JUDGMENT

Bhagwati, J.

1. This reference made at the instance of the assessee raise a question regarding the computation of written down value in calculating depreciation allowance for the assessment year 1950-51. The assessed is a public limited company which carries on business of manufacture and sale of cotton textile goods and for that purpose owns a cotton textile mill in Bhavnagar, a place situate in the former Indian State of Bhavnagar. The assessee was assessed to tax under the Bhavnagar War Profits Tax Act, I of S. Y. 1999, a law of the Bhavnagar State, for the assessment years for which the corresponding account years were the calendar years 1942, 1943, 1944 and 1945; and for the assessment year, relating to the next succeeding account year, namely, calendar year 1946, the assessee was assessed to tax under the Bhavnagar Income-tax Act (1946), S. Y. 2002, also a law of the Bhavnagar State which replaced the Bhavnagar War Profits Tax Act, I of S. Y. 1999. No further assessments of the assessee were, however, made under the Bhavnagar Income-tax Act (1946), S. Y. 2002, since that law was suspended by the Bhavnagar State by a notification issued on 28th January, 1948, presumably in view of the move foot at that time for integration of the Indian States in Kathiawar. A covenant was, thereafter, entered into by the various Indian States in Kathiawar including the Bhavnagar State with the occurrence and guarantee of the Government of Indian for integrating themselves into one State and on the basis of that convenient was formed the United State of Saurashtra with effect from 15th April, 1948. On 16th March, 1949, the Rajpramukh promulgated an Ordinance, instituted the Saurashtra Income-tax Ordinance, 1949, to make provision for a uniform law of income-tax and super-tax in the entire territories of the United State of Saurashtra The ordinance remained in force only for a period of one year and governed the assessment for the assessment year 1949-50. The assessment of the assessee for the assessment year 1949-50 was, therefore, made in accordance with the provisions of the Ordinance. Section 13(2) (vi) of the Ordinance provided for taking into account of depreciation allowance in respect of building, machinery, plant and furniture used for the purpose of business in the relevant year of account and such depreciation allowance was to be calculated by applying the statutory percentage to the written down value. It was, therefore, necessary to ascertain the written down value. Written down value, was defined in section 13(5) to mean, omitting portions immaterial :

"'Written down value' means :

(a) in the case of assets acquired in the previous year, the actual cost to the assessee;

(b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Ordinance or allowed under any Act repealed hereby or which would have been allowed to him if the Indian Income-tax Act, 1922, was in force in the past".

2. Now the assets of the assessee had been acquired before the previous year relevant to the assessment year 1949-50 and section 13(5) (b), therefore, applied for ascertaining the written down value. Reading the words in the last part of section 13(5) (b) as equivalent to "which would have been allowable to him if the Indian Income-tax Act, 1922, was in force", the Income-tax Officer, in ascertaining the written down value, deducted depreciation which would have been allowable under the Indian Income-tax Act, 1922, if it had been in force and a claim had been made supported by prescribed particulars. The obvious result of deducting this amount was that the written down value became considerably lower that what it would have been otherwise and so the depreciation allowance also became less. The assessee's contention was that no deduction should be made on the strength of the words "which would have been allowed to his if the Indian Income-tax Act, 1922, was fact in force in the past", as in fact, no claim was made or could be made for such allowance, but this contention was rejected by the Income-tax Officer. The Appellate Assistant Commissioner as also the Income-tax Tribunal, however, took a different view and held that the expression "which would have been allowed to him if the Indian Income-tax Act, 1922, was in force in the past" did not permit the Income-tax Officer to make any deduction under this head and the written down value must accordingly be taken to be the actual cost of the assets to the assessee. The revenue did not seek any reference to the High Court from the decision of the Tribunal and allowed the decision of the Tribunal to become final and binding. The result was that in computing the written down value in the assessment of the assessee for the assessment year 1949-50 under the Ordinance, no allowance for depreciation was taken into account and the actual cost of the assets was taken as the written down value and on this basis the depreciation allowance was calculated at Rs. 4,24,032.

