MAHADEVA UPENDRA SINAI ETC. ETC. versus UNION OF INDIA & ORS.

MAHADEV A UPENDRA SINAI ETC. ETC. v. UNION OF INDIA & ORS. November 7, 1974 [A. N .RAY, C.J., K. K. MATI!EW, A. ALAGIRISWAMI, P. K. GoswA!vlJ. AND R. S. SARK.ARIA, JJ.J Ttixatic11 Laws (Extmsion to Union Territories) (Removal of Difficulties) Order 1970 Cl. (3), prol'iso (2)-lf ultra virts Taxation laws (Extemion to Union Ttrrltorlts) Regulatfon Ill of 1963.

Goa, Daman and Diu, erstwhile Portuguese territodes became a Union Terri- tory of ~ Indian Union on December 19, 1961. The President of Jndia, in exercise of tho powers under Art. 240 promulgated the Taxation Laws (Extension to Union Territories)

Regulation II of 1963. By cl. 3 of the Regulation, the Indian Income Tax Act, 1961, was extended to the Union Territory. By cl. (4) the corresponding law in the Union Territory was repealed from April 1, 1963. aause (7) provided that if any difficulty arose in giving effect in the Union Ter- ritory, to the provisions of any Act etc., the Central Government may, by gene- ral or special order give necessary directions for tho removal of the difficulty. ·The petitioners were carrying on business in the Union Territory, where there wil3 a Portugue!;C law rtlating to levy of tax, tho scheme of which was entirely different from the Indian Act.

Under that law, the net profits and sains were not calculated b\lt a tax was levied at a certain percentage on tho gross in.::ome or tnmover of the business irrC!lpectivc of whether the asscssee made any profits or suffered losses.

After the extension of the Indian Act. the petitioners were assessed under it from the assessment year 1964-65 onwards. The assessee was allowed deprecia- tion of the assets used by him for bis business on tho basis of the 'written down value' under s. 43(6)(b) read withs. 32 of the .Income Tax Act. Section 32 adopts two methods in allowing depreciation. Jn the case of non- .ocean going ~hips and buildings, machinery, plant or furniture, lb: prescribed percentage of depreciation is to be' computed on the basis of th~ written down value of the asset.

Section 43(6) defin~ 'written down value' to mean (a) in the case of asset5 acquired in the previous year, the actual cost and ( b) in the case of assets before the previous year, the actual cost less al! depreciation actual- ly allowed under the 1961-Act or under the 1922-A>:t or any Act repea 'ed by that . Act or under any executive orders. Where the asset was acquired in the previous year depreciation would be allowed ·at the prescribed rate on stich cost. and in subsequent years, the depreciation iYouJd be calculated on the basis of actual cost less depreciation actually all owed.

·For the assessment year 1964-65, in assessing the petitioner, the written down value was taken as the actual cost of the assessee's assets since no depreciation was actually allowed to him earlier and the written down value was progressively reduced in the succeeding years by deducting the depreciation actually allowed in the preceding year.

On Nov. 8, 1970, the.Central Government, in purported exercise of its powers under cl. (7) of the Regulation, promulgatect the Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Order. It provided in cl. (3) that in making any assessment under the Income Tax Act, 1961, .all depreciation ac· tuany allowed under the local laws &hall b! taken into account in compnting the deductions, and in the proviso 2 to d. (3 ), that, where in respect of any period no depreciation was actually allowed under the local law, dtprtclation for that puiod shall be calculated at the rott under the Indian Income Tax, 1961, or the 1922 Act or any Act r~pcaled by that Act or under any executive orders issued when the Indian Income Tax Act, 1886, was in force, and the depreciation shall be deemed to be the depreciation actually allowed under tlie local law. In the

light of proviso 2 to cl. (3) of th" 1970 Order, tho assessment already made of tlte petitioner were !!Ollgbt to b~ revised, so that, the written down value of the c M. u. SINAI v. UNION (Sarkaria, I.)

assets for calculating the depreciation allowance-even for the first time when the petitioners were assessed under the 1961-Act-would not be the actulll cost of . the RBSets, but .a far lower sum with proportionate increase in the petitioner's liability to tax since the assessmept year 1%4·65,

The petitioner therefore challenged the validity of Proviso 2 to Cl. ( 3) of the Taxation laws (Extension to Union Territories) (Removal of Difficulties) Order 1970. (Per A. N. Ray, C.J., K. K. Mathew, P. K. Goswami and R. S. Surkaria, JJ.). HELD : Allowing the Petitions;

The 2nd Proviso to cl. (3) of the 1970-0rder is ultra vires the Central Gov· ernment when exercising its powers under cl. (7) of Regulation ll1 of 1963, and the Revenue is not entiUed to levy tax on the basis of the depreciation allow- ance computed in accordance with the said Proviso. [659E·F] ( 1) To keep pace .with the rapidly increasing responsibilities of a welfare de. mocratic state, the legislature bas to turn out a plethora of hurried legislation. It is well nigh impossible, e8pecially when the legislature deals with socio-economic all(ivities of the State or extends existing Indian laws to territories freshly merged in the Indian Union, to foresee all the circumstances to deal with which a statute is enacted or (o anticipate all the difficulties that might arise in its working due to peculiar local conditions. In order to obviate the necessity of approaching the legislature for removal of every difficulty however trivial, encountered in the en- forcemeru of the statute, the legislature invests the Executive with power lo re- move difficulties' for making the implementation of the statute effective by mak· iog minor adaptations apd peripheral adjustments in the statute without touching ils substance. [653D·HJ

(2) The existence or arising of a 'difficulty' is the si11e qua non for the exercise of the power under cl. 7 of the 1963-Regulation. The 'difficulty' contemplated by the clause must be a difficulty arising in gfring effect to the provisions of the Act and not a difficulty arising a/i11rule.

Further, the Central Government can exercise the power under the clause only to the extent it is necessary for applying or giving effect to the Act and no further. It may slightly tinker with the Act to round off angularities and smoothen the joints or remove minor obscurities to make it workable, but it cannot change, · disfigure or do violence to the basic structure and primary features of the Act. Under the guise of removing a diff· culty, it ca-nnot. change the scheme and essential provisions of the Act. [653H·

654B) (3) The contention that but for the impugned proviso, the provisions of ss. 32 and 43(6)(b) of the 1961-Act, on its extension to the Union Territory, could not be given· effect to and applied to the petitioner must be rejected. There could be no difficulty in computing the 'written down value' under s. 43(6)(b) of the assets that had been acquired by the petitioner before the previous year.· Since no ·depreciation was, in fact, allowed to the petitioner in the past under the Por- tuguese law, in the first ~ent under the Indian Act, the written dow.n value would be the actual cost of the assets less nil. Thereafter, in each suoceediog year, the depreciation actually allowed in the preceding year would be deducted causing yearly diminution of the written down v.alue with consequent decrease in. the di- ,:J preciation allowed on that basis. This was 'exactly the manner in which .the 'wri. ten down value' of the assets of the petitioner had been computed and deprecia- tion . allowed for the several assessment years from 1964-65 onwards, showing that there was no difficulty in applying the provisions. [6SSH-6S6D} ( 4) There is no basis for the argument that the impugned proviso brings about equality of treatment among the different assessees in India. Far from ensuring parity of treatment it puts the .assessec in the Union territories in a worse position than the assessces In the rest of India.

[6560-F} Straw Products Ltd. v. Income-tax Officer, Bhopal, (1968] 2, S.C.R. I followed. Commissioner of Income-tax; Hyd"abad v. Dewan Bahadur Ram Gopal Mills I.Id. [1961} 2 S.C.R. 318 at 325 & 326 distingukhe~.

SUPJU!MB COURT REPORTS The phras~ 'actually allowed' is limited to the depreciation ac111a/ty 1akt11 imo acco11nt or gra11ted or given e/}ect tn and •Cannot be stretched to mean 'notionally allowed'. In th.is Union Territory, under the Portuguese law no depr<X:iation was ever computed or actually allowt'Ci to the as~sees. ~e impugned proviso, by replacing depreciation 'actually allowed' with depreciation 'deemed to have been allowed,' by a fiction of law, eve:n where no depreciation was at all aHowed, in effect, attempts to change the fundamental scheme of the Indian Act in its applica- tion to the assessees in the Unio11 Territory of Goa, Diu and Daman. [658B·El ( 6 ) Under s. 32 (2) of the Indian focome Tax Act an assessee is entitled to 'carry iorward' unabsorbed depreciation in case of loss or inadequate profits, with· out any time limit, For ensuring this right to an assessee, assessments for ascer· taining losses or insufficiency of profits of his business, since the acquisition and use of the assets by him, will have to be made. In the Union Territory of Goa etc., during the interregnum between Dec. 19, 1961, and April I, 1963, there was no law authorising the levy of inr.ol,1\e tax. Even under the Portuguese law, the tax was in reality a 'turn over' tax irrespective of the assessee making profit or loss. Retrospective assmments for the purpose, ~oing back to a period prior to 1963, could have been made onde:r a law of Pathament but not under an cxecu· tive fiat.

