MONGHYR ELECTRIC SUPPLY COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this case the assessee is a public limited company called the Monghyr Electric Supply Company, Ltd., which carries on the business of supply of electricity in the towns of Monghyr and Jamalpur. The assessment in this case relates to the assessment year 1947-48 and the corresponding accounting year is financial year 1946-47 ending with 31st of March 1947.

(2.) THE Income-tax Officer, however, treated the amount of Rs. 7,504 spent on service connection as capital expenditure and allowed depreciation at the rate of 10 per cent. THE assessee took an appeal to the Appellate Assistant Commissioner and contended that the amount of Rs. 8,674 should be treated as capital receipt. THE appeal was allowed by the Appellate Assistant Commissioner who accepted the contention of the assessee and excluded the amount of Rs. 8,674 from the total income of the assessee which was liable to be taxed. THE Appellate Assistant Commissioner adopted this course in view of the decision of the Bombay High Court in -- 'Commr. of Income Tax v. Poona Electric Supply Co. Ltd.', AIR 1947 Bom 263 .

(3.) THE question at issue does not turn upon the fact whether the expenditure was incurred in copper wire or in putting up poles. THE true question to be asked in this case is this--Is the expenditure on the service connection made with a view to bring into existence an asset or an ad- vantage for the lasting benefit of the business of the assessee? It is the admitted position in this, case that electric current cannot be supplied to consumers without the installation of service connection. It is also admitted that the life of the service connection is about 10 years, for the Income-tax Officer granted an allowance of 10 per cent, depreciation on the basis that the service connection was in the nature of a capital asset. It is clear that the service connection is of a quasi-permanent character and that the service connection is installed essentially in order to supply electricity to consumers.