Full Judgment Text
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PETITIONER:
THE MAHALAXMI MILLS LTD.
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME-TAX,BOMBAY(And connected appeals)
DATE OF JUDGMENT:
08/04/1960
BENCH:
ACT:
Income Tax-Depreciation-Computation of written down value-
Deduction of depreciation in earlier years-Scope-Saurashtra
Income Tax Ordinance, 1949, s. 13(5) (b)-Taxation Laws (Part
B States) (Removal of Difficulties) Order, 1950, para 2-
Indian Income Tax Act, 1922 (11 of 1922), s. 10(5) (b).
HEADNOTE:
The assessees were carrying on business in Bhavnagar which
was formerly an Indian State. In 1948 Bhavnagar became part
of the United State of Saurashtra and on March 16, 1949 the
Saurashtra Income-tax Ordinance was promulgated. For the
purpose of calculating the depreciation allowance to which
the assessees were entitled in computing the profits or
gains of the business, the written down value of the
building, machinery etc., had to be ascertained in
accordance with the provisions of the Ordinance. Section
13(5) (b) of the Ordinance provided that "the written down
value meant, 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 Ordinance
or......... which would have been allowed to him if the
Indian Income-tax
(1) A.I.R
217
Act, 1922, was in force in the past". For the assessment
year 1949-50, as the assets of the assessees had been
acquired before the previous year, the Income-tax Officer,
in ascertaining the written down value, deducted the
depreciation which would have been allowable under the
Indian Income-tax Act, 1922, if it had been in force and a
claim had been made supported by the prescribed particulars.
The assessees claimed that on the wording of it s. 13(5) (b)
of the Ordinance did not enable the Income-tax Officer to
make the deduction, as, in fact, no claim was made or could
be made for such allowance.
For the assessment year 1951-52, as by that time Saurashtra
had become a Part B State of the Union of India and the
Indian Income-tax Act, 1922 had been extended to it, the
Income-tax Officer, applied the provisions of s. 10(5) (b)
of the Indian Income-tax Act read with para 2 of the
Taxation Laws (Part B States) (Removal of Difficulties)
Order, 1950, while computing the written down value and
deducted not only the depreciation allowed in the assessment
year 1950-51 under the Indian Income-tax Act and the
depreciation allowed in the assessment year 1949-50 under
the Saurashtra Income-tax Ordinance but also the deprecia-
tion availed of in the previous years by the assessees under
the Bhavnagar War Profits Act. Paragraph 2 of the Removal
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of Difficulties Order of 1950 provided: "In making any
assessment under the Indian Income-tax Act, 1922, all
depreciation actually allowed under any laws or rules of a
Part B State relating to income-tax and super-tax or any law
relating to tax on profits of business shall be taken into
account in computing the written down value under s. 10(5)
(b) of the Act". The assessees contended that it was only
when a difficulty was actually experienced in giving effect
to the Act that the provision of the Order could come into
operation in a particular case and as no such difficulty was
actually experienced the said provision had no application,
and that, in any case, as the Bhavnagar War Profits Act was
not a law of the Part B State, para 2 of the Order was not
applicable.
Held:(i) On the true construction of s. 13(5)(b) of the
Saurashtra Income-tax Ordinance, the words "which would have
been allowed to him" in that sub-section meant "which should
have been allowed if proper claim had been made", and that
in ascertaining the written down value the depreciation that
would have been allowed if proper claim had been made if the
Indian Income-tax Act, 1922, which was not in force in the
State before, had been in force, should be deducted.
Commissioner of Income-tax v. Kamala Mills Ltd., [1949] 17
I.T.R. 130 and Rajaratna Naranbhai Mills Ltd. v.
Commissioner of Income-tax [1950] 18 I.T.R. 122,
distinguished.
(ii)It was for the Central Government to determine if any
difficulty had arisen in giving effect to the provisions of
the Indian
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income-tax Act, 1922, and then to make such order as
appeared to it necessary to remove the difficulty, that once
the order was made it operated under its own terms, and that
in giving effect to the order it was not necessary for the
Income-tax Officer to examine first in any particular case
whether any difficulty had arisen. Accordingly, para 2 of
that Taxation Laws (Part B States) (Removal of Difficulties
Order, 1950, was applicable.