But, in the Indian Income Tax Act as extended to these territories, there is no provision for ~aking assessment in respect of those past years. In the absence of such law, it is impossible to work the Proviso without riding rough shod over the rights of the asscssec:s to have their unabsorbed depreciation relating to. the pre-1963 period, carried forward. Therefore a Goan asses.sec, who· suffer- ed losses and depreciation of his assets will never get the benefit of such carry forward, as ocl machinery exists for determining the inadequacy of profits or the factum of losse<J in those years. Viewed from this angle, the impugned. proviso would, in the implementation of the Act,· create difficulties rather than remove them. [6S9A-E]

(Per A/afiiris11·a111i. J., dissenting). HELD : Dismissing the petition, (I) The provision regarding written down value and allowance of deprecia- tion under tho Indian Income Tax law proceeds on the basis of depreciation al· lowed year br year with tho result that the written down value goes down year after yoat and similarly the depreciation. If, therefore, because there was no provi,ion under the Income Tax law applying to the former Poduguese territories providing for depreciation the written down value of an asset is taken as the actual co't even after many years of its acquisition it would mean putting the assessees in those territories at an advantage compared to the assessees in th~ rest of India. More important, it would not accord with realities and would not be in accord· ance with the scheme of depreciation under the Indian Income-tax Act. A certain plant and machinery purchased 10 years earlier and now worth half its original value would be taken to be worth its original cost aoa depreciation allowed on that basis. It is, therefore, n~y to devise some method by which 'both the asse55ees in the Indian Territory and the erstwhile Portuguese territory could be put on the same footing and the normal scheme of depreciation under the Indian Incom~-tax Act made applicable t.o all. A simila.r problem 8I05e in the case dealt with in Commissioner of Income Tax, Hyderabad v. Dewan Bahadur lfam- gopa/ Mills Ltd. [1961] 2 S.C.R. 318 dealing with assessecs in Hyderabad govern· ed by the Hyderabad Income True Act before the Indian Income tax Act was eKtended to the Hyderabad area and the decision given therein is exactly to the point. [6610-H; 663H]

(2) Jn that case, this Court held that if depreciation actually allowed under the Hyderabad Income-tax Act alone was taken into account in c;omputing the aggregate depreciation allOWiJICll and the written down value an anomalous re- sult would follow, namely, depreciatiop allowance to be allowed to the assessee in the accounting year under the Indian Income Tax Act would be more than what was allowed in previoos yem under the Hyderabad Income-tax Act, that thii would create a disparity arid /,.~ azaimt the scheme of the lndJan Income tax Act, that it was therefore ~

to exJl&jn par&gn.ph 2 of the lt$Oval of Dif- ficullie1 omer. 1950, (comideml to that ca:e) to uaimilate or he.rll!Olli=e the posi- tion reprding depreciation &llowuce. Thia is exactly what wu propoxd to .be dco lu the case ot die tor=r Portup:~ territories by tb llllP\>all3Cl Order. {6638-H]

c c M. u. SINAI v. UNION (Sarkar/a, J,) l'43 (3) 'fhe decision in Ramgopal Miiis was considered in Straw Prodi;cts Ltd. v. l.T.O. [1968] 2 SCR !. lt was not di'>sentcd from and by implication the deci- sion in' Ramgopal Mills is still good law. In the Straw Products case the court held that the. order impugned in that case sought, in purported exercise of the re- moval of dilllculties power, to r:emove a difficulty which had not arisen and Lhal therefore it ·was unauthorised. The Court specifically did not think it necessary to determine. to what extent, if any, it would be open to the Central Government by an Order issµed in exercise of the power to remove difficulties to make pro- vision which is inC:onsistent with the provisions of the Indian Income tax Act, nor did it hold that the Order impugned in that case w&S inconsistent with the provi- sion of the Indian income-tax Act. It was therefore open to the Central Govern- ment, in exercise of its power~ under cl. 7, to

issue the impugned order. [66SB-GJ ( 4) ,Under the scheme of the Indian lncome tax Act, it was open to the as- sessee to carry forward the depreciation ·for any length of time if he had sustained any· loss. It could not however, be contended by the assessee in the present case that it will now be .very difficult, if not impossible, for the assessee to produce all the accounts of earlier years to show the losses which' he had incurred, the depreciation be was -entitled to and which he can carry forward. Assessees are

expected to and would have maintained accounts at least for the purpose of· the Income-tax Act, ·which was in force in the former Portuguese territories, though that Act was a simple one. What is necessary for working out the impugned order is to· know whether there was a profit or a loss and as the cost of acquisition of the assets, in respect of which depreciation allowance is claimed, should also be . available it should not be very difficult to calculate the depreciation and arrive at 'the written down value as on the date when the Indian Income-tax Act was extended ·io the former Portuguese territories. To accede to the claim of the assessee lhat the original value of the assets should be taken tci be the written down value however long they might have been used means that they get an ad- vantage not merely in the first year in which the Indian Income-tax Act was ap- plied to those territories but to enjoy a continued advantage which will last as Jong as their assets last. [66SG-666C}

(5) The Order is given retrospective effect, but the Central Government has the power to make an· order or give a direction so as to remove the difficulty from the very beginning, and that is what the Order does. [666F-G] Ramgopal Mills Case, followed.

ORIGINAL JURISDICTION : Writ Petitions Nos. 112, 391-394 of 1971 and 330-31 & 382-387 of 1974. Petitions under Article 32 of the Constitution of India. A.{(_, Sen (In W.P. No. 112/71), N. A. Palkhiwala (lnW.P. 330- 331 and 382-387/74), S. P. Mehta, P. C. Bhartari, J. B. Dadachanji, G. C. Mathur, Arati Mehta and Ravinder Narain, for the petitioners. F. S. Nariman, Additional Solicitor General, P. P. Rao and s. P. Nayar, for the respondents ..

The Judgment of the Court was delivered by R. S. Sarkaria, J. A. Alagiriswami, J. gave a dissenting Opinion. SARKARIA, J: These writ petitions under Article 3 2 of the Consti- tution raise a question with regard· to the validity of the 2nd Proviso to Clause (3) of the Taxation Laws (Extension to Union Ter:!~ories) (Removal of Difficulties) Order 2 of 1970. The first five petitions of 1971 were urged earlier by Shri Ashok Sen and the rest have been argued now by Shri N. A. Palkhiwala. They are being disposed of by a common judgment.

The petitioners are carrying on business in the Union Territories of Goa, Daman and Diu. Respondents 1 and 2 are the Un1on of India and the Income-tax Officer, respectively. SUPRl!MB COURT Rl!PORTS

[1975) 2 S.C.R. Gtia., Daman and Diu are erstwhile PortGgUese territories which · A became a part of the Union of India on and from December 19, 1961. Thereupon, the ~res!dent of India in exercise ?f P?Wers under ~cle 240 of the Constitution promulgated the Taxation Laws (Extension to Union Territories) Regulation III of 1 %3 (for short, the Regulation). Dy Clause (3) of this Regulation, amongst other laws, the Illdian Income-t\lJC Act, 1961 (for short, the Act) was extended to the Union Territory of Ooa, Daman and Diu with effect from April 1, 1963 subject to certain modifications, one of whieh-·was the insertion of s. 294-A in the Act. . Section 294-A gave power to the Central Govern- ment to make exemption, reduction or modification · in respec;t of income-tax to avoid hardship or anomaly or to remove difficulty in .the application of the Act to oany assessee in the Union Territories of Dadra Nagar Haveli, Goa, Daman and Diu etc. The power granting the exemption etc. was exercisable before March 31, 1967. We are not concerned with the Section because the impugned order was not made under it.

By Clause ( 4 J of the Reguration, the laws in force in. the Union Territory corresponding to the Acts specified in the Schedule, stand re- pealed from April 1, 1963. Clause (7) provides :

"If any difficulty arises in giving effect in any Union Territory to the provisions of any Act, or of any rule, notifi- cation or order ma4e or issued thereunder, the Central Government may, by general or sp!!cial order published in

the Offieial Gazette, mak(~ such provisions or give such direc- tions oas appear to it to be expedient or nej:essaryifer the re- moval of the difficulty. r r! • -' ! . ·1"6n November 8, 1970, the Central Gtivernment t-in purported exercise of its powers under Clause ( 7) of the Regulation prolijµlgated the Taxation Laws (Extension to Union Territories)

(Removal of Difficulties) Order No. 2 of 1970 (hereinafter called the 1970 Order), the material part of which runs tlhus : . , :',Whereas certain difficulties have arisen in giving effect to the.provisions of the foco!lle-t•ax Act, 1961 .. in the Union Territories of Goa, Daman, Diu …. Now therefore …. the Central Government hereby makes the following order .. .

(1) … (2) It shall be deemed to have come into force on the 1st day of April 1963. ( 3) Computation of aggregate depreciation allowable and written down· valut>-ln making any assessment under

the Income-tall:. Act, 1961 ( 43 of. 1961) all depreciation actually allowed under the local laws shall be taken into account in computing the aggregate of all deductions in res- · pect of depreciation referred to iii Clause ( 1) of sub section (2) of Section 34, and the. written down value under sub

clause (2) of clause (6) o! Section 43 of the said Act. c c M. u. SINAI v. UNION (Sarkaria, !.) Provided that where in respect of any asset, depreciation has been allowed for any year both in the assessment made

under the local Jaw and in the assessment made under the Income-tax Act, 1885, the greater of the two sums allowed shall only be taken into aceount, Provided further that where in respect of any period no

depreciation was actually allowed iindcr the local law or the depreciation actually allowed cannot be ascertained, depre- ciation in respect of that period shall be calcuklted at the rate for the time bein$ in force under the Income-tax Act, 1961 or under the. Indian Income-tax Act, 1922, or any Act re-

. pealed by that Act or under any executive orders, issued when the Indian lncome-tax Act, 1886 was in force, as the case may be, and the depreciation so calculated shall be deemed to be the depreeiation actually allowed under the local Jaw." As clarified by the Explanation, "local law" in relation to the Union Territory of Goa, Daman and Diu means the Portuguese law relating to tax on income as in force immediately before April l, 1963. In these territories, there was in force a Portuguese law relating to levy of tax, the scheme of which was entirely different from that of the Indian Income-tax Act. · Under that 1'aw there was no provision for granting depreciation illlowance; the net profits and gains of the busi- ness were not calculated and the tax was levied at a certain per· centage on· the gross income or turnover of the business, irrespective of whether the assessee had made profits or suffered losses.

