LexSTRAW PRODUCTS LTD. versus INCOME-TAX OFFICER, BHOPAL & ORS.
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STRAW PRODUCTS LTD.
v.
INCOME-TAX OFFI~ER, BHOPAL & ORS.
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October 20, 1967
[K. N. WANcHoo, c.J.,
M. HrnAYATULLAH; -J:-e:--sa\tt,
R. S. BACHAWAT, V. R/iMASWAMl, G. K. M!TTE
0
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AND K. S. HEGDE, JJ.)
Taxation Laws (Extension, to Merged .States 1/11d A111end11ien1) 4,., 67
of 1949, s. 6--PO\\'er give11 to Ct•ntral Gover11111l'lll tu pass
approprh11£•
orders in order to ren1ovc dif]ic11lries in the
llpp/ication of
the
/11dia11
111co1ne-tax Act, 19:22 to 111erged States-Nature
of 1/ifficulties
~,·/tic://
j11.stify s11cli order-Ttixatiod Lent'.~ (Merged States) (R<•n1ova/ of Di/Jic11l-
ries) Aniend111e11t 'Order,
1962--0rrfer -prescribing that in the
case: v)
assessees exen1pred fro11l paying tax by ltnv or .1,r.,•rt'e111e11t in nu!rged Stc11es
notional dt•preciation on assets to 'be taken into
<1cco1u1( in con1p11ti11g
1vrirre11 ·do\,.,, value-Va/i(!ity Qj Order.
The appellant company was formed in 1937 in Bhopal State and was
exempted by the Ruler of that State from payment of nil taxes till Octo-
ber 31, 1948.
The State of Bhopal merged with India on August!, 1949.
Ordinance 21 of 1949 and the ·'Taxation La\\'S
(Ex.tension to Merged
States and Amendment} Act" 67 of 1949 which roplaccd it had the effect
of extending the' Jndian Jacome-tax Act, 1922 to the merged States, at
1hc same time repealing the corresponding State ln\Vs.
Under the ·ordi-
nance and the Act the Cehtral Government \VUS given power to pass ap-
propriale orde(s to remove tlifticultics in the applic~1tion o{ the Indian Act
to the merged States.
"
·
The "'Taxation Laws' (Merged
Slates)
(Removal
of. Difficulties)
Order, 1949 provi<lc<l that Jn n1aking any ass'-"Ssn1cnt
unde.r the Indian
Income-tax Act, 1922 all depreciation actually nllowed under any laws or
rules of a rhc·rged State Te1ating to income-tax
and
super-ta~ shall he
t~1kcn
into
account in
cOmputing the depreciation a11owance, und•:!r
'· 10(2) (vi) (c) and the written down value under s. 10(5) (b) of the
Indian Income-tax Act. ln 1962 another such Order \Vas passed namely the
.. Taxation 'La\Vs (Merged States) (Removal of r;:>itlieultics) .. Amcndn1ent
Orde~. 1962.
It added an Explanation
to the Removal of Difficulties
Order, 1949.
Cluuse (b) of the Explanntion
provided
that
in cases
where income had been exempted from tax unJcr any Jaws or rules in
force in a merged State or under any agreement \Vith a Ruler, the <lcpn:-
ciation tha,t would have been allowed had the incon1c not been so cxcn1pt-
cd shall be deemed to be the depreciation "actually allowed" for the P.ur-
po6c of l:Omputing depreciation allo\vancc and y,·rittcn down value.
For
the asscssn1ent ye&r 1949-50 the depreciation
allowetl. to the appellant
comoany was taken as a percentage of. the origi11al_ _c.oot of its assets ;ind
in the four subsequent years the v.:ritten down value ol the as~ets :-.•,ras
determined on that footing.· However,' the Jncon1c-t<lX Officer nftcr r.iv!-
ing notice under s. 34 recomputeU the taxable incon1c on the footinc: th~\t
since the cpmmencemcnt of the business
the as .. ~c'iscc must be UCcn1ct!
notionally to have been allo~ed depreciation un<lcr the Rhopal Incon-i,cttrix
Act.,.
These assessments were challenged by the appellant compan~f be-
fore the approptiate authorities under the Act but by the time apoeal ~\'a"
heard before the Suoreme Court the Removal of Difl1culti.cs Ofdcr, '! 962
had been passed.
Following the decision in K: S. Vt•11katarn11ian ~ ~'(I·
(P) Ltd. v. State of Madras: [1966] 2 S.C.R. 229. the Suoreme Coult ill
not entertain the argument 1as to the
validity of the 1962 Order.
T c
SUPREME COURT REPORTS
!1968] 2 S.CR·
appellant con1pany then tiled a v.nt petition unJer Art. :!26 of the Cons-
A
tllution.
l"hc High Court dism1s~d the pctu1on,· and the company <ip-
pcalcJ to this Court hy ccrllficatc.
J-IELD: (i) Exercise of the ?O"'"'cr to make
provi~ions or to issue
<~ircctions as may appear ncceo;sary to the Central Government ic; con<li·
l!OncJ by the cxi.~tcncc of a diflic~lty arising in giving effect to the provi-
sion' of any, rule or order.
Section 6 of Act 67 of 1949 docs not make
the arising of the difficully a matrer of c;ubjcctivc satisfaction of the Gov-
S
crnment; ir is a condition precedent to the exercise of power an<l existence
of the condition if challcn£:Cd must be established as an objective f:1c1.
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