http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: ANDHRA PRADESH STATE ELECTRICITY BOARD

       Vs.

RESPONDENT: UNION OF INDIA & ANR.

DATE OF JUDGMENT11/03/1988

BENCH: VENKATACHALLIAH, M.N. (J) BENCH: VENKATACHALLIAH, M.N. (J) NATRAJAN, S. (J)

CITATION:  1988 AIR 1020            1988 SCR  (3) 216  1988 SCC  Supl.  371     JT 1988 (2)    35  1988 SCALE  (1)642

ACT:      Emergency  Risks   (Factories)  Insurance   Act,  1962/ [Emergency Risks (Factories) Insurance Scheme-Sections 2, 11 and 17/Clause  7 of  Scheme-’Distribution  and  Transmission lines’-Whether  constitute   ’insurable  property’-’Property insurable  under   this  Act’-Interpretation   of-Grant   of depreciation while ascertaining value of insurable property- Whether principles of Income Tax Act or Electricity (Supply) Act to apply.      General Clauses Act-Applicability to expired temporary- statutes-Effect of section 6 specifically invoked-Effect of.

HEADNOTE: %      The Emergency Risks (Factories) Insurance Act, 1962 was enacted  to   provide  for   expeditious  rehabilitation  of industrial undertakings  in the  event of damage in times of war. The  Central Government accordingly undertook to insure the factories  against  war-risks.  The  Act  envisaged  the promulgation  and   effectuation  of   the  Emergency  Risks (Factories)  Insurance   Scheme   mandating   a   compulsory insurance of  factories  against  war-risks  on  payment  of prescribed premia.      The Director of Emergency Risks Insurance Scheme, after giving an  opportunity  to  the  appellant  to  show  cause, determined the  sum of  Rs.47,59,109.00 as balance of premia due from the appellant.      The   appellate   authority-the   Central   Government- dismissed  the  appellant’s  appeal.  The  legality  of  the proceedings so  culminating in  the said appellate order was assailed by  the appellant  in the  Writ Petition before the High Court of Andhra Pradesh, which was rejected. Hence this appeal by special leave.      The contentions  pressed by the appellant were (1) that "Distribution and  Transmission lines"  did  not  constitute ’Factory’ in  the concept  of ’insurable property’ under the ’Act’; (2)  that in  ascertaining the value of the insurable property, depreciation  had had  to  be  granted  under  the relevant provisions  of the  Income Tax,  Act, 1922; (3) and that the  ’Act’ was  itself a piece of temporary legislation and the notice dated

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

217 28.11.1968 issued  after 10.1.1968  when the legislation had spent itself out by efflux of time was without the authority of law.      Dismissing the appeal, it was ^      HELD: (1)  The inhibitions of the limited import of the expression ’factory’  do  not  limit  the  identity  of  the ’insurable property’  which will  have to be ascertained and determined  in   accordance  with   the  provisions  of  the ’scheme’. The  Act enables the Central Government to declare that provisions of the ’Act’ and of the-’scheme’ shall apply to assets  specified in  section 17(1)(d), which include the whole  or   a  specified   part  of   the  distribution  and transmission system.  The ’scheme’  prepared and promulgated by notification  S.O. 3974 which came into force with effect from 1.1.1963  provides, among  other things, that the whole of  the   "Distribution  and   Transmission  Systems"  shall constitute ’insurable  property’ and  that the ’Act’ and the ’scheme’ shall be applied to them. [220C-H]      (2) The  provisions as  to depreciation in a taxing law like the  Income Tax  Act contain elements of incentives and are also informed by considerations of policy of the tax and do not  reflect purely  economic criteria  relevant  to  the determination of  the depreciation. In the instant case, the High Court  found that  the Electricity  (Supply) Act itself provided  a   formula  for  working  out  the  allowance  of depreciation  and  the  appellant  had  been  adopting  that formula for  valuation of its properties, assets, etc. There was, therefore,  no  error  in  principle  in  applying  the standard of  depreciation provided  in Electricity  (Supply) Act, 1948. [221G; 222D]      (3) Whatever  be  the  principles  of  construction  of temporary-statutes  and   the  effect   of  the  rights  and obligations under  them after  the  expiry  of  the  statute itself, the  ’Act’ in  the instant  case  contains  specific provisions preserving  the rights  and obligations. For that purpose the ’Act’ invokes the provisions of section 6 of the General Clauses  Act. The  principle  behind  s.  6  of  the General Clauses Act is that all the provisions of Acts would continue in  force for  purposes of  enforcing the liability incurred when  the Acts were in force and any investigation, legal proceedings,  or remedy,  may be instituted, continued or enforced as if the Acts had not expired. [222F-H; 223A-B]      Amadalavalasa  Cooperative  Agricultural  &  Industrial Society Ltd.  v. Union  of India,  [1976] 2  SCR 731 at 738, followed. 218