After the extension of the Act to Goa, Daman and Diu, the peti- tioners were assessed under the Act for several assessment years from 1964-65 onwards. In each of the completed assessments, the assessee was allowed depreciation of the assets used by him for. his business, on tha basis of 'written-down value' under cl. (b) of s. 43 ( 6) rQ\d with s. 32. For the assessment year 1964-65 the "written-down value" was taken as the actual cost of the assets to the assessee since no deprecia- tiort was actually allowed to him earlier. In each of the succeeding annual assessments the 'written-down value' was progressively reduced by deducting the depreciation actually allowed in the preceding year from the actual cost of the assets.

In the light of the 2nd Proviso to Clause (3) of the 1970 Order, the past completed assessments in the. case of these petitioners are being revised. In consequence, the wri!tten-down value of the . assets for calculating the depreciation allowance even for the first time when the petitioners were assessed under the Act, would not be. the actual cost of the assets to the assessee, but a far lower sum with propor- tionate increase in the petitioners' liability to tax since the assessment year 1964-65.

In the case of. petitioners in Writ Petitions 330-331 of .1971, the Respondent (lncomo-tax Officer)· has already "revised'' the assessment for the year 1965-66, and reduced the depreciation allowed in view of the 1970 Order and in the result raised a higher demand. He has, however, kept that demand in abeyance. till the, decision of these peti- (14 6

tions, wherein the validity ()f the 2nd Proviso (hereinafter called the impugned Proviso) to Clause (3) of the 1970 Order is in question. Section 2(24) (i) of the Act defines "income" to include "profits and gains''. Section 28(i) makes the "profits and gains of any busi- ness or profession which was carried on by the asscssee at any time during the previous year" chargeable to income-tax. Section 29 re- quiros that the income referred to in s. 28 shall be computed in accord- ance with the provisions including those for deductions contained in ~s. 30 to 43-A. Since the tax is chargeable on "profits and gains" and not on gross receipts, the profits <o be assessed must be the real profits computed, subject to the special requirements of the Act in accordance with the ordinary principles of commercial accounting. It follows that if the deduction of a particular item from the incomings of the business, or profession is neither expressly covered by the aforesaid sections, nor prohibited expressly or by necessary irnplioation by those provisions, it can be allo'>'(ed under s. 28 (1) provided on ordinary commercial principles, it is a proper item to be debited against the incomings in ascertaining the "profits al!d gains" property so-called-see Badridas Degu v.

Commissioner of Income-tax(I) and Commissio11er of Income-tax v. Plymaun.(2) We h•ave alluded to these general principles for a proper perspec- tive. Deducations by way of depreciation allowance, with which we are directly concerned, have been specifically recognised and dealt with in s~. 32, 34 and 43 (6) of the Act.

Section 32 adopts two methods in allowing depreciation. In the case of ocean-going ships depreciation is allowed, year •after year, at the fixed prescribed percentage on the original cost of the asset to the assessee s. 32(1 )(8). This has been called. the straight-line method. In the case of non-ocean going ships and buildings, m1chinery, pla.;t or furniture, the prescribed percentage of depreciation is to be comput- ed on the basis of written-down value of the asset s. 32(1) (ii). This is known as the "written-down value" method. Both these methods seek to ensure that the aggregate of the depreciation allowances grant- ed, year after year, does not exceed hundred per cent of the original cost of the asset.

Jn the straight-line method, however, the entire de· preciation is written off sooner than in the 'written-down value' method, if the figures of actU'al cost of the asset and the prescribed percentage are the same fn either case.

Sub-·section (2) of s. 32 allows the carry-forward of unabsorbed depreciation allowance to any subsequent year, without any time-limit, where such non-absorption is "owing to there being no profits or gains chargeable for the previous year or owinl( to the profits or gains being less than the allowance". Pepreciation loss under s. 32(2) (2) thus, to a large extent, stands on th<~ same footing as other business losses. An assessee claiming depreciation of assets has to show that such assets •are owned by him and were used by him in the account year for the purpose of his business, the profits of which are being charged [s. – ——

(!) 34 T.T.R. 10 (S.C.). (2) 46 T.T.R. 649 (S.C.). c M. u. SINAI V, UNION (Sarkaria, J.) 32(i) ]. Fur~her, the total of all deductions in respect of depreciation under s. 32(1) .of the Act or under the lnuian Iorome-tax Act 1922 (for short, the 1922 Act) or under any Act repealed by that Act' made year after year, should not, in any event, exceed the actu•al cost' of the assets to the assessee s. 34(2) (i).

. The definition of "actual cost" is to be found in s. 43 ( 1) and that ot "written-down value" in s. 43(6). The later defines it to mean- ( a) in the case of assets acquired in the previous year, the •actual cost to the asscssce;

(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 under. the I 922 Act or any Act repealed by that Act, or under

any executive Orders issued when the Indian Income- • tax Act, ,l B86 was in force. II ( ~mphasis supplie~) . The pivot of the definition of "wrillten-down value" is the "actual cost" of the assets. Where the asset was acquired and also used for the business in the previous year, such value would be its full actual c~t and depreciation for that year would be allowed at the prescribed ·rutc on .s\lch cost. In subsequent year, depreciation would be calcuJat- cd on the basis of actual cost less depreciation actually allowed. The key word in ·clause (b) is "actually". It is the anti-thesis of that which js merely speculative, theoretical or imaginary.

"Actually" contra· indicates a deeming construction of the word "allowed" which it quali- fies. The connotation· oi the phrase "actually allowed" is thus limited to depreciation actually taken into account or granted and given effect w, i.e. debited by the Income-tax Officer against the incomings of the business in computing the taxable income of the assessee; it cannot be stretched to. mean "notionally allowed" or merely allowable on a notional basis.

Of course, any depreciation carried forward under s. 3 2 ( 2) is, in view of Explanation 3 to s. 43 ( 6) considered as depreciation ''uctually allowed". But such is not the case here.

From the above conspectus, it .is clear that the essence of the scheme of the Indian Income-tax Act is, that depreciation is allowed, year after year, on the actual cost of 'the •assets as reduced by cleprecia· tion actually pllowed in eaflier years. It follows, therefore, that even in the case of assets acquired before the previous year, where in the past no depreciation was computed, actually allowed or carried for- ward, for no fault of the assessce, the "written-down value" may, under Clause (b) of s. 43(6), also, be the actual cost of the assets to the assessce.

6 411 STJPl\l!MB COURT PJ!POl\TS (1975) 2 S.C.R. Relying on the ratio of this Court's decision in Straw Products Ltd; v. Income-tax Officer, Bhopal(il), learned Counsel for the petitioners have pressed these points into argument :

( 1) The 'arising of a difficulty' in giving effect: to the Indian Income-tax Act or rules ,tc., made thereunder is a condition precedent to the invocation of the power under Clause (7) of the Regulation, and sin<:e

the cxistance of that condition had not been establish· ed >as an objective fact, the Central Government had no power to promulgate the impugned Proviso. It is stressed that th(1 Act has been applied all these years

since its extension in April, 1963 to these Territories without any difficulty. (2) The power under Clause (7) of the Regulation can be exercised only in a mann.er consistent with the

scheme and essential provisions of the Act. The impugned provi~o . seeks to amend and change the scheme and basic provisions of the Act inasmuch as it provides, inconsistently with ss.43(6) and 32 of the

Act, for dete~ the written-down value on the basis of a notional depreciation in cases in which no depreciation was: actually allowed. (3) In any case, it would be impossible to work the im~

pugned Proviso. c Mr. Nariman, learned .Additional Solicitor-General, submits, in reply, that difficulties J:.oad arisen in the apPlication of the provisions of the Act in the matter of allowing depreciation to assessccs in these Union Territories. But for the impugned provisions, it is contended, such assessees would not have been entitled to claim depreciation allowance either under clause (a) or under clause (b) of s.43(6) read with 11.32 of the Act. Clause (a) r.ould not apply to these cases because the assets were acquired before the year immediately preceding April 1,1963. Clause (b) \\'.Ould not cover their case because, firstly, under the scheme of the Act, the written-down value of assets acquired several years earlier cannot be taken as their full actual cost, and, secondly, the Portuguese law, under which they were formerly assesse.d, was not repealed by the Indian Income-tax Act, but by the Regula- tion. It is argued that in s.43 ( 6) read with s.32, there is an implied prohibition against allowing depreciation on the actual cost of the assets which were not acquired in the previous year.

This difficulty, says the Counsel, had to be removed to enable the petitioners to claim just depreciation allowance. If it is assumed-proceeds the argument– that s. 43 ( 6) is applicable to the case of these assessees and the iiepre- ciation has to be calculated '1>n the original full cost of the assets despite their being old and worn out by use over the years; such a course would be wholly divorced from realities, and give the assessees in Goa, Dnman and Diu an undue advantage over the asseMCCS in · ff India~ This resultant disparity, it .is urged, was a ·!lifliculty afld .the · (I) [1968] 2 S.C.R. I.

c M. u. SINAI v. UNION (Sarkaria, J.) impugned Proviso removes it by bringing the assessecs in the former Portuguese Territories at par with the assessees who had suffered taxation under the Act.

Learned Counsel further maintains that the decision in Straw Pro- ducts' case does not advance the case of the petitioners, rather it supports the Revenue. In this connection, Counsel has invited our

attention to the observations of this Court at pp. 8 and 13 of the Re- port in Straw Products' case (supm) to the effect that by the appli- cation of the Indian Income-tax Act, 1922, to the merged States "a difficulty did arise in the matter of determining the depreciation allo- wance under s. 10(2)(vi)" which corresponds to s.32(1)(ii) of the 1961· Act, and that this "difficulty" was removed by the Taxation Laws Merged States Removal of Difficulties Order 1949.

