JUDGMENT Divan, C.J.

1. The petitioner herein is the Income-tax Officer, Special Investigation Circle VII, Ahmedabad, and at the relevant time he was in charge of the matter pertaining to the second respondent herein. The second respondent-firm was a registered firm for the purpose of the Income-tax Act , and it was manufacturing hosiery goods in Ahmedabad. In the course of assessment proceedings for the assessment proceedings for the assessment year 1964-65, the then Income-tax Officer noticed that the second respondent was dissolved and each of the partners had distributed amongst themselves all the assets including the machinery of the firm and this was done under the deed of dissolution dated August 31, 1964. It appears that on this machinery, development rebate had been allowed under the Indian Income-tax Act , 1922, under the provision of section 10(2)(vib) , but the property was found to have been transferred by the firm to its partners before the expiry of the statutory period prescribed under the 1922 Act. The Income-tax Officer, dealing with the assessment proceedings for the year 1964-65, came to the conclusion that the development rebate should be withdrawn and accordingly, he issued a notice under section 154 of the Income-tax Act, 1961 (hereinafter referred to as "the 1961 Act"). The 2nd respondent-firm, the assessee, objected to the withdrawal of the development rebate but these objections were overruled and the Income-tax Officer passed an order purportion to have been passed under section 155 of the 1961 Act, withdrawing the rebate granted for the assessment years 1960-61 and 1961-62. These order withdrawing the rebate, were passed by the Income-tax officer on November 8, 1965. Against the decision of the Income-tax Officer, the second respondent-firm filed appeals before the Appellate Assistant Commissioner, but both the appeals were dismissed by the Appellate Assistant Commissioner by his order May 4, 1967, and thus the decision of the Income-tax officer was confirmed. Against the decision of the Appellate Assistant Commissioner, the second respondent-firm filed appeals before <ORG>. Before the <ORG>, on behalf of the revenue, a preliminary objection was raised to the effect that though the order of the Income-tax Officer of November 8, 1965, purported to be an order under section 155 of the 1961 Act, in effect and in substance, it was an order passed under section 35 of the 1922 Act, and relying upon the decision of <ORG> in <CITATION>  68 ITR 760 (SC), it was contended that for the assessment years 1960-61 and 1961-62, the returns having been filed before the commencement of the 1961 Act, the proceedings for withdrawal of development rebate were governed by section 35(11) of the 1922 Act by virtue of the provisions of section 297(2)(a) of the 1961 Act. It was further contended that under the 1922 Act, there was no provision for appeal against an order of rectification passed under section 35 of the 1922 Act, and, hence, appeal before the Appellate Assistant Commissioner against the order of the Income-tax officer was not competent and not maintainable. This preliminary objection was upheld by the <ORG> and by its order dated March 5, 1970, the <ORG> held that the appeal to the Appellate Assistant Commissioner against the order of the Income-tax Officer in the present case was incompetant and thus by this decision of March 5, 1970, the order of the Income-tax Officer was confirmed by the <ORG>.

2. The second respondent-firm applied to <ORG> for rectification of the order dated March 5, 1970, and at the hearing of that miscellaneous application for rectification, the decision of <ORG> in <NAME>, Income-tax Officer, Special Investigation Circle 'B' Ahmedabad v. <ORG> [1967] 63 ITR 663 (SC) was cited and the <ORG>, by its order dated August 26, 1970, made in the miscellaneous application set aside its order dated March 5, 1970, purporting to act in exercise of its powers of rectification under section 234 , sub-section (2), of the 1961 Act and directed that the appeals of the second respondent-firm should be heard afresh. It is this order of <ORG> of August 26, 1970, which has been challenged by the petitioner in this special civil application. This petition has been filed under articles 226 and 227 of the Constitution of India and the main contention on behalf of the petitioner is that the <ORG> had no jurisdiction to rectify the order as it purported to do.

3. On behalf of the second respondent-firm two preliminary objections have been urged. It was first contended that the alternative remedy by way of a reference against the order of the <ORG> rectifying its earlier order being the order of rectification dated August 26, 1970, is available to the department according to law and, therefore, this extraordinary remedy under articles 226 and 227 of the Constitution should not be allowed to be availed of by the department. This preliminary objection must be rejected because it is well-stated law that when a particular <ORG> has acted without jurisdiction, the question of alternative remedy does not arise and if <ORG>, while exercising powers under articles 226 and 227 finds that the <ORG> did exercise its powers, though it had no jurisdiction to do so, the order of the <ORG> in question will be quashed and set aside and the question of alternative remedy in such a case does not arise. This well-settled position in law arise from the fact that an order passed without jurisdiction is non est.

