1945 (3) TMI 25 - HC - Income Tax

Summary

Issues:
1. Whether the expenditure incurred by the assessee company for converting the supply of electric energy from D.C. to A.C. system is revenue expenditure or of capital nature.
2. Whether depreciation should be allowed on the expenses incurred for replacing consumers' equipment like fans, radios, etc.

Analysis:
1. The Tribunal of Appeal referred the case under Section 66(1) of the Income-tax Act to determine the nature of the expenditure incurred by the assessee company for converting the electric energy system. The company claimed the entire expenses as revenue expenditure, but the Income-tax Officer and the Appellate Assistant Commissioner held it to be of capital nature. The Tribunal accepted the capital expenditure argument without discussing the nature of the expenditure further, based on the precedent set in Nagpur Electric Light and Power Co., Ltd. v. Commissioner of Income-tax [1932] 6 I.T.C. 303. The High Court upheld the Tribunal's decision, emphasizing that the expenditure was not in respect of the assessee's property but of the consumers, hence not eligible for depreciation under Section 10(2)(vi) of the Act.

2. The second issue raised was whether depreciation should be allowed on the expenses incurred for replacing consumers' equipment like fans, radios, etc. The company argued that since depreciation was allowed on the company's cables and lines, it should also be permitted on the replacement cost of consumers' equipment. However, the High Court clarified that Section 10(2)(vi) of the Act only allows depreciation on the property of the assessee, which includes buildings, machinery, plant, or furniture. The court held that the expenses for replacing consumers' equipment were not in respect of the assessee's property, and therefore, depreciation could not be permitted under the Act. The court concluded that the expenditure, although of capital nature, was not eligible for depreciation as it was not considered expenditure in respect of the assessee's property, ultimately affirming the Tribunal's decision to disallow depreciation on such expenses.

In conclusion, the High Court dismissed the reference, stating that the expenses incurred for converting the energy system and replacing consumers' equipment were of capital nature but not eligible for depreciation under Section 10(2)(vi) of the Income-tax Act as they were not in respect of the assessee's property.