12 of the  Finance  Act,  1950, whereby an Explanation was added to the aforesaid  paragraph 2 as follows:               "For  the purpose of this paragraph,  the  ex-               pression  ’all depreciation  actually  allowed               under  any  law or rules of a  Part  B  State’               means and shall be deemed to have always meant               the aggregate allowance for depreciation taken               into  account  in computing the  written  down               value  under  any laws or rules of  a  Part  B               State  or carried forward under the said  laws               or rules." The  respondent challenged the validity of the  notification of  1956 and also its applicability to the present  case  on grounds (1) that it was ultra vires the powers conferred  on the  Central  Government by section 12 of the  Finance  Act, 1950,  (2) that it contravened Article 14 of  the  Constitu- tion, and (3) that, in any case, it could have no retrospec- tive effect. 13 It was held by this Court that the true scope and effect  of Section 12 of the Finance Act, 1950 was that it was for  the Central  Government  to determine if any difficulty  of  the nature indicated in the section arises and then to make such order or give such direction, as appeared to it to be neces- sary  to remove the difficulty, the legislature having  left the matter to the executive.     In the present case, a difficulty had arisen because  if depreciation actually allowed under the Hyderabad Income-tax Act was taken into account in computing the aggregate depre- ciation  allowance and the written down value, an  anomalous result  would follow, namely, depreciation allowance  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.  Conse- quently,  the Central Government was within its power  under section 12 in making the notification dated May 8, 1956.     It  was also held that the notification of 1956  applied to all those to whom paragraph 2 of the Taxation Laws  (Part B  States)  (Removal of Difficulties) Order, 1950,  was  ap- plicable and created no unequal treatment of persons in  the like  situation. Accordingly, the notification did not  con- travene Article 14 of the Constitution. In the course of the leading judgment, S.K. Das, J., set out the chain of  events which  led to the notification dated May 8, 1956 under  sec- tion 12 of the Finance Act, 1950 being issued which we  have already set out earlier and went on to state as follows:               "The  basic and normal scheme of  depreciation               under  the  Indian Income-tax Act is  that  it               decreases  every year, being a  percentage  of               the written down value which in the first year               is  the  actual cost and in  succeeding  years               actual  cost  less all  depreciation  actually               allowed  under the Income-tax Act or  any  Act               repealed thereby etc. The Hyderabad Income-tax

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             Act not having been repealed by the  Incometax               Act but by the Finance Act, 1950, there was  a               difficulty  in  allowing  depreciation  to  an               assessee  in a Part B State in the first  year               of assessment under the Indian Income-tax Act.               This  difficulty was sought to be  removed  by               paragraph  2  of the Removal  of  Difficulties               Order, 1950. If however, depreciation actually               allowed under the Hyderabad Income-tax Act was               taken into account in computing the  aggregate               depreciation  allowance and the  written  down               value, an anomalous result would follow as  in               the present               14               case,  namely,  depreciation allowance  to  be               allowed to the assessee in the accounting year               under  the Indian Incometax 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 Remov-               al of Difficulties Order, 1950, to  assimilate               or harmonise the position regarding  deprecia-               tion  allowance, and the Explanation added  in               1953 or 1956 was obviously intended to  remove               the  difficulty arising out of that  disparity               or disharmony."     It  is  not disputed that, if this decision is  to  fol- lowed,  both the contentions urged by the  learned  Counsel, Mr. Salve before us must be negatived. The decision  clearly lays down that a difficulty had come into existence and  the Central  Government had, in exercise of the power  delegated to it, issued the said notification in 1956 adding the  said Explanation  to resolve the difficulty. The Court  took  the view that, under the scheme of the Indian Income-tax Act, in respect  of  assets acquired before  the  relevant  previous year,  depreciation  is to be allowed on the  basis  of  the original cost less depreciation in respect of earlier years. viz.,  the years intervening between the  relevant  previous year  and the year of acquisition. Where any tax  on  income was levied during any of these intervening years, the actual cost  would have to be reduced by the depreciation  actually allowed but in respect of such intervening years when  there was  no  tax levied on income, depreciation  on  a  notional basis would have to be deducted from the actual cost of  the asset.  In deducting an amount on account of  such  notional depreciation  there  seems to be nothing against  the  basic scheme  of  the Income-tax Act. These  are  the  conclusions which  flow from the said decision of Court in the  case  of Dewan  Bahadur  Ramgopal Mills Ltd.. The said  decision  has been  rendered by a Bench comprising five learned Judges  of this  Court and must normally be regarded as  binding.  upon us.  The  question, however, is whether  the  said  decision needs  to be reconsidered in view of two later decisions  of this  Court which we shall presently discuss. The  first  of the  said  two decisions cited by Mr. Salve is that  in  the case  of  Madeva  Upendra Sinai v. Union of  India  &  Ors., [1975] 98 I.T.R. 209. The said decision has been rendered by majority comprising four learned Judges out of five compris- ing  the  Bench which decided the case. In  that  case,  the challenge  was  to  the validity of the  second  Proviso  to Clause (2) of the Taxation Laws (Extension to Union Territo- ries)  (Removal of Difficulties) Order No. 2 of  1970  which was deemed to have come into force on 1st April,