3. So much for the assessment year 1949-50. Turning now to the facts relating to the assessment year 1950-51, the United State of Saurashtra a Part B State of the Union of India on the coming into force of the Constitution on 26th January, 1950. Thereafter, the Finance Act, 1950, by section 13, repealed the taxation laws in force in Part B states except for certain purposes not relevant to the present reference and by section 3 extended the Indian Income-tax Act, 1922, to the whole of India, except the State of Jammu and Kashmir. The result was that the Indian Income-tax Act, 1922, was brought in to force in Saurashtra which included the erstwhile Bhavnagar State with effect from the assessment year 1950-51 and the assessment of the assessee for the assessment year 1950-51 was required to be made under the provisions of the Indian Income-tax Act, 1922. Now, prior to the assessment year 1950-51 also, the assessee had been assessed to tax for many years past under the Indian Income-tax Act, 1922 but that was as a non-resident in respect of its income falling within section 4(1) (a) or 4(1) (c). These assessments were made on the assessee as a non-resident for the assessment years 1939-40 to 1949-50 and in each such assessment years the taxable income of the assessee was determined on the basis of the application of rule 22 after determining its total world income. In determining the total world income, the full depreciation on the assets was taken into account and a corresponding fraction or percentage of such depreciation accordingly entered in the computation of the taxable income on a proportionate basis and represented depreciation actually allowed to the assessee in its assessment to tax under the Indian Income-tax Act, 1922 : vide Hukumchand Mills Ltd. v. Commissioner of Income-tax. But as pointed out above, these assessments to tax were made on the assessee as a non-resident and it was for the first time in the assessment year 1950-51 on the introduction of the Indian Income-tax Act, 1922, in Saurashtra that the assessee became liable to the assessed as a resident. Now, in making the assessment on the assessee for the assessment year 1950-51, it became necessary to compute the written down value for the purpose of calculating depreciation allowance admissible to the assessee since, under section 10(2) (vi), depreciation allowance was based on the written down value. Written down value was defined in section 10(5) (b) to mean;

"(b) In the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act, or any Act replaced thereby, or under executive orders issued when the Indian Income-tax Act, 1886 (II of 1886), was in force."

4. The Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 (hereinafter referred to as the Removal of Difficulties Order, 1950), made by the Central Government by a notification dated 2nd December, 1950, in exercise of the powers conferred by section 12 of the Finance Act, 1950, also provided for computation of written down value and Paragraph 2 of the said order was in these terms :

"2. Computation of aggregate depreciation allowance and written down value. - In making any assessment under the Indian Income-tax Act, 1922, all depreciation actually allowed under any laws or rules of a Part B State relating to income-tax and super-tax, or any law relating to tax on profits of business, shall be taken into account in computing the aggregate depreciation allowance referred to in sub-clause (c) of the proviso to clause (vi) of sub-section (2) and the written down value under clause (b) of sub-section (5) of section 10 of the said Act :

Provided that where in respect of any asset, depreciation has been allowed for any year both in the assessment made in the Part B State and in the taxable territories, the greater of the two sums allowed shall only be taken into account."

5. An Explanation was added to this paragraph by the Central Government on 9th March, 1953, in purported exercise of its power under section 60A of the Indian Income-tax Act, 1922. That Explanation said.

"Explanation. - For the purpose of this paragraph, the expression 'all depreciation actually allowed under any laws or rules of Part B State' means and shall be deemed always to have meant the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules of a Part B State or carried forward under the said laws or rules."

6. This Explanation was however held to the ultra vires the powers of the Central Government under section 60A of the Indian Income-tax Act, 1922, by the Hyderabad High Court in Commissioner of Income-tax v. Dewan Bahadur Ramgopal Mills Ltd. The Central Government, therefore, issued another notification dated 8th May, 1956 - this time in exercise of the powers conferred under section 12 of the Finance Act, 1950 - adding to paragraph 2 of the Removal of Difficulties Order, 1950, an Explanation in identical terms as the earlier Explanation made under section 60A of the Indian Income-tax Act, 1922. In its assessment for the assessment year 1950-51 the assessee made a claim for depreciation based on paragraph 2 of the Removal of Difficulties Order, 1950. The assessee contended that the only depreciation actually allowed to it under "any laws or rules of a Part B State relating to income-tax and super-tax or any law relating to tax on profits of business" within the meaning of paragraph 2 of Removal of Difficulties Order, 1950, was the amount of Rs. 4,24,032 allowed as depreciation in the assessment for the assessment year 1949-50 made under the Saurashtra Ordinance and that was, therefore, the only amount which was liable to be taken into account in computing the written down value under section 10(5) (b). The assessee took the cost of the assets at their inception and deducted therefrom the amount of Rs. 4,24,032 allowed as depreciation for the assessment year 1949-50 under the Saurashtra Ordinance and calculating the written down value in that manner, the assessee claimed depreciation according to the prescribed rates. The Income-tax Officer, however, by his order dated 5th March, 1955, disallowed this claim. He held that on a true construction of section 13 (5) (b) of the Saurashtra Ordinance, depreciation which would been allowable if the Indian Income-tax Act, 1922, had been in force in the past and a proper claim had been made and substantiated was liable to be taken into account in computing the written down value under the Saurashtra Ordinance and, therefore, by reason of paragraph 2 of the Removal of Difficulties Order, 1950, read with the Explanation, such depreciation was deductible in arriving at the written down value under section 10(5) (b) in making assessment for the assessment year 1950-51 under the Indian Income-tax Act, 1922. He accordingly deducted from the cost of the assets all depreciation which would have been admissible to the assessee had the Indian Income-tax Act, 1922, been in force in the preceding years and, after thus working out the written down value, he applied the prescribed rates and calculated the depreciation allowance admissible to the assessee. The assessee, being aggrieved by this order of the Income-tax Officer, preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner by his order dated 28th September, 1956, disagreed with the view taken by the Income-tax Officer and held that, in computing the written down value in manner he did, the Income-tax Officer had overlooked the decision of the Tribunal taking the cost of the assets as the written down value in the assessment for the preceding assessment year, namely, 1949-50, and since the written down value for the purpose of assessment for the assessment year 1949-50 was determined by a final and binding decision of the Tribunal to be the cost of the assets, the Income-tax Officer was bound to accept that as the basis and compute the written down value for the purpose of assessment for the assessment year 1950-51 by taking the cost of the assets and deducting from it only the depreciation actually allowed in the assessment for the assessment year 1949-50, namely, the amount of Rs. 4,24,032. The decision of the Appellate Assistant Commissioner being adverse to the revenue, the Income-tax Officer carried the matter in appeal to the Tribunal. The Tribunal accepted the contention of the revenue and held that section 10(5) (b) read with paragraph 2 of the Removal of Difficulties Order, 1950, and the Explanation in the light of section 13(5) (b) of the Saurashtra Ordinance supported "the contention of the Income-tax Officer that for the purpose of computing the written down value in the assessee's case for the assessment year 1950-51....... the written down value should be determined by deducting from the original cost to the assessee the depreciation that would have been admissible to it had the Indian Income-tax Act, 1922, been in force in past". The Tribunal in this view upheld the computation of the written down value and the calculation of depreciation allowance based thereon made by the Income-tax Officer. The assessee thereupon moved the Tribunal for a reference under section 66(1) of the Indian Income-tax Act, 1922, and since, in the opinion of the Tribunal, question of law did arise out of the order of the Tribunal, a case was stated by the Tribunal on the following questions :

