SOUTH ARCOT ELECTRICITY DISTRIBUTION COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assesses-company was formerly carrying on the business of supplying electricity at various places in Madras State. THE business was taken over by the Madras Electricity Board under the Madras Electricity Undertakings Acquisition Act, 1954, with effect from June 1, 1957. As from this date the assessee-company ceased its business of supplying electricity and did not derive any income from the business as such. THE assessee's year of account is the calendar year. During the periods relevant to the assessment years 1959-60 to 1962-63, the income derived by the company consisted of interest from fixed deposits from bank, interest paid by the Government on the compensation amount payable by the Government for taking over the assets of the company, and share transfer fees. This income was assessed under the head " Income from other sources ". THE Income so assessed for the several years in question is as under : <FRM>JUDGEMENT_469_ITR94_1974Html1.htm</FRM>

(2.) AGAINST this income the assessee claimed allowances for the expenses relating to establishment, salaries, rent, sitting fees and travelling expenses of directors, remuneration to the accredited representatives, etc. The expenses thus claimed by the assessee for the several years are as under ; <FRM>JUDGEMENT_469_ITR94_1974Html2.htm</FRM>

(3.) SECTION 12(2) of the Indian Income-tax Act, 1922, sets out the allowances permitted in the computation of the " income from other sources ". It provides that " any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of making or earning such income, profits or gains" shall be deducted in computing the income from other sources. The corresponding provision in the Income-tax Act, 1961, is SECTION 57(iii). The only difference between these two sections is, instead of the word " solely " occurring in SECTION 12(2), the words " wholly and exclusively " are-used in SECTION 57(iii). As observed by this court in Commissioner of Income-tax v. S. Devaraj, 1969 73 ITR 1 though the scope of SECTION 12(2) presents not much of difficulty, its application to particular facts is a matter of nicety. Sometimes it baffles beyond imagination when it comes to the question of its application to a given set of facts. The applicability of this provision in respect of particular expenses incurred have come up for consideration in a number of cases.