TMI Blog1997 (4) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1978. Income-tax Reference No. 288 of 1975 related to the assessment year 1969-70, while Income-tax Reference No. 73 of 1978 related to the assessment years 1970-71 and 1971 -72 and Income-tax Reference No. 171 of 1978 related to the assessment year 1972-73. On November 19, 1922, the then Government of Bombay granted a licence under the Indian Electricity Act, 1910, to Lady Sulochana Chinubhai and Company authorising it to generate and supply electricity to the consumers in Godhra area. The assessee-company is the successor of the said licensee. On the recommendations of a rating committee constituted under section 57(2) of the Electricity (Supply) Act, 1948, the State Government had fixed the charges for supply of electricity and motive power by the assessee-company with effect from February 1, 1952. After the amendment of the Electricity (Supply) Act, 1948, in 1956, the assessee-company increased the charges for motive power from January 1, 1963, to 35 np. per unit with a minimum of Rs. 7 per month for every installation and a few months thereafter on June 22, 1963, the assessee-company increased the rates for electricity supplied for lights and fans to 70 np. per unit with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctrical Inspector was requested to go through the accounts of the assessee-company for year to year and report to the Government the actual position about the reasonable return earned by the assessee-company. On May 16, 1969, some of the consumers filed another representative suit (Suit No. 118 of 1969) against the assessee-company in the court of the Civil Judge (Junior Division) at Godhra challenging the right of the assessee-company to recover the consumption charges at the enhanced rates. In the said suit it was claimed that the decision of this court was only of academic interest as, in April, 1965, the assessee-company began to purchase in bulk electrical energy at 10 paise per unit from the Gujarat Electricity Board and it had to work merely as distributing agency and had to collect the charges and not generate electrical energy and that the assessee-company would earn more profits even if it supplied electricity at 31 paise per unit to the consumers of motive power and that it would earn a reasonable return even on the basis of the existing rates. An interim injunction was granted by the trial court in that suit. A written statement was filed by the assessee-company contest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tober 16, 17 of 1973. In the appeal filed by the assessee-company against the said judgment in this court an interim order was passed directing the Collector of Godhra to hand over the undertaking to the Gujarat State Electricity Board and in accordance with the said direction the Government of Gujarat on December 20, 1973, instructed the Collector of Godhra to hand over the management of the undertaking to the Gujarat State Electricity Board which was done on the next day and thereafter the notification issued under rule 115(2) of the Defence of India Rules, 1971, was cancelled on May 4, 1974. Up to the assessment year 1963-64, the assessee-company was assessed on the basis of the accounts maintained according to the mercantile system. For the subsequent assessment years, i.e., from 1964-65 to 1967-68, the assessee-company deducted a total amount of Rs. 10,87,828 from the total earnings in respect of sale of electrical energy on the ground that the said amount was not actually recovered by it from the consumers since the consumers had filed a suit against the assessee-company and had obtained interim relief in that behalf. The particulars of the deductions made for the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary entries were made in the books, represented only hypothetical income and the impugned amount as brought to tax by the Income-tax Officer did not represent the income which had accrued to the assessee-company during the relevant previous year. On an application by the Revenue, the Tribunal referred the following question of law for the opinion of the Gujarat High Court : " Whether the Tribunal was right in law in holding that the amount of Rs. 7,33,676 which had accrued to the assessee during the previous year, and which was brought to tax by the Income-tax Officer, did not represent the income and, therefore, it could not be included in computation of the total income of the assessee ? " On the basis of the said reference, Income-tax Reference No. 288 of 1975 was registered in the High Court. Similarly in respect of the assessment years 1970-71 and 1971-72, the Income-tax Officer included the sums of Rs. 2,63,465 and Rs. 2,98,077, respectively, as income that had accrued to the assessee-company in those years and was taxable. The said addition was deleted by the Appellate Assistant Commissioner on appeal by the assessee-company and the said decision was upheld by the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, as distinguished, from a hypothetical income, which can be brought to tax. In view of the decision of the Division Bench of the High Court allowing the Letters Patent Appeals of the assessee-company, which judgment was affirmed by this court on February 26, 1969, the High Court has held that the assessee-company had a legal right to recover the consumption charge at the enhanced rate from the consumers. As regards the letter from the Under Secretary to the Government of Gujarat, Industries, Mines and Power Department, dated March 19, 1969, the High Court has observed : " We do not know if this letter was a directive to the assessee under any provision of law but in any case it was in the form of a suggestion which, if accepted, enured for a period of six months only. Therefore, the contention of the learned Advocate-General that income could not be said to have accrued to the assessee in view of this letter received by the assessee within a few days after the Supreme Court dismissed the appeals filed by the consumers, does not appeal to us. In any case, the request made by the State Government was to maintain the status quo for a period of six months only. That letter did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Birla Gwalior (P.) Ltd. 1973] 89 ITR 266 ; Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 and State Bank of Travancore v. CIT [1986] 158 ITR 102. Under the Act income chargeable to tax is the income that is received or is deemed to be received in India in the previous year relevant to the year for which assessment is made or the income that accrues or arises or is deemed to accrue or arise in India during such year. The computation of such income is to be made in accordance with the method of accounting regularly employed by the assessee. It may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements or it may be the mercantile system where entries are made on accrual basis, i.e., accrual of the right to receive payment and the accrual of the liability to disburse or pay. In CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144, 148 (SC). It has been laid down : " Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt ; bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made, agreed to or given on grounds of commercial expediency, simply because it takes place some time after the close of an accounting year. In examining any transaction and situation of this nature the court would have more regard to the reality and speciality of the situation rather than the purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on the business aspect of the matter viewed as a whole when that can be done without disregarding statutory language. " In State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC), after considering the various decisions of this court, Sabyasachi Mukharji J. (as the learned Chief Justice then was), has said : " An acceptable formula of co-relating the notion of real income in conjunction with the method of accounting for the purpose of the computation of income for the purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to create problems in its application to every situation, it must depend upon the facts and circumstances of each case. When and how does an income accrue and what are the consequences that follow from accrual of income are well-settled. The accrual must be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected to go through the accounts of the assessee-company from year to year and to report to the Government about the actual position about the reasonable returns earned by the assessee-company. On May 16, 1969, another representative suit (Suit No. 118 of 1969) was filed by the consumers wherein interim injunction was granted by the court and which was finally decreed in favour of the consumers on June 23, 1974. It would thus appear that after the decision was taken by the assessee-company to enhance the charges it was not able to realise the enhanced charges on account of pendency of the earlier representative suits of the consumers followed by the letter of the Under Secretary to the Government of Gujarat and the subsequent suit of the consumers and during the pendency of the subsequent suit the management of the undertaking of the assessee-company was taken over by the Government of Gujarat under the Defence of India Rules, 1971, and the undertaking was subsequently transferred to the Gujarat State Electricity Board. It is no doubt true that the letter addressed by the Under Secretary to the Government of Gujarat to the assessee-company had no legally binding effect but one h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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