"(1) Whether, on the facts and the circumstances of the case, in computing the total income of the assessee for the year 1950-51, the depreciation allowance should be computed under section 10 of the Indian Income-tax Act alone or under the said provision read with the provisions of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, and/or the Explanation to paragraph 2 of the said Order ?

(2) Whether, on the facts and circumstances of the case, the written down value of the assets of the assessee should be arrived at after taking into consideration the amount of depreciation that would have been allowed, though not actually allowed, had the Indian Income-tax Act been in force in the past ?"

Of these question, only the second formed the subject-matter of debate between the parties, for it was conceded by Mr. Kolah, learned advocate appearing on behalf of the assessee, that so far as the first question was concerned, it must be answered by saying that the depreciation allowance should be computed under section 10 of the Indian Income-tax Act, 1922, read with paragraph 2 of the Removal of Difficulties Order, 1950, and the Explanation to that paragraph. This concession was indeed inevitable in view of the decisions of the Supreme Court in Commissioner of Income-tax v. Dewan Bahadur Ramgopal Mills Ltd. and Mahalaxmi Mills Ltd. v. Commissioner of Income-tax. The only question which, therefore, requires to be considered is the second question and that, as well shall presently show, depends on the true interpretation of the Explanation 2 to paragraph 2 of Removal of Difficulties Order, 1950.

