{"id":8095,"date":"1967-10-20T00:00:00","date_gmt":"1967-10-19T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/straw-products-ltd-vs-income-tax-officer-bhopal-ors-on-20-october-1967"},"modified":"2018-06-11T11:20:07","modified_gmt":"2018-06-11T05:50:07","slug":"straw-products-ltd-vs-income-tax-officer-bhopal-ors-on-20-october-1967","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/straw-products-ltd-vs-income-tax-officer-bhopal-ors-on-20-october-1967","title":{"rendered":"Straw Products Ltd vs Income-Tax Officer, Bhopal & Ors on 20 October, 1967"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Straw Products Ltd vs Income-Tax Officer, Bhopal & Ors on 20 October, 1967<\/div>\n
Equivalent citations: 1968 AIR 579, \t\t 1968 SCR (2)\t 1<\/div>\n
Author: S C.<\/div>\n
Bench: Wanchoo, K.N. (Cj), Hidayatullah, M., Shah, J.C., Bachawat, R.S. & Ramaswami, V., Mitter, G.K. & Hegde, K.S.<\/div>\n
           PETITIONER:\nSTRAW PRODUCTS LTD.\n\n\tVs.\n\nRESPONDENT:\nINCOME-TAX OFFICER, BHOPAL & ORS.\n\nDATE OF JUDGMENT:\n20\/10\/1967\n\nBENCH:\nSHAH, J.C.\nBENCH:\nSHAH, J.C.\nWANCHOO, K.N. (CJ)\nHIDAYATULLAH, M.\nBACHAWAT, R.S.\nRAMASWAMI, V.\nMITTER, G.K.\nHEGDE, K.S.\n\nCITATION<\/a>:\n 1968 AIR  579\t\t  1968 SCR  (2)\t  1\n CITATOR INFO :\n R\t    1975 SC 797\t (27,29,31,40,41,42,48,50,53,56\n E&R\t    1989 SC1719\t (6,7,8,17,18,19)\n\n\nACT:\nTaxation Laws (Extension to Merged States and Amendment) Act\n67  of 1949, s. 6-Power given to Central Government to\tpays\nappropriate  orders in order to remove difficulties  in\t the\napplication  of\t the Indian Income-tax Act, 1922  to  merged\nStates-Nature\t of   difficulties   which   justify\tsuch\norder--Taxation\t Laws (Merged States) (Removal of  Difficul-\nties)  Amendment Order, 1962--Order prescribing that in\t the\ncase  of  assessees  exempted  from paying  tax\t by  law  or\nagreement  in merged States notional depreciation on  assets\nto  be taken into account in computing written\tdown  value-\nValidity of Order.\n\n\n\nHEADNOTE:\nThe appellant company was formed in 1937 in Bhopal State and\nwas exempted by the Ruler of that State from payment of\t all\ntaxes  till  October 31, 1948.\tThe State of  Bhopal  merged\nwith India on August 1, 1949.  Ordinance 21 of 1949 and\t the\n\"Taxation  Laws (Extension to Merged States  and  Amendment)\nAct\"  67  of  1949  which replaced  it\thad  the  effect  of\nextending  the\tIndian Income-tax Act, 1922  to\t the  merged\nStates.\t at the same time repealing the corresponding  State\nlaws.\t Under\tthe  Ordinance\tand  the  Act  the   Central\nGovernment  was\t given power to pass appropriate  orders  to\nremove difficulties in the application\tof the Indian Act to\nthe merged States.\nThe \"Taxation Laws (Merged States) (Removal of Difficulties)\nOrder, 1949 provided that in making any assessment under the\nIndian\tIncome-tax  Act,  1922\tall  depreciation   actually\nallowed\t under any laws or rules of a merged State  relating\nto  income-tax and super-tax shall be taken into account  in\ncomputing the depreciation allowance under s. 10(2) (vi) (c)\nand the written down value under s. 10(5) (b) of the  Indian\nIncome-tax  Act.   In  1962 another such  Order\t was  passed\nnamely\tthe  \"Taxation\tLaws  (Merged  States)\t(Removal  of\nDifficulties)\tAmendment   Order,  1962.    It\t  added\t  an\nExplanation  to\t the Removal of\t Difficulties  Order,  1949.\nClause\t(b) of the Explanation provided that in cases  where\nincome\thad been, exempted from tax under any laws or  rules\nill  force in a merged State or under any agreement  with  a\nRuler, the depreciation that would have been allowed had the\nincome\tnot  been  so exempted shall be\t deemed\t to  be\t the\ndepreciation \"actually allowed\" for the purpose of computing\ndepreciation  allowance\t and written down  value.   For\t the\nassessment  year  1949-50 the depreciation  allowed  to\t the\nappellant company was taken as a percentage of the  original\ncost  of  its assets and in the four  subsequent  years\t the\nwritten\t down  value of the assets was\tdetermined  on\tthat\nfooting.   However,  the  Income-tax  Officer  after  giving\nnotice\tunder  s. 34 recomputed the taxable  income  on\t the\nfooting\t that  since the commencement of  the  business\t the\nassessee  must\tbe deemed nationally to\t have  been  allowed\ndepreciation   under  the  Bhopal  Income-tax  Act.    These\nassessments were challenged by the appellant company  before\nthe  appropriate authorities under the Act but by  the\ttime\nanneal\twas  heard before the Supreme Court the\t Removal  of\nDifficulties Order, 1962  had been  passed.   Following\t the\ndecision  in K. S. Venkataraman & Co. (P) Ltd. v.  State  of\nMadras,<\/a> [1966] 2 S.C.R. 229, the Supreme Court\t   did\t not\nentertain   the\t argument  as to the validity  of  the\t1962\nOrder.\tThe\n2\nappellant company then filed a writ petition under Art.\t 226\nof the Constitution.  The High Court dismissed the petition,\nand the company appeald to this Court by certificate.\nHELD  : (i) Exercise of the power to make provisions  or  to\nissue  directions  as may appear necessary  to\tthe  Central\nGovernment  is conditioned by the existence of a  difficulty\narising\t in giving effect to the provisions of any, rule  or\norder.