Patna High Court
Ranchi Electric Supply Co. Ltd. vs Commissioner Of Income-Tax on 16 August, 1983
Equivalent citations: [1984]150ITR95(PATNA)
JUDGMENT
T.C. Nos. 31 to 35 of 1975.
1. ASHWINI KUMAR SINHA J.--These are five reference applications made under Section 256(1) of the I.T. Act, 1961, bv the Income-tax Appellate Tribunal, Patna Bench "B".
T.C. No. 21 of 1975 .
2. This is a reference application made under Section 256(1) of the I.T. Act, 1961, by the Income-tax Appellate Tribunal, Patna Bench-A.
3. The assessment years in the first five reference applications involved are 1963-64, 1964-65, 1966-67, 1967-68 and 1968-69 and Taxation Case No. 21 of 1975, the assessment year in question is 1969-70. One identical question of law has been raised in all the assessment years. In Tax Cases Nos. 31 to 35 of 1975 the questions referred to for our opinion are as follows :
"(1) Whether under the provisions of Section 43(1) of the Income-tax Act, 1961, the two expressions 'actual cost' and 'actual cost of the assets to assessee' bear the same meaning ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that for the assessment years 1963-64, 1964-65, 1966-67, 1967-68 and 1968-69, depreciation and development rebate was allowable on the actual cost of the service lines to the assessee as reduced by the contributions by the consumers towards the cost of the said lines ?"
and in T.C. No. 21 of 1975 the question referred for our opinion is us follows:
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that for the assessment year 1969-70 depreciation and development rebate was allowable on the actual cost of the service lines to the assessee as reduced by the contributions made by the consumers towards the cost of the said lines ?"
4. Question No. 2 in T. Cs. Nos. 31 to 35 of 1975 and the question referred to in T.C. No. 21 of 1975 are the same except the assessment year. In T.C. No. 21 of 1975, the assessment year in question is 1969-70 whereas in T. Cs. Nos. 31 to 35 of 1975, the assessment years are as already mentioned above.
5. Thus, the question referred for our opinion in T. C. No. 21 of 1975 and question No. 2 in T.Cs. Nos. 31 to 35 of 1975 involve identical question of law.
6. The assessee is a company distributing electrical energy. At the time of giving new connections to new consumers, the company charges the consumers for a part of expenses which have to be incurred in installing service connection. Though the consumers have to pay for certain assets which are part of the service connections, they do not become the owners of these assets and the electric supply company continues to be the owner of those assets. While completing the assessment for the years involved in T. Cs. Nos. 31 to 35 of 1975 as well as for the year involved in T. C. No. 21 of 1975, the ITO allowed depreciation and development rebate on these service connections after deducting the cost of reimbursement by the consumers from the total cost of the service connections. Copies of these assessment orders of the ITO for the years involved in T. Cs. Nos, 31 to 35 of 1975 are annexs. A, A/1, A/2, A/3 and A/4 forming part of the statement of the case and annex. A in T.C. No. 21 of 1975.
7. The assessee went up in appeal before the AAC and the AAC has agreed with the view taken by the ITO and has rejected the plea of the assessee. The plea of the assessee was that such reimbursement by the consumers should not have been deducted and the depreciation and development rebate should have been allowed on the total cost without any deduction whatsoever. Copies of the orders of the AAC for the assessment years involved in T.Cs. Nos. 31 to 35 of 1975 are annexs. B, B/1, B/2, B/3 and B/4 forming part of the statement of the case and annex. B in T.C. No. 21 of 1975.
8. The assessee went up before the Tribunal. The Tribunal held that the contributions by the consumers had to be deducted in order to arrive at the actual cost for the purpose of determining the written down value on which the depreciation was allowed. The Tribunal further held that the position regarding development rebate was also the same. The Tribunal also held that after the amendment made in 1961 to the definition of "actual cost", the contributions made by any other person has to be deducted in determining the "actual cost" and only after the deduction one can find out the written down value. The reference applications thereafter were filed by the assessee upon which the Tribunals, Patna Bench-B and Patna Bench-A, have referred the aforesaid questions for our opinion.
9. The main ground in all these assessment years in question relates to the question of allowance of depreciation and development rebate on service connections.
