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Issues Involved:
1. Right of the assessee to unilaterally increase electricity charges. 2. Taxability of the enhanced charges under the mercantile system of accounting. 3. Applicability of the doctrine of real income. Detailed Analysis: 1. Right of the Assessee to Unilaterally Increase Electricity Charges: The Government of Bombay granted a licence under the Indian Electricity Act, 1910, to a concern, authorizing it to generate and supply electricity. The assessee is the successor of the said licensee. After the Electricity (Supply) Act, 1948, came into force, a rating committee was constituted under s. 57(2) at the request of the assessee. On the committee's recommendation, certain charges were fixed from 1st February 1952. The assessee unilaterally increased the charges for motive power and rates for lights and fans in 1963, leading to litigation. The trial court decided in favor of the consumers, but the Division Bench of the High Court and subsequently the Supreme Court upheld the assessee's right to unilaterally enhance the charges, provided the conditions of the Sixth Schedule were followed. 2. Taxability of the Enhanced Charges under the Mercantile System of Accounting: The assessee maintained accounts according to the mercantile system. For assessment years 1964-65 to 1967-68, the assessee deducted the amount of enhanced charges not actually recovered due to ongoing litigation. The Revenue claimed tax on the disputed amounts in the subsequent years after the Supreme Court's decision. The court held that under the mercantile system, income becomes liable to tax on the date of accrual, regardless of actual receipt. The assessee's right to recover at enhanced rates was upheld by the Supreme Court, indicating that the income had accrued. The court rejected the argument that the Revenue had accepted a shift to a hybrid system of accounting. 3. Applicability of the Doctrine of Real Income: The court considered whether the enhanced charges represented real income. The doctrine of real income implies that income must be legally recoverable. The court noted that the assessee had a legal right to recover the enhanced charges and had not forgone this right. The court distinguished this case from others where income was not legally due or was forgone due to business expediency. The court concluded that the income had accrued to the assessee in the relevant assessment years, and the sums sought to be taxed represented real income. Conclusion: The court answered the questions in the negative, holding that the amounts of Rs. 7,33,676 and Rs. 3,17,741, which had accrued to the assessee during the previous years, represented real income and were liable to be included in the computation of the total income of the assessee. The references were answered accordingly, with no order as to costs.
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