Law: Income Tax Act, 1922

Section: 10(5)

Section 43 of the Income-tax Act, 1961 [Corresponding to section 10(5) of the Indian Income-tax Act, 1922], read with section 2 of Taxation Laws (Merged States) Removal of Difficulties (Amendment) order, 1962 - Written down value - Assessment years 1950-51 to 1953-54 - Assessee-company was incorporated in erstwhile Rampur State in 1943 - Rampur State was exempted from payment of taxes - On account of merger of this State, Act was made applicable to Rampur State with effect from 1-4-1949 and assessee was made liable to payment of tax for assessment year 1950-51 - Whether word 'actually allowed' used in section 10(5)(b) of 1922 Act means depreciation allowed by an income-tax authority and depreciation claimed by assessee itself in its own accounts is not depreciation allowed to it - Held, yes - Whether written down value of assets for purpose of calculating depreciation of assesee for assessment year in question would be original cost - Held, yes Words and Phrases : Words 'actually allowed' as occurred in section 10(5) FACTS The assessee-company was incorporated in the erstwhile Rampur State in 1943. Income-tax was introduced in Rampur State with effect from 1-5-1944, but on 2-5-1944, an agreement was entered into between the assessee and the ruler of Rampur State under which the assessee was exempted from payment of all State taxes. Rampur State territory merged in India some time before 1-4-1949 and Act was made applicable with effect from 1-4-1949. The result was that the assessee became liable to pay income-tax under the Act with effect from the assessment year 1950-51. For this first assessment year the assessee claimed that the depreciation on its assets should be allowed on the original cost of assets reduced by depreciation actually allowed under the Rampur Income-tax Act and as no depreciation was allowed so far as per agreement with Rampur, depreciation was to be allowed on the original cost of assets. The ITO rejected its claim on the ground that it amounted to claiming allowances admissible under section 10(2)(vi) in respect of past years and allowed depreciation on the written down values. On appeal the AAC reversed the ITO's order holding that no…

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