It is further contended that once-it was found that such a difficulty had arisen, the Central Government could, in the legitimate exercise of its power~ under Clause (7) of the Regulation, exercise of 'the same by providing that allowances, where they were not actually allowed, should be deemed to have been allowed for the purpose of deprecia- tion in prior years.

On this point reliance has been placed on Com- missioner of Income-tax, Madhya Pradesh v. Straw Products(') and Commissioner of Income-tax Hyderabad v. Dewan Bahadur Ram Gopal Mills Ltd.(2).

Since both .sides rely, more or less, on the decision of this Court in Straw Products Ltd. v. Income-tax Officer, Bhopal (supra) and the other two authorities cited have a)so been noticed therein, it will be appropriatB to examine the . same in detail.

T.he assessee therein was a Company formed in 193 7 in Bhopal State, and was exempted by the Ruler of tl:rat State from payment of all taxes for. a period of ten years expiring on October 31, 1948. The State of Bhopal merged with India on August 1, 1949. Tho Taxation Laws (Extension to Merged States and Amendments) . Act 67 of 1949, which replaced the earlier Ordinance 21 of 1949, extended with effect from April 1, 1949, to the merged States, amongst other Acts. the Indian Income-tax Act, 1922 and by s. 7 the laws in force in the merged States corresponding to the extended Act stood

repealed. Section 6 contained a "removal of difficulty clause" which was subs- tantially the same as Clause 7 of the Regulation in th.e present case. Seclion 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 inay, by order, make such

provisions or give such directions as appear to it to be .ne- cessary for removal of the difficulty." The Central Government in exercise of its power under Clause (8) of Ordinance 21 of 1949

(which corresponds to Section ·6 of Act —– (J) [196412S.C.R.881, 887. (2) [1961] 2 S.C,R. 318, 325. [1975) 2 S.C.R. •67 o.f 194?) issued the Taxation Laws (Merged States) (Removal · A· -of Difficulties) Order, 1949, dause(2) of which provided : "In making any assessment under the Indian

Income- rax Act, 1922, all depreciation actually allowed under any laws or rules of a merged State relating to inoome-tax and super-tax, shall be ffiken into account in computing the aggre- gate depreciation allowance referred to in sub-clause ( c) of the Proviso to clause (vi) of sub-section (2) and the written down value under clause (b} of sub-s.(5) of section 10 of the said Act.

Provided that where in respect of any asset, depredation has been allowed for any year both in the assessment made in the merged State and in British India; the greater of the two sums allowed shall only be taken into account."

According to clause ( 2) of the above Order, in computing the profits and gains of the business carried on by the assessee for deter- mining the tax payable by it for the assessment year 1949-50, deprecia- tion allowed under Section 10(2) (vi) of the 1922 Act was taken as .a percentage of the original cost to the assessee of the assets used by it for its business, and in the four subsequent years the written down value of the assets admissible for depreciation was determined on that basis.

The Income-tax Officer then revised the assessments in res- pect of the assessment years. 1952-53 and 1953-54 and recomputed its taxable income on the footing that since the commencement of the business the assessce must be deemed notionally t-0 have been allowed depreciation under the Bhopal Income-tax Act.

The Appellate Assis-. tant Commissioner and the Income-tax Appellate Tribull'al disagreed with the Income•tax Officer and restored the original assessment. On a reference made by the Appellate Tribunal, the High Cburt held in favour of the assessee. The Income-tax Commissioner appealed to this Court.

During the pendency of that appeo.il, the Central Govern· ment in exercise of its power under s.6 of the Act 67 of 1949 issued an Order called the Taxation Laws (Merged States) (Removal pf Difficulties) Amendment Order, 1962, adding this Explanation to the order of 1949 :

"Explanation-For the purpose of this paragraph, the expression all depreciation actll'ally allowed under any laws or rules of a Merged State means and shall .be deemed always to have meant

(a) the aggregate allowance for depreciation taken into ·acoount in computing the written down value under any lai>ls or rules in force in a merged State or carried forward undef the ·said laws or rules, and

(b) .in cases w.bere income had been exempted from tax under any laws or rules in force in a merged State or under any assessment with a Ruler the depreciation that would have been allowed had the income not been so . exempted.

.A c .M. u. SINAI v. UNION (Sarkaria, J.) This Court held in Commissioner of lncume-tax, Madhya Pradesh ~·· Straw Products Ltd. (supra) that the expression "actually .allowed" 1~ the Removal of Diffi~ulties Order 1949, meant allowance actu•ally g1~en -effect t?, but by Vlftue of the Explanation, added by the afore- said Order of 1962, the correct basis for computing the written down value of the depreciable assets for lthe relevant period was ·the one. adopted by the Income-tax Officer.

This Court then declined to eX'amine the challenge to the validity of the (Removal of Difficulties) Ame~~me~t Order, 1962, for the reason that an authority or court adm1mstenng the Act cannot permit a challenge to be raised against the rires of the Act.

The assessec thereafter challenged the vires of the 1962 order by a writ petition filed under Article 226 of the Constitution. The Peti- tion was dismissed and the assessee appealed to this Court on a certi- ficate granted by the High Court. The Court first examined clause (2) of the Removal of Difficu.ties order of 1949, which corresponds to the unchallenged part of paragraph (3) of the 1970 Order, and held it to be va,lid on the groand that since the Income-tax Acts of · the merged States had not been repealed by the 1922 Act, a difficult},' had arisen in taking into account all depreciation actually allowed under an:y laws or rules of a merged State relating to income-tax for ·the purpose of computing the aggregate depreciation allowance !eferred to in sub-clause (c) of the Proviso to s. 10(2) (vi) of the 1922 Act, and that the 1949 order did no more than removing this difficulty. The Court then proceeded to examine the challenge to the validity of sub-clause (g) of the Explanation added by the 1962 order. In this connection, contentions (I) and (2) canvassed in that case were precisely the &·amc wh.ich have now been raised before us on behalf of the petitioners. Both these contentions were accepted by the Courf and, as a result, the aforesaid sub-clauie (b) of the Explanation was, struck down. · In that context, Shah J. (as he then was) speaking for the Beach constituted by seven learned Judges, observed :

· · · '·Exercise of the power to make provisions or to issue directions as may appear necessary to the Cent1•al Govern- ment 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 ~f the di$culty a

matter of subjective satisfaction of the Government; it is a condition precedent to the exercise of power and existence of the condition, if challenged, must be established as an objective fact."

The Court-held that after the promulgation of the 1949 Order no difficulty su.rvived or arose in giving effect to the provisions of s.l () of the 1922 Act. In that connection, it was observed :

"It is impossible, 011 the words used in s.10(5) clause (b) read with the 1949 order, to hold· that- the written down value of the assessee in a merged State could not be deter- mined and with a view to remove that difficulty the impugned / Order was promulgated.

The fact that the assets were ac- quired by a person at a time when he was not an assessee under the Indian Income-tax Act or under the State Act will not disable him, when he is assessed to tax on the profits of the business, from claiming the benefit of the depreciation allowance on those •assets if used for the purpose of the

business." (emphasis added) The Court noted that the impugned provision of the 1962 Order seeks to alter the connotation of the expression "depreciation actually allowed." It then towards the end concluded :

"To sum up : the power conferred by s. 6 of Act 67 of 1949 is a power to remove a difficulty which arose in the .nppli~­ tion of the Indian Inoome–tax Act to. the merged States : it can be exercised in the manner consistent with the scheme

and essential provisions of. the Act and for the purpose for which it is conferred. The impugned Order which seeks in purported exercise of the power, to remove a difficulty which had not arisen was; therefore, unauthorised."

A comparative study of Explanation (b) in the 1962 Order, which · was being challenged in Straw Products' case, ~nd the second Proviso to Clause {3) of Order 2 of 1970, which is the target of attack from the petitioners' side in the!linstant case,· reveals a striking similarity hetween the two impugned provisions. There, the 1962 Order envi- saged cases of assessees from a merged State who hau not been actually allowed depreciation of the assets because of their being exempted by the Ruler of that State from payment of income-tax. In the case in hand, also, tb,e impugned proviso seeks to cover the case of an assensee, who before the merger of these Territories in the Union of India, had not been allowed depreciation because the law by which be was _govern- ed was not a law imposing income-tax, so-called, but one levyirig a tax on the gross turnover of the business, irrespective of profits or losses, and, as .such, did not recognise any claim to depreciation. Further, in both the cases, the impugned provision.s seek to change the essence of the definition of "written-down value" and scheme of the Indian Inco1ne-tax Act relating to depreciation allowance, by substitu- ting "depreciation fictionally allowed" for

"depreciation actually allowed." This, the Court held, the Central Government was not com- petent to do under, the garb of removing a "difficulty" which was not proved to have arisen.

· In Straw Products' case it was averred in the writ petition b] the asse.s.we that "no difficulty bad arisen in giving effect to the provtsion.1 of the Indian Income-tax Ai:t 1922," and as such, there was no ques- tion of the exercise of any power under Section 6 of tlre

Mergect Stutes Act "for the purpose of passing the im- pugned Order of 1962. This allegation was denied by the Resoon- dents, and· it was contended on their behalf that the "arising of a ~iifii­ culty" in the enforcement of the Income-tax Act ·was a metier for -subjective sMisfaction of the (".10vemment.

c c M. u. SINAI v. UNION (Sarkalia, J.) Precisely similar pleas have been taken in the affidavits of the·· parties in the present case (vide W.Ps.112,391-39~ of 1971). The position here is very much the same as was in Straw Products' case (supra) Here also, the Respondents' plea, in substance, is that there is a deficiency or omission in the provisions of ss.32 and 43(6) of the ( 1961 Act and unless the deficiency or omission was supplied, it would b~ difficult for the Central Government to collect tax and allow depre- ciation to assessees like the petitioners to the same extent or at the same rate at which it has been collected from or allowed to assessees who have throughout been assessed under the Indian Jacome-tax Act. This raises two questions : ( 1) Is this a 'difficulty' within the con- templation of Clause (7) of the Regulation? (2) Is the

Central Government in the exercise of its power under that Clause competent to supply a deficiency or casus omissus of this nature ? For reasons that follow( the answers to both these questions must be in the negative.

