- (1.) THIS is a reference under Section 66 (1) of the Indian Income-tax Act and the facts giving rise to it are these. The Hoshiarpur Electric Supply Company holds a licence under the Indian electricity Act for the generation and supply of electricity in certain areas. For the transmission of electricity the Company of course has its distributing mains; but before electricity can reach the consumers it becomes necessary to lay what are called service-lines from some point on the mains to the consumers' premises. The Company has been laying these-service-lines each year and charging the consumers concerned the cost of laying the service-lines and also something over and above that cost. Thus, during the accounting year ending 31-3-1948, which is relevant to this reference, the company received in all Rs. 12,530/- from the consumers, while the actual cost of laying the service-lines amounted only to Rs. 5,669/ -. The question that arose during the assessment proceedings was whether the difference between the cost of laying the service-lines and the charges received from the consumers on this account was taxable income. The Income-tax appellate Tribunal has taken the view that these receipts arc ordinary trading receipts and therefore assessable to income-tax, while the assessee's case is that these receipts arc capital receipts and not ordinary business income and consequently not assessable to tax.
(2.) MR. Daya Kishan Mahajan appearing for the assessee proceeded with his argument on the assumption that these service-lines are and remain the property of the assessee-Company, and the erection of these service-lines is in the nature of an addition to the Company's capital. Mr. Sikri for the respondent did not, however, accept this assumption and contended that these service-lines are the property of the individual consumers who Pay for them which view seems to have been accepted by the Income-tax Appellate Tribunal also.
(3.) NO evidence was actually called by either party in this case in support of their respective pleas, and we have been asked to come to a conclusion on a reading of the Indian Electricity Act and the ordinary rule that a person paying for any property is the owner of it. There is nothing clear in the Electricity Act, although one commentator. (J. W. Meeres), in his Law relating to electrical Energy in-India and Burma says that, according to the legal opinion available, service-lines are the property of the consumers who pay for it. The only time this matter was agitated in a Court of law was in The Akola Electric Supply Co. , ltd. v. Mrs. Gulbai, AIR 1950 Nag 246 (A), and in that case the Nagpur High Court came to the conclusion that the ownership of service-lines vested in the consumers and not in the licensee. This decision followed the general rule that a person paying for a property is normally the owner of that. There is in the present case no particular evidence or indication to the contrary, and if we are to decide this question on the material as it is before us, I would be inclined to hold that these service-lines as distinguished from the main lines are not the property of the Company. If this view is correct, then Mr. Mahajan's argument that the Company by laying these service-lines was adding something to their capital at once breaks down.;