4. It was further contended on behalf of the second respondent-firm by Mr. <NAME> that there has been delay and laches on the part of the revenue in approaching this court by this special civil application. Mr. <NAME> contended that on August 26, 1970, the <ORG> passed the order of rectification which is being challenged in these proceedings. Thereafter, the reference application which had been filed by the second respondent-firm against the order of March 5, 1970, asking for a reference on a point of law to <ORG> were withdrawn by the second respondent-firm on September 18, 1970, and on December 17, 1970, the present special civil application was filed by the revenue. Mr. <NAME> also contended in this connection that by this delay of nearly three months and 21 days in approaching <ORG>, the revenue has rendered it impossible for the 2nd respondent-firm to approach the <ORG> for reference applications against the order of March 5, 1970. Now, as long as the order of August 26, 1970, stands and has not been set aside by <ORG> in exercise of its power under articles 226 and 227 of the Constitution, there is no question of any reference application having to be made or any reference having to be sought by the second respondent-firm. It is only if the present special civil application succeeds and the order of March 5, 1970, is restored that the question of any reference application in connection with the order of March 5, 1970, would arise. In our opinion, it cannot be said, as has been urged by Mr. <NAME> at the time of the hearing before us and as had been urged in the affidavit-in-reply on behalf of the 2nd respondent-firm that the time between August 26, 1970, when the order of rectification was passed by the <ORG> and December 17, 1970, when the present special civil application was filed, was deliberately allowed by the revenue to elapse so that it might not be possible for the second respondent-firm to adopt proceedings seeking reference on a question of law to <ORG>. In our opinion, since the order of August 26, 1970, was in favour of the second respondent-firm, there was no question of that firm seeking any reference to <ORG> and, hence, there was no question of the second respondent-firm being prejudiced in any manner by reason of the fact that the special civil application came to be filed on December 17, 1970. On the facts of this case, it cannot be said that there has been such delay or laches on the part of the revenue as would disentitle the petitioner to get the relief that he seeks at the hands of this court.

5. Coming now to the merits of the case, we may point out that in passing the order of August 26, 1970, the <ORG> has relied upon the decision of <ORG> in <CITATION>  63 ITR 663 (SC). The relevant passage on which the <ORG> relied occurs at page 670 of the report. From the bottom of page 669 in this case, <ORG> was considering whether order under different sections of the 1922 Act were assessment orders or whether they were orders passed in the course of assessment proceedings. At page 670 <NAME> (as he then was), delivering the judgment of <ORG>, has observed :

"Again by section 35(11) as added by the Finance Act of 1958, development rebate in respect of a ship, machinery or plant under section 10(2)(vib) could be deemed to have been wrongly allowed if the ship, machinery or plant was sold or otherwise transferred, or the amount credited to the reserve account under that clause was diverted for another purpose within ten years, and the Income-tax Officer had to recompute the income, and levy tax on the footing of such recomputed income. In each of these cases there is computation of income, determination of tax payable and procedure is prescribed for imposing liability upon the taxpayer. But still these are not orders of assessment within the meaning of section 23 . The salient feature of these and other orders is that the liability to pay tax arises not from the charge created by statute, but from the order of the Income-tax Officer."

6. These observations in <CITATION>  63 ITR 663 (SC) were considered by <ORG> in <CITATION>  68 ITR 760 (SC). At page 764 of the report <NAME>, delivering the judgment of <ORG>, has observed :

"It is clear that, when proceedings are taken for rectification of assessment to tax either under section 35(1) or section 35(5) of the Act of 1922, those proceedings must be held to be proceedings for assessment. In proceeding under those provisions, what the Income-tax Officer does is to correct errors in, or rectify orders of assessment made by him, and order making such corrections or rectifications are, therefore, clearly part of the proceedings for assessment."

7. <NAME> has pointed out immediately after the above passage that the mainstay of the argument of learned counsel for the appellants in that particular case before <ORG> was that the decision in <CITATION>  63 ITR 663 (SC) in which case the court was dealing with the question whether an order imposing additional super-tax under section 23A of the Act of 1922 was an order of assessment and held to the contrary, then the observation proceeds (page 764) :

"The decision in that case does not, in our opinion, support the submission made on behalf of the appellants in the present cases. It was explained there that, under section 23A of the Act of 1922, there was no computation of income or determination of tax imposed by the charging section. That section by itself empowered the Income-tax Officer to impose the super-tax by his own order, and an order imposing such a tax could not be held to be an order of assessment."

8. In <NAME> case [1968] 68 ITR 760 (SC), <NAME> has pointed out that in the context of section 297(2)(a) of the Act of 1961 the main question which the court or the appropriate authority has to consider is whether the subsequent proceedings are proceedings for the assessment of the assessee concerned. The exact words used are, "proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed ", and under section 297(2)(a) , notwithstanding the repeal of the Indian Income-tax Act , 1922, where a return of income has been filed before the commencement of the Act of 1961 by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if the Act of 1961 had not been passed. At page 767 in <NAME> case  68 ITR 760 (SC) it is observed :

"Consequently, when the Income-tax officer passed the orders dated 20th December, 1966, and apportioned that income of the firms between the various partners, the order which he made were clearly orders in proceedings for assessment and it was in order to give effect to these orders in the individual assessment of the partners that the impugned notices were issued."

