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Commissioner of Income-tax Vs. Saharanpur Electric Supply Company Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 271 of 1973
Judge
Reported in[1977]109ITR545(All)
ActsIncome Tax Act, 1961 - Sections 43(1) and 43(6); Income Tax Act, 1922 - Sections 10(5)
AppellantCommissioner of Income-tax
RespondentSaharanpur Electric Supply Company Ltd.
Appellant AdvocateDeokinandan and ;Ashok Gupta, Advs.
Respondent AdvocateS.N. Kacker and ;S.P. Gupta, Advs.
Excerpt:
- - , who spoke for the bench, observed thus at page 70 :these decisions clearly show that, so far as the income-tax officer is concerned, he has to determine the written down value for each assessment year for himself and he can determine for himself what the 'actual cost to the assessee had been in the first instance and not merely depend upon the determination of that question in any of the previous assessment years......amounts so recovered by the assessee from consumers, could not be deducted in determination of the actual cost to the assessee of such service lines because under clause (c) of explanation ii to sub-section (5) of section 10 of the old act, only the amounts paid by the government or by any public or local authority to the assessee for installation of such service lines could be so deducted.4. for the assessment year 1963-64, the income-tax officer did not allow any depreciation for such service lines. he held that having regard to the definition of the term 'actual cost' in sub-section (1) of section 43 of the income-tax act, 1961 (shortly called 'the act') there was no actual cost to the assessee of such service lines since it (the assessee) had recovered from consumers the cost thereof.....
Judgment:

D.M. Chandrashekhar, J.

1. At the instance of the Commissioner of Income-tax, the Income-tax Appellate Tribunal (Delhi Bench 'C') (shortly referred to as the Tribunal) has referred to this court the following question of law :

' Whether, on the facts and in the circumstances of the case, depreciation to be allowed for the assessment year 1963-64 in respect of the assets acquired by the assessee before April 1, 1961, should be determined by reference to the written down value as determined in accordance with the provisions of the Act of 1922, or by reference to the written down value as determined in accordance with Sections 43(1) and 43(6) of the Act of 1961 ?'

2. The material facts are these: The respondent-assessee is a limited company which was running an electricity supply undertaking at Saharanpur. The reference relates to the assessment year 1963-64, the corresponding previous year being the year ending on March 31, 1963. The controversy relates to the depreciation on the service lines installed by the assessee to give electrical connection to consumers of -electricity up to March 31, 1961.

3. The assessee used to recover from consumers the whole or a part of the expenditure incurred by it for installation of such service lines. Under theIndian Income-tax Act, 1922 (shortly called the 'old Act'), which was applicable to assessments up to and including the assessment year 1961-62, the amounts so recovered by the assessee from consumers, could not be deducted in determination of the actual cost to the assessee of such service lines because under Clause (c) of Explanation II to Sub-section (5) of Section 10 of the old Act, only the amounts paid by the Government or by any public or local authority to the assessee for installation of such service lines could be so deducted.

4. For the assessment year 1963-64, the Income-tax Officer did not allow any depreciation for such service lines. He held that having regard to the definition of the term 'actual cost' in Sub-section (1) of Section 43 of the Income-tax Act, 1961 (shortly called 'the Act') there was no actual cost to the assessee of such service lines since it (the assessee) had recovered from consumers the cost thereof including the labour charges. In that view he did not allow any depreciation in respect of such service lines.

5. In the appeal preferred by the assessee, the Appellate Assistant Commissioner held that the assessee was recovering only a part and not the entire cost of laying such service lines and that, in view of the earlier rulings of the Tribunal, the assessee was entitled to depreciation on the basis of the actual cost to it (the assessee) of such service lines, as determined up to the end of the assessment year 1961-62 under the old Act.

6. In the appeal preferred by revenue against the order of the Appellate Assistant Commissioner, the Tribunal upheld his order on the question of depreciation.

