Holding

The 1956 Explanation was within the Central Government’s power under Section 12 of the Finance Act, 1950, a difficulty had arisen, and depreciation must be computed on the basis of actual cost less depreciation actually allowed, so the appeal is dismissed.

Summary

Maharana Mills, a textile manufacturer in Saurashtra, challenged assessments for 1957-60 on the ground that the Central Government’s 1956 Explanation added to the 1950 Removal of Difficulties Order was ultra vires and that depreciation should be computed only on the basis of the actual depreciation actually allowed under the Saurashtra Income‑Tax Ordinance. The Supreme Court held that the Saurashtra Ordinance was repealed by the Finance Act, 1950, creating a genuine difficulty, and that the Explanation was validly issued under Section 12 of that Act. Accordingly, depreciation must be calculated on the basis of actual cost reduced by depreciation actually allowed, not on a notional basis, and the appeal was dismissed.

Issues considered

Whether the Explanation added by the Central Government to the 1950 Removal of Difficulties Order under Section 12 of the Finance Act, 1950, was ultra vires.
Whether a difficulty arose in giving effect to the Income‑Tax Act after the repeal of the Saurashtra Income‑Tax Ordinance.
Whether the term ‘depreciation actually allowed’ includes notional depreciation under the repealed Ordinance.
Whether the earlier decisions in Dewan Bahadur Ramgopal Mills and Straw Products affect the validity of the Explanation.

Legislation cited

Finance Act, 1950s. 12, s. 13
Income Tax Act, 1922s. 10(2)(vi), s. 10(5)(b), s. 12, s. 60A

Subjects

depreciationwritten down valueremoval of difficultiescentral government powerultra virespart B stateSaurashtraFinance Acttax law

Judgment

MAHARANA MILLS PVT. LTD.
A
v.
INCOME TAX TRIBUNAL, AHMEDABAD & ORS.
MAY 3, 1989
[R.S. PATHAK, CJ. AND M.H. KANIA, JJ.]
Income Tax Act 1922-Sections. I0(2)(vi) and 60A-Depreciation B
allowance and written ·down value-Computation of-Saurashtra
Income Tax Ordinance 1949-Effect of.

-~- The appellant-assessee is a company carrying on the business of
manufacturing and selling Textile at Porbunder (formely 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 C
of Porbunder 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, StateofSaurashtra became a part of the Union of
India as a Part 'B' State and thus the Income Tax Act, 1922 became appli- o
cable to the State of Saurashtra from 1st April 1950 under the Finance 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 E
the manner in which the aggregate depreciation allowance and written
down value were to be computed. On March 9, 1953, the Central Govern-
ment 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 F
the Central Government under Sec. 60A oftbe 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 notification
dated the 8th May, 1956 in exercise of its powers under Section 12 of the G
Finance Act 1950, whereby an Explanation 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 '!otilica-
tion dated 8th May, 1956 was upheld by this Court in The Commissioner
of Income-tax, Hyderabad v. Dewan Bahadur Ramgopal Mi/is Ltd.,
[1961] 2 SCR 318. On the appeal from the said decision of the High Court H .
I
2 SUPREME COURT REPORTS [1989] 3 S.C.R.
........
A of the Andhra Pradesh in Commissioner of Income-tax, Hyderabad v. I

D.B.R. Mills, [1956] 291.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
B receipt basis but in calculating the world income depreciation was taken
into consideration 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 'f'.ax 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
c assessee is that during the course of the assessment of its income, depre-
ciation 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 Saurashtra Income Tax Ordinance 1949. The respec-
tive written down values for the assessment years 1951-52 and 1952-53
D 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.
E
The assessee was not satisfied with this rectification. Its conten-
tion 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 com-
putation of the aggregate depreciation allowance on the basis of the
deduction which was actually allowed under the Saurashtra Income Tax
F
Ordinance, 1949. Regarding the explanation, the assessee contended
that it was ultra vires 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 con-
' G tended by the assessee before the Tribunal 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 instance of the assessee a
H reference was made to the Gujarat High Court in which the following
question was raised:
MAHARANA MILLS v. INCOME TAX TRIBUNAL, AHMEDABAD 3
~
"Whether on the facts and in the circumstances of the case,
the Tribunal wa~ justified in holding that the depreciation A
allowable and not 'actually allowed' under the Sauraslitra
Income-tax Ordinance, 1949, should be taken into account
in computing the aggregate depreciation allowance and
written down value under Sec. 10(2)(vi) of the Income Tax
~ Act 1922.'' · B

