COMMISSIONER OF INCOME-TAX, BOMBAY versus DHARAMPUR LEATHER CLOTH CO. LTD., BOMBAY

Citation: [1966] 2 S.C.R. 859 · Decided: 03-12-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

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Judgment (excerpt)

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859 
COMMISSIONER OF INCOME-TAX, BOMBAY 
v. 
DHARAMPUR LEATHER CLOTH CO. LTD., BOMBAY 
December 3, 1965 
[K. SUBBA RAO, J. C. SHAH AND S. M. S!KRI, JJ.J 
Indian Income-tax Act, 1922 s. 
10(5)(b)-Depreciation 'actually 
alloived'-Whether includes depreciation that n1ight have been allowed if 
income had 1wt been exempted. 
Taxation Laws (Merged States) (Removal of Difficulties) (Amend-
ment) Order,, 1962-Company exempted by Ruler of Indian State from; 
taxation-:---After merger exe1nption given under para 15 of Merged States 
(Taxation 
Concession) 
Order, 
1949-Exemption by 
Commissioner 
whether a continuation of the argee.11ent ivith the Ruler. 
The respondent company obtained 
under 
an agreement with the 
Ruler of the erstwhile State of Dharampur an exemption from levy of 
income-tax and super-tax for the first seven years of its working. 
It 
commenced business in June 1949. In 
August 
1949 
the 
State of 
Dharampur merged with the Province of Bombay. The company then 
applied for and obtained under para 15 of the Merged States (Taxation 
Concession) Order, 1949, an exemption from income-tax a:iiil -supper-tax 
for five years commencing from April, 1950. In the 
assessment year 
1956-57 when the company was to be assessed under the Indian Income-
tax Act, 1922, for the first time, it claimed that us no depreciation had 
actually been allowed to it earlier the original cost of its machinery etc. 
should be taken as the written down value for the purpose of calculating 
the allowable depreciation. The assessing and appellate authorities held 
against the company but the High Court held in its favour. 
In appe.al 
to this Court by the Revenue it \Vas contended that ( 1) on a proper in-
terpretation of s. 10(5) (b) of the Indian Income-tax Act, 1922 the de-
preciation must be deemed to have been allowed to the assessee in the 
years in which its income was exempted and (2) the concession given 
by the Commissioner must be, deemed to be a continuation of the: agree-
ment with the Ruler and therefore the Taxation Laws (Merged 
States) 
(Removal of difficulties) Order 1949 as amended bv the Taxation Laws 
(Merged States) (Removal of Difficulties) (Amendment Order) 
1962 
applied to the facts of the case. 
' 
HELD: (i) The words 'actually allowed' in s. 10(5) (b) did not in-
clude any notional allowance and the High Court 
had rightly decided 
that the original cost was the written down value. [862 CJ 
Co1nmissioner of Income-tax, Madhya 
Pradesh v. Mis. Straw Pro-
ducts Limited, Bhopal, [1966] S.C.R. applied. 
(ii) The exemption granted to the company under para. 15 of the 
Merged States (Taxation Concession) 
Order, 1949 was an exemption 
under s. 60A of the Income-tax Act and not under any agreement. The 
case of the assessee had therefore to be determined 
with reference 
to 
s. 10(5) (b) of the Act unaffected by the amendment made by the 1962 
Order. [862 G] 
C1v1L APPELLATE JURISDICTION : 
Civil Appeal No. 956 of 
1964. 
860 
SUPREME 
COURT 
REPORTS 
[1966) 2 s c .. 
Appeal by special leave from the judgment and order dated 
A 
October 7, 9, 1961 of the Bombay High Court in I.T. Reference 
No. 6 of 1960. 
A. V. Viswanatha Sastri, Gopal Singh, B. R. G. K. Achar and 
R. N. Sachthey, for the appellant. 
Mahinder Narain, Rameshwar Nath, S. N. Andley and P. L. 
B 
Vohra, for the respondent. 
The Judgment of the Court was delivered by 
Sikri, J. 
This appeal by special leave is directed against the 
judgment of the High Court of Judicature at Bombay answering c 
the following question against the appellant : 
"Whether depreciation is allowable on the original 
cost of the various components of the Plant and Machi-
nery and other assets of the company as acquired and 
used prior to 1-7-1953 ?" 
The relevant facts are these. We are concerned with the assess-
ment year 1955-56 (accounting year being April 1, 1954 to March 
D 
31, 1955). The respondent, Dharampur Leather Company Ltd., 
Bombay, hereinafter referred to as the assessee company, was in-
corporated on June 15, 1943, as a private limited company, and 
later on November 24, 1949, it became a public limited company. 
E 
On August 1, 1949, the Dharampur State merged with the Pro-
vince of Bombay. 
Before its incorporation, the promoters of the 
assessee company had negotiated with the Ruler of Dharampur and 
secured from the Ruler total exemption from the State Income 
Tax of profits of the company for a period of seven years from 
F

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