Commissioner of Income-tax v. Dewan Bahadur Ram Gopal Mills
Ltd., [19611 2 S.C.R. 318, followed.
(iii)The Bhavnagar War Profits Act was a law within the
words " any law relating to tax on profits of business" in
para 2 of the Removal of Difficulties Order of 1950.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 599-602
of 1962.
Appeals from the judgment and order dated April 7, 8, 1960
of the Bombay High Court in Income-Tax Reference Nos. 70 and
71 of 1956.
R.J. Kolah, Ravinder Narain, J. B. Dadachanji and O. C.
Mathur for the appellants (In all the Appeals).
N.D. Karkhanis and R. N. Sachthey, for the respondent (In
all the Appeals).
The Judgment of the Court was delivered by
DAS GUPTA J.-The assessee is the appellant in each of these
four appeals arising out of four references under s. 66(1)
of the Indian Income-tax Act to the High Court of Bombay.
In two of these appeals (C.A. Nos. 599 & 600 of 1962) the
assessee who has filed the appeals is the Mahalaxmi Mills
Ltd., in the other two (C.A. Nos. 601 and 602 of 1962) the
Master Silk Mills Ltd., is the appellant-assessee. Appeals
Nos. 599 and 601 are in respect of the assessment year 1949-
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50; the other two are in respect of assessment year 1951-52.
The controversy in all these cases is as regards the
computation of written down value in calculating
depreciation allowance.
Both the assessees bad from before 1949-50 been carrying on
business in Bhavnagar which was formerly an Indian State.
In 1948 Bhavnagar
along with other Indian States of Kathiawar formed
themselves into a union by the name of United States
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of Kathiawar. Later the name Kathiawar was changed to
Saurashtra. On March 16, 1949, the Raj Pramukh of this
newly-formed State instituted the Saurashtra Income-tax
Ordinance, 1949. This Ordinance was in force for one year
only the assessment year 1949-50. In assessing the profits
of business by the two appellant-companies for the year
1949-50 the Income-tax Officer had therefore to proceed in
accordance
with the provisions of this Ordinance. For the purpose of
calculating the depreciation allowance to which the assessee
was entitled in computing the profits or gains of the
business the written down value of the building, machinery
and plants or furniture had first to be ascertained in
accordance with
S. 13(5) of the Ordinance which ran thus:-
"Written down value" means:-
(a)in the case of assets acquired in the previous year,
the actual cost to the assessees;
(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 Ordinance or allowed
under any Act repealed hereby or which would have been allo-
wed to him if the Indian Income-tax Act, 1922, was in force
in the past."
As the assets-of both the assessees had been acquired before
the previous year s. 13(5) (b)applied. Reading the words in
the last part of s. 13(5) (b) as equivalentto which would
have been allowable to him if theIndian Income-tax Act,
1922, was in force" the income-tax Officer, in ascertaining
the written down value, deducted depreciation which would
have been allowable under the Indian Income-tax Act, 1922,
if it had been in force and a claim had been made supported
by prescribed particulars. This amount in the case of the
Mahalaxmi Mills Ltd., the appellant in C.A. No. 599/62, was
computed as Rs. 17,21,041 and in the case of the Master Silk
Mills Ltd., the appellant in C.A. No. 601/62, was calculated
as Rs. 2,02,500. The obvious result of deducting
220
this amount was that the written down value became
considerably lower than what it would have been otherwise
and so the depreciation allowance became less. The
assessee’s contention that no deduction should have been
made on the strength of the words which would have been
allowed to him if the Indian Income-tax Act, 1922, was in
fact in force in the past" as in fact no claim was made or
could be made for such allowance, was rejected by the
Income-tax Officer. The Appellate Assistant Commissioner as
also the Income-tax Tribunal, however, took a different view
and held that this expression "or which would have been
allowed to him if the Indian Income-tax Act, 1922, was in
force in the past" did not permit the Income-tax Officer to
make any deduction under this bead. The question of law
which was referred to the High Court under s. 66(1) of the
Indian Income-tax Act on the application of the Commissioner
of Income-tax has therefore been framed thus:-
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"Whether on the above facts and circumstances of the case
and upon a proper construction of the expression "or which
would have been allowed to him if the Indian Income-tax Act,
1922, was in force in the past" in Section 13(5)(b) of the
Saurashtra Income-tax Ordinance, 1949 the written down value
has to be computed by deduction from the actual cost of
depreciation allowance which was allowable under the Indian
Income-tax Act, 1922, even though not claimed?"