7. The controversy between the parties is whether for the purpose of allowing depreciation to the assessee for the assessment year 1963-64 the written down value of such service lines should be based on the actual cost thereof to the assessee according to the provisions of the old Act or the present Act.

8. Shri Deokinandan, learned standing counsel for the income-tax department, contended that since the assessment for the year 1963-64 is governed by the provisions of the Act, the actual cost to the assessee of such service lines should be taken as defined therein and not as defined in the old Act. He further submitted that even though the written down value of such service lines had been determined in the assessment year 1961-62 on the basis of the definition of 'actual cost' in the old Act, there was no impediment for the Income-tax Officer determining afresh the written down value for the assessment year 1963-64 on the basis of the definition of 'actual cost' in the present Act and that the determination of the written down value in earlier assessment years would not operate as res judicata or estoppel so as to bar such fresh determination for the assessment year 1963-64. He further submitted that in computing the actual cost under the present Act for the assessment year 1963-64, the Income-tax Officer was justified in deducting all amounts which the assessee had received from consumers for installing such service lines.

9. On the other hand, Sri S. N. Kacker, learned counsel for the assessee, advanced the following two contentions :

'(i) In determining the actual cost to the assessee of the service lines the amounts which it had received from consumers were wholly irrelevant and could not be deducted from the cost of the service lines ; and

(ii) since the written down value of the service lines as on March 31, 1961, had already been determined by the Income-tax Officer in making the assessment for the year 1961-62, it was not open to the Income-tax Officer to reopen the matter and to redetermine the written down value as on March 31, 1961, merely because of the change in the definition of 'actual cost' in the Act. '

10. In order to appreciate the rival contentions of learned counsel, it is necessary to set out the relevant provisions of the Act.

11. Section 29 of the Act provides that income under the head 'profits and gains of business or profession ' shall be computed in accordance with the provisions contained in Sections 30 to 43A.

12. Section 32 of the Act provides for allowing depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, subject to the provisions of Section 34, at such percentage on the written down value of such buildings, machinery, plant or furniture, as may be prescribed.

13. The expression ' written down value ' has been denned in Sub-section (6) of Section 43 of the Act as follows :

' (6) ' 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 Act, or under the Indian Income-tax Act, 1922 (XI of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (II of 1886), was in force......' (The proviso and the Explanations are not relevant for the present case).

14. We shall first take' up the contention of Sri Kacker that in determining the actual cost to the assessee of such service lines the amounts received by it from consumers for installing such service lines are irrelevant. He relied on the decision of the House of Lords in Birmingham Corporation v. Barnes [1935] 3 ITR 26. There, Lord Atkin, while construing the analogous provisions of the English Income Tax Act, said :

'In my opinion the words ' the actual cost to the person by whom the trade is carried on ' used in this context have no relation to the source from which that person has received the money which he has expended on the plant. '

15. The aforesaid dictum of Lord Atkin was, no doubt, followed by the Bombay High Court in Commissioner of Income-tax v. Poona Electric Supply Co. Ltd. [1946] 14 ITR 622, in which practically the same question as in the present case arose for determination. But, as pointed out by the Patna High Court in Commissioner of Income-tax v. Ranchi Electric Supply Co. Ltd. : [1954]26ITR89(Patna) , the effect of this decision of the Bombay High Court was nullified by amending Section 10(5)(c) of the Indian Income-tax Act, 1922, by adding a new Explanation in the following terms :

'For the purposes of this Sub-section, the expression 'actual cost' means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by Government or by any public or local authority...... '

16. In the present Act, the definition of 'actual cost' in Section 43 provides for deduction of that portion of the actual cost, if any, as has been met directly or indirectly by any other person or authority. While under the old Act only the amounts received by the assessee from the Government or by any public or local authority could be deducted, under the present Act the amounts paid to the assessee not only by the Government or by any public or local authority but also by any other person should be deducted in computing the actual cost.

17. Hence, we have no hesitation in rejecting the contention of Sri Kacker that in determining the actual cost to the assessee of the service lines the amounts received by it from consumers were irrelevant.