\t Section  6  of Act 67 of 1949\tdoes  not  make\t the\narising\t  of   the  difficulty\ta   matter   of\t  subjective\nsatisfaction of the Government; it is a condition  precedent\nto  the exercise of power and existence of the condition  if\nchallenged must be established as an objective fact.\nCommissioner  of  Income-tax,  Hyderabad  v.  Dewan  Bahadur\nRamgopal Mills Ltd,.<\/a>[1961] 2 S.C.R. 318, explained. [10-C].\n(ii) The  impungned order sought, in purported\texercise  of\nthe  power under s. 6, to remove a difficulty which had\t not\narisen.\t  The  fact  that  Courts  had\tnot  accepted\tthe-\ncontention  of the department that notional  Computation  of\ndepreciation  should be allowed in cases where the  assessee\nhad been exempt from tax in a merged State, was not the kind\nof difficulty for the removal of which the power under s.  6\ncould be used.It  was also impossible on the words used\t in\ns. 10(5) cl. (b) read withthe  1949 Order to  hold  that\nthe written down value of the assets ofthe  assessee  in  a\nmerged State could not be determined. [11H; 12G-H]\nThe  1962  Order  was invalid because  no  \"difficulty\"\t was\nproved to have arisen justifying the invocation of the power\nunder s. 6 of Act67 of 1949.\nCommissioner of Income-tax, Madhya Pradesh v. Strew Products\nLtd., [1966] 2 S.C.R. 881, K. S. Venkataraman & Co. (P) Ltd.\nv.  State  of Madras,<\/a> [1966] 2 S.C.R. 229,  Commissioner  of\nIncome-tax,  Bombay  V. Dharampur Leather  Cloth  Co.  Ltd.,<\/a>\n(19661\t2 S.C.R. 859, Commissioner of Imcome-tax, v.  Kamala\nmills\tLtd,.  (1949)  17   17\tI.T.R.\t130   and   Venkadam\nLakshminarayana\t  v.  Commissioner  of\tIncome-tax,   Andhra\nPradesh , (1961) 43 I.T.R. 526. referred to.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 303 of 1967.
\nAppeal\tfrom the judgment and order dated April 4,  1966  of
\nthe  Madhya Pradesh High Court in Misc.\t Petition No.  4  of
\n1966.\n<\/p>\n
A.K.  Sen,  H. R. Gokhala, Rameshwar  Nath  and\t Mahindar
\nNarain, for the appellant.\n<\/p>\n
Niren  De,  Addl.  Solicitor-General, G.  R.  Rajagopal,  R.
\nGanapathy Iyer and R. N. Sachthey, for the respondents.
\nNiren  De, Addl.  Solicitor-General and R. N. Sachthey,\t for
\nthe Attorny-General for India.\n<\/p>\n
The Judgment of the Court was delivered by
\nShah, J. This case is a sequel to the judgment pronounced by
\nthis  Court  on December 3, 1965 : Commissioner\t of  Income-
\nlay,. Madhya Pradesh v. Stravv Products Ltd.(1).
\n(1)[1966] 2 S.C.R. 881.\n<\/p>\n
3<\/span><\/p>\n
The  assessee was incorporated in August 1935 with its\tHead
\nOffice in the Indian Stale of Bhopal, and commenced business
\nas  a manufacturer of wrapping paper in 1939.  The  assessee
\nentered\t into  an agreement with the Ruler of  Bhopal  under
\nwhich the assessee was exempted from payment of all taxes to
\nthe State for a period of ten years expiring on October\t 31,
\n1948.\n<\/p>\n
The  State  of Bhopal merged with India on August  1,  1949.
\nThe  territory was constituted into a  Chief  Commissioner’s
\nProvince,  and\twas later merged with the  State  of  Madhya
\nPradesh\t under\tthe States Reorganisation  Act,\t 1956.\t The
\nGovernorGeneral\t  of   India  issued  the   “Taxation\tLaws
\n(Extension  to Merged States) Ordinance” 21 of 1949 to\tmake
\ncertain\t taxation laws applicable to the merged States.\t  By
\ncl.  3\tof  the Ordinance, amongst other  Acts,\t the  Indian
\nIncome-tax  Act,  1922 and all the orders and  rules  issued
\nthereunder were extended to the merged States, and by cl.  7
\nthe  corresponding laws in force in the merged\tStates\twere
\nrepealed.  By el. 8 the Central Government was invested with
\nthe  power  to\tmake provisions or  give  directions,  which
\nappeared to the Government to be necessary, for removing any
\ndifficulty arising in giving effect to the provisions of the
\nOrdinance.\n<\/p>\n
Ordinance  21  of  1949 was repealed  and  replaced  by\t the
\n“Taxation  Laws (Extension to Merged States  and  Amendment)
\nAct” 67 of 1949.  Section 3 of the Act extended with  effect
\nfrom  April  1, 1949, to the merged  States,  amongst  other
\nActs,  the  Indian Income-tax Act and the orders  and  rules
\nmade thereunder, and by s. 7 the laws in force in the merged
\nStates\tcorresponding  to the Acts mentioned in s.  3  stood
\nrepealed.  Section 6 provided:\n<\/p>\n
\t      “if any difficulty arises in giving effect  to
\n\t      the  provisions  of  any Act,  rule  or  order
\n\t      extended\tby section 3 to the  merged  States,
\n\t      the  Central Government may, by  order,  make,
\n\t      such  provisions\tor give such  directions  as
\n\t      appear  to it to be necessary for\t removal  of
\n\t      the difficulty.”\n<\/p><\/blockquote>\n
The  relevant provisions of the Indian Income-tax  Act\t1922
\nwhich have a bearing on the determination of depreciation in
\nrespect of buildings, machinery, plant and furniture used by
\nthe assessee in carrying on business were these:\n<\/p>\n
\t      S.10  “(1) The tax shall be payable by  an
\n\t      assessee under the head “Profits and gains  of
\n\t      business,\t profession or vocation” in  respect
\n\t      of  the  profit  or  gains  of  any  business,
\n\t      profession or vocation, carried on by him.