In each of the case, the High court answered the question in
the affirmative, but gave a certificate that it was a fit
case for appeal to the Supreme Court under s. 66(A) 2 of the
Indian Income-tax Act. The present appeals have been filed
on the basis of these certificates.
On behalf of the appellants Mr. Kolah has argued that the
Ordinance has not used. the words "would have been allowable
to him" nor the words" would have been allowed to him if a
claim supported by prescribed particulars had been made",
and there is no justification for reading these words into
the
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Ordinance. He has stressed the fact that in many cases
where the Indian Income-tax Act is in force the assessee
might find it to his interest not to make a claim for the
depreciation allowance and so no depreciation allowance
would then be allowed to him. He concedes that it may be
that the intention of the Rai Pramukh in using these words
in the Ordinance was that the depreciation which could have
been and would have been allowed if a proper claim had been
made and substantiated, assuming the Indian Income-tax Act,
1922, was in force in the past, should be deducted in
ascertaining the written down value. file contends however
that the words actually used are not sufficient to express
and give effect to this intention. According to him, it was
necessary in order to give effect to such an intention that
the words "if a. claim had been made supported by proper
Particulars" or at least the words "if a claim had been
made" had been used in this clause. In our opinion, the
words which according to Mr. Kolah were necessary to give
effect to the above intention are implicit in the very
language that has been used though they have not been
expressly used. The authority which made the Ordinance
should be credited with having appreciated the position that
no depreciation would have been allowed even if the Indian
Income-tax Act, 1922, had been in force, if no claim
supported by proper particulars had been made. When
therefore the words "which would have been allowed to him"
were used they were used to mean "which should have been
allowed if proper claim had been made. For, it would be
meaningless to speak of a depreciation allowance being
allowed. without a claim. The words used, in our opinion,
are apt and sufficient to express the intention that if the
Income-tax Act, 1922, which was not in force in the State
before, had been in force, the depreciation that would have
been allowed if proper claim had been made should be
deducted in ascertaining the written down value.
Mr. Kolah complains that on this construction the position
of the assessee becomes worse than
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if the Indian Income-tax Act, 1922, had actually been in
force in Saurashtra. If that had. been the case only the
depreciation actually allowed in the earlier years would
have been deductible and so, if no claim had been made and
therefore no depreciation had been actually allowed, nothing
would ’be deductible under this head. It does not stand to
reason, argues Mr. Kolah, that the position of the assessee
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should be made worse by this fiction in s. 13(5) (b) of the
Ordinance than it would have been if the Act had in fact
been in force. It is not unreasonable to think however that
when making this Ordinance the Raj Pramukh thought that if
the Indian Income-tax Act, 1922, had been in force a proper
claim would ordinarily have been made and whatever was
allowable under that law would have been allowed as
depreciation. The words used not only leave no doubt as
regards the intention of the authority, but as we have
already stated, are apt and sufficient to give effect to
that intention.
Mr. Kolah urged that it would cause undue hardship to the
assessee, that without having actually availed of any
depreciation he would be treated as if he bad done so. The
words used do not however leave any doubt about the meaning
and whether or not. any hardship has been caused is beside
the point.
Neither of the two cases cited by Mr. Kolah in support of
his argument is of any assistance. In Commissioner of
Income-tax v. Kamala Mills Ltd.(1)the Calcutta High Court
decided that the words "actually allowed" in s. 10(5) (b) of
the Indian Income-tax Act as amended by the Income-tax
(Amendment) Act (XXIII of 1941) are unambiguous and connote
the idea that the allowance was in fact given effect to.
