Judgment

RANGANATHAN

( 1 ) THE appellants are all electric supply undertakings situated in various parts of the country. All the appeals relate to the assessment year 1962-63 or later. They raise a common question regarding the 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.

( 2 ) DEPRECIATION, under the Income Tax Act, is computed as a percentage of the "written down value" of the asset in question. The Income Tax Act, 1961 came into force on 1/04/1962. S. 43 (6 of the Act defines "written down value" thus :

"43. (6 written down value means (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to. him under this Act, or under the Indian Income Tax Act, 1922 (11 of 1922, or any Act repealed by that Act, or under any executive orders issued when the Indian Income Tax Act, 1886 (2 of 1886, was in force. "the Act also defines the expression actual cost in S. 43 (1. It reads thus: actual cost means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met c directly or indirectly by any other person or authority: (emphasis supplied)

( 3 ) IT will be seen from the main paragraph of Ss. (1 of S. 43 that it does not really define what is meant by the actual cost of an asset to the assessee; it only contains a gloss that, whatever the expression may mean, that figure has to be reduced by that portion of it, if any, as has been met directly or indirectly by any other person or authority. The question before us arises partly due to this circumstance and partly due to the earlier legislative history of these provisions.

( 4 ) UNDER S. 10 (2 (vi) read with S. 10 (5 of the Indian Income Tax Act, 1922, an assessee was entitled to an allowance of depreciation at a percentage of the actual cost to the assessee or the written down value of the relevant asset owned by him and used for the purposes of business. It is common ground that the service lines constitute machinery or plant on which the assessees are entitled to depreciation. Also, as under the present Act, so under that Act, written down value was defined with reference to actual cost. Initially, between 1922 and 1952, the expression actual cost was defined to mean just the actual cost of the asset to the assessee. As already mentioned, a part of the cost of the asset in the present case viz. service lines is met by the consumers with the result that, though the company might have incurred a particular amount as expenditure towards the installation of the service lines, the actual cost to it, of the service lines, could, in a loose sense, be said to be the amount of expenditure incurred by it in this behalf less the amount recovered from the consumers in respect thereof. The income tax department tried to adopt this laymans approach and restrict the depreciation on the service lines on the basis of their cost less the amount recovered from consumers. The Bombay High court in COMMISSIONER OF INCOME TAX v. Poona Electric Supply Company Ltd. and in COMMISSIONER OF INCOME TAX v. Bombay Suburbanelectric Supply Co. (P) Ltd. \ the Kerala High court in COMMISSIONER OF INCOME TAX v. Cochin Electric Co. Ltd. , the Punjab High court in COMMISSIONER OF INCOME TAX V. Ambala Cantt. Electrie Supply Co. Ltd. and the Patna High court in COMMISSIONER OF INCOME TAX v. Ranchi Electric Supply Co. Ltd. , disapproved of this line of reasoning. Relying on the decision of the House of Lords in Birmingham Corporation v. Bames (Inspector of Taxes) they held that, in ascertaining the actual cost of an asset to the assessee, it was immaterial that someone else has recouped the assessee, wholly or in part, towards such cost. This gene