\n\t      (2)Such profits or gains shall be\t computed
\n\t      after   making   the   following\t allowances,
\n\t      namely:-\n<\/p><\/blockquote>\n
\t      4<\/span><\/p>\n
\t      (vi)in  respect  of  depreciation\t of   such
\n\t      buildings,  machinery,  plant,  or   furniture
\n\t      being  the  property of the  assessee,  a\t sum
\n\t      equivalent, where the assets are ships  ,other
\n\t      than ships ordinarily plying on inland  waters
\n\t      to  such\tpercentage  on\tthe  original\tcost
\n\t      thereof to the assessee as may in any case  or
\n\t      class of cases, be prescribed and in any other
\n\t      case,  to such percentage on the written\tdown
\n\t      value  thereof as may in any case or class  of
\n\t      cases be prescribed.. . . . .\n<\/p><\/blockquote>\n
\t      “Provided that-\n<\/p><\/blockquote>\n
\t      (a). . . . . .\n<\/p><\/blockquote>\n
\t      (b). . . . . . .\n<\/p><\/blockquote>\n
\t      (c)   the\t aggregate  of all  such  allowances
\n\t      made  under  this\t Act  or  any  Act  repealed
\n\t      hereby,  or under the Indian  Income-tax\tAct,
\n\t      1886,  shall, in no case, exceed the  original
\n\t      cost   to\t the  assessee\tof  the\t  buildings,
\n\t      machinery,  plant, or furniture, as  the\tcase
\n\t      may be;”\n<\/p><\/blockquote>\n
\t      ‘The  expression\t“written  down\tvalue”\t was
\n\t      defined  in  s. 10(5) which insofar as  it  is
\n\t      material provided :\n<\/p><\/blockquote>\n
\t      \"In  sub-section (2) . . . . .\t    'written\n\t      down value' means-\n<\/pre>\n
\t      (a)   in\tthe case of assets acquired  in\t the
\n\t      previous\t year,\tthe  actual  cost   to\t the
\n\t      assessee:\n<\/p><\/blockquote>\n
\t      provided.\t .  .  .  .\n<\/p><\/blockquote>\n
\t      (b)   in\tthe case of assets  acquired  before
\n\t      the  previous  year  the actual  cost  to\t the
\n\t      assessee\t less  all   depreciation   actually
\n\t      allowed  to  him\tunder this Act\tor  any\t Act
\n\t      repealed\tthereby\t or under  executive  orders
\n\t      issued  when the Indian Income-tax Act,  1886,
\n\t      was in force :\n<\/p><\/blockquote>\n
\t      Provided.\t .  .  .  .  .\t.\n<\/p><\/blockquote>\n
\t      Provided.\t .  .  .  .  .\t.\n<\/p><\/blockquote>\n
The taxation laws in the merged States were not repealed  by
\nthe  Indian  Income-tax\t Act : they stood  repealed  by\t the
\nTaxation Laws (Extension to Merged States and Amendment) Act
\n67 of 1949.  In the application of the scheme of the Income-
\ntax  Act  1922\tfor ,computing\tthe  depreciation  allowance
\ndifficulties  clearly  arose.  On the plain  words,  of\t the
\nIncome-tax Act, in the computation of the taxable income  of
\nan assessee the depreciation actually allowed under the Act,
\nor  Acts repealed thereby or under executive orders  ‘issued
\nunder the Indian Income-tax Act, 1886, could alone be
\n5<\/span>
\ntaken  into  account: depreciation allowed under  the  State
\nlaws   could  not  be  taken  into  account.   The   Central
\nGovernment therefore in exercise of its authority under\t cl.
\n8 of Ordinance 21 of 1949 issued the “Taxation Laws” (Merged
\nStates) (Removal of Difficulties) Order, 1949″.\t By cl. 2 of
\nthat Order, it was provided :\n<\/p>\n
\t      “In  making  any assessment under\t the  Indian
\n\t      Income-tax   Act,\t  1922,\t  all\tdepreciation
\n\t      actually allowed under any laws or rules of  a
\n\t      merged State relating to income-tax and super-
\n\t      tax, shall be taken into account in  computing
\n\t      the aggregate depreciation allowance  referred
\n\t      to  in subclause (c) of the proviso to  clause\n<\/p><\/blockquote>\n
\t      (vi) of sub-section (2), and the written\tdown
\n\t      value  under clause (b) of sub-section (5)  of
\n\t      section 10 of the said Act.\n<\/p><\/blockquote>\n
\t      Provided\tthat where in respect of any  asset,
\n\t      depreciation  has\t been allowed for  any\tyear
\n\t      both  in\tthe assessment made  in\t the  merged
\n\t      State and in British India, the greater of the
\n\t      two  sums\t allowed shall only  be\t taken\tinto
\n\t      account.”\n<\/p><\/blockquote>\n
Ordinance 21 of 1949 was repealed by sub-s. (1) of S. 34  of
\nthe Taxation Laws (Extension to Merged States and Amendment)
\nAct 67 of 1949, but by virtue of sub-s. (2) of that section,
\nthe  Removal of Difficulties Order remained in\tforce.\t The
\nOrder  was  clearly intended to\t provide  that\tdepreciation
\n“actually  allowed”  under the Merged State Acts was  to  be
\ntaken into account for determining the written down value of
\nassets\tof  an assessee in bringing into effect\t the  Indian
\nIncome-tax  Act to the assessees in the merged\tStates.\t  In
\ncomputing  the profits and gains of the business carried  on
\nby  the assessee for determining the tax payable by him\t for
\nthe  assessment year 1949-50, depreciation allowed under  S.
