COMMISSIONER OF INCOME TAX Vs. EXCEL INDUSTRIES LIMITED

JUDGEMENT

(1.) THIS is an application under s. 256(2) of the I.T. Act, 1961, for directing the Tribunal to state a case and to refer to this court for determination the following question : 'Whether, On the facts and in the circumstances of the case, the Tribunal was right in law in holding that the payments of Rs. 9,00,000 to the Gujarat Electricity Board towards the cost of overhead service line constituted a revenue expenditure and hence an allowable deduction ?'

(2.) THE relevant facts, Very briefly stated, are as follows : The case relates to the assessment year 1973 -74. The respondent company was incorporated in 1960 and carries on business of manufacture of chemicals. During the year of account ended September 30, 1972, relevant to the aforesaid assessment year, the respondent set up a new unit at Bhavnagar for the manufacture of phosphorus. For the purposes of manufacture of phosphorus, the respondent required for consumption a large quantity of electrical energy which it had to obtain from the Gujarat Electricity Board. For this purpose, the respondent entered into an agreement with the Gujarat Electricity Board under which the said Board agreed to provide an overhead service line free of cost up to 30 metres from the nearest distribution mains. The said agreement provided that for the length of the service line in excess of 30 metres, payment was to be made by the respondent. The agreement provided that notwithstanding that a portion of the cost had been paid for by the consumer, the service line would remain the property of the Gujarat Electricity Board, by whom it was to be maintained. In this connection, the respondent paid a sum of Rs. 9,00,000 to the Board during the period May 4,1970, to March 29, 1972, as its contribution towards the cost of laying the overhead service line. These payments were charged to the respondent company's accounts for the year October 1, 1971, to September 30, 1972, relevant to the assessment year 1973 -74. The respondent had to pay to the Gujarat Electricity Board, of course, the normal charges of consumption of electricity from month to month. The ITO took the view that the contribution of Rs. 9,00,000 paid by the respondent to the Gujarat Electricity Board towards the cost of laying the overhead service line was an expenditure of a capital nature, as the said service line had brought to the respondent an advantage of an enduring nature. On an appeal the respondent, the AAC treated the said expenditure as an expenditure of a revenue nature. The department appealed to the Tribunal, which upheld the conclusion of the AAC.

(3.) AN analysis of the facts set out earlier, shows that the amount in question has been paid by the respondent towards the construction of an overhead supply line. This supply line never became an asset of the respondent and always belonged to the Gujarat Electricity Board. The supply was guaranteed under the aforesaid agreement for a minimum period of seven years. Notwithstanding the aforesaid contribution made by the respondent towards the cost of the overhead supply line, the respondent had to pay the normal charges for the amount of electricity consumed by it. There is also no doubt that the contribution expediency, namely, for assuring the supply of electricity which was essential for the manufacture of phosphorus.