Skip to content


Commissioner of Income-tax Vs. Ambala Cantt. Electric Supply Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 41 of 1965
Judge
Reported in[1971]82ITR217(P& H)
ActsIndian Income Tax Act, 1922 - Sections 10(2) and 10(5)
AppellantCommissioner of Income-tax
RespondentAmbala Cantt. Electric Supply Co. Ltd.
Appellant Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Respondent Advocate H.L. Sibal,; G.C. Garg and; S.C. Sibal, Advs.
Cases ReferredCorporation of Birmingham v. Barnes
Excerpt:
- sections 100-a [as inserted by act 22 of 2002], 110 & 104 & letters patent, 1865, clause 10: [dr. b.s. chauhan, cj, l. mohapatra & a.s. naidu, jj] letters patent appeal order of single judge of high court passed while deciding matters filed under order 43, rule1 of c.p.c., - held, after introduction of section 110a in the c.p.c., by 2002 amendment act, no letters patent appeal is maintainable against judgment/order/decree passed by a single judge of a high court. a right of appeal, even though a vested one, can be taken away by law. it is pertinent to note that section 100-a introduced by 2002 amendment of the code starts with a non obstante clause. the purpose of such clause is to give the enacting part of an overriding effect in the case of a conflict with laws mentioned with the..........electric supply co. ltd.'s casealso ramaswami j., speaking for the bench, had laid down that the actualcost incurred by the electric supply company in installing service connection was to be computed irrespective of any consideration as to the amountactually contributed by the company or the amount actually recoupedultimately from the consumers. consequently, it was held that undersection 10(5)(a), the amount paid by the consumers on account of service connection should not be taken into account in calculating the actual cost to the company. a division bench of the kerala high court in commissioner of income-tax v. cochin electric co. ltd., [1965] 57 i.t.r. 82 (ker.) also arrived at a similar conclusion in holding that the words 'actual cost' meant the cost accurately ascertained and.....
Judgment:

1. The following two questions have been referred by the Income-tax Appellate Tribunal (Delhi Bench 'A') for the opinion of this court:

'(i) Whether the assessee-company was entitled to development rebate on the cost of mains, service-lines and switch gears ?

(ii) If the answer to the first question be in the affirmative then whether the development rebate was admissible to the company on the gross cost or on the net amount (gross expenditure less reimbursement) ?'

Learned counsel for the parties are both agreed that the answer to the first question is concluded by the decision of their Lordships of the Supreme Court in Commissioner of Income-tax v. Raju and Mannar, [1966] 60 I.T.R. 246 (S.C.). In accordance with that decision we return the answer to the first question in the affirmative and against the revenue.

2. It is, therefore, necessary to advert to matters relevant to the second question only. The assessee--The Ambala Cantt. Electric Supply Co. Ltd. --is a private limited company, carrying on the business of generation and distribution of electricity. The relevant assessment years are 1958-59 and 1959-60. During the years above-said there was expansion and development in the business of the said company. Apart from other expenses, the assessee-company incurred certain expenditure on the installation of new service-lines, mains and switch gears. In respect of this the assessee claimed development rebate on these items but the revenue allowed depreciation thereon and declined to allow development rebate as claimed. It was found by the revenue authorities that in all the electric supply companies either by contract between the consumers and the company, or by virtue of the bye-laws, it is ensured that a part of the cost of the installation of the new service-lines, mains, etc., is reimbursable from the consumers. A specimen copy of the agreement of installation is annexure 'D'. In order to appreciate the controversy, the following abstract of the expenditure incurred by the company and the reimbursements made in connection therewith is relevant:

Assesssment year

Expenditure

Reimbursement

1958-59

Rs. 80,757

Rs. 35,447

1959-60

Rs. 55,184

Rs. 35,435

In consideration of the issue involved, the Tribunal found that the view expressed in Commissioner of Income-tax v. Ranchi Electric Supply Co. Ltd., [1954] 26 I.T.R. 89 (Pat.). 956 (S.C.) needed reconsideration in the light of the observations of the Supreme Court in the Hoshiarpur Electric Supply Co. v. Commissioner of Income-tax, [1961] 41 I.T.R. 608 ; [1961] 2 S.C.R. However, it found itself bound to follow the Ranchi Electric Supply Co.'s case, as it was a binding precedent directly on the point and accordingly held that the depreciation was to be allowed on the entire gross cost.

