Commissioner of Income Tax vs Vellore Electric Corporation Ltd.

R. Jayasimha Babu, J.—The assessee is a private electric company. Its undertaking vested with the State Government by reason of the

enactment of the Tamil Nadu Electricity Supply Undertakings (Acquisition) Act, 1973. After the unsuccessful attempt to challenge the validity of

that Act in the High Court it had filed appeals before the Supreme Court which were pending during the relevant years. The assessment years are

1975-76 to 1979-80.

The Assessing Officer held that the assessee was not carrying on any business and limited the salary paid to the employees of the assessee to ten

per cent. and the audit fee was limited to fifteen per cent. That was affirmed by the appellate authority. The Tribunal, however, held that the

assessee was carrying on business and was entitled to the deductions claimed by the assessee.

The Supreme Court in the case of The Commissioner of Income Tax, Punjab Vs. The Lahore Electric Supply Co., , had an occasion to deal

with the case of an electricity company which after the acquisition of its undertaking was only engaged in the payment of outstandings and realising

interest on the deposits. A majority of the judges of the Supreme Court in that case held that the company had not started any other business and

the mere fact that the company had not gone into liquidation did not establish that it had the intention to do business and it was irrelevant to inquire

whether the business was permanently closed. Here, it cannot be said that there was a permanent closure, as the validity of the Act was yet to be

finally settled by the Supreme Court. In the event of the Act being struck down, the assessee could resume business. The fact that it had continued

to maintain an establishment is the indication of its intention to resume business, if an opportunity for it arises by reason of the apex court holding in

its favour. The expenses incurred by it while awaiting the decision of the apex court cannot altogether be regarded as unconnected with the

business that it had been carrying on by supply of electricity and that business was interrupted only by reason of the Act; the possible resumption of

the business was dependent on the outcome of the appeal pending before the Supreme Court. The amounts claimed were also not very substantial.

The Tribunal has taken a broad view of the matter and has held in favour of the assessee. We do not see any good grounds to differ. The two

questions referred to us viz. :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding and had valid materials to hold that all

the expenses incurred by it in running the establishment should be allowed as a deduction in computing the income ? and

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding and had valid materials to hold that

there was no discontinuation of the business by the assessee-company ?

are therefore answered in favour of the assessee and against the Revenue.