\n10(2) (vi) was taken as a percentage of the original cost to
\nthe   assessee\tof  the\t buildings,  machinery,\t plant\t and
\nfurniture,  and in the four subsequent assessment years\t the
\nwritten down value of the asse’s admissible for depreciation
\nwas  determined\t on that footing.  The\tIncome-tax  Officer,
\nBhopal\tthereafter commenced proceedings  for  re-assessment
\nunder  S.  34(1)  (b) of the Indian  Income-tax\t Act,  1922,
\nagainst\t the  assessee in respect of  the  assessment  years
\n1952-53\t and  1953-54  and by order  dated  March  3,  1958,
\nrecomputed the taxable income on the footing that since\t the
\ncommencement  of  the business the assessee must  be  deemed
\nnationally  to\thave  been allowed  depreciation  under\t the
\nBhopal Income-tax Act.\tThe Appellate Assistant Commissioner
\nand  the  Income-tax Appellate Tribunal disagreed  with\t the
\nIncome-tax Officer and restored the original assessment.  On
\na  reference made by the Appellate Tribunal, the High  Court
\nof Madhya Pradeh held in favour of the assessee.\n<\/p>\n
6<\/span><\/p>\n
During\tthe pendency of an appeal filed by the\tCommissioner
\nof  Income-tax\tin  this Court, the  Central  Government  in
\nexercise  of  the power conferred by S. 6 of the Act  67  of
\n1949  issued  an  Order called the  “Taxation  Laws  (Merged
\nStates)\t (Removal of Difficulties) Amendment  Order,  1962”,
\nand added the following, Explanation to cl. 2 of the Removal
\nof Difficulties Order, 1949 :\n<\/p>\n
\t      “Explanation.-For\t  the\tpurpose\t  of\tthis
\n\t      paragraph,  the expression  “all\tdepreciation
\n\t      actually allowed under any laws or rules of  a
\n\t      Merged State” means and shall be deemed always
\n\t      to have meant:\n<\/p><\/blockquote>\n
\t      (a)   the aggregate allowance for depreciation
\n\t      taken  into account in computing\tthe  written
\n\t      down value under any laws or laws in force  in
\n\t      a merged State or carried forward tinder\t0the
\n\t      said laws or rules, and\n<\/p><\/blockquote>\n
\t      (b)   in cases where income had been  exempted
\n\t      from tax under any laws or rules in force in a
\n\t      merged  State  or under any agreement  with  a
\n\t      Ruler,  the depreciation that would have\tbeen
\n\t      allowed had the income not been so exempted.”\n<\/p><\/blockquote>\n
This  Court held in the appeal filed by the Commissioner  of
\nIncome-tax  that the expression.  ‘actually allowed” in\t the
\nRemoval\t  of  Difficulties  Order,  1949,  meant   allowance
\nactually  given effect to, but by virtue of the\t Explanation
\nadded  by  the\tTaxation Laws (Merged  States)\t(Removal  of
\nDifficulties)  Amendment Order, 1962, the correct basis\t for
\ncomputing  the written down value of the depreciable  assets
\nfor  the relevant period was the one adopted by the  Income-
\ntax  Officer.\tCounsel\t for  the  assessee  challenged\t the
\nvalidity  of the Taxation Laws (Merged States)\t(Removal  of
\nDifficulties)  Amendment Order, but the Court  declined.  to
\nconsider  that\tplea  holding that  an\tauthority  or  court
\nadministering the Act cannot permit a challenge to be raised
\nagainst\t the vires of the Act: K.S. Venkataraman &  Co.\t (P)
\nLtd. v. State of Madras<\/a>(1).\n<\/p>\n
The assessee then moved in the High Court of Madhya Pradesh
\na petition, under Art. 226 or. the Constitution, inter alia,
\nfor a writ declaring the 1962 Order ultra vires the  Central
\nGovernment,  and for injunction restraining  enforcement  of
\nthe  Order.  The High Court rejected the petition,  and\t the
\nassessee has appealed to this Court with certificate granted
\nby the High Court.\n<\/p>\n
In.  this  appeal  counsel  for\t the  assessee\traised\t the
\nfollowing contentions:\n<\/p>\n
\t      (1)  that\t S. 6 of Act 67 of  1949  makes\t the
\n\t      “arising\tof  difficulty” a condition  of\t the
\n\t      exercise of the
\n\t      (1)   [1966]  2 S.C.R. 229.\n<\/p><\/blockquote>\n
\t      7<\/span><\/p>\n
\t      power to issue an order contemplated  thereby,
\n\t      and  since no difficulty in fact is proved  to
\n\t      have  arisen,  the Central Government  had  no
\n\t      power to issue the impugned Order;
\n\t      (2)   that  under s. 6 of Act 67 of 1949,\t the
\n\t      Central  Government is authorised to  make  an
\n\t      order which is consistent with the scheme\t and
\n\t      the  essential  provisions of  the  Income-tax
\n\t      Act,  1922,  and\tsince  the  impugned   Order
\n\t      operates\tto  amend the scheme  and  essential
\n\t      provisions  of the Income-tax Act it is  ultra
\n\t      vires the provisions of s. 6 of the Act;
\n\t      (3)   that  if S. 6 is construed to  invest  a
\n\t      power  authorising the Central  Government  to
\n\t      make  orders amending or altering the  Income-
\n\t      tax  Act,\t it  is\t void,\tfor  it\t amounts  to
\n\t      excessive delegation of legislative power;
\n\t      (4)  that after the repeal of  the  Income-tax
\n\t      Act,  1922, by the Income-tax Act 43 of  1961,
\n\t      the  power to remove difficulties\t arising  in
\n\t      the  application\tof  the former\tAct  can  be
\n\t      exercised\t only under sub-s. (2) of s. 298  of