7. In order to arrive at a proper determination of this question, it is necessary to notice the scheme of the relevant provisions of law bearing on the computation of depreciation allowance admissible to an assessee. Section 10 of the Indian Income-tax Act, 1922, says in its first sub-section that the tax shall be payable by an assessee in respect of the profits or gains of any business, profession or vocation carried on by him. Sub-section (2) of section 10 says that such profits or gains shall be computed after making certain allowances and one of these allowances is in respect of depreciation on building, machinery, plant and furniture used for the purpose of business in relevant year of account : vide clause (vi). The depreciation, except in certain cases, is calculated on the written down value and the written down value is explained in section 10(5) (b) to mean the actual cost of the assets to the assessee less all depreciation actually allowed to him under the Indian Income-tax Act, 1922, or under any Act repealed by that Act. Now, obviously, in applying section 10(5) (b) to an assess in a part B State, there would be an initial difficulty in as much as, prior to 1950, when the Indian Income-tax Act, 1922, came into force in Part B States, no depreciation could have been actually allowed to such an assesses under the Indian Income-tax Act, 1922, or under any Act repealed thereby. The laws in Part B States relating to income-tax and super-tax were repealed by the Finance Act, 1950, and not by the Indian Income-tax Act, 1922, and would not, therefore, be covered by section 10(5) (b) and depreciation allowed under such laws would not be liable taken into account in computing the written down value under section 10(5) (b). Such and other difficulties led to the making of the Removal of Difficulties Order, 1950, by the central Government in excise of its powers under section 12 of the Finance Act, 1950. We have already quoted paragraph 2 of that order and substantive provision of that paragraph provided that, in computing the written down value under section 10(5) (b), all depreciation actually allowed under any laws or rules or a Part B State relating to income-tax and super-tax or any law relating to tax on profits of business shall be taken into account. There were, therefore, two provisions concurrently in force in regard to computation of written down value : one in section 10(5) (b) and the other in paragraph 2 of the Removal of Difficulties Order, 1950. The former provided for taking into account of all depreciation actually allowed to the assessee under the Indian Income-tax Act, 1922, or under any Act repealed thereby, while the latter provided for taking into account of all depreciation actually allowed under any laws or rules of a part B state relating to income-tax or super-tax or any laws relating to tax on profits of business. The expression "any law relating to tax on profits of business" was construed by the supreme Court in Mahalaxmi Mills Ltd. v. Commissioner of Income-tax, to mean any law in force in an area of a part B State at a time before such are formed part of the Part B State so as to include laws of component or covenanting States. Now, there was no difficulty in applying the provisions of section 10(5) (b) and paragraph 2 of the Removal of Difficulties Order, 1950, in a case where the assessee was assessee under one or the other of the two statutes, namely, the Indian Income-tax Act, 1922, or the laws of a Part B State or a component State. If the assessee was assessed under the Income-tax Act, 1922, in any particular year, depreciation actually allowed to the assessee in that assessment would be taken into account under section 10(5) (b) and, if the assessee was assessed under the laws of a Part B State or a component State in any particular year, depreciation actually allowed to the assessee in that assessment would be taken into account under paragraph 2 of the Removal of Difficulties Order, 1950. But if the assessee was assessed both under the Indian Income-tax Act, 1922, and the laws of a Part B State or a component State in any particular year or years, as in the present case, where the assessee was assessed as non-resident under the Indian Income-tax Act, 1922, for the assessment years 1939-40 to 1949-50 and was also assessed under the Bhavnagar War Profits tax Act, I of S. Y. 1999, for the assessment years 1943-44 to 1946-47, under the Bhavnagar Income-tax Act (1946), S. Y. 2002, for the assessment year 1947-48 and the under the Saurashtra Ordinance for the assessment 1949-50, how should the depreciation liable to be taken into account in computing the written down value be calculated ? The combined effect of section 10(5) (b) and the substantive provision enacted in paragraph 2 of the Removal of Difficulties Order, 1950, would indubitably be that the depreciation actually allowed to the assessee under both the assessments would have to be taken into account. But that would be clearly unfair and unjust to the assessee and the proviso to paragraph 2 of the Removal of Difficulties Order, 1950, therefore, provided that in such case the greater of the two sums allowed should only be taken into account. It is clear from this discussion that, on a proper construction of section 10(5) (b) read with paragraph 2 of the Removal of Difficulties Order, 1950, and the proviso, the depreciation that was liable to be taken into account in computing the written down value in making assessment for the assessment year 1950-51 was that which was actually allowed to the assessee under the Indian Income-tax Act, 1922, or under any laws of a Part B State door a covenanting State and if in any year deprecation was actually allowed both in the assessment made under the Indian Income-tax Act, 1922, and in the assessment made under the laws of the Part B State or a covenanting State, the greater only of the two sums allowed was liable to be taken into account. This construction of course does not take into account the Explanation to paragraph 2 of the Removal of Difficulties Order, 1950, the effect of which we shall presently proceed to consider.

8. Basing his claim on this construction, Mr. Kolah on behalf of the assessee contended that the depreciation liable to be taken into account in computing the written down value under section 10(5) (b) read with paragraph 2 of the Removal of Difficulties Orders, 1950, should be taken to be the aggregate of the following amounts, namely :

(1) depreciation actually allowed to the assessee in the assessments for the assessment years 1939-40 to 1942-43 and 1948-49 under the Indian Income-tax Act, 1922;

(2) (a) depreciation actually allowed to the assessee in the assessment under the Indian Income-tax Act, 1922; or

(b) depreciation actually allowed to the assessee in the assessment under the Bhavnagar War Profits Tax Act, I of S. Y. 1999, or the Bhavnagar Income-tax Act (1946), S. Y. 2002,

whichever is greater for each of the assessment years 1943-44 to 1947-48; and

(3) depreciation actually allowed to the assessee in the assessment for the assessment year 1949-50 under the Saurashtra Ordinance, that being greater than the depreciation actually allowed to the assessee in the assessment for that assessment year made under the Indian-tax Act, 1922;

and the written down value should be computed by deducting from the cost of the assets such aggregate amount of depreciation actually allowed to the assessee. The claim of the assessee before the revenue authorities was of course a more ambitious claim, namely, that only depreciation mentioned in item No. (3) should be taken into account in computing the written down value and that was the claim accepted by the Appellate Assistant Commissioner but this claim was modified at the hearing of the reference before use and Mr. Kolah with his usual frankness conceded that on this construction, which according to him was the correct construction, not only depreciation mentioned in item No. (3) but also depreciation mentioned in items Nos. (1) and (2) would have to that extent the decision of the Appellate Assistant Commissioner was incorrect. But he protested strongly against the view of the Tribunal taking into account depreciation which was not actually allowed to the assessee in any past assessment but which would have been allowable if the Indian Income-tax Act, 1922, had been in force in the past and submitted that there was nothing in the Indian Income-tax Act, 1922, or the Removal of Difficulties Order, 1950, which required or even permitted such depreciation to be taken into account.