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 Expla-
~
~
nation and therefore answered the question against the assessee. There-
fore, the appellant filed Special Civil Application 1797 of 1972 in the
High Court,
r c
The Division Bench of the High Court in its judgment disposing of
the said special Civil Applicaiion pointed out that the decision of this
Court in the Commissioner of Incofl'l.e 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 D
of the arguments which did not rmd 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 .
.I.. The High Court further 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 diffi- E
culty 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 that
decision was good law and following the same, it dismissed the Special
Civil Application. Hence this appeal by the assessee .
• Jn this appeal the Explanation added by the Central Government ·. F
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 difficulty which had arisen in giving effect to the provisions of
the Indian Income Tax Act in the State of Saurashtra and hence the
pre'conditiim on which the Central Government was authorised to G
y make an Order under the Removal of Difficulties Order and add the
' Explanation in question .had never co!"e into existence and as sn_cl!.
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 H

'i'i,
4 SUPREME COURT REPORTS [1989) 3 S.C.R.

be allowed to be written off by way of depreciation, whether worked on
A 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 Ramgopa/
B 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 provision in the
Indian Income Tax Act. The basic and normal scheme of dwreciation
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
c actual cost and in succeeding years actual cost less all depreciation
actually allowed under the Income Tax Act or any Act repealed thereby
etc. [lSD-E)

Commissioner of Income Tax Hyderabad v. Dewan Bahadur
D 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
E difficulty had, in fact. arisen. [lSF-G)

Madeva Upendra Sinai v. Union of India & Ors., [1975) 98 I.T.R.
209.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 612
F (NT) of1975.

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.
G ~
V,S. Desai, M.B. Rao and Ms. A. Subhashini for the Res- '
pondents.

The Judgment of the Court was delivered by

H KANIA, J. This is an appeal from the judgment of a Division of
MAHARANAMILLS v. INCOME TAX TRIBUNAL, AHMEDABAD [KANIA, J.I 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 A
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 Porbundar in Saurash-
tra in the Gujarat State. Before 1948 Porbundar was a part of the B
Princely State of that name. No Income-Tax was levied by the erst-
while 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
Saurashtra 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 C
r-·
i Ordinance defined "written down value" as follows:

"'Written down value" means:

(a) in case of assets acquired in the previous year, the o
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 E
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 Finance Act, 1950. By Section 13 of the F
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 G
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 remov-
ing the difficulty."

In exercise of the powers conferred upon it by Section 12 of the H
6 SUPREME COURT REPORTS [1989] 3 S.C.R.

:.Tinancte ActL, 1950(,PthetCBenStral G)ov(eRrnment issufed ~fnf.order k)no wdn as
A
axa 100 aws ar tales emova o1 0 1
1 1cu Iles 0 r er,
~
1950". Clause (2) of the Order of 1950 reads as follows:

"Computation of aggregate depreciation allowance and the
written down value:
B
In making any assessment under the Indian Income- ~
tax Act, 1922, all depreciation actually allowed under any
laws or rules of a Part B State relating to Income-tax and
Super-tax or any law relating to tax on profits of business , 'fi.-'····
shall be taken into account in computing the aggregate A.,
depreciation allowance referred to in sub-clause (c) of the
c Proviso to Clause (vi) of sub-section (2) and the wrilten
down value under clause (b) of sub-section (5) of Section ~
10 of the s;i.id Act.

Provided that, where in respect of any asset, depreci-
D ation 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 Government on December ?<.
E 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: ·

F "For the purpose of this paragraph, the expression ';II ~·.
depreciation actually allowed under any laws or rules of a
Part B State' means and shall be deemed always to have
meant the aggregate allowan_ce for depreciation taken into
account in computing the wriifen down value under any
laws or rules of a Part B State or carried forward under the
G said laws or rules."