\n\t      the Income-tax Act, 1961; and
\n\t      (5)   that  the orders of assessment  made  by
\n\t      the  Income-tax authorities or intended to  be
\n\t      made  by them are violative of Art. 14 of\t the
\n\t      Constitution.\n<\/p><\/blockquote>\n
Since  we are of tile view that the 1962 Order\tis  invalid,
\nbecause no “difficulty,” is proved to have arisen justifying
\nthe invocation of the power under S. 6 of Act 67 of 1949, we
\ndo  not\t propose  to express our opinion  on  the  remaining
\ncontentions.\n<\/p>\n
By  cl.\t 8 of the agreement with the Ruler  of\tBhopal,\t the
\nassessee  was  excluded from the operation of  the  taxation
\nlaws  of the State.  Accordingly no return was filed by\t the
\nassessee,  no proceedings for assessment were taken, and  no
\ndepreciation was allowed to the assessee for the purpose  of
\nthe  Bhopal Income-tax Act.  This Court in  Commissioner  of
\nIncome-tax  v.\tStrew  Products Ltd.(1)\t observed  that\t the
\nexpression “all depreciation actually allowed under the laws
\nor rules of a Merged State” in paragraph 2 of the 1949 Order
\ncould  not, be given an artificial meaning. It did not\tmean
\ndepreciation  allowable under  the provisions of any law  or
\nrules : ‘it connoted an idea that the allowance was actually
\ngiven effect to.\n<\/p>\n
(1) [1966] 2 S.C R. 881.\n<\/p>\n
8<\/span><\/p>\n
By the extension of the Income-tax Act, 1922, the rules\t and
\nthe  orders  made  thereunder to the  areas  of\t the  merged
\nStates,\t undoubtedly  numerous difficulties arose,  for\t the
\nIncome-tax  Act,  the rules and the orders  made  thereunder
\ncontemplated   situations   peculiar   to   the\t  conditions
\nprevailing in British India which were not and could not  be
\nprevailing in the merged States.  It was necessary therefore
\nto  devise machinery for removing those difficulties.\tThis
\nwas  sought  to\t be achieved by conferring  power  upon\t the
\nCentral\t Government  to make orders for that  purpose.\t The
\npower was, however, to be exercised by making provisions  or
\ngiving directions a,% may appear to be necessary for removal
\nof  difficulties and no more.  By s. 10(2) (vi) proviso\t (c)
\nread  with  S.\t10(5)  of  the\tIncome-tax  Act,  1922,\t the
\ndepreciation  allowable in computing the profits. and  gains
\nof  an\tassessee from business carried on by him had  to  be
\ncomputed by aggregating all such allowances, made under\t the
\nIndian Income-tax Act, or under any Act repealed thereby  or
\nunder  executive  orders issued when the  Indian  Income-tax
\nAct,  1886 was in force.  On the express terms of  the\tAct,
\nfor  determining  the written down value in  any  assessment
\nyear  only  that  much depreciation was\t to  be\t taken\tinto
\naccount as was actually allowed under the Indian  Income-tax
\nAct,  or under any Act repealed thereby or  under  executive
\norders\tissued\tunder the Indian Income-tax Act,  1886,\t and
\nsince the Income-tax Acts of the merged States were repealed
\nnot by the Indian Income-tax Act, 1922, but by Ordinance  21
\nof 1949 and by Act 67 of 1949, in computing the written down
\nvalue of the buildings, machinery, plant and furniture of an
\nassessee in a merged State, allowances of depreciation under
\nthe  Merged  States Acts could not be  taken  into  account.
\nThis  gave a benefit to the assessees in the  merged  States
\nwhich  was  inconsistent with the scheme of  the  Income-tax
\nAct.   The Central Government therefore issued the  Taxation
\nLaws  (Merged States) (Removal of Difficulties Order,  1949,
\nand thereby all depreciation actually allowed under any laws
\nor rules of a merged State relating to income-tax and super-
\ntax was to be taken into account in computing the  aggregate
\ndepreciation  allowance\t referred to in sub-cl. (c)  of\t the
\nproviso\t to  cl. (vi) of sub-s. (2).  The  language  of\t the
\nOrder  was  clear.   If under the laws\tof  a  merged  State
\nrelating  to income-tax and super-tax any  depreciation\t was
\nactually  allowed,  it\twas  to be  taken  into\t account  in
\ndetermining  the  written  down\t value.\t  The\tdepreciation
\nactually  allowed did not connote depreciation which  might,
\nif  the assessee had been subjected to tax under  the  State
\nlaw, have been allowed, but was not in fact allowed.  It was
\nso held by this Court in Commissioner of Income-tax v. Straw
\nProducts  Ltd.<\/a>(1).  The\t expression  “depreciation  actually
\nallowed”  was  also so interpretated in a case in  which  an
\nassessee  who under an agreement with the Ruler of a Part  B
\nState was exempt-\n<\/p>\n
(1)  [1966] 2 S.C.R 881.\n<\/p>\n
9<\/span><\/p>\n
ed  from payment of income-tax, and the\t Central  Government
\nafter  the merger of the State gave effect to the  agreement
\nby a notification under s. 60A of the Income-tax Act,  1922:
\nCommissioner  of  Income-tax, Bombay  v.  Dharampur  Leather
\nCloth  Co. Ltd.<\/a>(1), it has also been held by the  Courts  in
\nIndia-and  in  our  Judgment  the  view\t is  right  that  in
\ndetermining   the   written  down  value  of   assets.\t the
\ndepreciation  not allowable but actually allowed was  to  be
\ntaken  into  account\tunder s. 10(2) (vi)  of\t the  Indian
