Sabyasachi Mukharji, J. - (1.) The assessee is a company carrying on business of the distribution of electricity. It has service lines through which electricity is transmitted for distribution. In the case of such service lines a portion of the cost thereof is borne by the consumer concerned. Prior to the coming into force of the Income-tax Act, 1961, the Indian Income-tax Act, 1922, then in force, provided for depreciation allowance on such service lines. At that time question arose as to whether the contribution received from the consumers of electricity in respect of the service lines would go to reduce the actual cost of the said assets for the purpose of calculation of depreciation. In the case of Commissioner of Income-tax v. Ranchi Electric Supply Co. Ltd. [1954] 26 ITR 89 (Pat), it was held by the Patna High Court that the "actual cost" was the actual cost incurred in installing the connections irrespective of any contribution received from any consumer. Consequently, the amount paid by the consumers of such service lines could not be taken into account in calculating the actual cost. The assessments of the assessee-company up to the assessment year 1962-63 were made on that basis. Section 10(2)(vii) of the Indian Income-tax Act, 1922, provided that "depreciation would be allowed on the assets at such percentage of written down value thereof as may in any case or class of cases be prescribed". "Written down value" was defined in Section 10(5) of the Indian Income-tax Act, 1922, after the amendment in 1953, as under : "(5) ......'written down value' means-- (a) in the case of assets acquired in the previous year, the actual cost to the assessee:...... (Provisos to this clause are omitted as they have no relevance) (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previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act, or any Act repealed thereby, or under executive orders issued when the Indian Income-tax Act, 1886 (II of 1886) was in force :......" (Provisos to this clause also are omitted as being of no relevance).
(2.) The Explanation to the said section denned "actual cost" as follows: "For the purposes of this sub-section, the expression '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 Government or by any public or local authority and any allowance in respect of any depreciation carried forward under Clause (b) of the proviso to Clause (vi) of Sub-section (2) shall be deemed to be depreciation 'actually allowed'."
(3.) In short, therefore, depreciation under the old Act had to be allowed on the written down value of the assets as defined in Clause (a) and Clause (b) of Section 10(5) of the Indian Income-tax Act, 1922, on the basis of "actual cost" as defined to mean the cost of the assets as reduced by the portion thereof as might have been made directly or indirectly by Government or by any public or local authority. When the Income-tax Act, 1961, came into effect definitions of "actual cost" and "written down value" were provided by Section 43(1) and Section 43(6) respectively of the Act. It may be relevant to refer to Section 43 which is as follows : "43. Definitions of certain terms relevant to income from profits and gains of business or profession.--In Sections 28 to 41 and in this section, unless the context otherwise requires-- (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 met directly or indirectly by any other person or authority:...... Explanation 2.--Where an asset is acquired by the assessee by way of gift or inheritance the actual cost of the asset to the assessee shall be the written down value thereof as in the case of the previous owner for the previous year in which the asset is so acquired or the market value thereof on the date of such acquisition, whichever is the less......" "Written down value" has been defined under Section 43(6) as follows: "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(2of 1886), was in force.......(once again the proviso and the Explanation to the said section are omitted as being of no relevance).";