DIVAN C.J. - In this case, at the instance of the assessee, the following two questions have been referred to this court for its opinion :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in disallowing the claim of the assessee for deduction of a sum of Rs. 58,062 being the amount paid as its share for cable laying charges as revenue expenditure ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that for the purpose of allowance of expenditure under section 37(2) and the application of the rate of 1% prescribed therein the computation of the profit has to be made after making allowance for depreciation not only of the amount computed for the current year at Rs. 14,64,110 but also the amount brought forward from the earlier years, both constituting the amount of depreciation allowance for the current year, and, consequently, upholding the calculation of the Income-tax Officer ?'
The assessment year under consideration is 1967-68, the previous year of account being the financial year 1966-67. The assessee is a limited company engaged in the manufacture of Vitamin 'C' and other chemicals and pharmaceuticals. In the relevant year, the assessee-company claimed deduction of Rs. 58,062 being the amount paid as its share for the cable laying charges which were recovered by the Gujarat Electricity Board from M/s. Sarabhai Chemicals in whose compound the assessee-company is located. It also claimed deduction on account of entertainment expenditure of the sum of Rs. 12,150, but question No. (2) which is not pressed pertains to the amount of entertainment expenditure and we are no longer concerned with that aspect of the case. The claim for deduction on account of cable laying charges was disallowed by the ITO. On an appeal preferred by the assessee, the AAC also decided against the assessee so far as this question of expenditure for cable laying charges was concerned. On further appeal by the assessee to the Tribunal, it was urged by the assessee that prior to 1965, the assessee was receiving supply of energy at 5160 KVA to all the concerns located in the compound of Sarabhai Chemicals. This group of companies negotiated with the Board Municipality for increase in the supply of electricity but they could not get any increased supply. The assessee-company and the other sister concerns located in Sarabhai Chemicals compound were in need of more power for the efficient working of their factories. In order to obtain better electricity service and increase in supply, Sarabhai Chemicals entered into an agreement with the Gujarat Electricity Board by which it agreed to pay cable laying charges to the tune of Rs. 4,28,550 in four half-yearly instalments. Sarabhai Chemicals, in their turn, recovered the charges from the associate companies, one of those associate companies being the assessee before us. The other associate companies were Synbiotics, Suhrid Geigy, etc. The written agreement between Sarabhai Chemicals and the Gujarat Electricity Board was executed on January 1, 1969, but prior to that date, that is, with effect from February 1, 1967, power was supplied by the Gujarat Electricity Board at 6,000 KVA. Up to February 1, 1967, power was supplied at 5160 KVA by the Board Municipality. Thus, from February 1, 1967, there was an issue of 840 KVA for all the concerns working in Sarabhai Chemicals compound. Thereafter, the supply was further increased to 7,500 KVA from June 1, 1969, and with effect from January 1, 1971, the supply was increased to 9000 KVA. Thus, the contract demand was 9000 KVA from January 1, 1971 onwards. The service lines belonged to the Gujarat Electricity Board and not either to Sarabhai Chemicals or the assessee or any of the associate concerns. Out of this increased supply which was supplied by the Gujarat Electricity Board to the group of companies located in Sarabhai Chemicals compound, the allocation to the assessee-company increased from 600 KVA which it was getting prior to February 1, 1967, to 800 KVA after February 1, 1967, and thereafter it increased to 1080 KVA from June 1, 1969, and from January 1, 1971, onwards it increased to 1610 KVA. On these facts before the Tribunal, it was contended by the assessee that the expenditure which the assessee incurred was on the ground of commercial expediency for securing additional increased supply of electric power and that this was an integral part of the assessees business and did not result in any expenditure of a capital nature. The Tribunal rejected the assessees contention that it was not necessary in every case if an enduring advantage was obtained that the expenditure for securing it must be treated as capital expenditure or that any asset be brought into existence by such expenditure, which asset should be owned by the assessee. The Tribunal rejected the assessees claim for deduction of the amount paid by it as its share towards the cost of cable laying charges as revenue expenditure. Thereafter, at the instance of the assessee, the two questions set out hereinabove have been referred to us for our opinion.