\nIncome-tax  Act, 1922, after that clause was amended by\t Act
\n23  of\t1941 : Commissioner of Income-tax  v.  Kamala  Mills
\nLtd,. Vankadam Lakshminarayana<\/a> v. Commissioner of     Income
\ntax,  Andhra Pradesh (3).\n<\/p>\n
The  expression\t “depreciation actually\t allowed”  therefore
\nconnotes  under s. 10(2) (vi) of the Income-tax\t Act,  under
\ncl. (2) of the Removal of Difficulties Order, 1949, and\t the
\nnotification   under   s.  60A\tof   the   Income-tax\tAct,
\ndepreciation  taken into account in assessing the income  of
\nan assessee arising from carrying on business, and does\t not
\nmean  depreciation merely allowable or applicable under\t the
\ntaxing provision.\n<\/p>\n
But  the  impugned Order seeks to alter the  connotation  of
\nthat  expression.  The assessee contends that no  difficulty
\narose  or  could arise in giving effect\t to  the  provisions
\nrelating  to the allowance of depreciation under the  Indian
\nIncome-tax  Act to the merged States after the\tpromulgation
\nof   the   Taxation  Laws  (Merged   States)   (Removal\t  of
\nDifficulties)  Order,  1949,  and  the\tCentral\t  Government
\nassumed, in issuing the impugned Order under s. 6 of Act  67
\nof  1949, powers which were not invested by the Act, and  on
\nthat  account  the  Order is invalid.  The  Union  of  India
\nresists\t that plea.  The High Court of Madhya  Pradesh\theld
\nthat the Central Government having issued the 1962 Order, it
\nmust  be deemed to be held that difficulties had  arisen  in
\ngiving\teffect to the provisions of Act 67 of 1949  and\t the
\nopinion\t of  the  Central  Government  in  that\t behalf\t was
\nconclusive.  The Court\t observed :\n<\/p>\n
\t      “The  language  of the section  clearly  shows
\n\t      that  it\tis  for the  Central  Government  to
\n\t      decide,  as  a  pure  act\t of  administration,
\n\t      whether  an obstacle or impediment  exists  in
\n\t      giving  effect to the provisions of  the\tAct,
\n\t      Rule or Order referred to in s. 6 which  calls
\n\t      for  an order for surmounting the obstacle  or
\n\t      removing\tthe impediment.\t No doubt s. 6\tdoes
\n\t      not expressly say that the Central  Government
\n\t      should  be satisfied as to the  “existence  of
\n\t      any “difficulty” for tile removal of which the
\n\t      making  of an Order is necessary.\t But  it  is
\n\t      implicit\tin  the language of s. 6  that\ttile
\n\t      Central Government
\n\t      (1)   (1966) 2 S.C.R. 859.\n<\/p><\/blockquote>\n
\t      (3) (1961) 43 I.T.R. 526.\n<\/p><\/blockquote>\n
\t      L:10 Sup CI\/68-2\t(2) (1949) 17 1.T. R. 13 30
\n\t      10<\/span>
\n\t      should  be satisfied that a difficulty  exists
\n\t      in  giving  effect to, the provisions  of\t any
\n\t      Act,  Rule  or Order extended by s. 3  to\t the
\n\t      Merged  States.\tIf  the\t existence  of\t any
\n\t      “difficulty”  depends on the  satisfaction  of
\n\t      the  Central Government, then it follows\tthat
\n\t      the  condition  about  the  existence  of\t any
\n\t      difficulty,  for\tthe  removal  of  which\t the
\n\t      Central  Government  is empowered to  make  in
\n\t      Order, is a subjective condition incapable  of
\n\t      being  determined\t by any one other  than\t the
\n\t      Central  Government which has to take,  action
\n\t      in the matter.”\n<\/p><\/blockquote>\n
In  so\tobserving, in our judgment, the High  Court  plainly
\nerred.\tExercise of the power to make provisions or to issue
\ndirections as may appear necessary to the Central Government
\nis  conditioned by the existence of a difficulty arising  in
\ngiving\teffect to the provisions of any Act, rule or  order.
\nThe  section does not make the arising of the  difficulty  a
\nmatter of subjective satisfaction of the Government: it is a
\ncondition  precedent to the exercise of power and  existence
\nof  the\t condition if challenged must be established  as  an
\nobjective fact.\n<\/p>\n
The  observations  made\t by this Court\tin  Commissioner  of
\nIncome-tax,  Hyderabad\tv.  Dewan  Bahadur  Ramgopal   Mills
\nLtd.<\/a>(1)\t On which reliance was placed by the High  Court  do
\nnot support the view that “the arising of a difficulty” is a
\nmatter\tfor  the  subjective  satisfaction  of\tthe  Central
\nGovernment.  In Dewan Bahadur Rajagopal Mills  case(“)\tthis
\nCourt was called upon to consider the validity of  Paragraph
\n2   of\tthe  Taxation  Laws  Part  B  States)  (Removal\t  of
\nDifficulties) Order, 1950.  On behalf of the assessee It was
\ncontended  in  that case that the notification\tS.R.O.\t1139
\ndated  May 8, 1956 issued under s. 12 of the Finance Act  of
\n1950,  which was couched in terms substantially the same  as
\ns.  6 of Act 67 of 1949, was invalid.  This  Court  rejected
\nthe contention observing that in applying the provisions  of
\ncl.  (b) of sub-s. (5) of s. 10 of the Income-tax Act to  an
\nassessee in a Part B State there was an initial\t difficulty,
\nbecause the laws in force in the Part B States were repealed
\nnot  by the Indian Income-tax Act, but by the Finance,\tAct,
\n1950, and to remove that difficulty the Taxation Laws  (Part
\nB States) (Removal of Difficulties) Order, 1950, was passed.
