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Issues Involved:
1. Whether the receipts from service connections are capital receipts. 2. Whether depreciation is allowable on the amount of cost incurred on service connections. Issue-wise Detailed Analysis: Issue 1: Whether the receipts from service connections are capital receipts. The High Court determined that this issue did not arise out of the order of the Tribunal within the meaning of Section 66(1) of the Indian Income-tax Act. The question of whether the receipts from consumers for service connections were capital receipts or revenue receipts was not raised before the Appellate Assistant Commissioner or the Tribunal. The High Court noted that the assessee accepted the Income-tax Officer's determination that the receipts were of a revenue nature and did not appeal on this point. Consequently, the High Court concluded it had no jurisdiction to answer this question, citing the necessity for strict fulfilment of preliminary conditions required by Section 66(2) of the Act. The High Court referenced its earlier decision in Maharaja Kumar Kamal Singh v. Commissioner of Income-tax [1954] 26 I.T.R. 79, which elaborated on the jurisdictional limitations under Section 66(2). Issue 2: Whether depreciation is allowable on the amount of cost incurred on service connections. The High Court addressed whether the assessee was entitled to depreciation on the expenditure incurred for installing new electric connections. The Tribunal had allowed depreciation on the entire cost of Rs. 8,582 without deducting the Rs. 8,520 received from consumers. The High Court upheld the Tribunal's view, interpreting "actual cost to the assessee" under Section 10(5)(a) of the Act to mean the total expenditure incurred, irrespective of contributions from consumers. The Court emphasized that the source of the funds (whether from the assessee or consumers) was immaterial in determining the actual cost. The Court referred to the Bombay High Court's decision in Commissioner of Income-tax v. Poona Electric Supply Co. Ltd. [1946] 14 I.T.R. 622 and the House of Lords' decision in Corporation of Birmingham v. Barnes, which supported the interpretation that contributions from consumers should not reduce the actual cost for depreciation purposes. The Court also noted the legislative change by the Income-tax Amendment Act of 1953, which introduced an explanation to Section 10(5)(c) affecting contributions from Government or public authorities but not private consumers. The Court further rejected the argument that the expenditure was of a revenue nature, affirming that the installation of service lines was a capital expenditure. The Court applied the principle from British Insulated and Helsby Cables Ltd. v. Atherton, which treats expenditures made to create an asset or advantage for the enduring benefit of a trade as capital expenditures. The Court also referenced the model form of accounts under the Indian Electricity Act, which treats the cost of service connections as capital expenditure, reinforcing its conclusion. Conclusion: The High Court answered the second question in favor of the assessee, allowing depreciation on the full amount of cost incurred for service connections. The Income-tax Department was ordered to pay the costs of the reference, with a hearing fee of Rs. 250.
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