THE COMMISSIONER OF INCOME TAX, PUNJAB versus THE LAHORE ELECTRIC SUPPLY CO.

Citation: [1966] 2 S.C.R. 720 · Decided: 25-11-1965 · Supreme Court of India · Bench: A.K. SARKAR · Disposal: Appeal(s) allowed

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Judgment (excerpt)

720 
THE COMMISSIONER OF INCOME TAX, PUNJAB 
v. 
THE LAHORE ELECTRIC SUPPLY CO. 
November 25, 1965 
[A. K. SARKAR, J. R. MUDHOLKAR AND R. S. BACHAWAT, JJ.] 
lncomt Tax Act 1922~. 10(2)(xv)-Whether company carried on 
business-Therefore whether entitled to deduction of expenses. 
The assessee company carried on the business of supplying electricity 
to various cities under licences from the Government. All the licences, 
except one for the supply of electricity to the city of Lahore, were ter-
minated or disposed of by 1942. 
Soon after that, the Provincial Gov-
ernment acquired the company's undertaking for the supply of electricity 
in Lahore and part of the value for the acquisition remained due to be· 
paid to the company after the listing and valuation of the assets. The-
company also possessed considerable assets 
not 
appertaining 
to 
the 
Lahore Electric Supply Undertaking and all its funds were invested in 
securities and shares, the income from which was the sole income after 
September 5, 1946. 
In its assessment to income-tax for the years 1948-49 and 1949-50, 
the company claimed deduction of various amounts under s. 10(2) (xv) 
of the Income-tax Act, 1922, on the basis that it had been carrying on 
business in the accounting years concerned and the expenses had been 
incurred solely for the purpose of that business. Their contention was 
rejected by the Income-tax Officer and his stand was confirrne<I by the 
Appellate Assistant Commissioner. However, the Tribunal held in appeal, 
that the question depended on what the intentions of the company were 
and on the facts took the view that the assessee company had not ceased 
to carry on business. The High Court, upon a reference, also answered 
the question in the assesse.e's favour. 
In arriving at this conclusion, the 
Tribunal and the High Court relied on, int£r alia, the following facts :-
( 1) the company did not sell its undertaking as a going conocrn; 
(2) it continued in possession of all assets of its undertakings other 
than those appertaining to the Lahore Electric Supply Under-
taking; 
(3) it continued to hold deposits from 
consumers of 
electricity 
which had to be returned with interest; 
( 4) it had no intention of going into liquidation; 
(5) the Directors had indicated in their report thq_t they were consi-
. dering purchasing some manufacturing concern to have an addi~ 
tional source of profit; etc. 
HELD: (Per Sarkar and Mudholkar JJ.)-
None of the grounds set out by the Tribunal and the High Court led 
to the conclusion that the company intended to carry on business. 
The facts found made it clear that since 1942 the only business of 
the company was to work the Lahore Electric Supply licence. It stopped 
that business when the undertaking was taken ove'r by tho Goevrnment. 
Thereafter during the accounting years concerned, namely 1947-48 and 
1948-49 it had not started any other business. [723 Fl 
-
• 
B 
-
c 
D 
• 
G 
H 
• 
• 
C.I.T. v. LAHORE ELECTRIC co. (Sarkar, J.) 
721 
A 
The Commissioners of Inland Revenue v. The Anglo Brewing Co. 
B 
c 
Ltd. 12 T.C. 803, referred. 
The Commissioners of Inland Revenue v. The South Behar Railway 
Co. 12 T.C. 657, 712 distinguished . 
(Per Bachawat, J., dissenting) 
(i) The Memorandum of the assessee company showed that one of 
its subsidiary objects was to invest in stocks, shares, securities, etc. and 
to sell, exchange or otherwise deal with them from time to time. The 
main business of generating and supplying electricity having stopped, the 
company invested its funds in deposits and stocks and shares. The activity 
of investment and getting a return for its capital was a part of its legitimate 
business activities [728 H-729 BJ 
The Commissioners of Inland Revenue v. The Korean Syndicat.e Ltd. 
12 T.C. 181; Karanpura Development Co. Ltd. v. CJ.T. West Bengal, 
( 1962) 3 S.C.R. 368, 378; Laxminarayan Ram Gopal & Sons v. Govt. of 
Hyderabad (1955)! S.C.R. 393, 405-407; The Commissioners of Inland 
Revenue v. Dale Steamship Co. Ltd. 12 T.C. 712; referred to. 
(ii) On the facts of the case, the Tribunal had rightly come to the 
conclusion that the company had not ceased to carry on its business. 
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 813 
D 
and 814 of 1963. 
Appeals by Special Leave from the Judgment and Order dated 
the December 30, 1960 of the Punjab High Court in Income 
Tax Reference No. 10 of 1959. 
Niren De, Additional Solicitor-General, Gopal Singh and 
E R. N. Sachthey, f

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