18. But the more serious question for determination is whether the Income-tax Officer can determine the written down value of any plant or machinery in each assessment year by ascertaining afresh what was the original cost to the assessee of such plant or machinery or whether the written down value determined in the earlier assessment year should be accepted by him as the starting point and he should merely scale down the written down value of the previous year. Sri Kacker contended that since the Income-tax Officer had, in making the assessment for the year 1961-62, determined the written down value of such service lines in accordance with the provisions of the old Act, it was not permissible for him to determine the written down value for the assessment year 1963-64 by ascertaining afresh the actual cost of such service lines, adopting the definition of 'actual cost' under the present Act. Sri Kacker maintained that the legislature could not have intended that the determination of the actual cost, on the basis of the definition in the old Act, should be reopened and that the definition of 'actual cost' in the present Act should be applied retrospectively when the plant or machinery had been acquired before the commencement of the present Act. It was also submitted by him that it was not the case of the revenue that the determination of the actual cost in the assessment year 1961-62 was vitiated by any fraud or mis-statement by the assessee or any mistake by the Income-tax Officer and that hence the actual cost as determined in the assessment year 1961-62 could not be re-determined by the Income-tax Officer.

19. In Maharana Mills (Private) Ltd. v. Income-tax Officer : [1959]36ITR350(SC) the Supreme Court observed thus :

'The limit to which the Income-tax Officer can go back does not stop at the written down value of the previous year but extends up to the figure of the original cost, and the method enjoined by Section 10(5)(b) is not that the Income-tax Officer should merely scale down the written down value of the previous year but that he should take into consideration the actual cost, determining it for himself, if necessary, take also into consideration the allowances granted in the past and then make his own computation as to the written down value for the assessment year with which he is concerned. Thus, it cannot be said that merely because under Section 35 some written down value and the depreciation amount have been determined they are a final determination binding for all times to come nor does the determination operate as estoppel or res judicata for the following years.'

20. In view of the aforesaid pronouncement of the Supreme Court, it is no longer open to contend that the determination in the assessment year 1961-62 of the actual cost to the assessee of such service lines, should be regarded as final and that for determining the written down value for the purpose of making the assessment for the year 1963-64, the Income-tax Officer could not ascertain afresh the actual cost to the assessee of such service lines, in accordance with the definition of 'actual cost' in the present Act.

21. The view we have taken receives support from the decision of the Gujarat High Court in Commissioner of Income-tax v. Hides 6- Leather Products Pvt. Ltd. : [1975]101ITR61(Guj) . There, the assessee had acquired the plant in the year 1955, and its written down value had to be determined for the assessment years 1961-62 to 1965-66. Divan C.J., who spoke for the Bench, observed thus at page 70 :

'These decisions clearly show that, so far as the Income-tax Officer is concerned, he has to determine the written down value for each assessment year for himself and he can determine for himself what the 'actual cost to the assessee had been in the first instance and not merely depend upon the determination of that question in any of the previous assessment years.'

22. Again, at page 74, his Lordship observed thus :

'As regards assessment years 1962-63 to 1965-66 we have to proceed, as pointed out above, under the provisions of Section 43, Sub-section (1), of the Act of 1961. Under the definition as set out in Section 43, Sub-section (1), as pointed out above, even if the cost has been met directly or indirectly by any other person or authority, that direct or indirect meeting of the cost has to be deducted in order to ascertain the actual cost to that assessee.'

23. As a result of the foregoing discussion, our answer to the question referred to us is in favour of the revenue and against the assessee. That answer is as follows :

'On the facts and in the circumstances of the case, depreciation to be allowed for the assessment year 1963-64 in respect of the assets acquired by the assessee before April 1, 1961, should be determined by a reference to the written down value as determined, in accordance with the provisions of Sub-sections (1) and (6) of Section 43 of the Income-tax Act, 1961.'

24. The assessee shall pay Rs. 200 as costs.


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