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

WRIT PETITION (CIVIL) No. 112/1971Supreme Court[1975] 2 S.C.R. 64007 November 1974Bench: 5 JudgesAuthor: A.N. RAY, KUTTYIL KURIEN MATHEW, A. ALAGIRISWAMI, P.K. GOSWAMI, R.S. SARKARIA27 pages
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What did the Supreme Court hold?

The Supreme Court held that Proviso 2 to Clause (3) of the Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Order, 1970, is ultra vires the Central Government's powers under Clause (7) of Regulation II of 1963. The Court reasoned that the existence of a 'difficulty' is a sine qua non for exercising the power to remove difficulties, and this difficulty must arise in giving effect to the Act, not be a difficulty arising in abstracto. The Court found that there was no difficulty in computing the 'written down value' under Section 43(6)(b) of the 1961 Act, as the WDV would be the actual cost less nil depreciation for the initial period, and subsequently reduced by depreciation actually allowed. The impugned proviso, by substituting 'deemed to have been allowed' for 'actually allowed,' fundamentally altered the scheme of depreciation calculation and the definition of WDV, which went beyond peripheral adjustments. The Court rejected the argument of parity, stating the proviso put assessees in Union Territories in a worse position. The ratio is that a 'Removal of Difficulties' order cannot alter the substantive provisions or scheme of the principal Act under the guise of removing a difficulty, especially when no actual difficulty in applying the existing provisions exists.

What were the facts?

Goa, Daman and Diu became a Union Territory of India on December 19, 1961. The Taxation Laws (Extension to Union Territories) Regulation II of 1963 extended the Indian Income Tax Act, 1961, to the territory from April 1, 1963. Clause (7) of this Regulation empowered the Central Government to issue orders to remove difficulties in implementing the Act. The petitioners, carrying on business in the territory, were assessed under the Indian Act from assessment year 1964-65. Depreciation was allowed based on the 'written down value' (WDV) as per Section 32 and Section 43(6)(b) of the Income Tax Act, 1961. For the first assessment year, WDV was the actual cost as no depreciation was previously allowed. On November 8, 1970, the Central Government issued the Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Order, 1970. Clause (3) of this order, particularly Proviso 2, stipulated that if no depreciation was allowed under local laws for a period, it should be calculated under the Indian Act and deemed to have been allowed under local law. This led to revised assessments, reducing the WDV of assets and increasing tax liability.

What were the issues?

1. Whether Proviso 2 to Clause (3) of the Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Order, 1970, is ultra vires the powers of the Central Government under Clause (7) of the Taxation Laws (Extension to Union Territories) Regulation II of 1963? (Question of law). Assessee's Contentions: The petitioners argued that Proviso 2 to Clause (3) of the 1970 Order was ultra vires. They contended that the power to remove difficulties was intended for minor adaptations and peripheral adjustments, not to alter the basic structure or essential provisions of the Income Tax Act, 1961. They argued that there was no actual difficulty in applying Sections 32 and 43(6)(b) of the Act, as the WDV could be computed based on the actual cost less nil depreciation for the initial period, and subsequently reduced by depreciation actually allowed. They also argued that the proviso created inequality by placing assessees in Union Territories at a disadvantage compared to those in the rest of India. They relied on the principle that the power to remove difficulties cannot be used to change the scheme of the Act. Revenue's Contentions: The Revenue contended that the impugned proviso was necessary to remove a difficulty and ensure parity of treatment among assessees across India. They argued that the proviso brought the assessees in the Union Territories in line with the scheme of the Indian Income-tax Act, preventing them from gaining an undue advantage. They relied on the decision in Commissioner of Income-tax, Hyderabad v. Dewan Bahadur Ram Gopal Mills Ltd. and the principle that delegated power to remove difficulties can be exercised to remove difficulties from the very beginning.

Which sections of the Income-tax Act were involved?

Section 32,Section 43(6)(b)

AI-generated summary — verify with the full judgment below

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 C 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 rt

The order continues below.

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