The excess of the receipts over the amount expended for installation of service lines by the assessee was not a trading receipt.

Judgment

SHAH, J. : The Income Tax Appellate Tribunal, Delhi Bench, stated under S. 66(1) of the Indian Income Tax Act the following question for decision of the High Court of Judicature of Chandigarh :

"Whether the assessee s receipts from consumers for laying service lines, (that is, not distributing mains) were trading receipts and whether the profit element therein, viz., service connection receipts minus service connection cost was taxable income in the assessee s hands?"

2. The High Court answered the question as follows :

". . . . the company s receipts from the consumers for laying the service lines are trading receipts and the profit element therein being the difference between the service connection receipts and the service connection costs is taxable income in the hands of the company."

3. With certificate granted under section 66 A(2) of the Income Tax Act, this appeal is preferred by the Hoshiarpur Electric Supply Company - hereinafter referred to as the assessee.

4. The assessee is a licensee of an electricity undertaking. In the year of account, April 1, 1947 - March 31, 1948, the assessee received Rs. 12,530/- for new service connections granted to its customers. Out of this amount Rs. 5,929/- were spent for laying the service lines, and Rs. 1,338/- were spent for laying certain mains. The Income Tax Officer treated the entire amount of Rs. 12,530/- as trading receipt. In appeal to the Appellate Assistant Commissioner, the cost incurred for laying service lines and mains was excluded and the balance was treated as taxable income. In appeal, the Appellate 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 S. 66(1) of the Income Tax Act, the High Court substantially agreed with the view of the Tribunal.

5. 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 cl. 6(1)(b) of the Schedule to the Indian Electricity Act, 1910. But where the length of a service line to be installed exceeds 100 ft., the cost is charged at certain rates by the assessee. The charge consists usually by cost of wiring copper as well as galvanised iron, service and other brackets, insulators, meter wiring, poles and appropriate labour and supervision charges. In the year of account, the assessee gave 229 new connections and received Rs. 12,530/- out of which Rs. 5,929/- have been regarded as taxable income. In the forms of account prescribed under the Indian Electricity Rules framed under S. 37 read with S. 11 of the Indian Electricity Act, the assessee credited service connection receipts to the revenue account and debited the corresponding cost of laying service lines to the capital account. But the classification of the receipts in the form of accounts is not of any importance in considering whether the receipt is taxable as revenue.

6. The assessee contended that the service lines when installed became the property of the assessee, because they were in the nature of an extension of the assessee s distributing mains. On behalf of the Revenue it was urged relying upon the judgment of the High Court that the service lines which are paid for by the consumers do not become the property of the assessee. We do not think that it is open to us in an appeal from an order under S. 66 of the Indian Income Tax Act to enter upon this question. The Tribunal did not record a finding on the question 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 10