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Entitlement of depreciation and development rebate on a service line where the consumer contributed towards construction costs. Analysis: The case involved the Commissioner of Income-tax seeking a reference to the High Court regarding the entitlement of a private limited company, engaged in the electricity supply business, to claim depreciation and development rebate on a service line where consumers had contributed to the construction costs. The dispute arose as the Income-tax Officer rejected the claim, stating that the company did not incur any capital expenditure on the portion of the service line funded by consumers. The Appellate Assistant Commissioner, however, upheld the company's claim, emphasizing that the company was entitled to depreciation on the entire service connection, irrespective of consumer contributions. The Tribunal, relying on the Supreme Court decision and the conditions of supply, affirmed the Appellate Assistant Commissioner's decision, stating that the consumer had no proprietary rights in the service line, and the actual cost to the company should not be adjusted for consumer contributions. The key contention revolved around the interpretation of "actual cost to the assessee" for claiming depreciation and development rebate. The department argued that if consumers contributed to the service line construction costs, the company did not have an actual cost to claim depreciation. However, the Tribunal, following precedents from the High Courts of Bombay and Patna, emphasized that "actual cost" meant the cost accurately ascertained by the company, irrespective of the funding sources. The Tribunal's decision aligned with the principle that what a company pays for construction constitutes the cost to them, regardless of external contributions or reimbursements. Citing the Supreme Court decision in Hoshiarpur Electric Supply Co. v. Commissioner of Income-tax, the Tribunal concluded in favor of the company, allowing the claim for depreciation and development rebate on the service line. In conclusion, the High Court, concurring with the decisions of the Bombay and Patna High Courts, answered the reference question in the affirmative, favoring the company and rejecting the department's contentions. The judgment highlighted the importance of interpreting "actual cost" for depreciation claims based on accurate cost determination by the assessee, regardless of external contributions. The High Court's decision emphasized adherence to established legal principles and statutory interpretations in allowing the company's claim for depreciation and development rebate on the service line.
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