S. C. AGRAWAL, J. - (1.) THESE appeals by certificate granted under Section 261 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), have been filed by the Godhra Electricity Co. Limited, (hereinafter referred to as 'the assessee-Company') against the judgment of the Gujarat High Court dated February 24-25, 1982 in Income-tax references Nos. 288 of 1975, 73 of 1978 and 171 of 1978. Income-tax Reference No. 288 of 1975 related to the assessment year 1969-70, while Income-tax Reference No. 73 of 1978 related to the assessment years 1970-71 and 1971-72 and Income-tax Reference No. 171 of 1978 related to the assessment year 1972-73.
(2.) ON 19/11/1922 the then Government of Bombay granted a licence under the Indian Electricity Act, 1910 to Lady Sulochana Chinubhai and Company authorising it to generate and supply electricity to the consumers in Godhra area. The assessee-Company is the successor of the said licensee. ON the recommendations of the Rating Committee constituted under Section 57 (2) of the Electricity (Supply) Act, 1948 the State Government had fixed the charges for supply of electricity and motive power by the assessee-Company with effect from 1/02/1952. After the amendment of the Electricity (Supply) Act, 1948 in 1956 the assessee-Company increased the charges for motive power from 1/01/1963 to 35 np. per unit with a maximum of Rs. 7 per month for every installation and a few months thereafter on 22/06/1963 the assessee-Company increased the rates for electricity supplied for lights and fans to 70 np. per unit with a minimum of Rs.5 of every installation with effect from 1/07/1963. This unilateral increase in the rates for supply of motive power as well as electricity for lights and fans led to the institution of two representative suits by the consumers (Civil Suits Nos. 152 of 1963 and 50 of 1964) in the Court of Civil Judge (Senior Division) at Godhra wherein the right of the assessee Company to unilaterally increase the charges in respect of motive power and lights and fans was challenged. The said suits were decided by the trial Court in favour of the consumers and the decree of the trial Court was affirmed in appeal by the Assistant Judge, Panchmahals at Godhra. The second appeals filed by the assessee-Company were dismissed by the learned single Judge of the Gujarat High Court on April 11, 1966 but the Letters Patent Appeals (L. P. As. Nos. 42 and 43 of 1966) filed by the assessee-Company against the said judgment of the learned single Judge were allowed by the Division Bench of the High Court by judgment dated 3/12/1968 and both the representative suits filed by the consumers were dismissed. It was held that under the Electricity (Supply) Act, 1948, as amended in 1956, the assessee-Company was entitled to enhance the charges unilaterally subject to the conditions prescribed in the Sixth Schedule to the said Act. The said judgment of the Division Bench of the Gujarat High Court was affirmed by this Court by judgment dated 26/02/1969 in Jindas Oil Mill v. Godhra Electricity Co., (1969) 3 SCR 836: (AIR 1969 SC 1225). During the pendency of this litigation in various Courts, the assessee-Company was not able to realise the enhanced charges from the consumers. After the decision of this Court on 26/02/1969 some of the citizens of Godhra met the Minister of Industries, Mines and Power, Government of Gujarat, with a view to persuading him to intervene and restrict the assessee-company from recovering the enhanced rates from the consumers. Thereafter the Under Secretary to the Government of Gujarat in the Industries, Mines and Power Department, addressed a letter dated 19/03/1969 to the assessee-Company suggesting that the Company may be advised to maintain the status quo for the rates to the consumers are concerned and also to continue the existing street light agreement for at least six months. The Chief Electrical Inspector was requested to go through the accounts of the assessee-Company for year to year and report to the Government the actual position about the reasonable return earned by the assessee-Company. ON 16/05/1969 some of the consumers filed another representative suit (Suit No. 118 of 1969) against the assessee-Company in the Court of Civil Judge (Junior Division) at Godhra challenging the right of the assessee-Company to recover the consumption charges at enhanced rates. In the said suit it was claimed that the decision of this Court was only of academic interest as, in April 1965, the assessee-Company began to purchase in bulk electrical energy at 10 paise per unit from the Gujarat Electricity Board and it had to work merely as distributing agency and it had to work merely as distributing agency and had to collect the charges and not generate electrical energy and that the assessee-Company would earn more profits even if it supplied electricity at 31 paise per unit to the consumers of motive power and that it would earn a reasonable return even on the basis of the existing rates. An interim injunction was granted by the trial Court in that suit. A written statement was filed by the assessee-Company contesting the said suit but when the suit came up for hearing no evidence was led to controvert the evidence produced on behalf of the consumers since at that point of time the undertaking of the assessee-Company was under the management of the Collector of Godhra and he did not give any instructions to the lawyer appearing on behalf of the assessee-Company with the result that the said lawyer reported no instructions. The said suit was decreed in favour of the consumers by the Civil Judge by his judgment dated 20/06/1974 and a declaration was granted to the effect that the assessee-Company shall not recover the charges exceeding 31 np. per unit for lights and fans and 20 np. Per unit for motive power. The intri injunction which had been granted against dis-connection or discontinuance of the supply was made absolute on the same terms on which it was initially granted. During the course of hearing before the High Court it was stated by the learned Advocate General appearing for the assessee-Company that an appeal was in fact filed against the said judgment but the plaintiffs by their application dated 27/07/1979 sought permission of the Court to withdraw the suit with