TMI Blog1960 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered, but for installation of capital equipment under an agreement for a joint venture. The total receipts being capital receipts, the fact that in the installation of capital, only a certain amount was immediately expended, the balance remaining in hand, could not be regarded as profit in the nature of a trading receipt.The High Court was in error in holding that the excess of the receipts over the amount expended for installation of service lines by the assessee was a trading receipt. Appeal allowed. - - - - - Dated:- 6-12-1960 - Judge(s) : J. L. KAPUR., M. HIDAYATULLAH., J. C. SHAH JUDGMENT The judgment of the court was delivered by SHAH, J.--The Income-tax Appellate Tribunal, Delhi Bench, stated under section 66(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Tribunal agreed with the Appellate Assistant Commissioner and held that the service connection receipts were trading receipts and that the " profit element " therein was taxable income in the hands of the assessee. In a reference under section 66(1) of the Income-tax Act, the High Court substantially agreed with the view of the Tribunal. The assessee has installed machinery for producing electrical energy and has also laid mains and distributing lines for supplying it to its customers. The assessee makes no charge to the consumers for laying service lines not exceeding 100 ft. in length from its distributing main to the point of connection on the consumer's property in accordance with clause 6(1)(b) of the Schedule to the Indian El ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the assessee was the owner of the service lines. Undoubtedly, contributions were made by the consumers towards the cost of the service lines installed by the assessee which exceeded 100 ft. in length. Normally, a person who pays for installation of property may be presumed to be the owner thereof ; but such a presumption cannot necessarily be made in respect of a service line, which so long as it is used for supplying electrical energy remains an integral part of the distributing mains of an electrical undertaking. The High Court was exercising advisory jurisdiction and the question as to who was the owner of the service lines after they were installed could be adjudicated upon only by the Tribunal. It was for the Tribunal to record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumers remains with the assessee after meeting the expenses incidental to the construction of the service lines. But an electric service line requires constant inspection and occasional repairs and replacement and expenses in this behalf have to be undertaken by the assessee. The amount contributed by the consumer for obtaining a new connection would of necessity cover all those services. The amount contributed by the consumer is in direct recoupment of the expenditure for bringing into existence an asset of a lasting character enabling the assessee to conduct its business of supplying electrical energy. By the installation of the service lines, a capital asset is brought into exitence. The contribution made by the consumers is substantiall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of Bombay by the Poona Electric Company in reimbursement of expenses incurred for constructing new supply lines for supplying energy to new areas not previously served was a capital receipt and not a trade receipt. The question of the taxability of the " profit element " in the contribution received from the Government was not expressly determined; but the court in that case held that the entire amount received by the Poona Electric company from the Government as contribution was a capital receipt. In Monghyr Electric Supply Co. Ltd. v. Commissioner of Income-tax it was held that the amount paid by the consumers of electricity for meeting the cost of service connections was a capital receipt in the hands of the electricity undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X
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