The Court rejected a contention of the Income-tax
authorities that the expression "actually allowed" means
"allowable" under the law in force. In that case the Court
had not to deal with any expression similar to "depreciation
which would have been allowed if the Indian Income-tax Act,
1922, was in
(1) [1949] 17 I.T.R. 130.
223
force". In Rajaratna Naranbhai Mills Ltd., v. Commissioner
of Income-Tax(1) the Bombay High Court had to construe the
words "the amount of depreciation applicable" and held that
as the words were not "depreciation allowed" but
"depreciation applicable" it was immaterial whether the
assessee got any benefit of depreciation in any previous
year. Here also, the Court was not called upon to consider
the effect of the words under our present consideration,
viz., the depreciation which would have been allowed if the
Indian Income-tax Act, 1922 had been in force. Thus,
neither of these decisions has any application to the
present appeals.
For the reasons we have already given, we are of opinion
that the High Court was right in answering the question
referred in these cases out of which Civil Appeals Nos. 599
and 601 have arisen, in the affirmative.
For the assessment years 1951-52 the controversy arises in a
different way. In 1950, Saurashtra became a Part B State of
the Union of India; by s. 3 of the Indian Finance Act, 1950,
the Indian Income-tax Act was extended to it. In 1951-52
therefore the Indian Income-tax Act, 1922, was in force in
Saurashtra in which Bhavnagar was included. So, in
calculating the written down value of assets acquired before
the previous year the Income-tax Officer had to apply the
provisions of s. 10(5) (b) of the Indian Income-tax
Act, 1922, which runs thus:-
"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 (11 of 1886) was in force."
What the Income-tax Officer did was to deduct not only the
depreciation allowed in the assessment year 1950-51 under
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the Indian Income-tax Act but also the depreciation allowed
in the assessment year
(1)[1950] 18 I.T.R. 122.
224
1949-50 under the Saurashtra Income-tax Ordinance and the
depreciation availed of in the previous years by the
assessee under the Bhavnagar War Profits Act. There is or
can be no dispute that the depreciation allowed in the
assessment year 1950-51 was rightly deducted. There might
have been a dispute ,about the depreciation allowed in 1949-
50 under the Saurashtra Income-tax Ordinance, but, as before
the High Court the assessee conceded that this amount was
also rightly deducted, and no controversy on this was raised
either before the High Court or before us. The only dispute
that remains is whether the depreciation availed of under
the Bhavnagar War Profits. Act Rs. 5,93,285 in C.A. No.
600/62 by the Mahalaxmi Mills Ltd., and Rs. 1,26,707 in C.A.
No. 602/62 by the Master Silk Mills Ltd.--was deductible in
law. The Appellate Assistant Commissioner agreed with the
Income-tax Officer that this was allowable. The Appellate
Tribunal, however, took a different view, but on the prayer
of the Commissioner of Income-tax referred the following two
questions to the High Court under s. 66(1) of the Indian
Income-tax Act:-
"1. Whether on the above facts and circumstances of the case
and on a correct interpretation of the relevant provisions
of s. 10(5) (b) read with the Taxation Laws (Part B States)
(Removal of Difficulties) Order, 1950, paragraph 2 and the
Notification No. 19 (S.R.O.477) dated 9th March 1953 under
Section 60A the written down value is to be computed after
deducting depreciation allowance which could have been
claimed tinder the Indian Income-tax Act, 1922?
2. Whether the Notification No. 19 (S. R.O. 477) dated
9th March 1953 is ultra vires of the powers of the Central
Government?"
The High Court has answered the second question in the
affirmative and the correctness of that is no longer in
dispute before us.
225
As regards the first question it appears to us that the
matter in controversy between the parties which was actually
considered by the High Court is not clearly brought out by
the question as framed. Both parties agree that the real
question on which the High Court’s view was sought and which
has been actually considered by the High Court may be
expressed thus:-
"Whether on the above facts and circumstances of the case
and on a correct interpretation of the relevant provisions
of Section 10 (5) (b) of the Indian Income-tax Act, 1922
read with the Taxation Laws (Part B States) (Removal of
Difficulties) Order, 1950, paragraph 2 and the Notification
No. 19 (S.R.O.477) dated the 9th March 1953 under section
60A the depreciation availed of by the assessees under the
Bhavnagar War Profits Act was a deductible amount in
computing the written down value of the assets."