It must be pointed out that certain facts are not in dispute before us. Prior to February 1, 1967, the supply was being obtained from the Baroda Municipality but the Board Municipality itself was distributing the electrical energy which it was receiving from the Gujarat Electricity Board. The power lines through which the supply was being received from the Baroda Municipality were inadequate for the increased supply of electrical energy and the new power lines were laid at the instance of the group of companies located in the Sarabhai Chemicals compound. Further, the new lines belonged to the Gujarat Electricity Board and under the terms of the agreement it was open to the Gujarat Electricity Board to utilise these lines for supplying electrical energy to other consumers also. But the obligation of the Gujarat Electricity Board was to supply the contracted electrical energy at the necessary voltage to the group of companies located in this compound. It is common ground that the assessee-company was in manufacturing business for a number of years and that the payment of Rs. 58,062 was not an initial outlay for obtaining electrical energy but was spent by it for getting increased supply of electrical energy. It must also be pointed out that the amount of Rs. 58,062 was over and above the regular charges for the electrical energy consumed by the assessee-company. It is in the light of these undisputed facts that we have to decide the point of law before us, namely, whether this amount of Rs. 58,062 was by way of capital expenditure or was by way of revenue expenditure.
In a recent decision of the Supreme Court the question has been considered once again by the Supreme Court, namely, in Empire Jute Co. Ltd. v. CIT : 124ITR1(SC) . In that case, the assessee-company was carrying on business of manufacture of jute and was a member of the Indian Jute Mills Association. This association was formed with the object of, inter alia, protecting the trade of its members, imposing restrictive conditions on the conduct of the trade and adjusting the production of the mills of its members. A working time agreement was entered into between the members restricting the number of working hours per week for which the mills entitled to work their looms. Clause 4 of the working time agreement provided that no signatory shall work for more than 45 hours per week. Clause 6(b) provided that the signatories shall be entitled to transfer, in part or wholly, their allotment of hours of work per week to any one or more of the other signatories. Under this clause, the appellant purchased 'loom hours' from four other mills for the aggregate sum of Rs. 2,03,255 during the previous year relevant to the assessment year under consideration before the Supreme Court. This amount was claimed as revenue expenditure and on these facts the Supreme Court held that the allotment of loom hours, under the working time agreement, to a different mill constituted not a right conferred but merely a contractual restriction on the right of every mill to work its looms to their full capacity, and purchase of loom hours by a mill had, therefore, the effect of relaxing the restriction on the operation of looms to the extent of the number of working hours per week transferred to it and it was held that this amount was part of the cost of operating the profit-earning apparatus and was clearly in the nature of revenue expenditure. Bhagwati J., speaking for the Supreme Court, pointed out that in different contexts, different tests have to be applied for the purpose of determining whether a particular expenditure is revenue expenditure or capital expenditure. At page 12 of the report, Bhagwati J. observed :
'We are conscious that in law as in life, and particularly in the field of taxation law, analogies are apt to be deceptive and misleading, but in the present context, the analogy of quota right may not be inappropriate. Take a case where acquisition of raw material is regulated by quota system and in order to obtain more raw material the assessee purchases the quota right of another. Now, it is obvious that by purchase of such quota right, the assessee would be able to acquire more raw material and that would increase the profitability of his profit-making apparatus, but the amount paid for purchase of such quota right would indubitably be revenue expenditure, since it is incurred for acquiring raw material and is part of the operating cost. Similarly, if payment has to be made for securing additional power every week, such payment would also be part of the cost of operating the profit-making structure and hence in the nature of revenue expenditure, even though the effect of acquiring additional power would be to augment the productivity of the profit-making structure. On the same analogy payment made for purchase of loom hours which would enable the assessee to operate the profit-making structure for a longer number of hours than those permitted under the working time agreement would also be part of the cost of performing the income-earning operations and hence revenue in character.'
Thus, in this passage, it has been pointed out that if the payment has to be made for augmenting the productivity of the profit-making structure, that payment would be a revenue expenditure and not capital expenditure and the analogy which has been given is very similar to the facts of the case before us, namely, payment made for securing or augmenting electrical power supply, so that the profit-making apparatus or the profit-making structure can be operated with greater productivity and production may increase.
In the light of this decision of the Supreme Court and the test pointed out by the Supreme Court in that case it would be obvious in the instant case that the expenditure which is in dispute must be treated as revenue expenditure. We may point out that, under similar circumstances, three order High Courts have also taken the same view as the view that we are taking in the instant case. In CIT v. Kanodia Cold Storage : 100ITR155(All) , the assessee had made payment of Rs. 14,742 to the electric supply undertaking towards the cost of transformer and service line for replacing the existing line to enable it to have higher KVA electric power for its business and this amount was claimed as revenue expenditure and the Allahabad High Court held that the service line was a part of the entire set-up for the functioning of the cold storage and the replacement of the existing line with a new line did not result in the creation of any new asset of enduring nature. The expenditure was not in the nature of capital expenditure and was, therefore, allowable in computing the income of the assessee. In this judgment, the Allahabad High Court relied on the decision of the Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. : 66ITR710(SC) , it was observed by the Division Bench of the Allahabad High Court :
'This means that in a case where the productive unit set up by the assessee remains the same, but a part of it which has become unsuitable for its use is replaced by something which makes it possible for the existing set up to function efficiently, the cost incurred on such replacement would be revenue expenditure.