In Commissioner of Income-tax, Hyderabad v. D.B.R: Mills y·
Ltd., [1956] 29 LT.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
H decision of the High Court the Central Government issued a notifica-
MAHARANAMILLSv. INCOME TAX TRIBUNAL, AHMEDABAD [K.ANIA,J.) 7

tiou on 8th May, 1956 in exercise of the powers conferred upon it by
A
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 B
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 considera-
tion for arriving at the income outside British India. The assessee was
also assessed for assessment year 1949-50 under the Saurashtra
Income-tax Ordinance, 1949. From the assessment year 1950-51
onwards the assessee was assessed under the Indian Income-tax Act, C
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 asses- D
see'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 depreciation allowance given under the
Saurashtra Income-tax Ordinance, 1949. The respective written down
values. for assessment 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 jurisdiction
over the case of the petitioner, rectifit!d the calculations of deprecia-
tion 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 p
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 1945-
46 to 1948-49 the written down value was calculated after calculating
the depreciation allowance which would be allowable under the rules. G
For the assessment year 1949-50, the depreciation allowance as
calculated under the Suarashtra Income-tax Ordinance, 1954 was de-
ducted. For the assessment years 1950-51 to 1952-53, the depreciation
allowance actually 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 H
8 SUPREME COURT REPORTS [1989] 3 S.C.R.

Indian Income-tax Rules made under the Indian Income-tax Act. For
A the assessment years 1954-55 to 1956-57 the depreciation was calcu-
lated on the basis of the above rectification order. The contention of
the assessee is 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
B for computation of the aggregate depreciation allowance on the basis
of the deduction which was actually allowed under the provisions of
Saurashtra Income-tax Ordinance, 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
c Income-tax Appellate Tribuna\. For the assessment years 1957-58 and
1959-60 the assessee again contended before the Income-tax autho-
rities 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
D Court in The Commissioner of Income-tax, Hyderabad v. Dewan
Bahadur Ramgopal 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
E order dated April 16, 1969. From this decision of the Tribunal at the
instance of the assessee a reference was made to the Gujarat High
Court in which the following question was raised:

"Whether on the facts and in the circumstances of the case,
the Tribunal was justified in holding that the depreciation
F allowable and not 'actually allowed' under the Saurashtra
Income-tax Ordiance, 1949 should be taken into account in
computing the aggregate depreciation allowance and writ-
ten down value under Section 10(2)(vi) of the Income-tax
Act, 1922?"

G 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 tile' y
'
said Explanation and answered the question against the_ asses.5ee. There-
afater the assessee filed Special Civil Application No. 1797 <>f 1972 from
the decision wherein this appeal arises. In this Special Civil Applica-
H ti on the vires of the Explanation added by the Central Government by its
MAHARANA MILLS v. INCOME TAX TRIBUNAL, AHMED ABAD [KANIA, J.J 9

notification dated May 8, 1956 in exercise of the powers under Section
A
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 judg-
ment 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 B
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 C
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 con- D
sidered the decision of this Court in Dewan Bahadur Ramgopal Mills
Ltd., as binding and following the same dismissed the Special Civil
Application filed by the assessee.

Mr. Salve made two submissions before us. The first submission
made by him was the same as made on behalf of the assessee before E
the High Court, namely, that there was no difficulty 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
Difficulties Order and add the Explanation had never come into exis-
tence and hence adding of the Explanation was without any authority F
of law and invalid and no legal effect. The next submission urged by
Mr. Salve was that it is the fundamental scheme of the Indian Income-
tax 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 wa~s. It could be done by allowing a fixed percentage of the actual G
cosf to be deducted as 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 the
assessment year relevant to the previous year in which the asset was H
10 SUPREME COURT REPORTS [1989] 3 S.C.R.

acquired and thereafter giving the same percentage of the written
A
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 deprecia-
B tion allowance, the taxing authority can deduct only such amounts as
have been allowed earlier by way .of deduction. It was submitted by
him that this position was accepted 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
written down value of the capital asset of the assessee acquired prior
to 1949 would be determined by making deductions for depreciation
c 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 written 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 Govern-
D ment to enact such an Explanation. In order to examine this conten-
tion 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 computed in
E 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 busi-
ness, 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 voca-
F tion and Clause (vi) of the said sub-section provides for depreciation.
The rdevant 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 ordi-
G narily 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 y
percentage on the written down value thereof as may in any
case or class or cases be prescribed."