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal No. 881 of 1974      From the  Judgment and  order dated  25.7.1973  of  the Andhra Pradesh  High Court  in Writ  Petition No  . 3950  of 1971.      K. Raj. Choudhary for the Appellant.      V.C. Mahajan,  C.V.S. Rao  and R.P.  Srivastava for the Respondents.      The Judgment of the Court was delivered by      VENKATACHALIAH, J.  This appeal,  by Special  Leave, by the Andhra Pradesh State Electricity Board-a corporation and constituted under  The Electricity (Supply) Act, 1948-arises out of  the Judgment  and order  dated,  25.7.1973,  of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

Andhra Pradesh  High Court in Writ Petition No. 3950 of 1971 on its  file, rejecting  appellant’s  challenge  to  certain proceedings for  the recovery of insurance premia respecting the  appellant’s   undertaking  under  the  Emergency  Risks (Factories) Insurance  Act 1962  (’Act’) culminating  in the appellate-order, dated,  12.5.1971 of the Central Government under Section  11(3) of  the Act  affirming, in  turn,  that dated,  15.10.1969   of  the  Director  of  Emergency  Risks Insurance Schemes  determining the  balance  of  the  premia payable at Rs.47,59,109.00.      2. The  scheme under  the Act  which came into force on 1.1.1963 lapsed  with the  termination of  the emergency  on 10.1.1968. The  legislation was  to meet the need to provide for expeditious rehabilitation of industrial undertakings in the event  of  damage  in  times  of  war  and  the  Central Government, accordingly,  undertook to  insure the factories against such  war-risks  and  to  indemnify  the  owners  in respect of  loss and damage caused by enemy-action, so that, there might  be an  expeditious industrial rehabilitation so vital in national interests.      Sub-section 3 of the Act envisages the promulgation and effectuation of  the Emergency  Risks (Factories)  Insurance Scheme,  mandating   a  compulsory  insurance  of  factories against war-risks  and the payment of premia in terms of and in accordance with the scheme.      3. The Director of the Emergency Risks Insurance Scheme caused a show-cause notice, dated 28.11.1968 to be issued to the appellant  calling upon  it as  to why  the  balance  of premia for the 219 relevant periods  should not  be fixed at Rs.47,59,109.00 as against a  much smaller  sum indicated  by appellant  as its liability in  that behalf.  The cause shown by the appellant by its representation, dated, 24.1.1969 against the proposed addition not  having commended  itself to  the Director, the latter, by his order dated 15.10.1969 over-ruling objections of the  appellant, determined  that a sum of Rs.47,59,109.00 was due and recoverable from the appellant by way of balance of premia.      Against this determination, appellant carried-up, under Section 11(3)  of the  Act, an  appeal  before  the  Central Government.  The  Central  Government,  after  affording  an opportunity to  the  appellant  of  being  heard  and  on  a consideration of  the merits,  dismissed the  appeal by  its order dated,  12.5.1971. The  legality of the proceedings so culminating in  the said appellate-order was assailed in the Writ Petition before the High Court.      4. We  have heard  Shri K.  Rajendra Choudhary, learned counsel for  the appellant  and Shri  V.C. Mahajan,  learned senior counsel  for the  Union of  India, respondent  in the appeal. The  contentions urged  by Shri Choudhary in support of the appeal are substantially on the lines of those raised and urged  before  the  High  Court.  They  admit  of  being formulated thus:           (a)  That the  Distribution and Transmission lines                cannot be  said to fall within the concept of                ’Factory’ and  in quantifying  the extent and                value of  the insurable  property,  the  High                Court fell  into an  error in  including  the                value of  the "Distribution  and Transmission                lines"           (b)  That   in  ascertaining   the  value  of  the                insurable-property, depreciation  had had  to                be granted  under the  relevant provisions of                the Income-Tax Act 1922 and that the limiting

