CALCUTTA HIGH COURT

                                        Commissioner of Income Tax

                                                         Vs

                                Riverside Bhatpara Electric Supply Co Ltd

                                           (Sabyasachi Mukharji, J.)

                                                   12.12.1974

                                                 JUDGEMENT

Sabyasachi Mukharji, J.

( 1. ) THE assessee is a company carrying on business of the distribution of electricity. It has
service lines through which electricity is transmitted for distribution. In the case of such service
lines a portion of the cost thereof is borne by the consumer concerned. Prior to the coming into
force of the Income-tax Act, 1961, the Indian Income-tax Act, 1922, then in force, provided for
depreciation allowance on such service lines. At that time question arose as to whether the
contribution received from the consumers of electricity in respect of the service lines would go to
reduce the actual cost of the said assets for the purpose of calculation of depreciation. In the case
of Commissioner of Income-tax v. Ranchi Electric Supply Co. Ltd1. it was held by the Patna High
Court that the "actual cost" was the actual cost incurred in installing the connections irrespective
of any contribution received from any consumer. Consequently, the amount paid by the
consumers of such service lines could not be taken into account in calculating the actual cost.
THE assessments of the assessee-company up to the assessment year 1962-63 were made on that
basis. Section 10(2)(vii) of the Indian Income-tax Act, 1922, provided that "depreciation would
be allowed on the assets at such percentage of written down value thereof as may in any case or
class of cases be prescribed". "Written down value" was defined in Section 10(5) of the Indian
Income-tax Act, 1922, after the amendment in 1953, as under : "(5) ......'written down value'
means-- (a) in the case of assets acquired in the previous year, the actual cost to the assessee:......
(Provisos to this clause are omitted as they have no relevance) (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him under this Act, or any Act repealed thereby, or under executive orders issued when the
Indian Income-tax Act, 1886 (II of 1886) was in force :......" (Provisos to this clause also are
omitted as being of no relevance).

( 2. ) THE Explanation to the said section denned "actual cost" as follows: "For the
purposes of this sub-section, the expression '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 directly or indirectly,
by Government or by any public or local authority and any allowance in respect of any
depreciation carried forward under Clause (b) of the proviso to Clause (vi) of Sub-section (2)
shall be deemed to be depreciation 'actually allowed'." In short, therefore, depreciation under the
old Act had to be allowed on the written down value of the assets as defined in Clause (a) and
Clause (b) of Section 10(5) of the Indian Income-tax Act, 1922, on the basis of "actual cost" as
defined to mean the cost of the assets as reduced by the portion thereof as might have been made
directly or indirectly by Government or by any public or local authority. When the Income-tax
Act, 1961, came into effect definitions of "actual cost" and "written down value" were provided
by Section 43(1) and Section 43(6) respectively of the Act. It may be relevant to refer to Section
43 which is as follows : "43. Definitions of certain terms relevant to income from profits and
gains of business or profession.--In Sections 28 to 41 and in this section, unless the context
otherwise requires-- (1) '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 directly or indirectly by any other
person or authority:...... Explanation 2.--Where an asset is acquired by the assessee by way of gift
or inheritance the actual cost of the asset to the assessee shall be the written down value thereof
as in the case of the previous owner for the previous year in which the asset is so acquired or the
market value thereof on the date of such acquisition, whichever is the less......" "Written down
value" has been defined under Section 43(6) as follows: "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(2of 1886), was in force.......(once again the proviso and the Explanation to the said
section are omitted as being of no relevance)." The difference between Section 10(5)(a) of the
Indian Income-tax Act, 1922, and Section 43(1) of the Income-tax Act, 1961, is that under the
Act of 1922 in assessing the actual cost only the contribution by Government or any other public
or local authority had to be excluded while under the Act of 1961 the contribution received from
any person had to be excluded. When the assessment for the year 1962-63 of the assessee came
to be made by the Income-tax Officer, he found that the claim for depreciation made by the
assessee included depreciation on the written down value of the service lines put into use in the
assessment year 1961-62 as part of its record. The assessee had received Rs. 59,207 as and by
way of contribution from the Government and local authorities. In the assessment of 1961-62
there was disallowance of proportionate depreciation on the sum of Rs. 59,207, as to that extent
claim of the assessee had exceeded. In making the assessment for 1962-63 he similarly reduced
the figure of depreciation claimed by the assessee taking into account the contribution received
from the local authorities and the Government mentioned above. The assessee appealed to the
Appellate Assistant Commissioner. According to the Appellate Assistant Commissioner's view,
the actual cost for the assessment year under reference, viz., 1962-63, in respect of the assets had
to be taken at gross cost subject to the deduction of the contributions received from the
consumers and also the depreciation actually allowed. He directed, accordingly, recomputation of
the depreciation on the above basis and if the result turned out to be a negative figure, according
to him, the assessee would not be entitled to any depreciation.