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15 1963.  In  brief, this clause provided that  in  making  any assessment under the Indian Income-tax Act, 1961 all  depre- ciation actually allowed under the local laws shall be taken into account in computing the written down value. The second Proviso to that Clause was as follows:               "Provided further that where in respect of any               period,  no depreciation was actually  allowed               under the local law or the depreciation  actu-               ally allowed cannot be ascertained,  deprecia-               tion in respect of that period shall be calcu-               lated at the rate for the time being in  force               under  the Income-tax Act, 1961 or  under  the               Indian Income-tax Act, 1922 ........  and  the               depreciation so calculated shall be deemed  to               be the depreciation actually allowed under the               local law".     The  majority judgment took the view that the  existence or  arising  of a difficulty was the sine qua  non  for  the exercise of the power under Clause (7) of the Taxation  Laws (Extension  to  Union  Territories)  Regulation,  1963.  The "difficulty" contemplated by that clause had to be a  diffi- culty  arising "in giving effect to" the provisions  of  the Act, etc., and not a difficulty arising aliunde or an extra- neous  difficulty.  Further, the  Central  Government  could exercise  the power under the clause only to the  extent  it was  necessary  for applying or giving effect  to  the  Act, etc.,  and no further. The second Proviso to Clause  (2)  of the said Order of 1970 sought to raise the taxable income of the  assessee inconsistently with the scheme of the  Income- tax  Act, and was ultra vires the Central  Government  under Clause  7  of the 1963 Regulation and the  Revenue  was  not entitled to lay tax on the basis of the depreciation  allow- ance  computed in accordance with that proviso. It was  fur- ther held that the said second proviso to Clause (2) of  the 1970  order would, in the implementation of the Act,  create difficulties  rather than remove them. It was  further  held that  the  key word in Clause (b) of Section  43(6)  of  the Income-tax Act, 1961 is "actually". 11 is the antithesis  of that which is merely speculative, theoretical or  imaginary. "Actually"  contra-indicates a deeming construction  of  the word "allowed" which it qualifies. It cannot be stretched to mean "notionally allowed" or merely allowable on a  notional basis.  In Straw Products Ltd. a challenge was made  to  the validity  of sub-clause (b) of paragraph 2 of  the  Taxation Laws  (Merged States) (Removal of Difficulties) Order,  1949 inserted  therein  by  the  Taxation  Laws  (Merged  States) (Removal of Difficulties) Amendment Order, 1962.1t was  held that  the said sub-clause of the said Explanation was  ultra vires 16 the Central Government under Section 6 of the Taxation  Laws (Extension  to Merged States and Amendment) Act, 1949  under which it was purported to be made, since no "difficulty" was proved to have arisen justifying the invocation of the power under Section 6; and the revenue authorities were not  enti- tled  to  levy tax on the basis  of  depreciation  allowance computed  in  accordance  with sub-clause (b)  of  the  said Explanation  to paragraph 2 of the Order. It was  held  that the  expression  "depreciation  actually  allowed"  connotes under  Section 10(2)(vi) of the Indian Income-tax Act,  1922 under  Clause  (2)  of the  Taxation  Laws  (Merged  States) (Removal  of Difficulties) Order, 1949 and the  notification under Section 60A of the Income-tax Act, depreciation  taken into account in assessing the income of an assessee  arising

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from  carrying on business, and does not  mean  depreciation merely  allowable or applicable under the  taxing  provision (68 I.T.R. 227 at p. 236). The Court took the view that  the exercise  of the power under Section 6 of the Taxation  Laws (Extension to Merged States and Amendment) Act, 1949 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 extended by Section 3  to  the  Merged States. The Section does not make the arising of a difficul- ty 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  estab- lished  as an objective fact. It may be mentioned  that  the decision  in  the case of The  Commissioner  of  Income-tax, Hyderabad v. Dewan Bahadur Ramgopal Mills Ltd., was  noticed and  discussed in this judgment but it was pointed out  that in  that case the difficulty had arisen because, as  pointed out  by  the Court in that case but for  the  Explanation  a difficulty  would  have arisen insofar as  the  depreciation allowance  allowed to assessee under the  Indian  Income-tax Act  would  have been more than the  depreciation  allowance under the Hyderabad Income-tax Act.     After giving our anxious consideration to the matter, we find  ourselves  unable  to accept the  submissions  of  Mr. Salve,  learned Counsel for the assessee. As pointed out  by us  earlier, it was frankly conceded by the learned  Counsel that unless we took the view that the decision of this Court in The Commissioner of Income Tax, Hyderabad v. Dewan  Baha- dur Ramgopal Mills Lid, was not good law or, at least,  that it needed reconsideration by a larger Bench, we must  follow that  decision and the appeal of the assessee must  be  dis- missed.  It is the undisputed position that the very  provi- sion  which is challenged before us was  earlier  challenged before a Constitution Bench of this Court in 17 the  aforementioned case and that challenge  was  negatived. The  mainplank of learned Counsel’s argument is that in  the case  of Straw Products Ltd. v. Income-tax Officer,  a  view has been taken which is inconsistent with the view taken  in The  Commissioner of Income-tax, Hyderabad v. Dewan  Bahadur Ramgopal  Mills  Ltd.  Now, in fact, we find  that  a  Bench comprising  seven learned Judges of this Court in this  case of  Straw Products Ltd. has considered the decision of  this Court in Dewan Bahadur Ramgopal Mills Ltd. and has  observed that  the case could be distinguished because in  that  case there was a difficulty which had, in fact, arisen and hence, it was necessary to issue the Removal of Difficulties Order, 1956.  The observations of this Court in that case (at  page 237  to  238 of the aforesaid Report) only  show  that  this Court  disapproved the interpretation given to the  decision in  the  case of Dewan Bahadur Ramgopal Mills  Ltd.  by  the Madhya Pradesh High Court, namely, that it was a matter  for subjective satisfaction of the Government to decide  whether a difficulty has arisen and it was not open to the Court  to investigate that question. It was pointed out that in  Dewan Bahadur  Ramgopal Mills Ltd. this 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. On a fair reading of the decision  in  the case  of Straw Products along with the decision in the  case of Dewan Bahadur Ramgopal Mills Ltd., it appears to us  that the  view taken in Straw Products Ltd., is that although  it is for the Government to subjectively satisfy itself that  a difficulty has arisen of the kind set out in those decisions