It will be noticed that the validity of the Notification
referred to in the question was the subjectmatter of the
second question and the correctness of the High Court’s
answer that it was invalid, was not questioned before us.
What really remained to be considered by the High Court was
the effect of paragraph 2 of the Taxation Laws (Part B
States) (Removal at’ Difficulties) Order, 1950-to which we
shall later refer as the "Removal of Difficulties Order".
The High Court held that the provisions of this paragraph
applied to these two cases of assessment for 1951-52 and
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under them the depreciation already availed of by the
assessees under the Bhavnagar War Profits Act had to be
deducted in computing the written down value. The
correctness of this decision is challenged before us in C.A.
Nos. 600 and 602 of 1962.
The Removal of Difficulties Order was made by the Central
Government on December 2, 1950, in exercise of the powers
conferred by s. 12 of the Finance Act, 1950, and Section 5
of the Opium and
226
and Revenue Laws (Extension of Application) Act, 1950. We
are concerned in the present case only with s. 12 of the
Finance Act, 1950. That section runs thus:-
"If any difficulty arises in giving effect to the provisions
of any of the Acts, rules or orders extended by section 3 or
section II to any State or merged territory, the Central
Government may, by order, make such provision or give such
direction as appears to it to be necessary for removing the
difficulty."
Section 3 of the Act had the effect of extending the Indian
Income-tax Act, 1922, to Part B States in the Union of
India. It was not disputed that it was within the
competence of the Central Government to make the Removal of
Difficulties Order, 1950, if any difficulty arose in giving
effect to the Indian Income-tax Act in an area to which it
so became extended. In making the order the Central
Government has expressly said: "That certain difficulties
had arisen in giving effect to the provisions of the Indian
Income-tax Act, 1922........................ in Part B
States" and so, the order was made. In Commissioner of
Income-tax Hyderabad v. Dewan Bahadur Ran; Gopal Mills Ltd.,
(1) this Court held that it was for the Central Government
to determine if any difficulty of the nature indicated in s.
12 bad arisen and then to make such order or give such
direction as appeared to it to be necessary to remove the
difficultly. It was in view of this decision that Mr. Kolah
conceded that the order was validly made. He contends
however that it is only when a difficulty is actually
experienced in giving effect to the Indian Income-tax Act
that the provision of the Order can come into operation in a
particular case. in the cases now under consideration, he
argues, no such difficulty was actually experienced and so,
paragraph 2 would have no application.
In our opinion, the High Court rightly rejected this
contention. The consequence of the Removal of Difficulties
Order being validly made under s. 12
(1) [1961] 2 S. C. R. 318.
227
of the Finance Act, 1950, is that paragraph 2 of the Order
(as also the other paragraphs) have to be applied and no
exception can be made. Paragraph 2 runs thus:-
"In making any assessment under the Indian, Income-tax Act,
1922, all depreciation actually allowed under any laws or
rules of a Part B State’ relating to income-tax and super-
tax or any law relating to tax on profits of business shall
be taken into account in computing the aggregate
depreciation allowance referred to in sub-clause (c) of the
proviso to clause (iv) of sub-section 2, and the written
down value under clause (b) of sub-section 5, of section 10,
of the said Act."
These words require "all depreciation actually allowed under
any laws or rules of a Part B State relating to income-tax
and super-tax or any law relating to tax on profits of
business" to be taken into account in computing the written
down value under s. 10 (5) (b) of the Indian Income-tax
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Act,-irrespective of whether any difficulty has or has not
arisen in a particular case in giving effect to the
provisions of the Indian Income-tax Act. What is necessary
in law is that before an order can be made by the Central
Government under s. 12, the Central Government must be
satisfied that in certain cases difficulties have actually
arisen in giving effect to the provisions of the Indian
Income-tax Act. Once on such satisfaction an order is made
it is not again necessary for the application of the order
in a particular case that difficulty must be found to have
arisen. A separate Order under s. 12 has not got to be made
each for particular case. The order once made on the
satisfaction of the Central Government that in some cases
difficulties have arisen in giving effect to the provisions
of the Indian Income-tax Act the order operates under its
own terms and so in giving effect to the order it is not
necessary for the Income-tax Officer to see first whether
any difficulty has arisen.