9. Now the learned Advocate-General on behalf of the revenue agreed that if paragraph 2 of the Removal of Difficulties Order, 1950, with proviso stood alone without the Explanation, the construction which we have set out above would be the correct construction and the claim of the assess would be unanswerable, but he submitted that the Explanation made a vital difference and, by reason of the Explanation, the depreciation that was liable to be taken into account was not only the depreciation actually allowed to the assessee in the preceding years, namely, the aggregate of items Nos. (1), (2) and (3) given above, but also the depreciation taken into account in computing the written down value under the Saurashtra Ordinance, namely, the depreciation which would have been allowable had the Indian Income-tax Act, 1922, been in force in the proceeding years. He urged that, according to the Explanation, "all depreciation actually allowed under any laws or rules or a Part B State" within the meaning of paragraph 2 of the Removal of Difficulties Order, 1950, meant the aggregate allowance for depreciation taken into account in computing the written down value under any laws of a Part B State and, since the Saurashtra Ordinance was a law of a Part B State and under section 13(5) (b) of the Saurashtra Ordinance the depreciation that would have been allowable if the Indian Income-tax Act, 1922, had been in force in the past was liable to be taken in to account in computing the written don value in making the assessment for the assessment year 1949-50 under the Saurashtra Ordinances, such depreciation was deductible in computing the written down value for the assessment year 1950-51 by reason of paragraph 2 of the Removal of Difficulties Order, 1950, read with Explanation. He pleaded that the words "the Saurashtra Ordinance" be substituted for the words "any laws or rules or Part B State" and full effect be given to be Explanation after making such substitution and, if that was done, he argued, the consequence would clearly be that, by reason of section 13(5) (b) of the Saurashtra Ordinance, the depreciation which would have been allowable to the assessee had the Indian Income-tax Act, 1922, been in force in the proceeding years would have to be taken into account in computing the written down value. Mr. Kolah on behalf of the assessee, however, disputed the validity of this construction contended for on behalf of the revenue. He urged that the Explanation did not effect any departure from the principle embodied in the main enactment in paragraph 2 of the Removal of Difficulties Order, 1950, namely, that only such depreciation as was actually allowed to the assessee under the laws of a Part B state or a covenanting State should be taken into account in computing the written down value. He relied on the following observations from the judgment of Subbba Rao J. in a recent decision of the Supreme Court given on 7th December 1965, in Commissioner of Income-tax v. Nandlal Bhandari Mills Ltd. (Civil Appeals Nos. 629 to 632 of 1964) :

"The expression 'actually allowed' in the main paragraph, 'allowed' in the proviso, and 'taken into account' in the Explanation means the same thing. What the Income-tax Officer has to take into consideration in computing the written down value is the depreciation actually allowed under the Income-tax Act or the laws obtaining in Part B States and adopt the greater of the two sums so allowed under that head."

