Actual cost for depreciation includes consumer contributions; unraised reference questions fall outside jurisdiction.

For depreciation under the Indian Income-tax Act, actual cost is the full cost incurred in installing service connections, and consumer contributions do not reduce that cost; the expenditure is treated as capital expenditure because it creates an enduring asset for the electricity business. A question not raised before the appellate authority or tribunal cannot be answered in reference jurisdiction under Section 66(2), because it must arise out of the Tribunal's order.

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Issues: (i) Whether the High Court could answer the first referred question on the character of receipts from service connections when that question had not been raised before the appellate tribunal; and (ii) whether depreciation was allowable on the full cost incurred for service connections without deducting the amounts contributed by consumers.

Issue (i): Whether the High Court could answer the first referred question on the character of receipts from service connections when that question had not been raised before the appellate tribunal.

Analysis: The question whether the receipts from consumers for service connections were capital or revenue receipts was not raised before the Appellate Assistant Commissioner or the Tribunal and was not dealt with in the Tribunal's appellate order. The special jurisdiction under Section 66(2) of the Indian Income-tax Act depended on the question having arisen out of the Tribunal's order, and the preliminary condition for reference was not satisfied.

Conclusion: The High Court had no jurisdiction to answer that question.

Issue (ii): Whether depreciation was allowable on the full cost incurred for service connections without deducting the amounts contributed by consumers.

Analysis: Depreciation under Section 10(2)(vi) read with Section 10(5)(a) of the Indian Income-tax Act was to be computed on the actual cost to the assessee. The source from which part of the cost was reimbursed was immaterial. Amounts contributed by consumers did not reduce the actual cost of installing the service connections. The expenditure was also of capital nature, since it created an asset of enduring benefit for the electricity business.

Conclusion: Depreciation was allowable on the full cost incurred, and the expenditure on service connections was capital expenditure.

Final Conclusion: The reference was answered only on the depreciation question, which was decided in favour of the assessee, while the first question was declined on jurisdictional grounds.

Ratio Decidendi: For depreciation purposes, actual cost means the full cost incurred in acquiring or installing the asset, and consumer contributions do not reduce that cost; a question not arising from the Tribunal's order cannot be answered under Section 66(2).

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