Alagiriswami, J. - (1.) These matters have been argued twice, once by Mr. K. Sen on behalf of the petitioners in W. P. Nos. 112, 391-394 of 1971 and again by Mr. N. A. Palkhiwala on behalf of the petitioners in W. P. Nos. 330-331 and 382-387 of 1974. The question that arises in all these petitions is the constitutional validity of the Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Order 2 of 1970 issued under clause 7 of the Taxation Laws (Extension to Union Territories) Regular 1963 by which the Indian Income Tax Act war extended, with certain amendments, to the Union Territories of Goa, Deman and Diu with effect from April 1, 1963. Clause 7 of that Regulation, which is relevant for our purposes, reads as follows:"7. If any difficulty arises in giving effect in any Union Territory to the visions of any Act, or of any rule, notification or order made or issued thereunder, the Central Government may, by general or special order published in the Official Gazette, make such provisions or give such directions as appear to it to be expedient or necessary for the removal of the difficulty."
(2.) Under the law in force in the former portuguese territories of Goa, Daman and Diu income-tax was levied at a certain percentage of the gross receipts of an assessee. No allow in the nature of depreciation was permitted m computing the gross income. Under CL (ii) of Section 32 (1) of the Indian Income Tax Act, 1961 depreciation is allowed in the case of buildings, machinery, plant or furniture at such percentage on the written down value thereof as may be prescribed. Written down value is defined in Section 43 (6) as follows: (6) "Written down value" means (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income Tax Act, 1922 (XI of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax" Act, 1886 (II of 1886), was in force: - (Proviso omitted) -" It would be noticed at once that even if depreciation was allowable under the Portuguese Income-tax Law, when it was in force in the former Portuguese territories, clause (b) above will not apply as that law was not repealed by the Indian Income Tax Act, 1961 or the Indian Income Tax Act, 1822 or any Act repealed by that Act or under any executive orders issued when the Indian Income Tax Act 1886 was in force. As was pointed out by this Court in its decisions in Commr. of Income-tax Hyderabad v. Dewan Bahadur Ramgopal Mills Ltd., (1961) 2 SCR 318 and the Straw Products Ltd. v. I. T. O. A. Ward. Bhopal, (1968) 2 SCR 1 , this is one difficulty to remove which a Difficulties Removal Order would have had to be issued. When we put the question of Mr. Palkhivala as to what would happen if such an order to remove difficulties was not issued, he maintained that even so the assessees in these cases would have been entitled to the benefit of clause (b). I am not sure that he is right but it is unnecessary to decide that question.
(3.) Be that as it may, I shall now discuss the question based on the relevant provisions of law. Clause (a) deals with a case of the acquisition of the assets in the previous year, in which case the actual cost is itself taken as the written down value. In the case of the assets acquired before the previous year the actual cost less all depreciation actually allowed is the written down value. Now what happens if under the law applicable to the territory in question no depreciation was allowable at all It stands to reason and commonsense that in such a case the written down value of the asset in question on the date the Indian Income Tax Act 1961 becomes applicable to that territory should be related to realities and not be wholly unrelated to them or notional. The provisions regarding written down value and allowance of depreciation under the Indian Income-tax Law proceeds on the basis of depreciation allowed year by year with the result that the written down value goes down year after year and similarly the depreciation, as was pointed out by this Court in Ramgopal Mills case (supra) in the following words: "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." If, therefore, because there was no provision under the Income-tax law applying to the former Portuguese territories providing for depreciation the written down value of an asset is taken as the actual cost even after many years of its acquition it would mean putting the in those territories at an advantage compared to the assessees in the rest of India More important, it assessees would not accord with realities and would not be in accordance with the scheme of depreciation under the Indian Income Tax Act. It is, therefore, necessary to devise some method by which both can be put on the same footing and the normal scheme of depreciation under the Indian Income Tax Act made applicable to them. It cannot be argued that a certain plant and machinery purchased 10 years earlier and now worth half its original value should still be taken to be worth its original cost and depreciation allowed on that basis. It is not as though such a problem arises for the first time. In the case dealt with in the Ramgopal Mills case (1961) 2 SCR 318 the Hyderabad Income Tax Act, which was applicable to the case before the Indian Income Tax Act was extended to the Hyderabad area, had come into force in 1357-F and had been in force for three years. In the assessment for those three years depreciation allowance was given to it on the basis of the written down value of its assets in accordance with the provisions of clause (c) of Sec. 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 assesses 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. Now this is exactly what is proposed to be done in the case of the former Portuguese territories by the impugned order.;