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

              of  the   depreciation  to   that  under  the                relevant   schedules   to   The   Electricity                (Supply) Act 1943 was erroneous.           (c)   That the  ’Act’    was  itself  a  piece  of                temporary   legislation   which   lapsed   on                10.1.1968 and  that the  proceedings  by  the                Director initiated,  as they have come to be,                pursuant   to    show-cause   notice   dated,                28.11.1968 subsequent  to the  date of expiry                of  the   statute  itself,  was  without  the                authority of law. 220           (d)   That substantial  portions of  the insurable                properties came  to vest  in  the  Appellant-                Board on  dates subsequent  to 1.11.1963  and                that  the  appellant,  in  respect  of  those                assets was  not liable to premia as appellant                had  not  become  the  legal-owner  of  those                assets.      We shall  now proceed  to examine  the merits  of these contentions seriatim .      5. Re: Contention (a)      The argument is that The "Distribution and Transmission Lines" did  not constitute  ’Factory’  and  therefore  their value was  not  includible  in  the  concept  of  ’insurable property’ under the ’Act’. The fallacy in this argument lies in that  it overlooks  the definition of the words "property insurable under  this Act" and also the specific language of Section 17(1)  of the  Act. The argument also over-looks the express  provisions  of  the  statutory  ’scheme’  put  into operation.      Section 2(1)  of  the  ’Act’  which  defines  "property insurable under  the Act", inter alia, enables the inclusion of "Such  other  plant  machinery  or  material  as  may  be specified in the Scheme also."      That apart,  Section 17(1)  of the  ’Act’  enables  the Central  Government,   by  notification,   to  declare  that provisions of  the ’Act’  and of  the  "scheme"  promulgated thereunder shall apply to insuring of the various classes of assets specified in clauses (a) to (d) of that section.      Clause (d) of Sub-section ( 1) of Section 17 refers to:           "  ....The  whole  or  a  specified  part  of  the           distribution  and   transmission   systems,   sub-           stations, switch houses, and transformer houses of           electric   supply    undertakings   generally   or           specified electric undertaking      The ’scheme’  prepared and  promulgated by Notification S.O. 3947  which came  into force with effect from 1.1.1963, provides,  among   other  things,  that  the  whole  of  the "Distribution  and  Transmission  Systems,"  "sub-stations", "switch houses",  "transformer-houses" etc. shall constitute "insurable property" and that the ’Act’ and the scheme shall be applied to them. 221      6. It  is, thus,  clear that  the  inhibitions  of  the limited import  of the expression ’Factory’ do not limit the identity of  the ’insurable-property’  which will have to be ascertained and determined in accordance with the provisions of the  scheme. The  view of  the  High  Court  is,  in  our opinion,  fully   justified.  There  is  no  merit  in  this contention. Contention (a) is, accordingly, held against the appellant.      7. Re: Contention (b)      In determining the value of the insurable property, the scheme, by  its clause  7, envisages  due allowance  for the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

depreciation   being   made.   The   question   is   whether depreciation allowed in accordance with the schedules to the Electricity (Supply)  Act, 1948,  in preference to the rates of depreciation  provided for  in the Indian Income Tax Act, 1922 claimed  by the  appellant, is  incorrect in principle. The  High   Court  noticed   that  the   provisions  of  the Electricity (Supply)  Act, 1948,  related to the electricity undertakings themselves  and that,  further,  appellant  had itself made-up  its books  in regard to valuation of various properties, assets  etc. adopting  the depreciation based on the provisions of the Electricity (Supply) Act, 1948.      The  argument   of  Shri  Rajendra  Choudhary,  learned counsel,  is  that  where  two  alternative  bases  for  the determination of  the depreciation were available, appellant was entitled  to  opt  for  the  more  beneficial  and  less disadvantageous of the two. There is again a fallacy in this approach. The  ’Act’ or  the ’Scheme’  does not  specify any bases for  the computation  of depreciation. It would appear that there  were some  administrative  instructions  to  the effect that  wherever the  matter was  governed by  specific statutory-provisions,  those   provisions  be   applied  and wherever statutory provisions regulating the matter were not available, then,  the provisions  of the  Income Tax  Act be taken into  account. These  instructions have  no  statutory force. But  even to the extent they go, it was not as if two alternative methods  were open. Indeed, the two methods were mutually exclusive and not alternative.      That apart,  the provisions  as to  depreciation  in  a taxing law  like the  Income Tax  Act  contain  elements  of incentives and are also informed by considerations of policy of the  tax and  do not  reflect  purely  economic  criteria relevant to  the determination of the depreciation. The High Court, on the point, held:           "....When once  it is  found that  the Electricity           Board (Supply)  Act itself  provides a formula for           working out the 222           allowance  of  depreciation  and  the  Electricity           Board has  been adopting  that formula and writing           down the allowance of depreciation in its books we           fail to  see how,  if that  method is  taken  into           account it  can be  said to  be inconsistent  with           clause  7   of  the  Insurance  Scheme.  Both  the           Tribunals  therefore   in  our   opinion,  rightly           accepted that  as the  allowance for  depreciation           and permitted the same.                The    contention    that    the    statutory           depreciation  should  have  been  disregarded  and           instead the  depreciation  worked  out  under  the           Income Tax  Act should  have been  made applicable           has no  force, because no rule or provision of law           sustains any such contention ...."      There is  no error  in principle  committed by the High Court in  applying the principles contained in the schedules to the  Electricity (Supply) Act, 1948. We do not find legal support for  the insistence by the appellant on the adoption of the standards of depreciation contained in the provisions of Income  Tax Act,  1922. The  finding of the High Court in this behalf  does not also call for interference. Contention (b) is also, accordingly, answered against the appellant.      8. Re: Contention (c)      The assumption  basic to the argument is that the ’Act’ is a  temporary-statute which  expired by  efflux of time on 10.1.1968 and that the proceedings subsequently commenced on 29.11.1968 were  without  jurisdiction.  Section  6  of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