10. Now this observation does seems to suggest that the Explanation was not intended to add anything to the provision enacted in paragraph 2 of the Removal of Difficulties Order, 1950, but was intended merely to clarify the meaning and intendment of that provision. But when we look at the judgment we find that the Supreme Court was not concerned in this case with the interpretation of the Explanation and the observation made by Subba Rao J. was merely a casual observation made in passing when considering the meaning of the word "allowed" in the provision to paragraph 2 of the Removal of Difficulties Order, 1950. We do not think the learned judge intended to lay down the true interpretation of the words "taken into account" in the Explanation when he made this observation. He manifestly could not have intended to do so, since the decision of the Supreme Court in Diwan Ramgopal Mills case, where the Explanation directly came up for consideration, clearly recognized that the Explanation was introduced to provide for taking into account depreciation which was not actually allowed to the assessee and which would not therefore have been liable to be taken into account under paragraph 2 of the Removal of Difficulties Order, 1950. It is a little important to notice the facts of Diwan Ramgopal Mills case as that would help in understanding the reason which led to the introduction of the Explanation. In that case the assessee was assessed under the Hyderabad Income-tax Act in respect of the assessment year 1357F., 1358F. and 1359F. In the assessment for those years, depreciation allowance was given to it on the basis of the written down value of its assets, such as buildings, machinery, plant, etc., in accordance with the provisions of clause (c) of section 12(5) of the Hyderabad Income-tax Act. That clause provided that in the cases case of assets acquired before the previous year and before the commencement of the Act, the written down value would be the actual cost to the assessee less (i) depreciation at the rates applicable to the assets calculated on the actual cost for the first year since acquisition and for the next year on the actual cost diminished by the depreciation allowance for one year and so on, for each year up to the commencement of the Act, and (ii) depreciation actually allowed to the assessee on such assets for each financial year after the commencement of Act. The erstwhile State of Hyderabad merged in the Union of India on January 26, 1950, and became a part B state and the Indian Income-tax Act, 1922, was made applicable to the Hyderabad State from 1st April, 1950. The assessee was assessed for the first time under the Indian Income-tax Act, 1922, for the assessment year 1951-52 and in this assessment the assessee asked for depreciation allowance on the basis of the written down value which was worked out by deducting from the cost of the assets such depreciation as was allowed for the three assessment years in which the assessee was assessed under the Hyderabad Income-tax Act. The Income-tax Officer disallowed this claim holding that the claim was against the principle inherent in granting depreciation allowance which must decrease from year to year and that word "allowed" in paragraph 2 of the Removal of Difficulties Order, 1950, should be construed as meaning "considered" and he accordingly took the figures of the written down value from the income-tax proceedings of 1359 F. and allowed depreciation at the prescribed rate on those figures. The assessee carried the matter in appeal to the Appellate Assistant Commissioner but the appeal was unsuccessful and a further appeal was, therefore, taken to the Tribunal. The Tribunal held that, in view of the provision in paragraph 2 of the Removal of Difficulties Order, 1950, the contention of the assessee must prevail and it pointed out that the words used in paragraph 2 were "depreciation actually allowed under any laws or rules or a Part B State" and these words did not mean the aggregate allowance for depreciation taken into account in computing the written down value under the Hyderabad Act and, therefore, the assessee was entitled to the depreciation allowance which it claimed. The Tribunal accordingly directed the Income-tax Officer to compute the written down value on the basis of the actual cost of the assets minus the depreciation allowance actually allowed to the assessee under the Hyderabad Income-tax Act. The revenue, being aggrieved, applied for a reference and, while the application was pending, the Central Government introduced the Explanation on 9th March, 1953. The application was thereafter granted and, in the reference which followed, the Hyderabad High Court held the Explanation to be ultra vires section 60A and decided the question against the revenue. Thereupon an appeal followed to the Supreme Court and, while the appeal was pending, the Central Government introduced the present Explanation which we have set out above. Dealing with the Explanation the Supreme Court Observed :

"The Explanation in terms gave effect to the contention urged on behalf of the department and said that what has to be allowed is aggregate allowance for depreciation taken into account in computing the written down value under any law or rules of a Part B State."

11. The Supreme Court explained the object and purpose of the introduction of the Explanation in these terms :

"The basic and normal scheme of depreciation under the Indian Income-tax Act is that it decreases every year, being a percentage of the written down value which in the first year is the actual cost and in succeeding years actual cost less all depreciation actually allowed under the Income-tax Act or any Act repealed thereby, etc. The Hyderabad Income-tax Act not having been repealed by the Income-tax Act but by the Finance Act, 1950, there was a difficulty on allowing depreciation to an assessee in a Part B State in the first year of assessment under the Indian Income-tax Act. This difficulty was sought to be removed by paragraph 2 of the Removal of Difficulties Order, 1950. If, however, depreciation actually allowed under the Hyderabad Income-tax Act was taken into account in computing the aggregate depreciation allowance and the written down value, an anomalous result would follow as in the present case, namely, depreciation allowance to be allowed to the assessee in the accounting year under the Indian Income-tax Act would be more than what was allowed in previous year under the Hyderabad Income-tax Act. This would create a disparity and be against the scheme of the Indian Income-tax Act. This would create a disparity and be against the scheme of the Indian Income-tax Act. It was therefore necessary to explain paragraph 2 of the Removal of Difficulties Order, 1950, to assimilate or hormones the position regarding depreciation allowance, and Explanation added in 1953 or 1956 was obviously intended to remove the difficulty arising out of that disparity or disharmony."

12. In this view of the Explanation, the Supreme Court held that the depreciation that was liable to be taken into account in computing the written down value was not only depreciation which actually allowed to the assessee for the three assessment years in which the assessee was assessed under the Hyderabad Income-tax Act but also depreciation in respect of the preceding years which was taken into account in computing the written down value under the Hyderabad Income-tax Act. The Supreme Court thus did not regard the Explanation as a provision introduced merely ex abundanti cautela for the purpose of making explicit what was otherwise implicit in paragraph 2 of the Removal of Difficulties Order, 1950. The Explanation was held to be substantive provision enlarging the ambit and coverage of paragraph 2 of the Removal of Difficulties Order, 1950, and the only question can, therefore, be to what extent the ambit and coverage of paragraph 2 was enlarged by the Explanation.

