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

CIVIL APPEAL No. 956/1964Supreme Court[1966] 2 S.C.R. 85903 December 1965Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI B4 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the words 'actually allowed' in Section 10(5)(b) of the Indian Income-tax Act, 1922, do not include any notional allowance. Therefore, since no depreciation was actually allowed to the assessee in the prior years when its income was exempted, the original cost of the machinery should be taken as the written-down value for calculating depreciation. The Court also held that the exemption granted under paragraph 15 of the Merged States (Taxation Concession) Order, 1949, was an exemption under Section 60A of the Act and not a continuation of the agreement with the Ruler. Consequently, the case had to be determined with reference to Section 10(5)(b) of the Act, unaffected by the amendment made by the 1962 Order. The High Court's decision was upheld.

What were the facts?

The respondent company, Dharampur Leather Cloth Co. Ltd., commenced business in June 1949 and initially had an agreement with the Ruler of Dharampur for a seven-year exemption from income-tax. Following the merger of Dharampur State with Bombay in August 1949, the company applied for and received an exemption from income-tax and super-tax for five years from April 1950 under paragraph 15 of the Merged States (Taxation Concession) Order, 1949. For the assessment year 1956-57, the first year it was to be assessed under the Indian Income-tax Act, 1922, the company claimed depreciation based on the original cost of its machinery, arguing no depreciation had been 'actually allowed' previously. The assessing and appellate authorities rejected this, but the High Court ruled in favour of the company. The Revenue appealed to the Supreme Court.

What were the issues?

1. Whether, under Section 10(5)(b) of the Indian Income-tax Act, 1922, depreciation should be deemed to have been allowed to the assessee in the years its income was exempted, despite no actual allowance being made. 2. Whether the exemption granted to the company by the Commissioner of Income-tax was a continuation of the original agreement with the Ruler of Dharampur, thereby making the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, as amended by the 1962 Order, applicable. Assessee's Contentions: - Depreciation should be computed on the original cost as no depreciation had been 'actually allowed' in prior years. Revenue's Contentions: - On a proper interpretation of Section 10(5)(b), depreciation must be deemed to have been allowed in the years of exemption. - The concession granted by the Commissioner was a continuation of the agreement with the Ruler, thus the 1962 Order applied.

Which sections of the Income-tax Act were involved?

10(5)(b), 60A

AI-generated summary — verify with the full judgment below

A B - c D E F • G T H 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 Ap

The order continues below.

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