POONA ELECTRIC SUPPLY CO LTD Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS is a reference made by the Tribunal of Appeal under Section 66 (1) of the Indian Income-tax Act. The relevant facts which are found in the statement of case are these :

(2.) THE assessee company started converting the supply of electric energy from DC to AC system and they were obliged under the provisions of the Indian Electricity Act and under the terms of their licence to change and substitute at their own cost the consumers' equipment such as fans, radios, etc. so as to enable the consumers' equipment to be worked on AC system. In doing so, they had to make alterations in their own cables, service lines and meters. THEy claimed the entire expenses incurred in the course of conversion during the four accounting years as revenue expenditure. That claim was rejected. Having regard to the decision in THE Nagpur E. L. & P. Co. Ltd. v. Com, of I. T. C. P. & Berar (1932) 6 I. T. C. 303 the point was not pressed before the Tribunal. THE Income-tax Officer had negatived both the claims, but the Appellate Assistant Commissioner, while upholding the Income-tax Officer's view about the expenditure being of capital nature, held that depreciation on such expenditure was due to the company and allowed the same. THE taxing authorities being dissatisfied with that decision preferred an appeal to the Tribunal. Before the Tribunal the question whether this expenditure was of capital nature or revenue expenditure was not argued. It was accepted as capital expenditure. THE only contention urged before the Tribunal was that, this being capital expenditure, the company had expended the whole money in changing over from DC to AC system, and just as expenditure in respect of alterations of the company's cables and lines was capital expenditure, the replacement cost of the consumers' fans, radios, etc. was also a part of the capital expenditure of the company. Following that line of reasoning it was urged that as depreciation was allowed in respect of company's cables, etc. depreciation should also be allowed in respect of cost of replacement of fans, radios, etc. as the two stood on the same footing. This argument had appealed to the Appellate Assistant Commissioner but was rejected by the Tribunal. THE Tribunal permitted depreciation in respect of company's properties, but rejected the claim for depreciation in respect of the expenditure incurred for replacement of fans, radios, etc. , although it held that the expenditure was of capital nature.