general clauses  Act is  held in  applicable to  a  case  of expiry of  a temporary-statute on the view that Section 6 is attracted wherever  there is  a repeal  and that the case of expiry of  a statute  by efflux  of time  is not  a case  of repeal.  Whatever  be  the  principles  of  construction  of temporary-statutes  and   the  effect   on  the  rights  and obligations under  them of the expiry of the statute itself, the ’Act’  in the  present case contains specific provisions preserving the rights and obligations. The ’Act’ invokes the provisions of  Section 6  of the  General Clauses  Act.  The matter is  placed beyond controversy by the pronouncement of this  court  in  Amadalavalasa  Cooperative  Agricultural  & Industrial Society  Ltd. &  Anr. v.  Union of  India & Anr., (See 1976 2 SCR 731 at 738).           "....Therefore, if  under s.  5 of  the ’Factories           Act’ or  under  s.  7  of  the  ’Goods  Act’,  the           liability to  pay the  premia  on  full  insurable           value was incurred before the expiry 223           of the  Act, s. 6 of the General Clauses Act would           enable  the   ascertainment  of   the  extent   of           liability for  the evaded premia by an officer who           was authorised  when the Act was in force or by an           officer authorised  after the  expiry of  the Act.           The principle  behind s.  6 of the General Clauses           Act is  that all  the provisions of the Acts would           continue in  force for  purposes of  enforcing the           liability incurred when the Acts were in force and           any investigation,  legal proceeding,  remedy, may           be instituted,  continued or  enforced as  if  the           Acts had not expired .. "      Contention (c)  is, accordingly, also held and answered against the appellant.      9. Re: Contention (d)      The argument  is that  though the  Appellant-Board  was constituted on  1.4.1959, the  properties of  the  erstwhile electricity  undertaking   of  the   State  Government  were transferred to  and became  the property  of the  Appellant- Board by notifications issued on various dates subsequent to 1.11.1963 and that, accordingly, during the relevant periods during which  the legal  ownership of  the property  did not vest in the appellant, it was not liable for the premia.      It is  relevant to  mention here  that the  period  for which the  demands were  raised  was  between  1.1.1963  and 10.  1.1968.  Appellant’s  contention  in  this  behalf  was repelled in  the statutory-appeal  on the ground that though formally the  notifications came  to be  issued  on  various dates subsequent  to 1.4.1959,-  the assets had in fact been transferred to  and were  acknowledged and  treated  by  the appellant as its own in its Balance-Sheets.      10. Before the authorities, it would appear, this point had not  been seriously  disputed by  the  appellant.  In  a letter dated,  24.1.1969, the  Secretary of  the  Appellant- Board wrote to the Director.           "....We may  mention that  we are  accepting  your           stand that the properties transferred to the Board           by the  Government become  the properties  of  the           Board as  and from  the dates of original transfer           ...."      The Director in his order, dated, 15.10.1969 observed: 224           ".. The assets had in fact been transferred by the           State Government  to the Board from the 1st April,           1959 and  the same  had been  shown as  their  own           assets by  the Board is their balance sheets since

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

         then. If  for certain reasons the State Government           issued the  notifications long after the expiry of           the  two   months  period   i.e.,  on   5.10.1964,           28.10.1966 and 14.12.1966, etc. it was only a sort           of formality,  particularly in  view of  the  fact           that  the  said  notifications,  referred  to  the           assets as  having been transferred to the Board as           on 1.4.1959.  The Board  correctly became owner of           such assets  right from  1.4.1959. This  point was           conceded by  the Board  in its letter, dated, 24th           January, 1969  and was  also not  pressed  in  the           discussions that  I had  with them on the 26th and           27th July, 1969.                                       (underlining supplied)      In view  of this  nothing survives  of  contention  (d) either. It is accordingly held against the appellant.      13. In  the result,  for the  foregoing  reasons,  this appeal fails  and is  dismissed. In the circumstances of the case, the  parties are, how ever, left to bear and pay their own costs in the appeal. R.S.S.                             Appeal dismissed. 225