TaxTMI 
TaxTMI 
1960 (12) TMI 6
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....ction cost was taxable income in the assessee's hands ?" 2. The High Court answered the question as follows : "...... the company's receipts from the consumers for laying the service lines are trading receipts and the profit element therein being the difference between the service connection receipts and the service connection costs in taxable income in the hands of the company." 3. With certificate granted under section 66A(2) of the Income Tax Act, this appeal is preferred by the Hoshiarpur Electric Supply Company - hereinafter referred to as the assessee. 4. The assessee is a licensee of an electricity undertaking. In the year of account April 1, 1947 - March 31, 1948, the assess received Rs. 12,530 for new service connectio....
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....ges. In the year of account, the assessee gave 229 new connections and received Rs. 12,530 out of which Rs. 5,929 have been regarded as taxable income. In the forms of account prescribed under the Indian Electricity Rules framed under section 37 read with section 11 of the Indian Electricity Act, the assessee credited service connection receipts to the revenue account and debited the corresponding cost of laying service lines to the capital account. But the classification of the receipts in the form of accounts is not of any importance in considering whether the receipt of taxable as revenue. 6. The assessee contended that the service lines when installed became the property of the assessee, because they were in the nature of an extension ....
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....ibunal has given no finding. 7. The assessee contended that the amount paid by the consumers for new connections is capital receipt and not liable to tax, because the amount is paid by the consumers towards expenditure to be incurred by the assessee in laying new service lines - an asset of a lasting character. This question falls to be determined in the light of the nature of the receipt irrespective of who remained owner of the materials of the service lines installed for granting electrical connections to new customers. 8. The assessee only spends a part of the amount received by it from the consumers. It is not clear from the statement of the case whether amongst the 229 new connections given, there were any which were of a length les....
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....emaining in the hands of the assessee, after defraying the immediate costs of the installation of a service line must be regarded as a trading profit of the company is not correct. The assessee is undoubtedly carrying on the business of distributing electrical energy to the consumers. Installation of service lines is not an isolated or casual act; it is an incident of the business of the assessee. But if the amount contributed by the consumers for installation of what is essentially reimbursement of capital expenditure, the excess, remaining after expending the cost of installation out of the amount contributed is not converted into a trading receipt. This excess - which is called by the Tribunal "profit element" - was not received in the f....