For a proper appreciation of the points involved, it is necessary to have a general idea of the nature and purpose of a "removal of diffi- culty clause" and the power conferred by it on the Government. To keep pace with the rapidly increasing responsibilities of a Wel- fare democratic State, the legislature has to turn out a pletho_ra of hurried legislation, the volume of which is often matched with its complexity.

Under conditions of extreme pressure, with heavy demands on the time of the legislature and the endurance and skill of the draft5man, it is well nigh impossible to foresee all the circumstances to deal with which a statute is ·enacted or to anticipate all the difficulties that might arise in its working due to peculiar local conditions or even a local law. This is particularly true when Parliament undertakes legislation which gives a new dimension to socio-economic activities of the State or extends the existing Indian laws to new territories or aw.is freshly merged in the Union of India. In order to obviate tbe necessity of approaching the legislature for removal of every difficulty, howsoever trivial, encountered in the enforcement of a statute, by going through the time-consuming amendatory process, the legislature some- . times thinks it expedient to invest the Executive with a very .limited power to make minor adaptations andc peripheral ·adjustments in the statute, for making its implementation effective, without touchiA'g its substance. That is why the "removal of difficulty clause", once frown- ed upon and nick-named as "Henry VIII Clause" in scornful com- memoration of the absolutist ways in which that English King got the "difficulties" in enforcing his autocratic will remov¢ through the instrumentality of a servile Parliament, now finds acceptance as a prac- tical necessity, in several Indian statutes of post independence era. Now let us tum to Qause (7) of the Regulation. It will be seen that the powei- given b~ it is n?t unco!l!J:olled or unfet~ered. ' It is str!C-. tly circwnstribed, and its use is cond1t1oned and res~ted; . The exis- tence or arising of a "difficulty" is the sine qua non for the ex~ (1975) 2 S.C.R.

of the power. If this condition precedent is not satisfied as an objec- tive fact, the power under this Clause cannot be invQked at all. Again, the "difficulty" contcmprat&! by the Clause must be a difficulty aris- ing i11 giving effect If) the provisions of the Act and not a difficulty arising ali1111de, or an extraneous difficulty. Further, the Central Govern- ment can exercise the power under the Clause only to the ext<:nt it is necessary for applying or giving effect to the Act etc., and no fur- ther. It may slig!ltly tinker with the Act to round off angulariti1:s, and smoothen the joints or remove minor obscurities to make it workable, but it cannot change, disfigure or do violence to the basic structure and primary features of the Act. ln no case, can it, under the guise of (emoving a difficulty, change the scheme and essential provisions of the Act.

The above principles, particularly the distil;lction between a 'diffi· culty' which falls within the purview of the Removal of Difficulty Clause and one which falls outside it, findi ample illustration in the 1949 Order and the impugned provision of the 1962 Order which came up for consideration in Straw Products' case (supra), Excepting the reference to the corresponding provision of the 1922 Act, the language of the 1949 Order was the same as that of the unimpugned part of clau.~o (3) of Order 2 of 1910 in the pr~ent case. The 1949 Order related to the removal of a difficulty which had arisen in givin9 effect to the provisions of s.10(2)(vi) Pr6viso (c) and s.lO(S)(b) -0f the 1922 Act, corresponding to s.34(2) (i) and s.43(6)(b) of the Act of 1961.. This difficulty had arisen because the income-tax laws of the merged States were not repealed by the fnclian ltl.COtne–mx Act but by the Taxation Laws (Extcn.~ion to Merged States and Amend· ment) Act 67 of 1949. Owing to this, the depreciation actually allowed under the laws of the merged States c:Ould. not. be taken into accou. nt in computing the aggregate depreciation allow~ncc refen:ed to in sub-s.(2)(vi). Proviso (c) or the written down value under clause (b) of sub-~.(5) of s.10 of the 1922 Act. If this difficulty ·had not bee11 removed, anomalous results. would have followed. The written down value of the assets acquired before the previous year would have been taken as the origjnal cost of the assets without deduc- tion or the cleprecmtion actually allt,,~ed in the past under the State laws. This would have given to the assessecs in the merged S~tes,

a benefit, ine-0nsistently with the scheme of s.10 of the 1922 Act, e.tceeding· in the aggregate even the original· cost of the assets. · The 1949 Order removed this difficulty. In terms, it did no more than direeting that if under the income-tax laws of a merged State any depreciation was actually allowed, it was to be taken into account in ascertaining the wriuen'down value of the llSSCts. Far from supplant– ing or chaogi.ilg the essence of the essential provisions of the Act relat- in to depreciation and written down value, it gave effect, life and meaning to them.

· The observations in Straw Products Ltd's case ( supfa) to the effect, that "by the extension of the Income-tax Act, 1922,. the r:ules and the orders made t\lereunder to the areas of the merged. Stntes, c

Ji. M. u. SINAI v. UNION (Sarkaria, 1.) 65·5 undoubtedly numerous difficulties arose" and it was, therefore, neces-' sary ro devise machineryfor removing those difficulties"-on which Shri c

· Nariman relies-were· made by this Court in th context of the 1949 ©rder. They did not relate to the then impugned provision of the 1962 Order. . The 1962 Order, Explanation (b), is an instance of an Order foreign to. the Removal of Difficulty Clause. The so-called "difficulty'': which was sought to be 'removed' by that Order was not a· 'difficulty' of the kind contemplated by that aause, because it did not, in fact, arise in the application or enforcement of the Income-tax Act, · but" . ile-h.ors it.

No difficulty in implementing the scheme of the 1922 Ac( r.~ad ·with . the 1949 Order existed· as an objective fact. The 1962 Order, Explanation (b), purported to substitute in· s.10(5) (b) of the 1922 Act (as adopted by the 1949· Order) 'deprecia- tion notionally allowed' for "depreciation actually allowed". Thia . . the Central Government was not competent to do under· that Clause ~ecause "depreciation actually allowed" was the linchpin of the statu·: tofy qefinition . of •fwritten-down value". Indeed, the 1962 Order sought to amend the eseential provisions of the Income-tax Act in an· D attempt to collect tax which in the opinion of the· Central Govern· lnen't .. the tax-payer could and should pay but-to recall the words 'of this Court-"which.has not been imposed by adequate legislation". In the present cases, also, the impugned Proviso of the J 970 Ordet seeks to do the same thing by raisin!! the taxable in.come of the assessee, in consistently with the scheme .of the Act of 1961.

Although the language of the impugned Proviso, in the present case, is not identica~ with that of Explanation (b )' of the 1962 Otdet in the Straw Products Ltd. v. Commissioner of Income-tax (su~ra), yet the sum, substance and the device for replacing depreciation ., aCtu" ally allowed" by depreciation "fictionally !lllowed" are the. same. True, that under the income-tax ~a,w of the merged State, deprecia~ . tion .was allowable, and 1962 Order, Explanation (b)" was intended to cover cases where no depreciation was actually allowed on account of the exemption of the assessee from tax under a Smte law or a rule·· or-under an agreem~nt with the Ruler of a ni.erged State (whose word· was· law); whereas in the instant case depreciation was not allowed· because it was notr CQmputed under the Portuguese Law. But this is a· distinction without a differ~ce. As noticed already, the· Portuguese, G law was not a law imposing tax on net income. That -law levied tu on gross-receipts and not on the profits and gains of a business. It'. would not be wrong to say that before· the merger; in these· ter.ritnries. there was no income-tax in the sense the tax is under stood·under ·Ille· Indian Income-tax Act. In principle, therefore_, there :would. be· no difference between a case where one person is exempted. from incom,e. tax under the law, and a case where all are exempted, ther-e being.- no. ·income-tax law.

ff . We are unable to accep~ tbe content.ion tbat but for the imp~ 'ProvisQ.: the provisions of s. 32 ands. 43(6)(b) of tbe,1~61 Act «!a lhr·~9SupCI/7S SUPREME COU&T REPORTS (1975] 2 S.C.R.

its extension to Goa, Daman and Diu could not be given effect to and applied to the assessees in those territories. There could be no diffi- culty in computing the 'written down value' of the assets that had been acquired by the petitioners before the previous year, under clause (b) of s.43(6). Since no depreciation was, in fact, allowed to the peti- tioners in the past under the Portuguese law in the first assessment under the Indian Income-tax Act, the written down value would, under this clause (b) work out to be the actU'al cost of the assets less nil. Thereafter, in each succeeding year the depreciation actually allowed in the preceding year would· be deducted causing yearly diminution of the written down value with consequent decrease ,in the depreciation llllowed on that basis. Exactly, this was the manner in which the 'written down value' of the assets of the petitioners has been computed c and depreciation allowed for several assessment years from 1964-65 onwards. 1his itself demonstrates that there was no difficulty in applying the aforesaid provisions to the cases of these assessees. We find no merit in the oargument that the impugned Proviso brings al>out equality of treatment among different assessees in India. The raw on the point was declared by this Court in Straw Products Ltd.I case about seven years back.

If that decision did not correctly inter- pret the intendment of the Legislature, the Parliament would have nulli- fied its effect by legislation. As a result, no assessee in the Territorie.s of the erstwhile Part B States and Merged States has suffered the disadvantage of depreciation being deducted on notional basis in deter- mining the written down value, when in fact, no depreciation had been actually allowed under the former loc.al laws .. Similarly, no assessce in British India suffered such fictional deduction of depreciation wben it had not been actually allowed e>arlier.

