1973 (7) TMI 29 - HC - Income Tax

Amounts credited to tariffs and dividends control reserve and contingency reserve - these reserves are required to be compulsorily made under the Electricity (Supply) Act, 1948 - appropriation to these funds are not voluntarily done by the assessee - Whether these amounts credited are deductible

Issues Involved:
1. Depreciation on assets purchased from four private companies.
2. Set-off of unabsorbed depreciation from amalgamated companies.
3. Deduction of gratuity paid to employees of amalgamated companies.
4. Income from and deductions for amounts credited to various reserves under the Electricity (Supply) Act, 1948.
5. Refund to consumers from the consumers' benefit reserve.
6. Multiple shift allowance for electrical meters.
7. Rebate on super-tax under the Finance Act, 1959.
8. Deduction of wealth-tax in income-tax assessments.

Detailed Analysis:

1. Depreciation on Assets Purchased from Four Private Companies:
The question of whether Amalgamated Electricity Co. Ltd. is entitled to depreciation of Rs. 1,58,546 on the assets of four private companies for the period April 1, 1951, to September 30, 1951, was not pressed by the assessee. Therefore, the court did not answer this question.

2. Set-off of Unabsorbed Depreciation from Amalgamated Companies:
The issue was whether Amalgamated Electricity Co. Ltd. could set off unabsorbed depreciation of Jalgaon Electricity Co. Ltd. and Ajmer Electricity Co. Ltd. for the assessment year 1952-53. The Tribunal rejected the claim, and the court, referring to the Privy Council decision in Indian Iron & Steel Co. Ltd. v. Commissioner of Income-tax, answered the question in the negative against the assessee.

3. Deduction of Gratuity Paid to Employees of Amalgamated Companies:
The court considered whether gratuity paid to employees of amalgamated companies for the period before amalgamation is deductible under section 10(1) or 10(2)(xv) of the Indian Income-tax Act, 1922. The Tribunal had allowed the deduction, and the court upheld this decision, noting that under clauses 2 and 4 of the amalgamation scheme, these payments were business liabilities of the assessee. Therefore, the gratuity paid was admissible as a deduction under section 10(2)(xv).

4. Income from and Deductions for Amounts Credited to Various Reserves under the Electricity (Supply) Act, 1948:
Questions 4 and 5 dealt with whether amounts credited to consumers' benefit reserve, tariffs and dividends control reserve, and contingency reserve were income of the assessee and whether these amounts were admissible deductions. The court noted that under the Electricity (Supply) Act, 1948, these reserves were statutory and compulsory. For the consumers' benefit reserve, the Supreme Court decision in Poona Electric Supply Co. Ltd. v. Commissioner of Income-tax was cited, concluding that such amounts did not form part of the real profits and were deductible. The court also followed the Kerala High Court's decision in Cochin State Power & Light Corporation Ltd. v. Commissioner of Income-tax regarding the contingency reserve, allowing deductions for these amounts. For the tariffs and dividends control reserve, the court concluded that these amounts were also deductible as they served the public interest by maintaining reasonable tariffs. Thus, question 4 was answered in favor of the assessee, and question 5 was deemed unnecessary to answer.

5. Refund to Consumers from the Consumers' Benefit Reserve:
Questions 6 and 7 addressed whether the sum of Rs. 36,000 refunded to consumers was income of the assessee and whether this payment was a proper deduction. The court reframed question 6 to clarify that the amount represented a rebate refundable to consumers. It concluded that the amount was a provision for refund out of business expediency and not income of the assessee. Therefore, question 6 was answered in the negative, and question 7 was deemed unnecessary.

6. Multiple Shift Allowance for Electrical Meters:
Question 8 involved whether electrical meters fall under item III(3) C (ii) or III(3) C (iii) of rule 8 of the Indian Income-tax Rules and whether they are entitled to multiple shift allowance. The court concluded that the meters should be classified under rule 8 III(3)E(i) as part of "electric supply undertakings" and are entitled to multiple shift allowance. Therefore, the meters do not fall under either item III(3) C (ii) or III(3) C (iii).

7. Rebate on Super-tax under the Finance Act, 1959:
Question 9 addressed whether the company is entitled to full rebate on super-tax under the first proviso, ignoring the second proviso. Both counsels agreed that the rebate should be considered after taking into account the second proviso. Therefore, the court answered the question in favor of the revenue.

8. Deduction of Wealth-tax in Income-tax Assessments:
Question 10 involved whether wealth-tax assessable under the Wealth-tax Act for the assessment years 1958-59 and 1959-60 is a proper deduction in income-tax assessments. The court noted that the matter was concluded by the provisions of the Income-tax (Amendment) Act, 1972, which explicitly disallowed such deductions. Therefore, the question was answered in the negative against the assessee.

Conclusion:
Each issue was addressed based on relevant legal principles and precedents, with the court providing detailed reasoning for its conclusions. The answers to the questions were largely in favor of the revenue, except for the deductions related to statutory reserves and the multiple shift allowance for electrical meters.

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