liberty to file a fresh suit on the same cause of action, if and when necessary and the trial Judge by order of even date permitted the plaintiffs to withdraw the suit and granted them the liberty sought. While the said suit was pending before the trial Court the Gujarat State Electricity Board, in exercise of power conferred on it by Section 6(1) of the Indian Electricity Act, 1910 read with clause (2) of the terms of the licence, sought to exercise its option to purchase the electrical undertaking of the assessee-Company by issuing a notice dated 8/11/1971. The assessee-Company filed a Writ Petition (Special Civil Application No. 1752 of 1972) in the Gujarat High Court challenging the validity of the said notice. During the pendency of the said Writ Petition the Government of Gujarat issued an order under Rule 115 (2) of the Defence of India Rules, 1971 taking over the management of the undertaking of the assessee - Company with effect from 19/11/1972 and the Collector of Godhra was authorised by the said order to take over the management of the undertaking of the assessee-Company. The said writ petition was ultimately dismissed by the High Court by is judgment dated October 16-17 of 1973. In the appeal filed by the assessee-Company against the said judgment in this Court an interim order was passed directing the Collector of Godhra to hand over the undertaking to the Gujarat State Electricity Board and in accordance with the said direction the Government of Gujarat on 20/12/1973 instructed the Collector of Godhra to hand over the management of the undertaking to the Gujarat State Electricity Board which was done on the next day and thereafter the notification issued under Rule 115 (2) of the Defence of India Rules, 1971 was canceled on 4/05/1974. Upto assessment year 1963-64 the assessee - Company was assessed on the basis of the accounts maintained according to the mercantile system. For the subsequent assessment years, i.e., from 1964-65 to 1967-68, the assessee-Company deducted a total amount of Rs. 10,87,828.00 from the total earnings in respect of sale of electrical energy on the ground that the said amount was not actually recovered by it from the consumers since the consumers had filed a suit against the assessee-Company and had obtained interim relief in that behalf. The particulars of the deductions made for the aforesaid four assessment years were as under:- JUDGEMENT_530_4_1997Html1.htm The aforesaid disputed amounts were shown by the assessee-Company on the liability side in the balance-sheet under the head "Disputed increase in rates charged to customers(consumer), carried forward pending settlement of disputes in the District Court." In the assessment year 1968-69 there was an adjustment of the claim amounting to Rs. 3,54,152.00 due to settlement of dispute with the Railway authorities and the disputed balance stood reduced to Rs. 7,33,676.00. While making the assessment for the assessment year 1969-70 the Income-tax Officer included the said amount of Rs. 7,33,676.00 on the ground that the suit filed against the assessee-Company by the consumers was decided in favour of the assessee-Company by this Court during the accounting year 1968-69 and the assessee-Company has the legal right to recover the said amount and on the basis of the accountancy followed by the assessee-Company the amount of Rs. 7,33,676.00 will have to be taxed as the income that has accrued to the assessee - Company on account of the decision of this Court in the assessment year 1969-70. The said addition made by the Income-tax Officer was, however, deleted by the Appellate Assistant Commissioner, on appeal, on the view that no legally enforceable claim had accrued to the assessee - Company during the previous year by which it could recover the arrears of the earlier years for enhanced charge/rates in respect of motive power and electricity for lights and fans from the consumers. The Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal'), on further appeal, held that the question of fixing a reasonable return was still an open issue since it was a subject-matter of further litigation wherein as a result of the decision of Civil Judge, Junior Division, Godhra the assessee-Company was restrained from recovering the charges more than the 31 paise per unit for lights and fans and 20 paise per unit for motive power from the customers and that the right to receive the increased rates had not crystallized. According to the Tribunal the claimant the increased rates as made by the assessee - Company and on the basis of which necessary entries were made in the books, represented only hypothetical income and the impugned amount as brought to tax by the Income-tax Officer did not represent the income which had accrued to the assessee-Company during the relevant previous year. On an application by the Revenue the Tribunal referred following question of law for the opinion of the Gujarat High Court :- "Whether the Tribunal was right in law in holding that the amount of Rs. 7,33,676.00 which had accrued to the assessee during the previous year, and which was brought to tax by the Income-tax Officer did not represent the income and, therefore,, could not be included in computation of the total income of the assessee."
(3.) ON the basis of the said reference Income-tax Reference No. 288 of 1975 was registered in the High Court. Similarly i respect of assessment years 1970-71 and 1971-72 the Income-tax Officer included the sums of Rs. 2,63,465.00 and Rs. 2,98,077.00 respectively as income that had accrued to the assessee-Company in those years and was taxable. The said addition was deleted by Appellate Assistant Commissioner on appeal by the assessee-Company and the said decision was upheld by the Tribunal. On application moved by the Revenue the following question of law was referred to the High Court for its opinion :- "Whether, the Tribunal was right in law in holding that the amount of Rs. 2,63,465.00 for Assessment year 1970-71 and Rs. 2,98,077.00 For assessment year 1971-72 which had accrued to the assessee during the previous year and which was brought to tax by the Income-tax Officer did not represent the income of the assessee and, therefore, not liable to be included in computation of the total income of the assessee ?" ;