We are of opinion that whether any difficulty did actually
arise in the cases now under considera-
228
tion in applying the Indian Income-tax Act, 1922, in this
Part B State or not, paragraph 2 of the Removal of
Difficulties Order must be applied according to its terms.
It is therefore not necessary to examine whether any such
difficulty did arise in these cases.
This brings us to Mr. Kolab’s main contention that the
Bhavnagar War Profits Act is not one of the laws
depreciation allowed under which has to be deducted under
paragraph 2 of this Order. He points out that the Bhavnagar
War Profits Act bad ceased to be in force long before the
Part B State-the United States of Saurasbtra-came into
existence. It was therefore never a law of a Part B State
and so depreciation which the assessee availed of under it
will not come within the words "all depreciation actually
allowed under any laws or rules of a Part B State relating
to income-tax and super-tax." This appears to be correct;
but the question still remains whether the Bhavnagar War
Profits Act is covered by the words "any law relating to tax
on profits of business" in the paragraph. If it does, the
depreciation which the assessee availed of under the Act has
to be deducted in computing the written down value.
Analysing the clause: "all depreciation actually allowed
under any laws or rules of a Part B State relating to
Income-tax and super-tax" or any law relating to tax on
profits on business," we notice that the words "of a Part B
State" were used to qualify the phrase "any laws or rules"
in the first portion of the clause. Similar words were not
used to qualify the words "any law" in the second part.
According to Mr. Kolah these words "of a Part B State" were
intended to be read also after the words "any law" in the
latter portion and were omitted by way of ellipsis so that
the sentence might not appear cumbersome.
Ellipsis is a well-known figure of speech by which words
needed to complete the construction or sense are omitted to
produce better rhythm or balance in the structure of the
sentence.
After careful consideration we have however come to the
conclusion that the omission of the words
229
" of a Part B State" in this paragraph is not by way of
ellipsis but a deliberate omission with the intention of
including laws which could not be stated to be laws of a
part B State but bad been laws in the same area at a time
before they formed part of a Part B State. If the omission
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had been by way of ellipsis, as argued by Mr. Kolah, it
would be reasonable to think that the words "any law
relating to tax" would also have been omitted and this part
of the paragraph would have read as "all depreciation
actually allowed under any laws or rules of a Part B State
relating to Income-tax and super-tax or tax on profits of
business." It also appears to us that if the intention had
not been to include the depreciation allowed under a law
which had been law in a component part of the Part B State
before it became included in the Part B State, it was
unnecessary to add the words " or any law relating to
tax on profits of business." For, "a law relating to tax on
profits of business" is also a law relating to Income-tax
and, so, depreciation actually allowed under a law relating
to tax on profits of business which was law of a Part B
State would come within the first portion of the clause. It
is worth noticing in this connection that in 1949 when by an
Ordinance certain taxation laws were extended to Merged
States the Central Government made under s. 8 of that
Ordinance ’The Taxation Laws (Merged States) (Removal of
Difficulties) Order, 1949". Paragraph 2 of that Order
merely said "all depreciation actually allowed under any
laws or rules of a merged State relating to Income-tax and
super-tax shall be taken into account." Nothing was said in
that Order as regards " any law relating to tax on profits
of business." The Removal of Difficulties Order add the
words "any law relating to tax on profits of business".
This appears to have been done with the deliberate intention
of including depreciation allowed under such laws, even
though they were not laws "of a Part B State" but of a
component State.
We have come to the conclusion that the Bhavnagar War
Profits Act is within the words "any law
230
relating to tax on profits of business" in paragraph 2 of
the Removal of Difficulties Order. We hold that the High
Court has rightly decided that the depreciation availed of
by the assessee under the Bhavnagar War profits act was a
deductible amount in computing the written down value of
the assets.
All the appeals are therefore dismissed with costs. There
will be one set of hearing fee in all the appeals.
Appeal dismissed.