( 3. ) THERE was a further appeal to the Tribunal and it was contended on behalf of the assessee
that the provisions of the 1961 Act were not retrospective and interpretation of Section 43 should
be such as would be applicable to contributions received in the accounting years relevant for the
assessment year 1962-63 and thereafter. It was further contended that if the definition of the 1961
Act was applied in respect of asset acquired in earlier years it would amount to making the Act
retrospective in operation for which there is neither any express provision nor any necessary
implication in the Act. It was further urged that if such retrospective effect was given certain
anomalies would result with reference to the assets acquired in the earlier years. It was on the
other hand contended by the revenue that the intent and purpose of the legislation was that from
the relevant year the 1961 Act should be applied. The Tribunal after considering the relevant
contentions came to the conclusion that the provisions of Sections 43(1) and 43(6) of the
Income-tax Act, 1961, should be applied with reference to the assessment year 1962-63 and
depreciation had to be calculated by taking into account the provisions of the Act of 1961 with
reference to all the assets in use in that year. It, accordingly, confirmed the order of the Appellate
Assistant Commissioner. In the premises, under Section 256(1) of the Income-tax Act, 1961, the
following question has been referred to this court: "Whether, on the facts and in the
circumstances of the case, depreciation could be computed on the basis of the definition of 'actual
cost' and 'written-down value' in Sections 43(1) and 43(6) respectively of the Income-tax Act,
1961, even with reference to the assets in use in the previous year for the assessment year 1962-
63 but which were acquired prior thereto ?" The question with which we are concerned in this
reference is how will the actual cost be determined in respect of an asset which had been
acquired by the assessee in any year prior to the previous year relevant for the assessment in
question ? As mentioned hereinbefore, prior to the introduction of the 1961 Act "actual cost" had
to be determined by deducting only the contribution made by the local authority and the
Government, while under the present Act the contribution made by any other person including
the consumer would have to be deducted in computing the actual cost. Good deal of arguments
were advanced before the Tribunal as well as before us on the question whether the particular
legislation was retrospective in effect and whether such retrospective effect could be given effect
to in the scheme of the Income-tax Act and to the relevant section with which we are concerned.
Counsel for the assessee contended that the concept of "actual cost" was inseparably connected
with the time of acquisition of an asset. Therefore, an asset which had been acquired at a
particular point of time and whose cost had been computed according to the tax laws relevant at
that time could not, in the scheme of the Income-tax Act, be recomputed again differently in
view of the changes made. According to counsel for the assessee, the effect of the new
introduction of the 1961 Act was that the contributions made by consumers or other persons after
the coming into operation of the then 1961 Act would have to be deducted ; but the contributions
that had been made prior thereto and the cost of assets which had been computed excluding those
contributions could not be recomputed again for the purpose of calculating the depreciation to
which the assessee was entitled. ;
Cases Referred.

1[1954] 26 ITR 89 (Pat)