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South Madras Electric Supply Corporation Ltd. Vs. First Income-tax Officer - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberWrit Petition Nos. 4511 to 4513 of 1965
Judge
Reported in[1969]74ITR383(Mad)
ActsIncome Tax Act, 1922 - Sections 35
AppellantSouth Madras Electric Supply Corporation Ltd.
RespondentFirst Income-tax Officer
Appellant AdvocateT.V. Balakrishnan and ;S. Mathrubutheswaran, Advs.
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Cases ReferredT. S. Rajam v. Controller of Estate Duty
Excerpt:
- - in the particular circumstances of this case, we are satisfied that the income-tax officer rightly invoked section 35. he had to do so because of the decision of the supreme court in order to give effect to it......: [1961]41itr608(sc) which held that collections made by the assessee by way of reimbursements of capital expenditure incurred by it on behalf of different consumers in laying mains and providing service connections, etc., were essentially of a capital character and that even the excess of the collections over the actual capital expenditure would partake of that charcter. in view of the decision, therefore, the first income-tax officer, tiruchi-i, had to revise the order. but, in doing so, he thought that the establishment expenditure which had been allowed as a deduction originally should be disallowed as capital expenditure, referable to laying of mains, providing service connections, etc. it is not clear from the orders of the income-tax officer whether he considered only a portion.....
Judgment:

Veeraswami, J.

1. The petitions relate to orders made in common for the assessment years 1957-58 to 1959-60. They were made under Section 35 of the Indian Income-tax Act, 1922, to rectify the earlier orders. For instance, in respect of the assessment for the year 1958-59, as a result of rectificationa sum of Rs. 30,347 was added to the taxable total income. In respect of the other two years too, additions were made. It appears that the assessee had earlier succeeded in the Supreme Court on the basis of Hoshiarpur Electric Supply Co. v. Commissioner of Income-tax, : [1961]41ITR608(SC) which held that collections made by the assessee by way of reimbursements of capital expenditure incurred by it on behalf of different consumers in laying mains and providing service connections, etc., were essentially of a capital character and that even the excess of the collections over the actual capital expenditure would partake of that charcter. In view of the decision, therefore, the First Income-tax Officer, Tiruchi-I, had to revise the order. But, in doing so, he thought that the establishment expenditure which had been allowed as a deduction originally should be disallowed as capital expenditure, referable to laying of mains, providing service connections, etc. It is not clear from the orders of the Income-tax Officer whether he considered only a portion of or the whole of the establishment expenses as relating to capital expenditure not entitled to deduction. The Income-tax Officer called upon the petitioner by a notice to show cause why the earlier assessment orders should not be rectified under Section 35. In answer, the petitioner was technical in its objection and stated that Section 35 would be inapplicable. So far as this is concerned, S. Sankappa v. Income-tax Officer, : [1968]68ITR760(SC) is against the petitioner. The point is, therefore, not reiterated in this court, though taken at the time of filing the petitions under Article 226 of the Constitution.

2. The other point urged before us in support of the petitions is as to the scope of Section 35. This court in T. S. Rajam v. Controller of Estate Duty, : [1968]69ITR342(Mad) defined the scope as far as it was possible. In the particular circumstances of this case, we are satisfied that the Income-tax Officer rightly invoked Section 35. He had to do so because of the decision of the Supreme Court in order to give effect to it. In giving effect to it, necessarily he had to see whether the establishment expenses, which had been given deduction of, included wholly or partly capital expenditure referable to the capital recoveries. On that view, we consider that the Income-tax Officer acted within his power under Section 35.

3. The last contention for the petitioner is that the order of the Income-tax Officer does not ex facie show whether and, if so, how the entire establishment charges related to capital expenditure. That is a matter of detail which we think ought to have been gone into. The petitioner could have given the figures to the Income-tax Officer in answer to the notice to it, with reference to which the question could have been decided. As we said, the petitioner took at that stage only the technical objections as to jurisdiction to act under Section 35. When the Income-tax Officer at a later stagedecided to rectify and add to the chargeable income he should have at leastcalled for further particulars in order to enable him to decide whether theestablishment expenditure wholly related to capital expenditure or only to apart of it. On this question the orders sought l.o be quashed do notenlighten. As a matter of fact, the orders are very cryptic on the, point.Unfortunately, there are no materials also before us with reference to whichwe can check up the appropriateness of the additions made by the Income-tax Officer.

4. In the above circumstances, the petitions are allowed and the orders of the Income-tax Officer arc quashed. He will be at liberty to dispose of the question of rectification by fresh orders, after giving opportunity to the petitioner to produce materials, which would enable the officer to decide the question on its merits. No costs.

5. Mr. Balakrishnan says on behalf of his client that since the officer will be acting in furtherance of our orders, no question of limitation will arise and that, in any case, his client will not raise it.


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