13. Mr. Kolah on behalf of the assessee then contended that, in any event, if that be the position, the construction which the revenue sought to place on the Explanation should not be accepted and he pointed out several reasons why in his submission this construction was not the correct construction. In the first place submitted that the effect of accepting this construction would be to permit the revenue in a case like the present to deduct depreciation twice over, once while taking into account depreciation actually allowed under the India Income-tax Act, 1992, or the Bhavnagar law and again while taking into account what may be termed fictional depreciation not actually allowed but taken into account in computing the written down value under the Saurashtra Ordinance. He will illustrated this submission by pointing out that, on this construction, not only depreciation actually allowed to the assessee in any particular year, for instance 1943-44, under the India Income-tax Act, 1922, or the Bhavnagar War Profits Tax Act, I of S. Y. 1999 (whichever is greater), would have to be taken into account, but also full depreciation which would have been allowed in that assessment year had the Indian Income-tax Act, 1922, been in force in the past would also be liable to be taken into account and that would clearly involve taking into account depreciation twice over for the same assessment year. That surely, he argued, could not have been the intention of the Central Government in exacting the Explanation. He urged that another anomaly might also arise if the construction contended for on behalf of the revenue were accepted. The law of the covenanting State like the Hyderabad Income-tax Act mighty provide for taking into account of depreciation in respect of years prior to the enactment of such law and in those years the assessee might have been assessed as a resident or even as a non-resident under the India Income-tax Act, 1922. The effect of acceptance of the construction of the revenue in such a case would be that, in computing the written down value, the depreciation for those years would be taken into account twice over, once under section 10(5) (b) and again under paragraph 2 of the Removal of Difficulties Order, 1950, read with the Explanation, and the proviso would not help because, as held by the Supreme Court in Commissioner of Income-tax v. Nandlal Bhandari Mills Ltd., the proviso applied only where the competition is between depreciation actually allowed under the law of a Part B State or a covenanting State. Mr. Kolah submitted that the Explanation was enacted in order to provide for cases where depreciation in any past assessment years was not actually allowed to the assessee by reason of there being no law relating to income-tax in force in those assessment years, but was subsequently taken in to account in computing the written down value under the law of a Part B State or a covenanting State, as, for instance, under the Hyderabad Income-taxed Act. He urged that, if in any particular assessment year depreciation was actually allowed to the assessee either under the Income-tax Act, 1922, or under the law of a Part B State or a covenanting State, there would be no difficulty for section 10(5) (b) or paragraph 2 of the Removal of Difficulties Order, 1950, or the proviso would apply and such depreciation would be taken into account in computing type written down value, but a real difficulty would arise if no depreciation was actually allowed in any particular year or years and yet it was so subsequently taken into account in computing the written down value under type of a Part B State or a covenanting State. Neither section 10(5) (b) nor paragraph 2 of the Removal of Difficulties Order, 1950, would apply in cuss a case and such depreciation would not be liable to be taken into account in computing the written down value with the result that the written down value for the purpose of assessment under the Indian Income-tax Act, 1922, would be more than what was allowed to the assessee in the preceding year under the law of a Part B State or a covenanting State and the depreciation allowance to be allowed to the assessee under the Indian Income-tax Act, 1922, would be more than what was allowed to the assessee in the preceding year under the law of a Part B State or a covenanting State. That was the reason why, submitted Mr. Kolah, the Explanation was introduced by the Central Government and the only object and purpose of the Explanation was to provide that if in any year no depreciation was actually allowed to the assessee but depreciation for that year was subsequently taken into account in computing type written down value under the law of a Part B State or a covenanting State, such depreciation though not falling within the terms of account in computing the written down value along with depreciation actually allowed to the assessee in the assessments of the preceding years. Mr. Kolah urged that this construction not only accorded with the reason for the introduction of the Explanation but also made a consistent and harmonious enactment of paragraph 2 of the Removal of Difficulties Order, 1950, and avoided the anomalies created by the construction contended for on behalf of the revenue. If this construction were accepted, argued Mr. Kolah, the depreciation liable to be taken into account in computing the written down value would be only the aggregate of items Nos. (1), (2) and (3) set out above and the revenue would not be entitled to take into account depreciation that would have been allowable to the assessee if the Indian Income-tax Act, 1922, had been in force in the preceding years since depreciation was actually allowed to the assessee under the Indian Income-tax Act, 1922, for all the preceding assessment years and under the Bhavnagar laws for the assessment years 1943-44 to 1947-48.