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before  an  order  can be issued under the  power  to  issue orders for removal of difficulties but that satisfaction  is not  conclusive  as suggested by the High  Court  of  Madhya Pradesh and it is the duty of the Court concerned to examine for  itself  whether there was a reasonable  basis  for  the Government  to have come to such a conclusion.  Anyway,  al- though  it is not for the Court to determine for  itself  in the first instance whether such a difficulty, as contemplat- ed,  had arisen, it is open to the Court to see whether  the Government had a sound basis to come to the conclusion  that such  a difficulty had arisen. The decision in the  case  of Straw  Products, therefore, in no way casts doubt the  deci- sion of this Court in Dewan Bahadur Ramgopal Mills Ltd.  The other case relied upon by Mr. Salve. namely, Madeva Sinai v, Union Of India has cast no doubt whatever on the decision of this  Court  in Dewan Bahadur Ramgopal Mills  Ltd.  but  the Court there took the view that the existence of a difficulty was  sine qua non for the exercise of the power in Clause  7 of  the  Taxation  Laws  (Extension  to  Union  Territories) (Removal of Difficulties) Regulation, 1963. 18     It is not disputed that the decision of the Constitution Bench  of this Court in the case of Dewan  Bahadur  Ramgopal Mills  Ltd. is binding on us. In the light of what  we  have discussed  earlier, we do not feel that it is  necessary  to direct  this  matter to be placed before a larger  Bench  so that  the  decision in Dewan Bahadur  Ramgopal  Mills  Ltd., could  be  reconsidered.  In  fact, in  the  case  of  Straw Products  a  larger Bench of this Court  did  consider  that decision  and  came to the conclusion that on the  facts  of that case the decision was correct. In view of this, we fail to  see how any useful purpose would be served by  referring this  appeal  to a larger Bench. Moreover, problems  of  the type  which  have arisen in these cases are  not  likely  to recur  hereafter  except very rarely. In view  of  this,  we would  prefer to follow the decision in The Commissioner  of Income-tax  Hyderabad v. Dewan Bahadur Ramgopal  Mills  Ltd. and the appeal of the assessee must stand dismissed.     Even  apart  from what we have stated in  the  foregoing paragraph,  we may point out that in the present  case,  the Saurashtra  Income-tax Ordinance was repealed by Section  13 of  the  Finance Act, 1950 and not by any provision  of  the Indian  Income-tax Act. As observed in the case of The  Com- missioner of Income Tax, Hyderabad v. Dewan Bahadur Ramgopal Mills  Ltd.  (at page 326) the basic and  normal  scheme  of depreciation  under  the Indian Income-tax Act  is  that  it decreases every year, being a percentage of the written down value  which  in the first year is the actual  cost  and  in succeeding years actual cost less all depreciation  actually allowed under the Indian Income-tax Act or any Act  repealed thereby,  etc.  In that case, an anomalous  situation  arose because the Hyderabad Income-tax Act was not repealed by the Indian  Income-tax  Act  but by the Finance  Act,  1950  and hence,  a  difficulty arose in allowing depreciation  to  an assessee  in  Part B State. In the present  case  also,  the Saurashtra Income-tax Ordinance having been repealed not  by the  Indian Income-tax Act but by Section 13 of the  Finance Act, 1950, a similar difficulty had come into existence, and hence we fail to see how it can be said that the  Government had no good basis to come to the conclusion that a difficul- ty had. in fact, arisen as contemplated in the case of Dewan Bahadur Ramgopal Mills Ltd.     In the result, the appeal fails and is dismissed. Howev- er,  considering  the facts and circumstances of  the  case, there will be no order as to costs.

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Y.L.                                            Appeal  dis- missed. 19