H The expression "written down value" as used in sub-section (2)
MAHARANAMILLSv. INCOMETAXTRIBUNAL,AHMEDABAD [KANIA,J.l 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 A
follows:

"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 B
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 assessee and brought into use for the
purposes of the business, profession or vocation after the
c

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 building been used D
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 E
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 F
became a Part B State, the respondent .company was assessed to
Income-tax under the Hyderabad Income-tax Act, under which depre-
ciation allowance was given to it on the basis of the wi:itten 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 comm- G
encement 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
calculated 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 commence-
ment of that Act and (ii) depreciation actually allowed to the assessee H
12 SUPREME COURT REPORTS [1989] 3 S.C.R.

on such assets for each financial year after the commencement of tlie
A
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 exten-
ded to that area; and, in exercise of the powers conferred by section 12
of the Finance Act, 1950, the Central Government issued a notification
B dated December 2, 1950, called the Taxation Laws (Part B States)
(Removal of Difficulties) Order, 1950. Paragraph 2 of the Order pro-
vided that "in making any assessment under the Indian Income-tax
Act, 1922, all depreciation actually allowed under any laws or rules of
a Part B State ........ 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
c Act".

For the assessment year 1951-52 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
D in respect of its assets by working out the value thereof at their incep-
tion 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, 1951, the Income-
tax Officer disallowed the respondent's claim on the ground that it was
against the principle inherent in granting depreciation allowance which
E 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

F
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 expression '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
G said laws or rules."

The respondent challenged the validity of the notification of 1956 and ·y
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 Con-
H stitution, and (3) that, in any case, it could have no retrospective
effect.
MAHARANA MILLS v. INCOME TAX TRIBUNAL, AHMEDABAD [KANIA, J.] 13

It was held by this Court that the true scope and effect of Section
A
12 of the Finance Act, 1950 was that it was for the Central Govern-
ment to determine if any difficulty of the nature indicated in the sec-
tion arises and then to make such order or give such direction, as
appeared to it to be necessary to remove the difficulty, the legislature
having left the matter to the executive.
B
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 depreciation allowance and the
written down value, an anomalous result would follow, namely, depre-
ciation allowance to be allowed to the assessee in the accounting year
under the Indian Income-tax Act would. be more than what was
' T'
I allowed in previous.years under the Hyderabad Income-tax Act. Con- c
sequently, 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 D
of Difficulties) Order, 1950, was applicable and created no unequal
treatment of persons in the like situation. Accordingly, the notification
did not contravene 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
tile notification dated May 8, 1956 under section 12 of the Finance Act,
1950 being issued which we have already set out earlier and went on to E
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 F
less all depreciation actually allowed under the Income-tax
Act or any Act repealed thereby etc. The Hyderabad
Income-tax Act not having been repealed by the Income-
tax 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 G
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 H
14 SUPREME COURT REPORTS [1989] 3 S.C.R.

case, namely, depreciation allowance to be allowed to the
?-
A
assessee in the accounting year under the Indian Income-
tax Act would be more than what was allowed in previous.
years under the Hyderabad Income-tax Act. This would
create a disparity and be against the scheme of the Indian
Income-tax Act. It was therefore necessary to explain
B paragraph 2 of the Removal of Difficulties Order, 1950, to ~
assimilate or harmonise the position regarding depreciation
allowance, anc:i the Explanation added in 1953 or 1956 was
obviously intended to remove the difficulty arising out of
that disparity or disharmony."
_,..
c It is not disputed that, if this decision is to followed, both the ..,.... I
contentions urged by the learned Counsel, Mr. Salve before us must be I

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 notific~tion in 1956 adding the
said Explanation to resolve the difficulty. The Court took the view
D 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
E reduced by the depreciation actually allowed but in respect of such
intervening years when there was no tax levied on income, deprecia-
tion 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 ~~
F 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 veiw of two later decisions of this Court which we
shall presently discuss. The first of the said two decisions cited by Mr.
G 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 Y·
majority comprising four learned Judges out of five comprising 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 Territories) (Removal of Difficulties) Order No.
H 2 of 1970 which was deemed to have come into force on !st April,
MAHARANA MILLS v. INCOME TAX TRIBUNAL, AHMED ABAD [KANIA, J.] 15

1963. In brief, this clause provided that in making any assessment
A
under the Indian Income-tax Act, 1961 all depreciation 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:

~I "Provided further that where in respect of any period, no B
depreciation was actually allowed under the local law or
the depreciation actually allowed cannot be ascertained,
depreciation in respect of that period shall be calculated 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
c
local law".

