Patna High Court
Commissioner Of Income-Tax vs Darbhanga Laheriasarai Electric ... on 3 July, 1984
Equivalent citations: [1985]154ITR812(PATNA)
JUDGMENT
1. In these three reference cases, a common question of law has been referred by the Income-tax Appellate Tribunal, 'B' Bench, Patna, and the following question of law has been referred for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the amount representing the contingency reserve does not form part of the commercial profit or real income of the assessee and is not includible in the total assessable income of the assessee relating to the assessment years 1965-66, 1966-67 and 1967-68 ?"
2. A consolidated statement of the case has been submitted under Section 256(1) of the I.T. Act, 1961. The relevant facts as appearing from the statement of the case are these. The assessee is a company engaged in the business of distribution of electricity. It has got a licence under the Electricity (Supply) Act, 1948, by the Government to carry on such business. The Sixth Schedule, which deals with financial and accounting aspects, enjoins upon every licensee to create certain reserves from out of its revenues each year. In accordance with such statutory provision, contingency reserves were made by the company for the assessment years 1965-66,, 1966-67 and 1967-68. In the assessment year 1965-66, the assessee created the contingency reserve of Rs. 8,727. In the assessment year 1966-67, it created such a reserve to the tune of Rs. 9,327 and in the year 1967-68 to the extent of Rs. 9,929.
3. The ITO disallowed these contingency reserves for the assessment years in question. On appeal by the assessee, the AAC deleted the additions made by the ITO with regard to the amounts of these contingency reserves for all the three years in question. On appeal by the Commissioner of Income-tax before the Income-tax Appellate Tribunal, the Tribunal affirmed the orders of the AAC in favour of the assessee and the AAC and the Tribunal held that such contingency reserves were not includible in the total assessable income of the assessee relating to all the three years.
4. A similar question was raised by the assessee on similar facts in Taxation Case No. 47 of 1972, the Division Bench of which is reported in Darbhanga Laheriasarai Electric Supply Corporation Ltd. v. CIT [1979] 117 ITR 516 (Pat). A same point of law having been involved in that case between the same parties, only the assessment year being different in that case, the decision in that case is binding on us. In that case, relying upon the decision of the Kerala High Court in the case of Cochin State Power & Light Corporation Ltd. v. CIT [1974] 93 ITR 582 and the Bombay High Court in the case of Amalgamated Electricity Co. Ltd. v. CIT [1974] 97 ITR 334, this court answered the question in favour of the assessee, although the Madras High Court had taken a divergent view in the case of Vellore Electric Corporation Ltd. v, CIT [1977] 109 ITR 454. Such contingency reserves were held by this court to be not includible in the taxable income of the assessee. Following that decision, we answer the question referred to us in the affirmative holding that the amount representing the contingency reserves during the assessment years 1965-66, 1966-67 and 1967-68 do not form part of the assessable income of the assessee and the Tribunal was further correct in not including the amount of contingency reserves, as mentioned above, in the taxable income of the assessee. On the facts and in the circumstances of the case, we shall, however, make no order as to costs.