3. Mr. D. N. Awasthy, on behalf of the revenue, first referred to Clause 2 of the specimen agreement between the consumers and the assessee-company (annexure 'D') which provides that the consumers would pay on demand the cost of so much of a service-lines as may be necessary for thepurpose of the connection beyond 130 feet from the compady's distributing main and also of any service-lines which may be laid or placed for the purpose of supply upon the premises of the consumers. Learned counsel then pointed to Clause VI, Sub-clause (2) of the Schedule to the Indian Electricity Act, 1910. This provides that, notwithstanding that a portion of the service line may have been paid for by the consumers, nevertheless the same shall be maintained by the licensee-company who would have the right to use it for the supply of energy to any other person. Relying on the said provisions, in substance, the contention on behalf of the revenue is that the consumer is the owner of the proportionate part of the service-line in connection with which he may have been called upon to pay the proportionate cost, and therefore the licensee-company cannot claim a development rebate in regard to the service-lines which had become the property of the consumer. Primarily, reliance has been placed on certain isolated observation of the Division Bench in Akola Electric Supply Co. Ltd. v. Mrs. Gulbai, A.I.R. 1950 Nag. 246.

4. We are unable to agree with the reasoning advanced in support of the contention raised by the revenue and find that the authority relied upon does not bear directly on the point. It deserves notice that the Akola Electric Supply Co. Ltd's case was one arising from a tortious act involving conversion and trespass for which the suit for damages was filed. In that case the dispute had arisen between the consumer and the electric supply company regarding the ownership of the materials and the part of the service-line for which allegedly the consumer had paid and this dispute led further to a sub-inspector and a few constables trespassing on to the permises and removing the disputed material. It was in the light of these facts that the Division Bench opined that the consumer had paid for the service-line and, unless there was anything to the contrary in any particular case, property normally belonged to one who paid for it. The Bench noticed the observations to the contrary in Delhi Electric Supply and Traction Co. Ltd. v. Narsi Ram, A.I.R. 1935 Lah. 510 but preferred to rest its decision on principle. It is patent that the above authority is not under any taxing statue. The particular provisions of the Income-tax Act which are adverted to hereafter did not even remotely arise for consideration or construction therein. The issue was altogether remote from that which exists in the present case. Consequently, we are of the view that the case above-said affords no useful analogy.

5. The relevant provision of Section 10 of the Indian Income-tax Act, 1922, which falls for construction may first be set down for facility of reference :

'10. Business.--(1) The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits and gains of any business, profession or vocation carried on by him.

(2) Such profits or gains shall be computed after making the following allowances, namely :--.....

(vib) in respect of a new ship acquired or new machinery or plant installed after the 31st day of March, 1954, which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year of acquisition of the ship or of the installation of the machinery or plant, equivalent to,--

(i) in the case of a ship acquired after the 31st day of December, 1957, forty per cent. of the actual cost of the ship to the assessee; and

(ii) in the case of a ship acquired before 1st day of January,1958, and in the case of any machinery or plant, twenty-five per cent. of the actual cost of the ship or machinery or plant to the assessee.'

10. (5) In Sub-section (?) 'paid' means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under this section ; 'plant' includes vehicles, books, scientific apparatus and surgical equipment purchased to the purposes of the business, profession or vocation ; and 'written down value, means .....'