The impugned Proviso, therefore, far from ensuring parity of treatment puts the assessee ·in these Union Territories in a worse position than the assessees in the rest of India. We may now notice this Court's decision in

Commissioner of Income-tax, Hyderabad v. l)ewan Bahadur Ramgopal Mills Ltd. (supra), relied upon by Shrl Nariman. The fl\Cts of that case were that prior to January 29, 1950, when the erstwhile State of Hyderabad ms merged in the Union of India, the respondent company therein was assessed to income-tax under the Hyderabad Income-tax Act, by which. depreciation allowance was granted to it on the basis of tlhe ~en down value of its assets in accordance with cl.(c) of s.12 of tllat Act. After the merger, the Hyderabad Income-tax Act WfS re- pealed, and by ss.3 and 12 of the Finance Act 1950, the Indian In- come-tax Act, 1922, was extended to that area. Under the Removal i:l. Diftleulty Cla~ i.e. s .. t2 of the Fmance Act, the Central Govern- ment on December 2, 1950, issued the Removal of Diffi.C'Ulties Order, 1950. P'aragmph 2 of the Order provided that "in making any assess- ment under the·Indi.an Income-tax Act, 1922, all depreciation actually gtlowed under any laws or rules of Part B State …. shall be taken into account in computing the aggregate depreciation 'allowance refel'· fed to in proviso (c) to s.10(2) (vi) and the written down value under s.10(5) (b) of the said Act". For the assessment year 1951"52 M. u. SiN!-I v. UNION (Sarkaria, J.)

the respondent company was assessed for the first time under the 1922 Act, and on the basis of para 2 of the 1950 Order, it claimed deprecia- tion allow:ance by working out the value of the assets at their inception and deducting therefrom such depreciation . as was allowed for the three assessment years in which it was assessed under the Hyderabad Income-tax Act. The matter was brought to this Court and while it was pending here; on May 8, 1956, the Central Government issued wiother Order under s.12 of.Finance·Act, 1950, re-enacting and ad- ding this Explanation to the aforesaid para 2 :

c "For the purpose of paragraph 2, expression 'depreciation actually allowed' under any laws or rules of a Part B State means 'and shall be deemed-to have always meant the aggre- gate allowance for depreciation taken into account in com- puting the written down value under any laws or rules of a Part B State or carried forward under the said laws or rules." The Company challenged the V'alidity of Para 2 of the Order, particularly the Explanation inter alia on the ground that it was ultra vires the powers conferred on Central Government by Section 12_ of the Finance Act, 1950. This Court upheld the validity of the im~ pugned provision. Therein, it was manifest that in applying the pro- visions of s.10(5) (b) of the 1922 Act to the assessees from Hydera- bad (a Part B State), there was an ·initial difficulty because the Hydera- bad Income-tax Act had been repealed not by the 1922 Act but by . the Finance Act, 1950. This difficulty could be validly removed by making an Order under s.12 of the Finance Act, 19~0. Attempt to remove it by issuing the 1950 Order did not completely oachieve its object. In its application that Order led to an anomalous

result, namely, the written down value of the assets and the alloVl'.ance to be allowed on its !>asis to the assessee in the accounting year on first assessement under the Indian lncome-toax Act, would ·be- more than what it was allowed in previous years under the Hyderaba4 Income- tax Act. It was to remove this difficulty and to harmonise the ~ tion as to depreciation with the scheme of .the Indian Income-tax Act that the impugned Explanation was added by the 1956 Order .. It will be seen that under· the Hyderabad Income-tax Act, deprecia- tion allowance had actually been allowed to the assessees on the b~ of written down value calculated 'llCCording to the mechanism provided · in that Act.

After the promulgation of the 1950 Order, the oitly cMi· culty that remained was caused by the different rates at which depre- · ciatioii had actually bee11 taken into account and allowed unde):' ~ Hyderabad llfcome:-tax Act.· The Explanation added by the l9"6 Order, in ~ffect; did no more than explaining that in paragraph 2 df 1950 Order, "all depreciation actually taken into account by the Income-tax Officer in computiiig the written down value under tho Hyderabad Income-tax Act means "all deprecration actually ·allowed." As has been .said ·already and it needs to be said again, the words "depreciation actually allowed" in. s.43 ( 6) (b) connote depreciation that has actually bern taken into account and given effect to by the SUPRBME C~UlT .RBPORTS

{1275)2.S.c.R. lnoome-tax authorities in the computation of the profits and gains of the· business in assessing income-tax for earlier years. The said Ex- planation did not change that basic connotation, it only clarified it. Thllsi in issuing the 1950 Or~er and the 1956 Order, adding the Explanation, the Central Government in th•at case, did not over-step the .limits of the power delegated to it under s.12 of the Finance Act, 1950. The impugned provision in the D. B. Ram Gopal Mills' case (supra) corresponds to clause (2) and Explanation (a) thereto of the 1949 Order and the substantive part of clause ( 3) of the J 970 Order, it is not analogous to the impugned Proviso in the ill.Stant case. The situation before us is materially different. Here, no deprecia- tion w11s ever computed or actually allowed to the assessees under the Portuguese Law.

Indeed, under that law the tax was levied not on net income but on gross turnover of the business. There was, stric- tly speaking, no assessment of tax' on real "profits and gains" .of a business, the tax being levied on gross receipts on ad hoc basis. Allowing or taking into account depreciation of assets was out of question in that process of assessment. , In the case in hand, the impugned Proviso seeks to introduce a new concept of ·calculating depreciation. By replacing "depreciation actually

allowed" with "depreciation deemed to have been allowed" by a fiction of law, even where no depreciation was at all allowed under any law outside the ta;xation territories, it, in effect, atte.mpts to change the fundamental scheme of the Act.

D. B. Ram Gopal Mil/s's case (supra) was noticed, explained and distinguished ill Straw Products. Ltd's case (supra). It was observed c that the former "did not support the view that the arising of oa difft- culty is a matrer for ·the subjective satisfaction of the Central Govern- ment." T)le prec;edent case. is not in pari materia with D. ·B. Ram· Gopal Mill~ case. His in line with 'straw Products Ltd. v .. Income• tax ·Commi~s!oner, ;and the ratio of the. latter decision 'oand the obser..: vatiol)S made therein with :regard to the then impugned Order .of't 96'.t' ap.,W with fu1!. force to tbe impu_gned Proviso ln the' instant cas~. In .the. light . of what has Jlecn · said above, we accept contention:~ ( lYand (2) ·advanced on behalf 1Jf the petitioners.

.Be: tlrat.a$ it .may, .the !ast-centention canvassed tiy Mr .. J>al~ltiw411a: is a· cl~hcr. Tue argument -ill. that the impugned Provi5Q, Iii tiOt · wol'kabl~ beeaQse under the· Portuguese 'law there was no hilt 1® ltt. c0me at ·~11.. ·Tliese ·Tcrthories "'.ere· me.~d with ladii. on P-.'Cember 19, 1961, 11rid ,the ln.dian Jncon,ie-tax _A,cl w~ exterulcd to t:.-.~:; Terri- I·l

torlii 6:01.:V .~)Si-Oi-.1~ \963 I>Urin3 thls"mte{ri:f?l.llui~· ••• •,.. , 111t1;;ndcd, th';-~'.>'\W>. r:ti.J.::(l 'f(lt?: •Portusu~1: t:~ .ll)lli~, 1-1:!!k t);, ·.:. ;,r:;. !··.!ZO~

…. M:' V. SINAI V. UNION (Alagiriswami, /.) 6'0 a( those prior years could be. computed. If there is a loss, or profit is inadequat1; to absorb the depreciation, the latter can be carried-for- ward without limit of time.

Owing to the absence of any tax Jaw dur- mg the aforesaid interregnum, proceeds the argument, the petitioners would not have the benefit of 'carry~forward' of depreciation from any year prior to 1963, and, thus, the impugned Proviso instead of remov- ing any difficulty, would create serious difficulties and legal compli- cations.

There is a good deal of force in this contention. It has been noticed earlier that the tax imposed under the Portu- guese law was, in reality, a 'turn-over' tax and not a tax on the income I;)·

of a business. Th.e levy was eracted on gross receipts, iriespective of loss or profit. Thereafter; during. the interregnum between Decem- ber 19, 1961 and April 1, 1963, there was in force no law authorising· the levy of income-tax in these Territories. We have also seen that under the Act an assessee is entitled to 'carry-forward' unabsOrbed. D · · depreciation in case, of loss or· inadequate profits without any time• litnit '[s. 32(2)]. For ensuring this right to an assessee, aile~sll:ient& for ascertaining losses or. insufficiency of profits of his busmess, sfuce . the acquisition and use of the assets by him will have to be made. In· the Indian Income-tax Act as extended to these . Union Territories; there is no provision for making assessment in respect of tliose past ll:

:years. Therefore a ·Goan .assessee wbQ made losses and suffered depre- ciation of his assets will never get the benefit of such~ carry~forward, as no machinery exists for determining inadequacy of profits or the fact\1111 1>f losses in those years . which is a condition precedent to carry far· ward of depreciation~ Retrospective assessments for this purpose, goin~ back to a period prior fo 1963 could have been ·made, if at rF . iill, under a law $ade by Parliament- and not under an· executive .fiat. . G

In the absence of such law it is impossible to work the Proviso without · riding tougJi~shod over the rights of th.e assessees to have their unab- sorbed depreciation relating to pre-1963 period, . carried for'Ward. Viewed from this angle, the impugned Proviso would, in the imple- menta:tioil of the Act, create difficulties rather than removin~ them . :por the foregoing reasons,' we·. l\llow these petitions atld declato tliai the 2nd .Proviso to Clause. (3) of the Taxation Laws (Extenslon to :union· Temtotfos) (Rtlmoval' of Difficulties) Order 2 of 1970; is UJ't.r~'.~ tll,'e Central 0Qverrunelit wlien exercising the powers under (l) of .R,egulati~n II} qf _1~~3 and the Reve1;1ue .. authoriti~. · H ·· ~

: n4te!!:titl¢d to levy tax oir the t>asl4'. .of the depreciation allowanCC!: compµ~'Jn accordance with'.the .. said Proviso in the Order. ·Th& mspO.identuluill pay the i:.osts;Qf j:he ~titioners.

