RIVERSIDE BHATPARA ELECTRIC SUPPLY CO LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(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 :

(2.) The Explanation to the said section denned "actual cost" as follows:

(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 :