10. Before proceeding to discuss the claim of the assessee, it would be desirable to reproduce certain relevant provisions of the Indian I.T. Act, 1922, as well as those of the I.T. Act, 1961. In order to appreciate the correct legal position, I will first refer to the provisions of law as it prevailed under the Indian I.T. Act, 1922, prior to its repeal and replacement by the I.T. Act, 1961. Under the scheme of the Indian I.T. Act, 1922, in Section 10, under the head "Business", income-tax was to be payable by an assessee under the head "Profits and gains of business, profession or vocation" in respect of the profits or gains of any business, profession or vocation carried on by him. Under Section 10(2), such profits or gains were to be computed after making allowance as set out in the various clauses of Sub-section (2). Clause (vi) of Section 10(2) provided that in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, depreciation was to be allowed in a sum equivalent to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed. Section 10(5) of the Indian I.T. Act, 1922, defines the "written down value" which meant:
"(a) in the case of assets acquired in the previous year, the actual cost to the assessee,...... and
(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 any Act repealed thereby, or under executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force."
11. This position in law stood up to March 31, 1952, when an Explanation to Section 10(5) was added which came into force on April 1, 1952, and for the purpose of Section 10(5), the expression "actual cost " meant 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 the Government or by any public or local authority.
12. Prior to the insertion of the Explanation to Sub-section (5) of Section 10 by the Indian I.T. (Amendment) Act, 1953 (25 of 1953), there had been a series of decisions regarding the meaning of the word "actual cost to the assessee" occurring in the provision of Section 10. Here, at this stage, I must mention that the learned counsel for the assessee has relied upon only such cases which were prior to the insertion of the Explanation to Section 10(5). The first case that decided the meaning of "actual cost to the assessee" was Corporation of Birmingham v. Barnes [1935] 3 ITR (Eng. Cases) 26 ; 19 TC 195 (HL). In this case it was held that the "actual cost" under Section 10(5) meant "the cost, the whole eost and nothing but the cost". No question of contribution by the consumers or any body was on the statute at that time. This case, Corporation of Birmingham v. Barnes, was immediately followed by a decision of the Division Bench of the Bombay High Court in the case of CIT v. Poona Electric Supply Co. Ltd. [1946] 14 ITR 622 (Bom) and was then followed by a series of decisions.
13. This decision of the Bombay High Court was also followed by this court in the case of CIT v. Ranchi Electric Supply Company Ltd. [1954] 26 ITR 89 (Pat) and also by other High Courts. None of these cases is of the Act of 1961. Therefore, the contention of the learned counsel on behalf of the assessee based on all these decisions cannot be accepted. The Indian I.T. Act, 1922, was repealed by the I.T. Act, 1961. After the enactment of the I.T. Act, 1961, which came into force on April 1, 1962, the position was changed by inserting a definition clause in Section 43(1). In Sections 28 to 41 and in Section 43, it may be pointed out that this group of sections deals with income and also with the question of depreciation allowance. The "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 any other person or authority. Section 43 of the I.T. Act, 1961, starts as "In Sections 28 to 41 and in this section, unless the context otherwise requires..." It is desirable to explain the merit of the words "unless the context otherwise requires". A person like the assessee in the present case was getting the benefit of depreciation allowance in respect of a portion of assets brought into existence out of the contributions made by the consumers to which they would not be normally entitled. As a matter of fact, such benefit was enjoyed by assessees like the one in the present case who happened to be engaged in the business of distribution of electricity. No other business had the benefit of receiving contribution from its customers towards the cost of assets. Thus, the depreciation allowance in question given to a person like the assessee in the present case on the basis of the definition oi "actual cost" contained in the Explanation to Sub-section (5) of Section 10 of the Indian I.T. Act, 1922, was an anomaly and it was that anomaly which was sought to be removed by the altered provision made in Section 43(1) of the I.T. Act, 1961. Section 43(1) defines "actual cost" as follows :
"Section 43(1). '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 mot directly or indirectly by any other person or authority."
14. It is desirable to quote Section 43(6)(a) and (b) as, in my opinion, Section 43(6)(b) will also be important for the purposes of answering the question referred for our view.
15. Section 43(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 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force ".
16. Learned counsel appearing for the assessee has also drawn our attention to Section 32(1)(ii) and Section 33(1)(a) and (b), which are as follows :
"Section 32(1). In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of Section 34, be allowed.......
(ii) in the case of buildings, machinery, plant or furniture, other than ship covered by Clause (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed.
Section 33(1)(a). In respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of Section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified Clause (b).
(b) The sum referred to in Clause (a) shall be,....."