\nThat  Order  was  amended by an Explanation  issued  by\t the
\nCentral Government in exercise of the powers under s. 60A of
\nthe  Income-tax Act, ‘but the amendment was  declared  ultra
\nvires by the High Court of Hyderabad, and thereafter another
\nRemoval of Difficulties Order was issued in 1.956 reenacting
\nthe  Explanation.   This Court held that by the\t Removal  of
\nDifficulties Order, 1950 an anomalous result followed,\tand.
\nthe depreciation allowance allowed to the assessee under the
\nIndian Income-tax Act was more than the
\n(1)[1961] 2 S. C.R. 318.\n<\/p>\n
11<\/span><\/p>\n
depreciation  allowance under the Hyderabad Income-tax\tAct,
\nand  it was necessary to issue the Removal  of\tDifficulties
\nOrder  1956.   In the view of the Court, in  that  case\t the
\ncondition precedent to the exercise of the power did  exist.
\nAfter  recording that a difficulty requiring removal  by  an
\nOrder  under s. 12 of the Finance Act had arisen, the  Court
\nproceeded to observe at P.327:\n<\/p>\n
\t      “Furthermore,  the  true scope and  effect  of
\n\t      section seems to be that it is for the Central
\n\t      Government to determine if any difficulty\t has
\n\t      arisen  and then to make Such order,  or\tgive
\n\t      Such  directions,\t as  appears  to  it  to  be
\n\t      necessary\t   to\tremove\t  the\t difficulty.
\n\t      Parliament   has\tleft  the  matter   to\t the
\n\t      executive\t  but\tthat  does  not\t  make\t the
\n\t      notification of 1956 bad.”\n<\/p><\/blockquote>\n
The  High Court of Madhya Pradesh held, relying\t upon  these
\nobservations,  that the decision of the\t Central  Government
\nthat  a\t difficulty had arisen was a  matter  of  subjective
\nsatisfaction  of the Government and that it was not open  to
\nthe Courts to investigate that question. We  are  unable
\nto hold that the observations made by this Courtare
\nSusceptible  of that interpretation. It is clear from thesequence
\nof  the observations made by this Court meet the  Court\t was
\nsatisfied  that\t in fact a difficulty had  arisen  and\tthat
\ndifficulty had to be removed and for removing the difficulty
\nthe  Order of 1956 was issued.\n<\/p>\n
It  was\t expressly  averred in the  petition  filed  by\t the
\nassessee that  “no difficulty had arisen in giving effect to
\nthe  provisions of either the Indian Income-tax Act.,  1922,
\nor  the provisions of the first order and as such there\t was
\nno  question of the exercise of any power under s. 6 of\t the
\nMerged\tStates\tact for the purpose of\tpassing\t the  second
\norder.”\t The only reply to this plea in the affidavit  filed
\non behalf of the respondents was that “the contention raised
\non  behalf  of the petitioners is unsound and  is  therefore
\ndenied”.  The learned Solicitor-General appearing on  behalf
\nof   the respondents read out before us a “noting”  made  by
\nthe Secretary of the finance Department on which the Central
\nGovernment was persuaded  to issue the 1962 Order. but\tthat
\n“noting”  merely recited that the High Court’s in India\t had
\nnot  accepted  the contention of the  Income-tax  Department
\nthat in cases where the depreciation had to be\tcomputed  in
\nrespect\t of  the business by an assessee who had,  under  an
\nagreement  with the ruler of an Indian state, been  exempted
\nfrom  payment  of  Income-tax,\ta  national  computation  of
\ndepreciation  which would have been allowed, if he had\tbeen
\nassessed  to pay the tax, should be taken into\taccount\t for
\ndetermining the written down value of the assets at the date
\non which the Income-tax act was made applicable. Refusal  of
\nthe  Courts to accept a contention raised on behalf  of\t the
\nRevenue arising contrary to the plain words of
\n12<\/span>
\nthe  statute cannot be regarded as a difficulty\t arising  in
\ngiving effect to the provisions of the Act.  The  difficulty
\ncontemplated by the Order is not merely the inability of the
\nCentral Government to collect tax which the tax-payer could,
\nin  the\t view of the Government, have been made to  pay\t but
\nwhich has not been imposed by adequate legislation.
\nThe Solicitor-General contended that on the tern-is of s. 10
\nsub-s. (5) (b) a difficulty arose in the application of\t the
\nIncome-tax  Act\t to merged States, because no  written\tdown
\nvalue  of  the assets acquired by assessees  in\t the  merged
\nStates\tbefore\tthe previous year relevant to  the  year  in
\nwhich  the Indian Income-tax Act was applied for  the  first
\ntime  could be determined.  Relying upon the  definition  of
\n“assessee”  in\tS.  2(2) and S. 10(1)  under  which  tax  is
\npayable by an assessee under the head “Profits and gains  of
\nbusiness,  profession or vocation” in respect of the  profit
\nor gains of any business, profession or vocation carried  on
\nby him, counsel submitted that since under cl. (a) of sub-s.
