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SUPREME COURT OF INDIA
K.N. WANCHOO C.J.I., M. HIDAYATULLAH, J.C. SHAH, R.S. BACHAWAT, V. RAMASWAMI, G.K. MITTER AND K.S. HEGDE, JJ.
Straw Products Ltd., Appellant
Versus
Income-tax Officer A Ward Bhopal and others, Respondents. Attorney General for India (By Notice).
Civil Appeal No. 303 of 1967,
D/- 20-10-1967.
Advocates Appeared
M/s. A. K. Sen and H. R. Gokhale, Senior Advocates, (M/s. Rameshwar Nath and Mahinder Narain, Advocates of 580 M/s. Rajinder Narain and Co. with them), for Appellant; Mr. Niren De, Additional Solicitor General of India, and Mr. G. R. Rajagopaul, Senior Advocate, (M/s. R. Ganapathy Iyer and R. N. Sachthey, Advocates with them), for Respondents; Mr. Niren De, Additional Solicitor General of India, (Mr. R. N. Sachthey, Advocate, with him), for Attorney General for India.
Sub clause (b) of the Explanation added to clause 2 of the Taxation Laws (Merged States) 'Removal of Difficulties' Order, 1962, is ultra vires the Central Government and invalid 1967 JLJ 680 REVERSED, [Paras 10 & 21
(2) Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949 - Para 2, Expln. - "depreciation 'actually allowed' - meaning of.
The expression "all depreciation actually allowed under the laws or rules of a Merged State" in paragraph 2 of the 1949 Order could not be given an artificial meaning. It did not mean depreciation allowable under the provisions of any law or rules, it con notated an idea that the allowance was actually given. 1966 JLJ 520 (SC) followed. [Paras 11 & 13
(3) Interpretation of Statutes - powers given by a statue of the Government to remove difficulties - mode of exercise - what is 'difficulty'.
Where a statute gives powers to the Government to make orders to remove difficulties, the power is to be exercised by making provisions or giving directions as may appear to be necessary for removal of difficulties and no more. [Para 12
The existence of the difficulty is a condition precedent for the exercise of such power and if challenged must be established as an objective fact. [Para 14
Refusal of Courts to accept a contention arising contrary to the plain word of the statute cannot be regarded as difficulty arising in giving effect to the provision of an Act. [Para 16
(4) Income-tax Act 1922 - S 10 (2) (iv) - Notification under section 60 A expression - 'depreciation, actually allowed' - meaning of.
The expression 'depreciation actually allowed' can notes under section 10 (2) (iv) of the Income-tax Act, under clause (2) of the Removal of Difficulties Order, 1949 and the notification under section 60-A of the Income-tax Act, depreciation taken into account in assessing the income of an assessee arising from carrying on business and does not mean depreciation merely allowable or applicable under the taxing statute, 1966 JLJ 520 (SC) & (1966) 2 SCR 859 followed. 17 ITR 130 & 43 ITR 526 approved. [Para 13
(5) Taxation Laws (Extension to Merged States and Amendment) Act, 1949 - S. 6 - power to remove difficulty by order or direction - existence of difficulty is a pre-requisite condition - when its existence challenged should be established as an objective fact - Central Government not the sole Judge and its existence is not a subjective matter - no difficulty shown to exist - the Removal of Difficulties Order, 1962, ultra vires and invalid.
The power to remove difficulties given in section 6 of the 1949 Act is to be exercised by making provisions or giving directions as may appear to be necessary for removal of difficulties and no more. [Para 13
The exercise of this power is conditioned by the existence of a difficulty arising in giving effect to the provisions of any Act, Rule or Order The section does not make the arising of the difficulty a matter of subjective satisfaction of the Government, it is a condition precedent to the exercise of power and existence of condition if challenged must be established as an objective fact. [Para 14
The refusal of the Courts to accept a contention raised on behalf of the Revenue arising contrary to the plain words of the statute cannot be regarded as a difficulty arising in giving effect to the provisions of an Act. The difficulty contemplated by the order is not merely the inability of the Central Government to collect tax which the tax payer could, in the view of the Government, have been made to pay but which have not been imposed by adequate legislations. [Para 16
There was no difficulty which was sought to be removed by the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1962, and the order is thus ultra vires the Central Government when exercising the power under section 6 of the 1949 Act (1968) 2 SCR 318 explained. 1967 JLJ 680 REVERSED. [Para 21
Judgement
SHAH, J. : This case is a sequel to the judgment pronounced by this Court on December 3, 1965: Commissioner of Income-tax, Madhya Pradesh v. Straw Products Ltd., 1966-2 SCR 881
2. The assessee was incorporated in August, 1935 with its Head Office in the Indian State of Bhopal, and commenced business as a manufacturer of wrapping paper in 1939. The assessee entered into an agreement with the Ruler of Bhopal under which the assessee was exempted from payment of all taxes to the State for a period of ten years expiring on October 31, 1948.
3. The State of Bhopal merged with India on August 1, 1949. The territory was constituted into a Chief Commissioner s Province, and was later merged with the State of Madhya Pradesh under the States Reorganization Act, 1956. The Governor-General of India issued the "Taxation Laws (Extension to Merged States) Ordinance" 21 of 1949 to make certain taxation laws applicable to the merged States. By C1. 3 of the Ordinance, amongst other Acts, the Indian Income-tax Act, 1922 and all the orders and rules issued thereunder were extended to the merged States, and by Cl. 7 the corresponding laws in force in the merged States were repealed. By Cl. 8 the Central Government was invested with the power to make provisions or give directions, which appeared to the Government to be necessary, for removing any difficulty arising in giving effect to the provisions of the Ordinance.
4. Ordinance 21 of 1949 was repealed and replaced by the "Taxation Laws (Extension to Merged States and Amendment) Act" 67 of 1949. Section 3 of the Act extended with effect from April 1, 1949, to the merged States, amongst other Acts, the Indian Income-tax Act and the orders and rules made thereunder, and by S. 7 the laws in force in the merged States corresponding to the Acts mentioned in S. 3 stood repealed. Section 6 provided :
"If any difficulty arises in giving effect to the provisions of any Act, rule or order extended by Section 3 to the merged States, the Central Government may, by order, make such provisions or give such directions as appear to it to be necessary for removal of the difficulty."
5. The relevant provisions of the Indian Income-tax Act 1922 which have a bearing on the determination of depreciation in respect of buildings, machinery, plant and furniture used by the assessee in carrying on business were these :
S. 10. "(1) The tax shall be payable by an assessee under the head Profits and gains of business, profession or vocation in respect of the profit or gains of any business, profession or vocation, carried on by him.
(2) Such profits or gains shall be computed after making the following allowances, namely :-
* * * * *
(vi) 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 ordinarily 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 percentage on the written down value thereof as may in any case or class of cases be prescribed * * *
"Provided that-
(a) * * * * *
(b) * * * * *
(c) the aggregate of all such allowances made under this Act or any Act repealed hereby, or under the Indian Income-tax Act, 1886, shall, in no case, exceed the original cost to the assessee of the buildings, machinery, plant, or furniture, as the case may be;"
6. The expression "written down value" was defined in S. 10 (5) which in so far as it is material provided :
"In sub-section (2) * * * written down value means-
(a) in the case of assets acquired in the previous year, the actual cost to the assessee:
Provided * * * *
(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 any Act repealed thereby or under executive orders issued when the Indian Income-tax Act 1886, was in force:
Provided * * * * *"
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