1992 (1) TMI 2 - SC - Income Tax

Computation of depreciation on service lines installed by the assessees, a part of the expenditure incurred in connection with the installation of which is recovered by the assessees from consumers of electricity - assessee having paid nothing for the asset, its actual cost should be taken at nil

Summary

Issues Involved:
1. Computation of depreciation on service lines installed by the assessees.
2. Determination of "actual cost" and "written down value" under the Income-tax Act, 1961.
3. Retrospective application of the amended provisions of the Income-tax Act, 1961.
4. Validity of the Revenue's interpretation of Section 43(6) of the Income-tax Act, 1961.

Detailed Analysis:

1. Computation of Depreciation on Service Lines Installed by the Assessees:
The appellants, electric supply undertakings, contested the computation of depreciation on service lines installed, part of which cost was recovered from consumers. The main issue was whether the depreciation should be computed on the total cost incurred by the assessees or by excluding the contributions from consumers.

2. Determination of "Actual Cost" and "Written Down Value" Under the Income-tax Act, 1961:
Depreciation under the Income-tax Act, 1961, is computed as a percentage of the "written down value" of the asset. Section 43(6) defines "written down value" as the actual cost to the assessee less all depreciation allowed under the Act or previous Acts. Section 43(1) defines "actual cost" as the cost to the assessee reduced by any portion met by another person or authority. The controversy arose over whether the actual cost should be recalculated for assets acquired before the relevant previous year by excluding contributions from consumers.

3. Retrospective Application of the Amended Provisions of the Income-tax Act, 1961:
The appellants argued that the actual cost once determined should not be altered in subsequent years, and the written down value for the assessment year 1962-63 should be based on the actual cost determined under the 1922 Act. The Revenue contended that the actual cost should be recalculated for each assessment year according to the 1961 Act. The court rejected the appellants' argument, stating that the statutory mandate requires the determination of actual cost for each assessment year, even for assets acquired before the previous year.

4. Validity of the Revenue's Interpretation of Section 43(6) of the Income-tax Act, 1961:
The court upheld the Revenue's interpretation, agreeing with the High Courts that the actual cost for the assessment year 1962-63 and onwards must be computed according to the new formula in the 1961 Act. The court noted that the definition of actual cost in Section 43(1) requires the exclusion of contributions from consumers, and this interpretation does not create any undue hardship or injustice to the assessees. The court also addressed and dismissed concerns about potential anomalies and absurdities arising from this interpretation.

Conclusion:
The Supreme Court dismissed the appeals, agreeing with the High Courts that the actual cost of assets for the assessment year 1962-63 and onwards must be computed according to the Income-tax Act, 1961, by excluding contributions from consumers. The court found no merit in the appellants' arguments against the retrospective application of the amended provisions and upheld the Revenue's interpretation of Section 43(6).