POONA ELECTRIC SUPPLY CO. LTD. versus COMMISSIONER OF INCOME-TAX, BOMBAY

Citation: [1965] 3 S.C.R. 818 · Decided: 19-04-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

POONA ELECTRIC SUPPLY CO. LTD. 
v. 
COMMISSIONER OF INCOME-TAX, BOMBAY 
April 19, 1965 
[K. SUBBA RAO, J. C. SHAH AND S. M. Sum, JJ.) 
Income-tax Act (11 of 1922) s. 10(1)-Projit arrived at after deduct-
ing amount. according to Electricity (Supply) Act, 1943-Taxoblc in-
ceme--If deductions can be allowed. 
The appellant-company was a commercial undertaking, doing the 
business of supply of electricity .subject to the provisions of Electricity 
(5upply) Act, 1948. For the purpose of rationalization of rates and 
keeping them under control, the licensee was directed by the Act to 
adjust the rates in such a way that the clear profit in any year did 1;1ot 
exceed the amount ot reasonable return as defined in the Act; but 
that if an excess was collected, the licensee should distribute half 
of that exces• by way of rebate to the consumers, 9r carry the 
amount forward in the accounts for distribution to the consumers. 
For the purposes of the-Act, during the accounting years, the asses.-
see credited certain amounts which formed part of the excess col-
lected to the "Consumers Benefit Reserve Account", and claimed 
deduction of those amounts from the taxable income. The" Income 
Tax Officer and the Appellate Assistant Commissioner disallowed 
the .claim, but the Tribunal allowed the deductions. The High Court, 
on a reference, hel\! against the assessee. 
In its appeal to this Court, the appellant contended inter alia 
that there was a distinction between commercial profit and "clear 
profit" under the Electricity (Supply) Act and that the real or com-
mercial profit under s. 10(1) of the Income Tax Act, 1922, could be 
determined only after excluding the amounts statutorily transferred 
to the "Consumers Benefit Reserve Account", for, that amount repre-
sented a rebate to the consumers, of the excess amount collected 
from them. 
HELD: As a business concern the real profit of the appellant had 
to be ascertained on the principles of commercial a.ccountancy. & a 
licensee governed by the statute its "clear profit" was ascertained 
in terms of the statute and the schedule annexed thereto. The two 
profits are for different purposes-one for commercial and tax purpo-
ses and the other for statutory purposes in order to maintain a reason-
able level of rates. The amounts for which deduction was claimed 
were a part of the excess ainount paid to the assessee and reserved 
to be returned to the consumers. They did not form part of the as-
sessee's. real profits, and therefore, to arrive at the taxable income 
of the assessee from the business, under s. 10(1) of the Income-tax 
Act the said amounts had to be deducted from its total income. 
[827G-828A] 
, 
The income tax is a tax on the real income, that is, the real pro-
fits arrived at on commercial principles- subject to the provisions of 
the Income-tax Act. The real profit can be ascertained only by mU:-
ing the permissible deductions. There is a clear cut distinction bet-
we_en deductions made for ascertainin!I the profits and distributions 
made out of profits. It is a question df fact to be found on the rele-
vant circumstances, having regard to business principles. Anoth_. 
818 
A 
B 
0 
D 
B 
11' 
G 
B 
f 
A 
B 
' 
c 
D 
E 
F 
G 
l'OO:\A ELECTHIC CO. t'. C.I.T. (Sulba Jlao, J.) 
819 
distinction that should, be borne in mind is that between the real 
and the statutory profits. that is between the commercial profits ond 
statutory profits. The latter are statutorily fixed for a specified pur-
pose. The real profit of a businessman under s. 10(1) of the Income-
tax Act cannot obviouslv include the amounts returned by him by 
\\·ay of' rebate to the co.nsumers, under statutory compulsion, from 
the statutory profits. [822C, 827E. F] 
Case la\\' referred to. 
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 633 and 
634 of 1964. 
Appeals from the judgement and order dated July 23 and 24, 
1962 of the Bombay High Court in Income-tax R:eference No. 61 
of 1961. 
A. V. Vfa1m11atha Sastri, S. N. Vakil, T. A. Ramachandran, 
J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the 
appellant (in both the appeals). 
Niren De, Additional Solicitor-General, R. Ganapathy Iyer 
and R. N. Sachthey, for respondent (in both the appeals). 
A. V. Vishwanatha Sastri, M. N. Shroff and /. N. Shroff, for 
the Intervener <in all the appeals). 
The Judgment of the Court was delivered by 
Sobba Rao, J. The appellant, the Poona Electric Supply Co., 
Ltd., hereinafter called the Company, car

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