ALAGIRISWAMI, J.These matters have been argued twice, once by Mr. A. K. Sen on behalf of the petitioners in W.P. Nos. 112, 391-394 of 1971, and again. by Mr. N. A. Palkhivala on behalf of the petitioners in W.P. Nos. 330-331 & 382·387 of 1974. The question that arises in all these petitions is .the constitutional validity of the Taxation Laws (Extension to Union- Territories) (Removed of Difficulties) Order 2 of 1970 issued under clause 7 of the Taxation Laws (Extension to

Union Territories) Regulation, 1963 by which the Indian Income-tax Act was extended,_ with certain amendments, to the Union Territories of Goa, Daman and Diu with effect from April 1, 1963. Clause 7 of that Regulation; which is relevant for our purposes,_reads as follows : "7. H any difficulty arises in giving effect in any Union

Territory to the provisions Of any Act, or of any rule, noti- fication or order made or issued thereunder, the Central Government may, by general or special order published in the OOcial Gazette, make such provisions or give such directions as appear to it to be expedient or necessary for the removal Of the difficulty."

Under the law in force in the former Portuguese territories of Goa, Daman and Diu ineome-tax was levied at a certain percentage of the gross receipts of an assessee. No allowance in the nature of deprecia~ tion was pennitted in computing the gross income. Under clause (ii) of section 32(1) of the Indian Income-tax Act, 1961 depreciation is allowed in the case of buildings, machinery, plant or furniture at such percentage on the written down value thereof as may be prescribed. Written down value is defined in section 43 (6) as follows: "(6) "Written down value" meaiis–

( a) in the case of assets acquired in the previous year, the actual cost to the assessee; (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 under the Indian Income· tax Act, 1922 (1µ of 1922), or any Act repealed by that

Act, or under any executive orders.issued when the Indian Income-tax Act, 1886 (II of 1886), was in. force: (Proviso omitted) It would be noticed at onee that even if depreciation w.as allewat>le ~der the Portuguese Inco111e-tax Law, when it w~ in

fQ~ in the former Portuguese territories, clause (b) above will not apply as that Ii!-"' W1!I µot repealed by tb.e IJJdian In~~tax ..\Ct~ 1961 or t.ho Indian Income-tax Act, 1922 or any Act repealed by that Act or under any e:iecutive orders issued when the Indian lnoome,.tax Act 1881i was in force. As was pointed out by this Court in its decisions m The ()(l!m· missioner of Income-tax, Hyderabad v. Dewan Bakqdur RamgQpal Mills Ltd. {1961 (2) "SCR 318] and the Straw Products Ltd. v. 1.T .0. [1968 (2) SCR. 1], thi$ is one dilficlllty to rel!love which a Di1Jiculties Rl'- mov.al Order would have .had to be issued. When we put the question to Mr. Palk'hivD'la as to whrlt would happen if such an order to remove difficulties was not issued, he 1naintained that even so the messe:s &r· c

c M. U, SINA.I V, UNION (Alagjriswami, /,) these .cases would have been entitled ·to the bl:nefit of clause (b). I am not sure that he is right but it is unnecessary to decide that question. Be that as it may, I shall now discuss the question based on the rele· ftnt provisions of law. Cause (a) deals with a case of the acquisition of the assets in the previous year, in which case the actual cost is itself taken as the written down value. In the case of the assets acquired before the previous year the actual cost less all depreciation actually allowed is the written down value. Now what happens if under the law applicable to the territory in question no depreciation was allowable at all? It stands to reason and commonsense that in such a case the written down value of the asset in question on the date the Indian Incoml'-tax Act 1961 becomes applicable to that territory should be related to realities and not be wholly unrelated to them or notional. The provision regarding written down value and allowance of deprecia· tion under the Indian Income·tax Law proceeds on the basis of depre· ciation allowed year by year with the result that the written down value goes down year after year and similarly the depreciation, as was pointed out by this Co\Irt in Ramgopol Mills case (supra) in the following words :

"The basic and normal scheme of deprecration under the Indian Income-tax Act is that it decreases every year, being a percentage of the written down value which in the first year is the actual cost and in succeeding years actual cos~ less all deprecration actually allowed under the Income-tax Act or

any Act repealed thereby etc." If, therefore, because there was no provision under t~ Income-tax law applying to the former Portuguese territories providing for depre- ciation the written down value of an asset is. taken as the · act\llll cost even a(ter many · years -of its. acquisition. it wo~d mean putting the ~in

those territories at an.advantage com~ed tc> the assessees in the re.st of. Jl.ld~ · :t49fe iJ.W>QrtlUlt. it wqµl(l not ~d, with reali- ties and would not be in ilccordance with the sl!h~ of· .d~preoiation under the Indian lncome·tax Act. It is, therefore, necessary to devise son. m~

by which b9t1l cal\ be. ·i>u* on the ~~ footillg all4 tho nomil, scheme of· depreciation under the It!dian lneom~ Act ~ tippllca,ble w them, It cWJQt bl: argued ~ a.· c~ plalit ~ ci::cbinezy purchesed 10 ye~ ear~ and now werth half its o~ vll!u,e $ould still ~ taken .m bo w~ its ~

"3t· and. -dept;~-. tion ·all~ Oil that- hllsiJ, It is aot ll$ fuo\lgh slKlh a problem ~ for ~ fim u11111. ltJ the eirse dealt WitJl in ~ Rama1m¢ Mill8 e"1U au ff¥de?llbad l!l«lm&.<t4J Acg. wltich was applieab{f to tb:O C8M' ~ Indiall I~~

A4t. WAS extended to the :a~ h'4! com. into ~.in 1357-F and had ~n w f~ ~ *" ~· In ·dle ·~ment for. th<>11t three ye~s dePf~O~· ~ 8iv~ to it oe ·t# OAd4 Qf·.~ .nt~ dt:!wa va!u• of· itt as• b ~l!.11® with tile pr~lo!t~."' ~

(o} of s.ti(S) d. the Hydem .. In~tax ;\ct, Thi¢. c.i..~ fnt!t'ifiqd :t!ntt ·iq ,t~. ~e ·Gt ~ ~·~year ~d ·befQre the ~eement of tb~. a..wntton ~ vaiu wol!l4 be, thCI actual e6* r.e~ ~11eH~ri

o ti~ @IJ!OiP.~n 4f tlw """ 1uuJ1tc,,.le *?. the qs$f c"'4wlatd ~ tk:p~.~ kn'- tf:1 f4W, ·1'0' ••~·~i#4kw'lln4. fqrd/¥ •" ~ ~62 O'll~th8 actual cost diminished by the depreciatiOn al{owattte' for OM year and so on, for each year upto the commencement of the Act, and (ii) depreciation actually allowed to the assessee on such assets f~r each financial year after the commencement of the Act. Now this ~ exactly what is proposed to be don.e in the case of the former Portu~ guese territories by the impugned order.

For an appreciation of the -actual situation that arises let us take some concrete figures. Suppose in the Hyderabad case the asset con- cerned had been purchased for Rs. 100.00 three years before the Hyder11bad Income-tax Act came into force and depreciation was ten per cent. At the end of the first year the written .down value would be Rs. 90.00, at the end of the secQnd year Rs. 81.00 and at the end of the third year Rs. 72.90. It was this Rs. 72.90 that was taken into account for the purpose of working out the depreciation allowable under the Hyderabad Income-ta:t Act in the first year when that Act came into force.

On tiis basis the written down value of the asset at the end of the first year after the Hyderabad Income-tax Act came c into force would be Rs. 65.61, at the end of the second year .Rs. 59 (more or less), at the end of the third year Rs. 53.10, that is, when the Indian Income-tax Act was extended to the Hyderabad area. . When the Indian Income-tax Act was extended to Hyderabad area a Difficulties Removal Order was first issued in these terms in 1950. "Computation of aggregate depreciation allowance and

written down value: In making any assessment under the Indian Income-tax Act, 1922, all depreciation actually allowed ~nder any laws or rules of a Part B State relating to Income-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 (vi) of sub-section (2) and. the writ- ten down value under clause (b) of sub-section (5) of sec. 10 of the said :Act."

Taking advantage of the presence of the words "all depreciation· actually allowed" in this order the assessee argued that only the depre• Ciation allowed after the Hyderabad Income-tax Act came into force should be .taken int~ account for the plJ!'POse of arriving at the written down value for the purposes of the Indian Income-fax Act. That was on the basis that the depreciation allowance calculated for the three years before the Hyderabad Income-tax.Act came into force was not 'depreciation actually allowed' because in those years there was no income-tax assessment and there was no question of any depreeiation being allowed. In other words what the assessee said was that taking· th.e. original . cost at Rs. 100.qo the depreciation, actually allowed

dunng the ~ree . years during which the Hyderabad Income-tax Aet wu in force, that. is, Rs. 72.90 minus Rs. 65.61 (Rs. 7.29), Rs. 65.61 1Dinus Rs. 59.00 (Rs. 6.6f) and. Rs. 59.00 minus Rs. 53.10 (RI. 5.90) that is Rs. 19.80, should be deducted from the actual cost far crriying at .the written down \'.alue for the pu~ses of Indian Inc!)me-< ~Act and that~. 80.20 (Rs. 100.00 nttnus Rs. 19.80) s1)ould b! ceten to b3 the the written down value. inStead ot· the figure of . ·Ra. c

M. U. SINAI V. UNION (Alagiriswami, /,) 53.10. In order to get over this difficulty an explanation was added to the Removal of Difficulties Order in 1953 in the. following words : "Explanation :-For the purpose of this paragraph, the

expression "all depreciation actually allnwed under any law or rules of a Part B State" means and shall be deemed to have always meant the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules of a Part B State or carried forward under the · said laws or ·rules."