The majority judgment took the view that the existence or aris-
ing of a difficulty was the sine qua non for the exercise of the power
under Clause (7) of the Taxation Laws (Extension to Union Terri- D
tories) Regulation, 1963. The "difficulty" contemplated by that clause
had to be a difficulty arising "in giving effect to" the provisions of the
Act, etc., and not a difficulty arising aliunde or an extraneous diffi-
culty. 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 E
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 Cent.ml Government under Clause 7 of the 1963
Regulation and the Revenue was not entitled to lay tax on the basis of
the depreciation allowance computed in accordance with that proviso.
It was further held that the said second proviso to Clause (2) of the F
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".
It 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 G
"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. It
was held that the said sub-clause of the said Explanation was ultra vires H
16 SUPREME COURT REPORTS· [1989] 3 S.C.R.

the Central Government under Section 6 of the Taxation Laws (Exten- , , (':,:,
A
sion 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 entitled to levy tax on the basis of dep-
reciation allowance computed in accordance with sub-clause (b) of the
B saitl 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 (1\1erged States) (Removal of Difficulties) Order, 1949
and the notification under Sectin 60A of the Income-tax Act, deprecia-
tion taken into account in assessing the income of an assessee arising
from carrying on business, and does not mean depreciation merely
c 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
D, the existence of a difficulty arising in givil!g 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 difficulty a matter of subjective
satisfaction of the Government: it is a condition precedent to the exer-
cise of power, and existence of the condition, if challenged, must be ,\
established as an objective fact. It may be mentioned that the decision
E in the case of The Commissioner of Income-tax, Hyderabad v. Dewan
Bahadur Ramgopal Mills Ltd., was noticed and discussed in this judg-
ment 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 Explana-
tion a difficulty would have arisen insofar as the depreciation
allowance allowed to assessee under the Indian Income-tax Act would
F have been more than the depreciation allowance under the Hyderabad
Jncome-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
G conceded by the learned Counsel that unless we took the view that the
decision of this Court in The Commissioner of Income Tax, Hyderabad -j>-:;,,
(I~ .. :;;:
v, Dewan Bahadur Ramgopal Mills Ltd, was not good law or, at least,
!hat it needed reconsideration by a larger Bench, we must follow that
decision and the appeal of the assessee must be dismissed, It is the
undisputed position that the very provision which is challenged before
H us was earlier challenged before a Constitution Bench of this Court in
MAHARANAMILLS v. INCOME TAX TRIBUNAL, AHMEDABAD [KANIA, J.] 17

~~·-·-" the aforementiioned case and that challenge was negatived. The main-
A
plank of learned Counsel's argument is that in the case of Straw Pro-
ducts Ltd. v. Income-tax Officer, a view has been taken which is incon-
sistent with the view taken in The Commissioner of Income-tax,
Hyderabad v. Dewan Bahadur Ramgopa/ 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 B
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
....
-1
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
f Dewan Bahadur Ramgopal Mills Ltd. by the Madhya Pradesh High c
• 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 D
for removing the difficulty, the Order of 1956 was issued. On a fair
reading of the decision in the case of Straw Produc.ts 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 before an E
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 con-
cerned to examine for itself whether there was a reasonable basis for
the Government to have come to such a conclusion. Anyway~ although
it is not for the Court to determine for itself in the first instance F
whether such a difficulty, as contemplated, 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 decision 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 G
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 1 ·of the Taxation Laws (Extension to Union Territories)
(Removal of Difficulties) Regulation, 1963.
H
18 SUPREME COURT REPORTS [1989] 3 S.C.R.

A It is not disputed that the decision of the Constitution Bench of
this Court in the case of Dewan Bahadur Ramgopal Mills Ltd. is bind-
ing 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 Ramgopa/ Mills Ltd.,
could be reconsidered. In fact, in the case of Straw Products a larger
B
Bench of this Court did consider that decision and came to the con-
clusion 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
C 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
D 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 Commissioner 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
E 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 situa-
tion 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.
F 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 difficulty had, in fact,
arisen as contemplated in the case of.Dewan Bahadur Ramgopal Mills
G Ltd.

In the result, the appeal fails and is dismissed. However, con-
sidering the facts and circumstances of the case, there will be no order
as to costs.
H Appeal dismissed.
Y.L.