The depreciation allowed under the Industrial Tax Rules cannot be taken into account for the purpose of computing the written down value under S. 10 (5) (b) of the Income-tax Act, 1922.

Judgment

RAMASWAMI, J. : These five appeals consolidated by an order of the Bombay High Court arise out of a Reference made by the Income-tax Appellate Tribunal, Bombay Bench A on January 2, 1959 and decided by the Bombay High Court on September 22, 1962. The High Court granted certificates to appeal against its judgement under S. 66-A of the Income-tax Act, 1922 to both the Commissioner of Income-tax, (Central) Bombay and the assessee. Civil Appeals Nos. 411 to 413 of 1965 are brought on behalf of the assessee and Civil Appeals Nos. 414 and 415 of 1965 are brought on behalf of the Commissioner of Income-tax (Central) Bombay.

2. Hukumchand Mills Ltd. (hereinafter referred to as the assessee ) is a public company incorporated in the previous Indore State. The assessee owns a textile mill there. Up to the assessment year 1949-50 it was being assessed in British India as a non-resident (except in 1948-49 when it was assessed as a resident) on such income as fell within S. 4 (1) (a) or 4 (1) (c) read with S. 42 of the Income-tax Act, 1922 (hereinafter referred to as the Act ). After the Constitution came into force, Indore became a Part B State and the Act was brought into force in such States with effect from April 1, 1950. The assessee therefore became liable to be assessed as a resident from the assessment year 1950-51.

3. The assessee was accordingly assessed as a resident in the years1950-51, 1951-52 and 1952-53. One of the questions which arose for determination in the assessments for these years was the proper written down value of the buildings, machinery etc.of the assessee for calculating the depreciation allowance under S. 10 (2) (vi) of the Act. The assessee relied upon S. 10 (5) (b) and contended that the original cost of the machinery, buildings etc. should be taken for this purpose. That sub-clause provided that in the case of assets acquired before the previous year the written down value was the actual cost less all depreciation actually allowed to the assessee under the Act or any Act repealed thereby. But as no depreciation had been actually allowed under the Act, the assessee contended that the original cost should be taken as the basis of allowing depreciation without taking into consideration the number of years during which the machinery had been working or the depreciation it had suffered or the written down value entered in the books. The case of the Department, on the contrary, was that it was necessary to determine the total income of the assessee to arrive at the taxable proportionate income of the assessee under the Act as a non-resident and as depreciation had been allowed to arrive at such total income, the same must be taken into account to arrive at the written down value as it had been actually allowed with in the meaning of S. 10 (5) (b). The Income-tax Officer and the Appellate Assistant Commissioner rejected the contention of the assesses but the Tribunal, by its order dated October 8, 1958 held that only that part of the depreciation which entered into the computation of the taxable income of the assesses under the Act can be treated as depreciation actually allowed and not the total depreciation which went into the computation of the total income.

4. It was urged before the Tribunal by the Department that although the Income-tax Officer had not considered the provisions of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 (hereinafter referred to as the ( Taxation Laws Order ), the said provisions were applicable in the present case and certain amounts of depreciation which are allowed under the industrial Tax Rules, which had the force of law in the Indore State, were required to be deducted in arriving at the written down value of the assets of the assessee. The Tribunal permitted this contention to be raised by the Department. It was pointed out on behalf of the assessee that the contention could not be entertained unless it was found as a fact that