HUKAMCHAND MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a public limited company which had its registered office at Indore which was a part of the erstwhile Holkar State. The textile mill of the assessee is also at Indore and the assessee -company was assessed to income -tax under the provisions of the Indian Income -tax Act, 1922, for the assessment years 1938 -39 to 1949 -50 in the status of 'non -resident' except for the assessment year 1940 -41, 1941 -42 and 1948 -49 for which it was held to be a resident and ordinarily resident -company. The assessee was charged to tax in respect of the assessment year 1948 -49 in respect of remittances made for purchase of stores and income from interest or securities, In respect of the said assessment year 1948 -49, the assessment was challenged and the income in respect of remittances which was originally brought to tax was deleted. The assessee, however, did not challenge its status by filing any second appeal and thus the income liable to tax under the Indian Income -tax Act, 1922, was income falling under section 4(1)(a) and section 4(1)(c) read with section 42 of the Indian Income -tax Act, 1922, now for determining the income liable to tax and to determine the world income of the assessee, It was necessary to calculate and allow as a deduction the depreciation in respect of the assets of the business. No depreciation was considered in respect of the assessment year 1948 -49. The assessee's total world income was computed after ever, taxed in respect of its total income. Thus, a part of the depreciation which had entered into computation of income found liable for tax under the Indian Income -tax Act, 1922 was the depreciation actually allowed. The Indian Income -tax Act, 1022, was extended to Part B States with effect from 1st April, 1950, by the Finance Act of 1950 and the assessee was assessed to tax as 'resident and ordinarily resident' from the assessment years 1950 -51 onwards. For the assessment year 1959 -60, the assessee had raised a contention that for the purpose of allowing depreciation under section 10(2)(vi) of the Indian Income -tax Act, 1922, the written down value as defined in section 10(5)(b) should be taken to be the original cost of the assets. This contention was also raised in respect of the assessment years 1950 -51, 1951 -92, and 1952 -53. We are, however, in this reference concerned only with the assessment years 1953 -54 and 1959 -60. An alternative contention was raised that in arriving at the written down value, only such depreciation should be deducted as had been actually allowed in making the assessment in the post under the Indian Income -tax Act, 1922. The Tribunal had finally accepted the alternative contention of the assessee. This decision was in respect of the assessment years 1950 -51, 1951 -52, and 1952 -53. The matter came to this court in a reference and this court took the view that in the case of the assessee, only that part of the depreciation as had entered into the computation of the income liable to tax under the Indian Income -tax Act can be taken into account to determine the written down value of the business assets under section 10(5)(b) of the Acre and not the full depreciation calculated in determining the total income having regard to the provisions of paragraph 2 of the Taxation Laws (part B States) (Removal of Difficulties) October, 1950,. In the same decision, paragraph 2 of the Taxation Laws (Part B Status) (Removal of Difficulties) October, 1950, was held to be a valid provision of law. This decision is reported in Hukumchand Mills Ltd. v. Commissioner of Income -tax : [1963]47ITR949(Bom) . The assessee carried the matter to the Supreme Court and the Supreme Court upheld the view of this court referred to above. The decision of the supreme court is reported as Hukumchand Mills Co. Ltd. v. Commissioner of Income -tax : [1967]63ITR232(SC) , where the supreme Court has taken the view that only that part of the depreciation which entered into the computation of the taxable income of the assessee under the Act for the assessment years prior to 1950 -51 could be treated as depreciation (actually allowed) and not the total depreciation which went into the Tribunal, having regard to the decision of the Supreme Court in respect of the assessment years 1950 -51, 1951 -52 and 1952 -53, the matter was remanded to the Income -tax Officer with a further direction that even in respect of the assessment years in question, the Income -tax Officer shall take into consideration all the relevant materials and also such material as may be placed before him by the assessee and also after considering whether the Industrial Tax Rules of 1927 have been made for the levy of the tax and for the ascertainment and determination of the income of cotton mills or whether it is any law relating to tax on profits of business on rules of Part B States relating to income -tax or super -tax within the meaning of rule 2 of the Taxation Laws (part b States) (Removal of Difficulties) Order, 1950. Before the Tribunal a contention regarding the validity of the Taxation Laws (Part B Status) (Removal of Difficulties) order 1950, was raised on several grounds. The tribunal followed the decision of the Supreme Court in Commissioner of Income -tax v. Dewan Bahadur Rangopal Mills Ltd. : [1961]41ITR280(SC) and rejected the contention of the assessee. The other contention raised before the Tribunal related to a deduction of the sums of Rs,. 5,723 and Rs. 16,735 for the years 1957 -57 and 1957 -58, respectively, being the amount of expense incurred in making some roads within the compound of the mills. The Tribunal took the view that the expenditure incurred was of a capital nature and that it was properly disallowed. The only other material contention which need to be noticed is that a claim regarding deduction of legal expenses of Rs. 1,500 being the amount of fees paid to Eastern Law Consultants, in respect of appeals arising out of certain proceedings taken against the assessee -company for contravention of rules 47(4) and 51 read with the rule 96(c) and (d) rule 210 and rule 226 of the Central Excise Rules, was made by the assessee. This contention also came to be negatived by the tribunal having regard to the decision of the Supreme Court in Haj Aziz and Abdul Shakoor Bros. v. Commissioner of Income -tax : 1983ECR1942D(SC) . We are not concerned with the other questions raised before the tribunal in appeal because these were the contentions on which the following questions have been referred to this court by the Tribunal under s

(2.) IT is fairly conceded by Mr. Vyas on behalf of the assessee that question No. 4 which relates to the validity of the Taxation Laws (Part B States) (Removal of Difficulties) , 1950, is concluded by a Division Bench decision of this court referred to above in Hukumchand Mills Ltd. v. Commissioner of Income -tax : [1963]47ITR949(Bom) . In view of this decision question No, 4 has to be answered in the affirmative and in favor of the revenue.

(3.) IT is also fairly stated by Mr. Vyas that the controversy raised in question No,. 5 is also decided by the Supreme Court against the assessee in Travancore -Cochin Chemicals Ltd. v. Commissioner of Income -tax : [1977]106ITR900(SC) . In that case, the Supreme Court has held that the by having a new road constructed for the improvement of transport facilities, the assessee had acquired an enduring advantage for its business and the expenditure incurred by the assessee was of a capital nature. In view of this decision, question No. 5 is answered in the negative and in favor of the revenue.