14. These rival contentions raise an interesting question of construction of the Explanation, but it is not necessary for the purpose of the present reference to decide this interesting question, since we are of the view that, even if the construction pressed for our acceptance by the learned Advocate-General is accepted, the revenue must yet fail. The Explanation says that what shall be taken into account is "the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules of a Part B State" and even if we substitute the words "the Saurashtra Ordinance" for the words "any laws or rules of a Part B State", the depreciation liable to be taken into account by reason of the Explanation would be the aggregate allowance for depreciation taken into account in computing the written down value under the Saurashtra Ordinance. Now the only assessment made under the Saurashtra Ordinance was for the assessment year 1949-50 and we must, therefore, see what was the aggregate allowance for depreciation taken into account in computing the written down value for this assessment year. We have already narrated the history of the assessment in regards to the assessment year 1949-50 and it is clear from the final order of the Tribunal made in that assessment that in fact no allowance for depreciation was actually taken into account in computing the written down value for the purpose of calculation of depreciation. Allowance admissible to the assessee in that assessment under the Saurashtra Ordinance and the cost of the assets was taken to be the written down value. It would, therefore, follow that, even if the construction of the Explanation contended for on behalf of the revenue were accepted, no other depreciation, apart from that referred to in items Nos. (1), (2) and (3) set out above was liable to be taken into account in computing the written down value under the Explanation. The learned Advocate-General agreed that it was no doubt true that, as a result of the decision of Tribunal, no allowance for depreciation was actually taken into account in computing the written down value in the assessment for the assessment year 1949-50 made under the Saurashtra Ordinance, but the decision of the Tribunal, he contended, was erroneous and the depreciation which would have been allowable if the Indian Income-tax Act, 1922, had been in force in the past was liable to be taken into account under section 13(5) (b) of the Saurashtra Ordinance a interpreted by the Supreme Court in Mahalaxmi Mills Ltd. v. Commissioner of Income-tax, and the revenue was, therefore, entitled to take it into account in determining the written down value for the assessment year 1950-51 by reason of the Explanation. This contention of the learned Advocate-General is plainly unsound and must be rejected. What is required to be taken into account under the Explanation is the depreciation allowance actually taken into account in computing State and not depreciation allowance which ought to have been taken into account. The words used in the Explanation are "taken into account" and not "liable to be taken into account". It may be that the decision of the Tribunal law erroneous in not tucking into account any allowance for depreciation in computing the written down value for the assessment year 1949-50 under the Saurashtra Ordinance, but that decision was allowed by the revenue to become final and binding and the result was that in fact no allowance for depreciation was actually taken into account in computing the written down value for the assessment year 1949-50 under the Saurashtra Ordinance and no such allowance for depreciation was, there, liable to be taken into account in computing the written down value under paragraph 2 of the Removal of Difficulties Order, 1950, read with the Explanation. The learned Advocate-General sought to rely on the well-known principle that there is no res judicata or estoppel income-tax proceedings and the written down value determined in any particular year does not operate as res judicata nor is it conclusive in determining the written down value for the subsequent years, and referred to two decisions in support of the principle, namely, Karnani Industrial Bank Ltd. v. Commissioner of Income-tax, and Habib Hussein v. Commissioner of Income-tax. Now this principle is certainly a well-settled principle income-tax law and no exception can be taken to it but we do not see how it can be invoked in the present case to support the contention of the revenue. Here the assessee does not rely on the principle of res judicata or estoppel and seek to bind down the revenue to the computation of the written down value for the preceding assessment year 1949-50 on the basis of any such principle. The assessee concedes that the written down value for the assessment year 1950-51 must be computed by the Income-tax Officer himself by applying the relevant provisions of law without being fettered by the principle of re judicata or estoppel but his contention is that the relevant provisions of law, namely, paragraph 2 of the Removal of Difficulties Order, 1950, and the Explanation at the highest entitle the revenue to take into account only such depreciation allowance as is actually taken into account in computing the written down value under the Saurashtra Ordinance as distinguished from depreciation allowance which ought to have been but is not taken into account and, therefore, the revenue is bound by the assessment as actually made under the Saurashtra Ordinance and is not entitled to go behind if. This contention is clearly well founded and does not come into conflict with the principle relied on behalf of the revenue. Thus was indeed not seriously disputed by the learned Advocate-General and we must, therefore, reach the conclusion that, in computing the written down value, the revenue was not entitled to insist that the depreciation allowance which would have been allowable to the assessee had the Indian Income-tax Act, 1922, been in force in the past, should be taken in to account by reason of the combined operation of paragraph 2 of the Removal of Difficulties Order, 1950, read with the Explanation and sections 13(5) (b) of the Saurashtra Ordinance.

15. We, therefore, answer the first question by saying that the depreciation allowance should be computed under section 10 of the Indian Income-tax Act, 1922, read with the Removal of Difficulties Order, 1950, and the Explanation to paragraph 2 of that Order. Our answer to the second question is in the negative. The Commissioner will pay the costs of the reference to the assessee.