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

Citation: [1975] 2 S.C.R. 640 · Decided: 07-11-1974 · Supreme Court of India · Bench: A.N. RAY · Disposal: Case Allowed

Cited by 2 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

640 
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. 
A 
B 
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 
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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the corresponding law in the Union Territory was repealed from April 1, 1963.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 
D 
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-
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.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 
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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 
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A 
B 
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G 
M. u. SINAI v. UNION (Sarkaria, I.) 
641 
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 t

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