JUDGMENT

BHARUCHA, J. - These are references by the Income Tax Appellate Tribunal to this Court under Section 257 of the Income Tax Act, 1961. The references have been made because of a divergence of opinion between several High Courts.

2. The assessment year in question in Tax Reference Case No. 13 of 1981 is 1973-74; in Tax Reference Cases Nos. 14 and 15 of 1981 they are 1972-73 and 1973-74; and in Tax Reference Case No. 16 of 1981 it is 1972-73.

3. Each of the assessees is a company engaged in the business of generation of electricity and distribution thereof to consumers. It is governed by the Electricity (Supply) Act, 1948.

4. For the sake of convenience the facts in Tax Reference Case No. 13 of 1981 are set out. By reason of the provisions of the Electricity (Supply) Act and of the Sixth Schedule thereto, the assessee appropriated the sum of Rs 46,460 out of its revenues to a Contingency Reserve Account during the previous year relevant to the Assessment Year 1973-74. This amount was claimed by the assessee as a deduction in the computation of its total income for the purposes of income tax. The ITO rejected the claim. The Appellate Assistant Commissioner allowed the assessees appeal, relying upon the decision of the Kerala High Court in the case of Cochin State Power & Light Corpn. Ltd. v. CIT [(1974) 93 ITR 582 : 1973 Tax LR 1402 (Ker)] and of the Bombay High Court in the case of Amalgamated Electricity Co. Ltd. v. CIT [(1974) 97 ITR 334 (Bom)]. The Revenue filed an appeal before the Tribunal and cited and judgment of the Madras High Court in the case of Vellore Electric Corpn. Ltd. v. CIT [(1977) 109 ITR 454 : 1977 Tax LR 1415 [Ed. : It is learnt that in ITR pp. 449-472 containing the said case were substituted for the erroneous original pages.]. The Tribunal relied on the decision of the Madras High Court, which had disagreed with the view taken by the Kerala High Court and the Bombay High Court. It set aside the order of the Appellate Assistant Commissioner, but referred the following question to this Court :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the sum of Rs 46,460 transferred to the Contingencies Reserve Account is not allowable as a deduction in arriving at the taxable business income of the assessee-Company ?"

5. Section 57 of the Electricity (Supply) Act, 1948 reads thus :

"57. Licensees charges to consumers. - The provisions of the Sixth Schedule shall be deemed to be incorporated in the licence of every licensee, not being a local authority -

(a) in the case of a licence granted before the commencement of this Act, from the date of the commencement of the licensees next succeeding year of account; and

(b) in the case of a licence granted after the commencement of this Act, from the date of commencement of supply,

and as from the said date, the licensee shall comply with the provisions of the said Schedule accordingly, and any provisions of the Indian Electricity Act, 1910 (9 of 1910), and the licence granted to him thereunder and of any other law, agreement or instrument applicable to the licensee shall, in relation to the licensee, be void and of no effect insofar as they are inconsistent with the provisions of Section 57-A and the said Schedule."

The Sixth Schedule to the Electricity (Supply) Act sets out financial principles applicable to electricity companies and their application. Clause I requires a licensee to so adjust his charges for the sale of electricity that his clear profit in any year of account shall not, as far as possible, exceed the amount of reasonable return. The expressions "clear profit" and "reasonable return" are defined in the Sixth Schedule. Sub-clauses (1) and (4) of clause II read thus :

"II. (1) If the clear profit of a licensee in any year of account is in excess of the amount of reasonable return, one-third of such excess, not exceeding five per cent of the amount of reasonable return, shall b