In the light of the foregoing provisions the crux of the question, therefore, is whether the development rebate to the assessee-company is to be allowed on the 'actual cost' incurred by it for the installation of the main service-lines, switch gears, etc., or whether the same has to be allowed after deducting the amount of reimbursements made to it by the consumers. The answer to this question would turn on the meaning to be attributed the words 'actual cost or actually paid' as used in the provisions above-said.

6. An identical question, arising from an interpretation of similar language arose before the House of Lords in Corporation of Birmingham v. Barnes, (1) [1935] A.C. 292; 19 T.C. 195, 215, 216, 217; 3 I.T.R. (Eng.) Cas.) 26, 29 (H.L.). In that case, the Corporation of Birmingham had entered into an agreement with the Dunlop Rubber Co. Ltd, to lay a tramway track and establish a tramway service to the latter company's works and by virtue of the work having been completed and the service having been established by a certain date the Corporation received a sum of 10,806 from the Dunlop Rubber Company Ltd., as reimbursements in accordance with the terms of the agreement. It also received grants from the Unemployment Grants Committee and the issue arose as to what was the 'actual cost' to the Corporation of the tramway tracks in question for thepurpose of allowance due to the Corporation for wear and tear of such tracks. Lord Atkin, speaking for the House, observed therein as follows :

'My Lords, 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.....

The word 'actual' itself gives me no assistance. It serves, as Mr. Latter suggested, to give emphasis to the word following. It is to be the cost, the whole cost, and nothing but the cost....What a man pays for construction or for the purchase of a work seems to me to be the cost to him ; and that whether someone has given him the money to construct or purchase for himself, or before the event has promised to give him the money after he has paid for the work, or after the event has promised or given the money which recoups him what he has spent. In the present case the Corporation paid the whole of the cost of the tramways out of their funds unless the first half of the Dunlop contribution was so applied : as to which there is no evidence, nor is it material. I myself should not have thought the answer of Birmingham Corporation to the question put by Lord Justice Romer would have been what he suggests. On the hypothesis that the Dunlop company had recouped the corporation the whole of the cost of the first tramway I should have thought the answer to 'What did it cost you ?' or 'What did it actually cost you ?' would have been 'It actually cost us 54,752 but more of the burden of that cost will fall on the corporation, for the Dunlop company have paid us the full amount.' I think the same result is arrived at by saying 'actual cost to that person' is the same thing as the amount expended by the person.'

The above view of Lord Atkin has been followed by a long line ofauthority within this country. A Division Bench consisting of Kania andChagla JJ. of the Bombay High Court in Commissioner of Income-tax v.Poona Electric Supply Co. Ltd., [1946] 14 I.T.R. 622 (Bom.) held that in determining the question as towhat was the 'actual cost' of machinery or plant to the Poona ElectricSupply Co. Ltd., it was an irrelevant consideration whether the saidcompany had spent the whole amount or only part of it and that thetaxing authorities had to consider what the actual cost of the machinerywas independently of the fact as to who had contributed towards thatparticular amount. Similarly, in the Ranchi Electric Supply Co. Ltd.'s casealso Ramaswami J., speaking for the Bench, had laid down that the actualcost incurred by the electric supply company in installing service connection was to be computed irrespective of any consideration as to the amountactually contributed by the company or the amount actually recoupedultimately from the consumers. Consequently, it was held that underSection 10(5)(a), the amount paid by the consumers on account of service connection should not be taken into account in calculating the actual cost to the company. A Division Bench of the Kerala High Court in Commissioner of Income-tax v. Cochin Electric Co. Ltd., [1965] 57 I.T.R. 82 (Ker.) also arrived at a similar conclusion in holding that the words 'actual cost' meant the cost accurately ascertained and it did not mean that the cost should necessarily be defrayed from the assessee-company's own resources.

7. We are in agreement with the above view which appears to have the consensus of authority in its favour and in accordance therewith we hold in reply to the second question that the development rebate was admissible to the company on the gross cost irrespective of any reimbursement received by it.

Prem Chand Pandi, J.

8. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //