HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Commissioner of Income-tax, Bombay v. Dharampur Leather Cloth Co. Ltd., Bombay
Civil Appeal No. 956 of 1964
[1966] 2 SCR 859 ·
Indian Income-tax Act, 1922: sections 10(5)(b) and 60A · Merged States (Taxation Concessions) Order, 1949: paragraph 15 · Taxation Laws (Merged States) (Removal of Difficulties) (Amendment) Order, 1962
Sources & disclosures includedDownload original judgment / order
3-judge bench · K. Subba Rao, J. · J. C. Shah, J. · S. M. Sikri, J.
Assessment years: 1955-56
01 · Facts of the case
The company obtained a pre-merger concession from Dharampur’s ruler, then a Central Government exemption under paragraph 15 after merger. On its first assessment described in the judgment as AY 1955-56, it sought depreciation using original cost because none had previously been actually allowed. Revenue instead deducted hypothetical depreciation for exempt years. The High Court upheld the company’s claim.
Source: SCR pp. 860-862 / PDF pp. 2-4
02 · Discussion by the Hon’ble Court
Following Straw Products, the Court held that actually allowed depreciation did not include a notional allowance. It also rejected treating the post-merger concession as continuation of the ruler’s agreement: the Government’s exemption was under paragraph 15, issued pursuant to statutory power. The 1962 amendment concerning the former agreement therefore did not govern these facts.
Source: SCR p. 862 / PDF p. 4
03 · Judicial decision
The referred question whether depreciation was allowable on original cost was answered affirmatively. Revenue’s appeal failed and was dismissed with costs.
Source: SCR p. 862 / PDF p. 4
04 · Outcome / in whose favour
In favour of the company on the historical written-down-value computation. The Court did not declare every depreciation deeming provision invalid or dispense with later statutory rules.
Source: SCR p. 862 / PDF p. 4
05 · AKHB REVIEW POINT
AKHB analysis: identify the legal source of each exemption and establish whether depreciation was actually allowed, rather than assuming allowance during an exempt period. Maintain original-cost and assessment records. This merger-era holding cannot replace examination of any express deeming rule governing the relevant present transaction.
Source: AKHB analysis based on SCR pp. 860-862 / PDF pp. 2-4
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Statutory scope
This decision applies the Indian Income-tax Act, 1922 to the stated historical assessment years. Current statutory applicability and any Income-tax Act, 1961 or 2025 crosswalk are not determined.
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