Law: Income Tax Act, 1922

Section: 10(1)

Section 28(i) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business income - Chargeable as - Assessment year 1953-54 and 1954-55 - Whether where an assessee maintained his accounts on mercantile basis, accrued liability and estimated expenditure which it would incur in discharging same could be deducted from income of accounting year in which said liability accrued - Held, yes - Assessee electric supply company claimed deduction of certain amounts from its taxable income as they were credited to 'consumers' Benefit Reserve Account" to be distributed to its consumers in form of rebate - Whether since amount credited to consumer's Benefit Reserve Accounts was a part of excess amount paid to it and reserved to be returned to consumers did not form part of assessee real profits and in order to arrive at its taxable income from business under section 10(1) of 1922 Act, amounts in question had to be deducted - Held, yes FACTS The assessee-company carried on the business of distribution of electricity under a licence issued by the Government. Under the relevant provisions of 1948 Act, the assessee "clear profit" in any year should not as far as possible, exceed the amount of "reasonable return" as defined under the Act. The excess, if any, after making some deductions, the company has to distribute to its consumers in the form of rebate. During the assessment years 1953-54 and 1954-55 the company claimed deduction of two amounts as they were credited to "Consumers Benefit Reserve Account". The ITO disallowed the claim on appeal the AAC agreed with the ITO. On a further appeal, the Tribunal accepted the contention of the assessee and allowed the deductions. On reference, the High Court upheld the order of the ITO. On appeal to the Supreme Court : HELD No person can supply electric energy in any area unless he has obtained a licence from the State Government under section 3(1) of the Indian Electricity Act, 1910 (9 of 1910). The Act, of 1948 provides for the rationalization of the production and supply of electricity and generally for taking measures conducive to electrical development. One of its main objects is to…

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