S. K. Das, J. -
(1.)This is an appeal on a certificate of fitness granted by the High Court of Judicature at Hyderabad under S. 66A (2) of the Indian Income-tax Act, 1922. The Commissioner of Income-tax, Hyderabad, is the appellant before us. The respondent is Dewan Bahadur Ramgopal Mills Ltd., a public limited company incorporated in the erstwhile State of Hyderabad.
(2.)The respondent company was assessed under the Hyderabad Income-tax Act in respect of the assessment years 1357F, 1358F and 1359F. In the assessment for those years depreciation allowance was given to it on the basis of written down value of its assets, such as buildings, machinery, plant, etc., in accordance with the provisions of cl. (c) of S. 12 (5) of the Hyderabad Income-tax Act. That clause 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 calculated on the actual cost 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 the Act, and (ii) depreciation actually allowed to the assessee on such assets for each financial year after the commencement of the Act. The erstwhile State of Hyderabad merged in the Union of India on January 26, 1950 and became a Part B State. The Finance Act, 1950, by S. 13 thereof repealed the taxation laws in force in Part B States except for certain purposes not relevant to this case, and by S. 3 extended the Indian Income-tax Act, 1922, to the whole of India except the State of Jammu and Kashmir. In exercise of the powers conferred by S. 12 of the Finance Act, 1950, the Central Government was pleased to make the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 (hereinafter referred to as the Removal of Difficulties Order, 1950), by a notification dated December 2, 1950. Paragraph 2 of the said Order, in so far as it is relevant to this case, was in these terms:
"Computation of aggregate depreciation allowance and written down value:
In making any assessment under the Indian Income-tax Act, 1922, all depreciation actually allowed under any laws or rules of a Part B State relating to Income-tax and Super-tax, or any law relating to tax on profits of business, shall be taken into account in computing the aggregate depreciation allowance referred to in sub-clause (c) of the proviso to cl. (vi) of sub-sec. (2) and the written down value under cl (b) of sub-sec. (5) of S. 10 of the said Act."
For the assessment year 1951-52 which was in respect of the account year ending June 30, 1950, the respondent was assessed for the first time under the Indian Income-tax Act, 1922, read with paragraph 5 of the Part B States (Taxation Concessions) Order, 1950. Basing its claim on paragraph 2 of the Removal of Difficulties Order, 1950, the respondent asked for depreciation allowance in respect of its assets such as buildings, machinery, plant, etc., to the tune of Rs. 8,12,244. It worked out the value of the assets at their inception and deducted therefrom such depreciation as was allowed for the three assessment years in which the respondent was assessed under the Hyderabad Income-tax Act and calculating the written down value in that manner, it claimed depreciation according to the prescribed rates. By his order dated November 30, 1951, the Income-tax Officer disallowed this claim. He held that the claim of the respondent was against the principle inherent in granting depreciation allowance which must decrease from year to year, and further held that the word "allowed" in paragraph 2 of the Removal of Difficulties Order, 1950, should be construed as meaning "considered" only. Accordingly, he took the figures of the written down value from the income-tax proceedings of 1359F and allowed depreciation at the prescribed rate on those figures. Against the order of the Income-tax Officer, the respondent went in appeal to the Appellate Assistant Commissioner, Hyderabad Division. That Officer by an order dated May 23, 1952, upheld the view of the Income-tax Officer and dismissed the appeal. Then there was an appeal to the Income-tax Appellate Tribunal which was heard by the Bombay Bench of the said Tribunal. By its order dated December 12, 1952, the Appellate Tribunal held that in view of the provisions in paragraph 2 of the Removal of Difficulties Order, 1950, the contention of the respondent must prevail, and it pointed out that the words used paragraph 2 were "depreciation actually allowed under any laws or rules of a Part B State", and those words did not mean the aggregate allowance for depreciation taken into account in computing the written down value under the Hyderabad Act; therefore, the respondent was entitled to the depreciation allowance which it claimed. It directed the Income-tax Officer to compute the written down value on the basis of the actual cost to assessee of the assets in question minus the depreciation allowance actually allowed to the assessee under the Hyderabad Income-tax Act. The appellant herein then moved the Appellate Tribunal for a reference to the High Court under S. 66 (1) of the India Income-tax Act. In the meantime, that is, on March 9, 1953, the Central Government purporting to exercise its powers conferred by S. 60A of the Indian Income-tax Act, 1922, added an Explanation to paragraph 2 of the Removal of Difficulties Order, 1950. That Explanation said:
"Explanation-For the purpose of this paragraph the expression "all depreciation actually allowed under any laws 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 Explanation in terms gave effect to the contention urged on behalf of the Department and said that what has to be allowed is the aggregate allowance for depreciation taken into account in computing the written down value under any law or rules of a Part B State. In support of the application for a reference, the appellant relied on the aforesaid Explanation and contended that in view of the Explanation the respondent could not claim depreciation allowance on the basis of actual cost minus the depreciation allowances actually allowed under the Hyderabad Income-tax Act. On this application the Tribunal expressed the view that if the Explanation applied to the case on hand, then the contention of the Department was correct and must be upheld. It said, however, that it had no power to review its own order and, therefore, considered it unnecessary to express any opinion whether the Explanation was valid and affected the case before it. It said finally that the following question of law did arise out of its order and accordingly stated a case thereon:
"Whether in making the assessment for the year 1951-52 under the Indian Income-tax Act is the assessee company entitled to claim depreciation allowance on the basis of the written down value computed at the time of the assessment for the year 1359F, or is to be computed on the basis of the actual cost minus the depreciation allowances granted under the Hyderabad Income-tax Act."
(3.)The reference was then heard by the High Court of Judicature at Hyderabad which by its order dated February 16, 1954, held that the Explanation added to paragraph 2 of the Removal of Difficulties Order, 1950, by the notification dated March 9, 1953, was void on certain grounds one of which was that the Explanation was ultra vires the powers of the Central Government under S. 60A of the Indian Income-tax Act. Therefore, it answered the question in favour of the respondent. The appellant then obtained the necessary certificate of fitness and preferred the present appeal.