The character of a receipt or expenditure as capital or revenue depends on whether it is made or incurred to bring into existence an asset or an advantage for the enduring benefit of the business.

Ramaswami, J.

1. In this case the assessee is a public limited company called the Monghyr Electric Supply Company, Ltd., which carries on the business of supply of electricity in the towns of Monghyr and Jamalpur. The assessment in this case relates to the assessment year 1947-48 and the corresponding accounting year is financial year 1946-47 ending with 31st of March 1947. During this accounting year the assessee Company received a sum of Rs. 8,674 as cost of service connection from different consumers. During the same year the Company spent in its turn a sum of Rs. 7,504 on the materials and labour involved in the installation of the service connection. The amount of Rs. 7,504 was made up as follows:

(a)Stores i.e., wire, brackets etc. (From Stores account).Rs. 2,817/-

(b) Do.(Directly purchased).Rs. 1,214/-

(c)Do.(Out of Salary Bills).Rs. 785/-

(d)Do.Wages Bills.Rs. 2,688/-

Rs. 7,504/-

In its book account the Company treated the service connection receipt amounting to Rs. 8,674 as revenue receipt and included this amount in its total return of income which was Rs. 2,52,728. The Company treated, however, the amount of Rs. 7,504 which was spent on the service connection as capital expenditure. The Company consequently claimed depreciation on the amount of Rs. 7,504 which had been spent on the service connection.

In the course of assessment proceeding the Income-tax Officer refused to accept the Companys claim that the amount of Rs. 8,674 should be treated as capital receipt and not as revenue receipt. The Income-tax Officer considered that the amount of Rs. 8,674 should be treated as revenue receipt and was liable to be taxed in the hands of the assessee.

The Income-tax Officer, however, treated the amount of Rs. 7,504 spent on service connection as capital expenditure and allowed depreciation at the rate of 10 per cent. The assessee took an appeal to the Appellate Assistant Commissioner and contended that the amount of Rs. 8,674 should be treated as capital receipt. The appeal was allowed by the Appellate Assistant Commissioner who accepted the contention of the assessee and excluded the amount of Rs. 8,674 from the total income of the assessee which was liable to be taxed. The Appellate Assistant Commissioner adopted this course in view of the decision of the Bombay High Court in -- Commr. of Income Tax V/s. Poona Electric Supply Co. Ltd., AIR 1947 Bom 263 (A) .

The Income-tax Officer took an appeal to the Income-tax Appellate Tribunal from the decision of the Appellate Assistant Commissioner. The contention of the Income-tax Officer was that the amount of Rs. 8,674 should be treated as revenue receipt and should not have been excluded from the total income of the assessee Company. The appeal was allowed by the Appellate Tribunal who held that the amount of Rs. 8674 should be treated as revenue receipt and was liable to be taxed. The Tribunal thought that the decision of the Bombay High Court in Poona Electric Supply Companys case was not applicable as the contribution made by the consumer in that case was for an extension of the mains.

The Tribunal further held that the expenditure of Rs. 7,504 on service connection should be deducted from the amount ol Rs. 8,674 which was the contribution made by the consumers and only the excess of Rs. 1,170 should be added to the total income of the assessee Company.

2. In this state of facts the Appellate Tribunal has submitted the following questions of law for the opinion of the High Court:

1. Whether the sum of Rs. 8,674 representing the total of the amount received on account of service connection charges was liable to inclusion in the companys business income for the assessment year 1947-48? and

2. Whether the sum of Rs. 7,504 representing the expenditure incurred by the company in giving service connections was deductible in arriving at the companys income from business for the year 1947-48?

3. As regards the first question Mr. Dutt who appears on behalf of the assessee p