\n(5)  of\t S.  10 in respect of the  assets  acquired  in\t the
\nprevious  yes the actual cost to the assessee would  be\t the
\nwritten down value, and under cl. (b) in the case of  assets
\nacquired  before  the previous year the actual cost  to\t the
\nassessee less all depreciation actually allowed to him under
\nthe  Act  would be the written down value, a  person  to  be
\nentitled to claim depreciation allowance in the\t computation
\nof  his taxable income must have been an assessee under\t the
\nIncome-tax  Act prior to the previous year in which  he\t was
\nbeing  assessed under the Indian Income-tax Act : if he\t was
\nnot an assessee no written down value under cl. (b) of\tsub-
\ns. (5) of S. 10 could be determined.  Counsel submitted that
\nthe  impugned Order was issued by the Central Government  to
\nremove that difficulty in the administration of the Act.  In
\nour  judgment,\tthe argument is wholly\tmisconceived.\tSub-
\nsection (5) of S. 10 is merely a definition clause : it does
\nnot   deal  with  the  determination  of  the\tquantum\t  of
\ndepreciation  “Depreciation” in respect of specified  assets
\nis allowed under s. 10 (2) (vi) of the Income-tax Act.\tThat
\nclause\twas  applied  to the merged States  subject  to\t the
\nmodification made by the 1949 Order, and the amount actually
\nallowed\t under the law of the merged State was to  be  taken
\ninto account in determining the written down value, and\t the
\ndepreciation allowance referred to in cl. (c) of the proviso
\nto  cl.\t (vi) of S. 10(2).  It is impossible, on  the  words
\nused  in s. 10(5) cl. (b) read with the 1949 Order. to\thold
\nthat  the written down value of the assets of the   assessee
\nin  a  merged  State could not be  determined,\tand  with  a
\nview to\t remove\t that  difficulty  the\timpugned  Order\t was
\npromulgated.   The  fact that the assets were acquired by  a
\nperson at a time  when\t he  was not an assessee  under\t the
\nIndian\tIncome-tax  Act\t or under the  State  Act  will\t not
\ndisable\t him, when he is assessed to tax on the\t profit,  of
\ntile business, from claiming the benefit of the
\n13<\/span>
\ndepresiation  allowance\t on  those assets if  used  for\t the
\npurpose of the business.\n<\/p>\n
Section\t 6 of Act 67 of 1949 authorises the Central  Govern-
\nment to make provisions or to give directions as may  appear
\nto be necessary for removal of difficulties which had arisen
\nin giving effect to the provisions of any Act, rule or order
\nextended  by s. 3 to the merged States.\t By the\t application
\nof  the\t Indian\t Income-tax  Act  to  the  merged  States  a
\ndifficulty  did\t arise\tin the\tmatter\tof  determining\t the
\ndepreciation allowance under s. 10(2) (vi).  That difficulty
\nwas  removed by the enactment of the Taxation  Laws  (Merged
\nStates) (Removal of Difficulties) Order, 1949.\tEven by that
\nOrder  all depreciation actually allowed under any  laws  or
\nrules  of  a merged State relating to income-tax was  to  be
\ntaken  into account in computing the aggregate\tdepreciation
\nallowance.   Thereafter\t there survived\t no  difficulty\t in.
\ngiving effect to the provisions of the Indian Income-tax Act
\nor  the\t rules\tor orders extended by S.  3  to\t the  merged
\nStates.\n<\/p>\n
To sum up : the power conferred by s. 6 of Act 67 of 1949 is
\na  power  to  remove  a\t difficulty  which  arise,  in\t the
\napplication of the Income-tax Act to the merged States :  it
\ncan  be exercised in the manner consistent with\t the  scheme
\nand essential provisions of the Act and for the purpose\t for
\nwhich  it is conferred.\t The impugned Order which seeks,  in
\npurported  exercise  of the power, to  remove  a  difficulty
\nwhich had not arisen was, therefore, unauthorised.
\nWe  do\tnot  in\t the circumstances  think  it  necessary  to
\ndetermine  to what extent, if any, it would be open  to\t the
\nCentral\t Government  by an order issued in exercise  of\t the
\npower  conferred  by  s.  6 of Act 67 of  1.949\t to  make  a
\nprovision  which is inconsistent with the provisions of\t the
\nIndian Income-tax Act.\tWe also need not express any opinion
\non  the\t other\tcontentions raised  by\tthe  assessee,\ti.e.
\nwhether the Order, if any, should have been issued under  s.
\n298 of the Indian Income-tax Act, 1961, or whether by reason
\nof  the\t enactment of the impugned order  the  guarantee  of
\nequality before the law was violated.\n<\/p>\n
The appeal is allowed and the order passed by the High Court
\nis set aside. It   is\tdeclared  that\tcl.  (b)   of\tthe
\nExplanation in the  Taxation Laws(Merged States)  (Removal
\nof  Difficulties)  Order, 1962, is ultra vires\tthe  Central
\nGovernment when exercising the power under s. 6 of Act 67 of
\n1949  and the Revenue authorities are not entitled  to\tlevy
\ntax  on\t the  basis of depreciation  allowance\tcomputed  in
\naccordance with that clause in the Order.  The assessee will
\nget  its  costs from the respondents in this Court  and\t the
\nHigh Court.\n<\/p>\n
G.C.\n<\/p>\n
\t\t\t\t     Appeal allowed.\n<\/p>\n
14<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Straw Products Ltd vs Income-Tax Officer, Bhopal & Ors on 20 October, 1967 Equivalent citations: 1968 AIR 579, 1968 SCR (2) 1 Author: S C. Bench: Wanchoo, K.N. (Cj), Hidayatullah, M., Shah, J.C., Bachawat, R.S. & Ramaswami, V., Mitter, G.K. & Hegde, K.S. PETITIONER: STRAW PRODUCTS LTD. Vs. RESPONDENT: INCOME-TAX OFFICER, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-8095","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nStraw Products Ltd vs Income-Tax Officer, Bhopal & Ors on 20 October, 1967 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/straw-products-ltd-vs-income-tax-officer-bhopal-ors-on-20-october-1967\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Straw Products Ltd vs Income-Tax Officer, Bhopal & Ors on 20 October, 1967 - 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