(There was another similar explanation added in 1956 but for the purposes of the argument in this ca~e that is not very n:levant) t It was the validity of this second order adding the explanation that ~ questioned.

In dealing with the argument that no difficulty arose in giving effect to· the provisions of the Act so as to ju~tify the issuance of the Difficulties Removal Order and the Explanation thereto this Court first dealt with the difficulty caused by the fact of the earlier Income-tax law not having been repealed by the Indian Income-tax · Act 1922 etc. and that difficulty having to be rrmoved by the issuance of a Difficulties Removal Order alid then made the observation which we have extracted earlier about the basic and normal scheme of d\:pre- ciation under the Indian Income-tax Act and then went on to point out:

"If, however, depreciation 11ctually allowed under the · Hyderabad Income-tax A<:t was taken into account in com- puting the aggregate depreciation allowance and the written down value, ail anomalous result would follow as in the pre- sent case,. namely, depreci~tion allowance to be allowed to the assessee in the accounting year under the Indian -Income- tax Act would

be more than what was allowed in previous years under the Hyderabad Income-tax Act. This would create a disparity and be af?ainst the scheme of the Indian Income-tax Act. It was, therefore,· necessary. to

explain paragraph 2 of the Removal of Difficulties Order, 1950, to a&similate or harmonise the position regarding denreciation al)owance. and the explanation added in 1953 or 1956 was obviously intended to remove the difficulty arising out of that' disparity or disharmony."

In effect it means ·in terms of the example wbich we have given earlier that instead of the w.ritten down value being . taken io be Rs. 53.10 when the Indian Jncome~tax Act was extended to Hyderabad the assessee wanteCI Rs. 80.20 to be taken as the written down value and that was why this Court pointed out that the depreciation allowed to the assessee in the a~counting year under the .Indian Income-tax Act would be more than what was allowed under the Hyderabad Income-tax Act and that this would create a disparitv and be a~ainst the scheme of the 'Indian Income-tax Act.

This decision is emctly to the point. The effect of the ar1mment oti behalf of the petitioners would be. taking it that in Goa ~lso the asset had· been acauired fcir Rs. 100.00 six" years befoTe the Indian Income~tax Act 1961 was extended to that area and the ·mte of depreciation was also teil per {1975] 2 s.c.R.

~nt, that instead of the written down value being Rs. 53.10 it will be Rs. 100.00, exactly the price at ~hich the asset was acquired six years earlier, even though its value now might be much less. Mr. l"alkhivala relied completely on the decision in Straw Products' case in support of his argument that in exercise of the powers under clause 7 the impqgned order could not be made. In that case when the Indian Income-tax Act was extended to the State of Bhopal a Removal of Difficulties Order was issued in 1949 similar to the one introduced in Hyderabad fo the first instance in 1950. When it was argued then on the basis of the use of the words "depreciation actually allowed" that only such depreciation could be taken into account a second Removal of Difficulties Order was issued in 1962 which addett an explanation in the following terms :

"Explanation.-For the purpose of this paragraph. the: expression "all depreciation actually allowed under any laws or rules of a Merged State" means and shall be deem- ed, always to have meant.:

(a) the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules in foree in a margal State.or carried forward under the said laws or rules, and

(b) in cases wh.ere income had been exempted from tax: under any laws or rules in force in a merged State or under any agreement with a Ruler, the deprecia- tion that would have been allowed had the income

not been so exempted." Thnt was because the Ruler of 'Bhopal had earlier exenwtecl the income of the ~see from income-~ an'd ther-e was therefa.?e n0 question of any depreciation allowan~ having been made or any written down value having to be ·calculated. When the mlltter·. camo up before this Court, this Court held that whatever difficulty there was was removed by the 1949 order and thereafter ther-e WI$ no fUrtber difficulty to be removed. We shall quote the e.xact words: "Section 6 of Ac:t 67 of 1949 authorises the Central

Government to make provisions or to give direetiom u may appear to be necessary for removal of diffi.Cllitie!I· which had arisen in giVing effect to the previaions of any Act, rule or otdi:r extended by s. 3 ·to the merged Statm. By the applicatfo11 of the Indian Inoome-tax Act to· the

merged States a difficulty did arise in the matt.er of deterM mining the deprel,iation allowance under s. 10(1)(vi). That difficulty was removed by the enactment of the Ta:e.M tion Laws

(Merged States) (item~al of Difilcuttleti) Otder, 1949. Even by that order alt depreciation actua'ily allowed' unkler any laws or rules of a merged State retat·~ ini to incomo-tax was to be taken into account in ~.;

ing the aggregate depreciation allowance. Tllerea':ter there · c c M. u. SINAI y. UNION (A/agiriswami, /.) survived oo difficulty in giving effect to the provisions of the Indian Income-tax Act or the rules or orders extended

by s. 3 to the merged States. To sum up : the power conferred by s. 6 of Act 67 of 1949 is a power to remove a difficulty which arises in the application of the Income-tax Act to the merged States, it can be exercised in the manner

co11s1Stent with the scheme and essential provisions of the Act and for the purpose for which it is conferred. The impugned Order which seeks, in purported exercise of the power, to remove a difficulty which had not arisen was, therefore, unautho- rised."

66i> That was the ratio of that decision. This Court specifically did not think it necessary to determine to what extent, if any, it would be open to the Central Government by an order issued in exercise of the power conferred by s. 6 of Act 67 of 1949 to make provision which is inconsistent with the provisions of the Indian Income-tax Act. It did not hold that the 1962 Order was inconsistent with the provisions of the Indian Income-tax Act.

It did consider the deci- sion in Ramgopal Mills case. After referring to the Explanation added to the Removal of Difficulties Order this Court pointed out : "This Court held that by the Removal of Difficulties

Order, 1950 an anomalous result followed, and the depre- ciation allowance allowed to the assessee under the Indian Income-tax Act was more than the depreciation allowance under the Hyderabad Income-tax Act, and it was necessary

to isslie the Removal of Difficulties Order, 1956. In the view of the Court. in that case the condition precedent to the exercise of the power did exist." Thus, it -did not dissent from the decision in Ramgopal Mills case. Bv implication it held that decision

as a good one. That is exactly the position here. It was, therefore, open to the Central Govern- ment in exercise of its powers under clause 7 to issue the impugned mtler. It only bringS it into line with the scheme of the Indian Income-tax Act, otherwise as I mentioned earlier, the assessees in Goa, Daman and Diu would be at an advantage compared to

the assessees in the rest of India. The only contention of any substance which was urged against this was that under the scheme of the Indian Income-tax Act it was open to the- assessee to carry forward the depreciation for any length of time if he had sustained any loss and it would now be very difficult, if not· impossible, for the assessee to produce all the accounts of earlier years to show the los~e~ which he had iRcurred, the denrecia- tion he was entitled to and which he can carrv forward.

I do not consider that it is an imoossibility. If it is difficult it is not a diffi- culty which cannot be solved as the Hyderabad example shows. .666 [1975) 2 s.c.R • Assessees are expected to and would have maintained .accounts at

least for the purpose of the Income~tax Act which was in .force in the former Portuguese territories, though that Act was a simple one .and not as complex as the Indian Income-tax Act. What is neces- sarv for working out the impugned order is to know whether there was a profit or a loss and as the cost of acquisition of the assets, in respect of which depreciation aUowance is .cYalmed, shoultl also be .available it should not be very difficult to calculate the depreciation .anti arrive at the written down value as on the date when the Indian . Income-tax Act was extended to former Portuguese territories. To .accede to the claim of the assessees that the original value ·of the .assets should be taken down to be the written down value,· however long . they might have been used, means that they get an advantage not merely in the first vear in which the Indian

Income-tax Act applied to those territories. It is a continued advantage which will last as long as these assets last. In terms of the example I have given earlier in the first vear instead of the 10 per cent out of the written down value of Rs. 53.10, that is Rs. 5:30, being allowed as the deoreciation it will be Rs. 10.

In the second year it will be Rs. 9.00 instead of Rs. 4.77. In the ·third year it will be Rs. 8.10 .as against Rs. 4.30 and so on. I can see no justification either on princip'e or on the wording of the statute to allow the assessees any -such concession.

Whatever I have stated earlier would be sufficient to show that the impugned order is not ln excess. of the delegated t>Owers but merely carries out th_e purpose of the delegation. It onlv remains to deal with the further contention. raised that the order is 2iven retrospective effect and that is not valid. This

contention is best answered in the words of this Court in Ramgopal Mills case thus : "Section 12 (in this case cl. 7) by the very nature of itS intent and purpose confers on the Central

Govern- ment power to make an ortfer to remove a difficulty which has alreadv arisen, and the power to remove the difficulty must necessarily include the power ta remove the· difficulty from titne to time it arose. The ·Central Government has,

therefore. the power to make 'an order or give it directi'Jn· so as to remove the difficulty from the very beginning, and that is what the notification of 1956 (in this c<ise the nntifi- cation of 1970) does."

I would, therefore, dismiss these writ petitions. V.P.S. Petitions allOlved. c