17. Learned counsel appearing on behalf of assessee has contended that the overriding principle is the "actual cost" only and not the actual cost as reduced by reimbursement. Learned counsel for the assessee has also contended that the word "actual cost" is something different from the words "actual cost to the assessee". Learned counsel contended that for the purposes of allowing depreciation, one has to go through the definition of "written down value" and not to the definition of "actual cost". At the outset, I am of the view that this argument is to be rejected in view of the provisions of the I.T. Act, 1961, as "actual cost" has now been defined and if the argument of the learned counsel for the assessee is accepted, it takes one to the old law as it was under the Indian I.T. Act, 1922, which has been repealed by the I.T. Act, 1961.
18. On the other hand, learned senior standing counsel for the Revenue has contended that for the allowance of depreciation and development rebate, one has necessarily to go through the definition of "actual cost" as defined in Section 43(1) of the I.T. Act, 1961, according to which cost of reimbursement by the consumers from the total cost of service connections has to be deducted. And in support of his contention he has relied upon a series of decisions, all after the enactment of the Act of 1961. Reference may be made to the case of CIT v. Hides and Leather Products P. Ltd. [1975] 101 ITR 61 (Guj), Riverside (Bhatpara) Electric Supply Co. Ltd. v. CIT [1977] 109 ITR 399 (Cal), CIT v. South Madras Electric Supply Corporation Ltd. [1977] 109 ITR 426 (Mad), CIT v. Saharanpur Electric Supply Co. Ltd. [1977] 109 ITR 545 (All), CIT v. Bassein Electric Supply Co. Ltd. [1979] 118 ITR 884 (Bom) and Rohtak and Hissar Districts Electric Supply Co. P. Ltd. v. CIT [1981] 128 ITR 52 (Delhi). All these cases are of different High Courts, namely, Gujarat, Calcutta, Madras, Allahabad, Bombay and Delhi. In all these cases, a consistent view has been taken that after the coming into force of the 1961 Act, the cost of reimbursement by the consumers from the total cost of service connection has to be deducted in allowing depreciation and development rebate on service connection. I am in full agreement with the aforesaid decisions. In my opinion, Section 43(1) supersedes the general rule of law that in computing the "actual cost" for the purposes of depreciation it is immaterial whether some one else has ,recouped the assessee what he had spent on the asset, only to the extent to which the assessee was reimbursed by the Government or any public or local authority. Section 43(1) specifically and without any ambiguity says that the "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 any other person or authority.
19. Learned counsel appearing for the assessee has not brought to our notice any one case in which a contrary view has been taken after the Act of, 1961 came into force. As stated before, the learned counsel for the assessee relied upon the cases which were all prior even to the Explanation to Section 10(5) of the Indian I.T. Act 1922. Learned counsel for the assessee relied upon the cases of Corporation of Birmingham v. Barnes(H. M. Inspector of Taxes) [1935] 3 ITR (Eng. Cases) 26 ; 19 TC 195 (HL), CIT v. Poona Electric Supply Company Ltd. [1946] 14 ITR 622 (Bom), Francis Vallabarayar v. CIT [1960] 40 ITR 426 (Mad) and CIT v. Ranchi Electric Supply Company Ltd. [1954] 26 ITR 89 (Pat).
20. For the reasons aforesaid, these cases, relied upon by the learned counsel for the assessee, are wholly irrelevant for the purposes of answering the question referred for our view.
21. As a result of the foregoing discussion, regarding question No. 1 in T. Cs. Nos. 31 to 35 of 1975,1 hold that the expressions "actual cost" and "actual cost of the assets to the assessee" do not bear the same meaning and I hold, that "actual cost" is now well defined and it is not the same as "actual cost of the assets to the assessee". It is the actual cost of assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority, which, in my opinion, includes the consumers, and this question is answered in favour of the Revenue and against the assessee.
22. The position regarding development rebate is also not different, as there the calculation has to be made with reference to the actual cost.
23. So far as the other question is concerned, which has already been stated above, I hold, on the basis of the foregoing discussion, as a necessary corollary, that the assessee company was not entitled to depreciation and development rebate on the gross cost of the new service connection and the Tribunal took the correct view of law. The question thus is answered against the assessee and in favour of the Revenue.
24. Revenue authority is entitled to its consolidated hearing fee of Rs. 250. sUSHIL KUMAR JHA J.--I agree.