The words "actually allowed" in S. 10(5)(b) of the Act do not include any notional allowance.

Judgement

SIKRI, J.: This appeal by special leave is directed against the judgment of the High Court of Judicature at Bombay answering the following question against the appellant:

"Whether depreciation is allowable on the original cost of the various components of the Plant and Machinery and other assets of the company as acquired and used prior to 1-7-1953?

2. The relevant facts are these. We are concerned with the assessment year 1955-56 (accounting year being 1-4-1954 to 31-3-1955). The respondent, Dharampur Leather Company Ltd., Bombay, hereinafter referred to as the assessee company, was incorporated on 15-6-1943 as a private limited company, and later on 24-11-1949 it became a public limited company. On 1-8-1949 the Dharampur State merged with the Province of Bombay. Before its incorporation, the promoters of the assessee company had negotiated with the Ruler of Dharampur and secured from the Ruler total exemption from the State Income-tax of profits of the Company for a period of seven years from the commencement of its working. The factory commenced working from 15-6-1949. After the merger the assessee company applied to the Commissioner of Income-tax, Bombay, by its letter dated 22-6-1951 for relief under para 15 of the Merged states (Taxation Concessions) Order, 1949. The Commissioner of Income-tax communicated the decision of the Government in his letter dated 8-3-1952, to exempt the company from income-tax and super tax for a period of five years with effect from 1-4-1950. It was, however, stated that the shareholders of the company would be liable to pay tax on the amount of dividend received by them.

3. The Merged States (Taxation Concessions) Order, 1949, was issued by the Central Government in exercise of the powers conferred by S. 60A of the Indian Income-tax Act. 1922, hereinafter referred to as the Act, and S. 23A of the Business Profits Tax Act, 1947 Para 15 of the said order provides as follows:

"15(1) Where any industrial undertaking situate in a merged State claims that it has been granted any exemption from or concession in respect of income-tax, super-tax or business profits tax by the Ruler of the State before the 1st day of August, 1949, it shall submit an application to the Commissioner of Income-tax giving the following particulars.

1. Name of the Industrial undertaking.

2. Status (i.e. whether public or private company, firm, individual or Hindu undivided family).

3. Nature of business.

4. Date of commencement of the business.

5. Nature of the concessions granted.

6. Period for which concessions granted.

7. Unexpired period of the concessions from the 1st day of August 1949.

2. The application shall be accompanied by a copy of the orders of the State granting the concession or of the agreement with the State.

3. The Commissioner shall, after obtaining such other information as he may require forward the application to the Central Government which, having regard to all the circumstances of the case, may grant such relief, if any, as it thinks appropriate.

4. The assessee company contended before the Income-tax Officer in the course of the assessment proceedings for the assessment year 1955-56 that this being the first assessment year after it commenced working as a factory, no depreciation had in fact been actually allowed to the assessee in any earlier assessment year, and, therefore, the depreciation should be computed on the original cost of the various items of plant and machinery and other assets of the company. The Income-tax Officer, however, rejected this contention and held that depreciation must be computed on the written down values of machinery computed as if the income of the assessee had been worked out properly in the years when the company was exempted and the depreciation being allowed at the usual rates. The assessee failed before the Appellate Assistant Commissioner and the Appellate Tribunal. The Appellate Tribunal held that the words "actually allowed in S. 10(5)(b) of the Act were wi