TaxTMI 
TaxTMI 
1997 (4) TMI 4
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....then Government of Bombay granted a licence under the Indian Electricity Act, 1910 to Lady Sulochana Chinubhai & Company authorising it to generate and supply electricity to the consumers in Godhra area. The assessee-Company is the successor of the said licensee. On the recommendations of the Rating Committee constituted under Section 57(2) of the Electricity (Supply) Act, 1948 the State Government had fixed the charges for supply of electricity and motive power by the assessee-Company with effect from February 1, 1952. After the amendment of the Electricity (Supply) Act, 1948 in 1956 the assessee-Company increased the charges for motive power from January 1, 1963 to 35 np. per unit with a maximum of Rs. 7 per month for every installation and a few months thereafter on June 22, 1963 the assessee-Company increased the rates for electricity supplied for lights and fans to 70 np. per unit with a minimum of Rs. 5 of every installation with effect from July 1, 1963. This unilateral increase in the rates for supply of motive power as well as electricity for lights and fans led to the institution of two representative suits by the consumers (Civil Suits Nos. 152 of 1963 and 50 of 1964) in....
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....ivil Judge (Junior Division) at Godhra challenging the right of the assessee-Company to recover the consumption charges at enhanced rates. In the said suit it was claimed that the decision of this Court was only of academic interest as, in April 1965, the assessee-Company began to purchase in bulk electrical energy at 10 paise per unit from the Gujarat Electricity Board and it had to work merely as distributing agency and had to collect the charges and not generate electrical energy and that the assessee-Company would earn more profits even if it supplied electricity at 31 paise per unit to the consumers of motive power and that it would earn a reasonable return even on the basis of the existing rates. An interim injunction was granted by the trial Court in that suit. A written statement was filed by the assessee-Company contesting the said suit but when the suit came up for hearing no evidence was led to controvert the evidence produced on behalf of the consumers since at that point of time the undertaking of the assessee-Company was under the management of the Collector of Godhra and he did not give any instructions to the lawyer appearing on behalf of the assessee-Company with t....
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....r the management of the undertaking to the Gujarat State Electricity Board which was done on the next day and thereafter the notification issued under Rule 115(2) of the Defence of India Rules, 1971 was cancelled on May 4, 1974. 3. Upto assessment year 1963-64 the assessee-Company was assessed on the basis of the accounts maintained according to the mercantile system. For the subsequent assessment years, i.e., from 1964-65 to 1967-68, the assessee-Company deducted a total amount of Rs. 10,87,828/- from the total earnings in respect of sale of electrical energy on the ground that the said amount was not actually recovered by it from the consumers since the consumers had filed a suit against the assessee-Company and had obtained interim relief in that behalf. The particulars of the deductions made for the aforesaid four assessment years were as under: Assessment Year Amount Deducted 1964-65 Rs. 2,59,777/- 1965-66 Rs. 3,16,953/- 1966-67 Rs. 3,89,761/- 1967-68 Rs. 1,21,337/- 4. The aforesaid disputed amounts were shown by the assessee-Company on the liability side in the balance-sheet under the head "Disputed increase in rates charged to customers (consumer), carried forwar....
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....the amount of Rs. 7,33,676/- which had accrued to the assessee during the previous year, and which was brought to tax by the Income-tax Officer did not represent the income and, therefore, could not be included in computation of the total income of the assessee. 5. On the basis of the said reference Income-tax Reference No. 288 of 1975 was registered in the High Court. 6. Similarly in respect of assessment years 1970-71 and 1971-72 the Income-tax Officer included the sums of Rs. 2,63,465/- and Rs. 2,98,077/- respectively as income that had accrued to the assessee-Company in those years and was taxable. The said addition was deleted by the Appellate Assistant Commissioner on appeal by the assessee-Company and the said decision was upheld by the Tribunal. On application moved by the Revenue the following question of law was referred to the High Court for its opinion: Whether, the Tribunal was right in law in holding that the amount of Rs. 2,63,465/- for assessment year 1970-71 and Rs. 2,98,077/- for assessment year 1971 -72 which had accrued to the assessee during the previous year and which was brought to tax by the Income- tax Officer did not represent the income of the assesse....
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....rat, Industries, Mines and Power Department, dated March 19, 1969, the High Court has observed: We do not know if this letter was a directive to the assessee under any provision of law but in any case it was in the form of a suggestion which, if accepted, enured for a period of six months only. Therefore, the contention of the learned Advocate General that income could not be said to have accrued to the assessee in view of this letter received by the assessee within a few days after the Supreme Court dismissed the appeals filed by the consumers, does not appeal to us. In any case, the request made by the State Government was to maintain the status quo for a period of six months only. That letter did not take away the right of the assessee to recover consumption charges at the enhanced rates from its consumers. 11. As regards the representative suit (Suit No. 118 of 1969) which was filed by the consumers ;n the Court of Civil Judge (Junior Division) at Godhra, the High Court has observed that "the said suit concerned the recovery of enhanced charges for the period subsequent to 31st March, 1969 and not prior thereto". The High Court rejected the contention urged on behalf of the ....
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.... the previous year relevant to the year for which assessment is made or on the income that accrues or arises or is deemed to accrue or arise in India during such year. The computation of such income is to be made in accordance with the method of accounting regularly employed by the assessee. It may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements or it may be the mercantile system where entries are made on accrual basis, i.e., accrual of the right to receive payment and the accrual of the liability to disburse or pay. In Commr. of Income-tax, Bombay City-I v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144(SC) (supra), it has been laid down: Income-tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise. [p. 148] 14. This principle is applicable whether the accounts are maintained on c....
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....time after the close of an accounting year. In examining any transaction and situation of this nature the Court would have more regard to the reality and speciality of the situation rather than the purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on the business aspect of the matter viewed as a whole when that can be done without disregarding statutory language. 18. In State Bank of Travancore v. Commr. of Income-tax, Kerala [1986] 158 ITR 102(SC) (supra), after considering the various decisions of this Court, Sabyasachi Mukharji, J. (as the learned Chief Justice then was) has said: An acceptable formula of correlating the notion of real income in conjunction with the method of accounting for the purpose of the computation of income for the purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to create problems in its application to every situation, it must depend upon the facts and circumstances of each case. When and how does an income accrue and what are the consequences that follow from accrual of income as well-settled. The accrual must be real taking into account the actuality of the situation. Whether an accru....
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....ts of the assessee-Company from year to year and to report to the Government about the actual position about the reasonable returns earned by the assessee-Company. On May 16, 1969 another representative suit (Suit No. 118 of 1969) was filed by the consumers wherein interim-injunction was granted by the Court and which was finally decreed in favour of the consumers on June 23, 1974. It would thus appear that after the decision was taken by the assessee-Company to enhance the charges it was not able to realise the enhanced charges on account of pendency of the earlier representative suits of the consumers followed by the letter of the Under Secretary to the Government of Gujarat and the subsequent suit of the consumers and during the pendency of the subsequent suit the management of the undertaking of the assessee-Company was taken over by the Government of Gujarat under the Defence of India Rules, 1971 and the undertaking was subsequently transferred to the Gujarat State Electricity Board. 20. It is no doubt true that the letter addressed by the Under Secretary to the Government of Gujarat to the assessee-Company had no legally binding effect but one has to look at things from prac....