TMI Blog1954 (4) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... use VI of the schedule, the assessee has to maintain such service lines. In the income-tax assessment year 1947-48 and its corresponding chargeable accounting period for excess profits taxing ending 31st March, 1946, the assessee received a total sum of ₹ 8,520 for such new connections. The expenses incurred by the assessee in this regard were ₹ 8,582 and accordingly exceeded the receipts. In Part IV of the Return, receipts from service connections have been deducted on the ground that these were capital receipts. The assessee claimed depreciation on the expenses over service connections. It was contended that the receipts were of capital nature delectable from gross profits but depreciation was claimed over the cost in respect of the new service connections. In the preceding years, the service connections were held by the Income-tax authorities to be of a revenue nature and assessed after allowing the expenses incurred by the company towards such connections. Consequently in this year also, the Income-tax Officer followed the same treatment and allowed the loss of ₹ 62 incurred in giving the connections and negatived the claim for depreciation over the cost of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 The excess profits tax appeal was only consequential. The Appellate Tribunal reversed the orders of the Appellate Assistant Commissioner and allowed the assessee's contention in the following words:- In respect to the contention regarding depreciation of service connections, following the decision in Commissioner of Income-tax v. Poona Electric Supply Co. Ltd. [1946] 14 I.T.R. 622 we hold that depreciation is due on the 'actual cost to the assessee' of these service connections ignoring the contributions received by it from the consumers towards such cost. The copy of the order of the Appellate Tribunal is herewith annexed marked 'C' and forms part of the case. On the above facts, the questions of law framed by the High Court are:- 1. Whether, in the circumstances of the case, the Tribunal was right in holding that receipts from service connections are capital receipt? and 2. Whether, in the circumstances of the case, depreciation is allowable on the amount of cost incurred on service connection? R. J. Bahadur, for the Commissioner S. N. Dutt and B. N. Jain, for the assessee JUDGMENT RAMASWAMY, J.- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bombay High Court in Commissioner of Income- tax v. Poona Electric Supply Co. Ltd.* In these circumstances the Appellate Tribunal has submitted the following questions of the law for the opinion of the High Court: (1) Whether, in the circumstances of the case, the Tribunal was right in holding that receipts from service connections are capital receipts? and (2) Whether, in the circumstances of the case, depreciation is allowable on the amount of cost incurred on service connection? In our opinion the first question does not arise our of the order of the Tribunal within the meaning of Section 66(1) of the Act and the High Court is not competent to decide that question. It is admitted position that the question whether the receipt from the consumers for service connection is capital receipt or revenue receipt was not raised before the Appellate Assistant Commissioner. The assessee was content with the order the Income-tax Officer that the receipt was of revenue character and preferred no appeal on that question to the Appellate Assistant Commissioner. Before the Tribunal also neither the assessee nor the Income- tax Department raised the question whether the receipt from ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted as correct. The question depends in the first place upon the interpretation of Section 10(2)(vi) of the Act which states that the assessee is entitled to an allowance in respect of depreciation of such building, machinery, plant or furniture being the property of the assessee, a sum equivalent (where the assets are ships other than ships ordinarily plying on inland waters) to such percentage on the original cost thereof to the assessee as may in any Cal or class of cases be prescribed and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed........ In this Connection Section 10(5)(a) is also important. Section 10(5)(a) states: In sub-section (2), 'paid' means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under this section; 'plant' includes vehicles, books, scientific apparatus and surgical equipment purchased for the purpose of the business, profession or vocation; and 'written down value' means (a) in the case of assets acquired in the previous year, the actual cost to the assessee...... The question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Labour under certain conditions to local authorities to assist them in carrying out at once approved schemes of work of public utility on which a substantial number of unemployed persons could be engaged. The question was raised whether the payment by the company and the grant from the Unemployment Grants Committee should be taken into account in ascertaining, under Rule 6(6) of Cases I and II of Schedule D, the actual cost to the Corporation of the tramway tracks in question for the purposes of computing depreciation allowance. Rule 6(6) of cases I and II of Schedule D of the English Act is in the following terms:- No deduction for wear and tear, or repayment on account of any such deduction, shall be allowed for any year if the deduction, when added to the deductions allowed on the account for any previous years to the person by whom the trade is carried on, will make the aggregate amount of the deductions exceed the actual cost to that person of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on the machinery or plant by way of renewal, improvement, or re-instatement. It was held by Lord Atkin that the question sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anged by the Income-tax Amendment Act of 1953. The effect of the amendment is that the decision of the Bombay High Court in the Poona Electric Supply Company's case has been nullified so far as the contribution made by Government on public or local authorities are concerned. By means of the Amending Act a new explanation has been added to Section 10(5)(c) which is in the following terms:- For the purpose of this sub-section, the expression 'actual cost' means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by Government or by any public or local authority, and any allowance in respect of any depreciation carried forward under clause (b) of the proviso to clause (vi) of sub-section (2) shall be deemed to be depreciation 'actually allowed'. The new amendment does not apply to this case. But even if it had applied, my decision would not have been different, for the new explanation only relates to contribution made directly and indirectly by Government or public or local authority and not the contribution by private consumers. Mr. R.J. Bahadur also put forward the argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, Henriksen v. Grafton Hotel, Ltd. In that case tenants of licensed premises, by agreement with the landlord, paid by instalments the monopoly value fixed by the licensing justices when granting the licence under Section 14 of the Licensing (Consolidation) Act, 1910. In computing their profits for the purposes of income- tax they claimed to deduct, as disbursements wholly and exclusively laid out for the purposes of their trade, the amount of the instalments. In these circumstances it was held by the Court of Appeal that the tenants were not entitled to make any such deductions, and that payments of the character in question ell into the same class as the payment of a premium on the grant of a lease or the expenditure on improvements to the property which justices might require to be made as a condition of granting a licence. In the course of his judgement Lord Justice du Parcq states:-- It is true that the period for which the right was acquired in this case was three years and no more, and a doubt may be raised whether such a right is of 'enduring benefit' or 'of a permanent character'. These phrases, in my opinion, were introduced only for the purpose of making ..... X X X X Extracts X X X X X X X X Extracts X X X X
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