In the case before us, we find that the service-line undoubtedly was a part of the entire set up for the functioning of the cold storage. This was to be replaced by another line capable of carrying higher KVA electric power current to enable the cold storage to function properly. By effecting such a change no new asset of enduring nature, belonging to the assessee, came into existence.'
In Hindustan Times Ltd. v. CIT : 122ITR977(Delhi) , the Delhi High Court has also taken a similar view. The assessee was getting supplies of direct current electricity from the municipal committee for its business premises to work its machinery. The voltage of the direct current was often low and the machines could not work satisfactorily and give maximum output. The direct current was replaced by alternating current and for this purpose the assessee had to pay the municipal committee the sum of Rs. 23,600 and Rs. 17,771 in the two different assessment years, being the cost of laying new cables which were to belong to the municipal committee. The Delhi High Court held that the assessees business had been in existence for quite some time and it was obtaining direct current electricity, and the expenditure was incurred only to change the nature of the supply of electricity from direct current to alternating current. The expenditure could not be said to be laid out either to acquire an asset or to acquire any advantage of an enduring nature. The expenditure did not constitute capital expenditure and was allowed as a business expenditure in computing the assessees profits. The decision of the Allahabad High Court in CIT v. Kanodia Cold Storage : 100ITR155(All) was accepted as good and valid law and it was pointed out that the expenditure had been incurred not in relation to any asset owned by the assessee but in order to obtain better and more satisfactory electric supply for the business operation of the assessee by contributing towards the cost of cable which would remain the property of the New Delhi Municipal Committee. In these circumstances, the Delhi High Court held that the expenditure did not create any asset for the assessee nor could it be described as conferring an enduring advantage on the assessee so as to warrant the treatment of the expenditure incurred as capital expenditure.
In CIT v. Excel Industries Ltd. : 122ITR995(Bom) , the Bombay High Court was concerned with the following facts : The assessee-company carried on business of manufacturing chemicals and it set up a new unit for the manufacture of phosphorus. For the new unit the assessee required a large quantity of electrical energy which it had to obtain from the Electricity Board. The Electricity Board agreed to provide an overhead service line free of cost up to 80 metres from the nearest distribution mains, but payment was to be made for the length of the service line in excess of 30 metres. A portion of the cost was to be paid by the assessee but the service line would remain the property of the Electricity Board, by which it was to be maintained. The period of supply was to be for a minimum period of seven years from the date of commencement of the supply. The assessee paid Rs. 9,00,000 as its contribution towards the cost of laying the overhead service line. The normal charges for consumption of electricity were to be paid by the assessee from month to month. On these facts, the Bombay High Court held that since the service line remained the property of the Electricity Board, the assessee did not acquire any capital asset or an enduring benefit or advantage and the object of making the payment was purely one of commercial expediency. Therefore, the payment made to the Electricity Board towards the cost of laying the overhead service line constituted revenue expenditure and was an allowable deduction.
Thus, the conclusion that we have arrived at in the light of the principles laid down by the Supreme Court in Empire Jute Co. Ltd.s case : 124ITR1(SC) , is the same as the arrived at by the Allahabad High Court on facts similar to the facts before us as also the conclusion arrived at by the Delhi High Court and by the Bombay High Court. In our opinion, in the light of the test laid down by the Supreme Court and particularly in the light of the analogy which has been mentioned by the Supreme Court in its decisions, it must be held that the expenditure in the instant case was revenue expenditure incurred by the assessee-company for the purpose of augmenting the profitability of its profit-making structure.
The decision relied upon by Mr. Desai for the revenue, namely, the decision in Bhodilal Menghraj and Co. P. Ltd. v. CIT  ITR 968 can be easily distinguished. In that case the expenditure that was incurred was prior to the commencement of the business of the assessee and had been capitalised since it was an expenditure incurred prior to the commencement of the manufacturing activity of the assessee. The other decision, namely the decision of the Kings Bench of England in Ounsworth (Surveyor of Taxes) v. Vickers Ltd.  6 TC 671 , decided by Rowlatt J., lays down the principles of law but in the light of the test which has been culled out by the Supreme Court in Empire Jute Co.s case : 124ITR1(SC) , that judgment is not of much assistance to us in deciding the case before us.
Under these circumstances, we answer question No. 1 referred to us in the negative, that is, in favour of the assessee and against the revenue. Question No. 2 has not been pressed and, therefore, we are not required to answer that question. There will be no order as to costs.