In S. Sankappa's case [1968] 68 ITR 760 (SC) it has been held in terms (page 764) :

"... proceedings taken for rectification of assessment to tax, either under section 35(1) or under section 35(5) of the 1922 Act, were proceedings for assessment. The orders passed by the Income-tax Officer under section 35(1) rectifying the firm's assessments were all orders altering assessment order made in proceedings for assessment of the firms, and under the notices the Income-tax Officer was proposing to rectify order made for computation of income and imposition of tax under the charging section in the case of individual partners. Section 297(2)(a) of the Act of 1961, therefore, applied, and permitted the Income-tax Officer to proceed in accordance with the provisions of the Act of 1922 and action could be taken under section 35(5) of the Act of 1922 on the basis of the rectification made in the assessments of the firms under section 35(1) ."

9. We may point out that under section 35 of the Act of 1922 provision was made for rectification of mistake apparent from the record and under sub-section (1), it was open to the Income-tax Officer to rectify any mistake apparent from the record within four years from the date of the assessment order. Under sub-section (11) of section 35 :

"Where an allowance by way of development rebate has been made wholly or partly to an assessee in respect of a ship, machinery or plant in any year of assessment under clause (vib) of sub-section (2) of section 10 , and subsequently at any time before the expiry of ten years from the end of the year in which the ship was acquired or the machinery or plant was installed -

(i) the ship, machinery or plant is sold or otherwise transferred by the assessee to any person other than the Government or for any consideration not connected with any amalgamation or succession referred to in clause (vib) of sub-section (2) of section 10 ; or

(ii) the assessee utilises the amount credited to the reserve account under that clause -

(a) for distribution by way of dividends or profits; or

(b) for remittance outside India as purpose or for the creation of any asset outside India; or

(c) for any other purpose which is not a purpose of the business of the undertaking :

the development rebate originally allowed shall be deemed to have been wrongly allowed, and the Income-tax Officer may, notwithstanding anything contained in this Act, proceed to recompute the total income of the assessee for the relevant year as if the recomputation is a rectification of a mistake apparent from the record within the meaning of this section and the provisions of sub-section (1) shall apply accordingly, the period of four years specified therein being reckoned from the end of the year in which the transfer takes place or the money is so utilised."

10. It is, therefore, clear that by the fiction set out in the last portion of section 35(11) recomputation of total income of the assessee for the relevant year in view of the transfer of the machinery, ship or plant in respect of which development rebate has been allowed in the past within the statutory period of 10 years from the end of the year in which the ship was acquired or the machinery or plant was installed amounts to an order of rectification under section 35(1) , and such recomputation is permissible within a period of four years from the end of the year in which the ship, machinery or plant was transferred or the money from the reserve account is utilised as shown in clauses (a), (b) and (c) of clause (11) of section 35(11) . Therefore, by this fiction, the order under section 35(11) of recomputation of income is deemed to be a rectification of mistake within the meaning of section 35(1) . In view of this fiction to which effect must be given, it is obvious that the order passed by the Income-tax Officer dated November 8, 1965, must be deemed to be an order of rectification of mistake under section 35(1) of the Act of 1922.

11. Mr. <NAME> for the assessee contended before us that section 35(3)(b) of the Act of 1961 is attracted to the facts of this case and, therefore, the order passed by <ORG> after the commencement of the Act of 1961 must be deemed to have been made section 155 of the Act of 1961. Under section 34(3) if any ship, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made under section 33 or under the corresponding provisions of the Act of 1922, in respect of machinery, plant or ship, shall be deemed to have been wrongly made for the purposes of the Act of 1961, and the provisions of sub-section (5) of section 155 shall apply accordingly. Mr. <NAME> contended that in view of section 34(3)(b) the order passed by <ORG> on November 8, 1965, must be deemed to have been an order passed under section 155 of the Act of 1961. In view of the decision of <ORG> in <NAME>'s case  68 ITR 760 (SC), it is not possible for us to accept this contention of Mr. <NAME>. So long as the return of income was filed before April 1, 1962, i.e., before the commencement of Act of 1961, proceedings for assessment of this particular assessee in connection with that return may be taken and continued as if the Act of 1961 had not been passed. The decision of <ORG> in <NAME>'s case  68 ITR 760 (SC) laid down that proceedings under section 35 of the Act of 1922, being proceedings for assessment, section 297(2)(a) of the Act of 1961 applies and, therefore, the recomputation of development rebate in the light of the transfer of machinery or ship or plant must be done in accordance with section 35(1) of the Act of 1922. In view of the decision of <ORG> in <NAME>'s case  68 ITR 760 (SC), no other conclusion is possible and section 34(3)(b) can only be attracted and in the light of the principle of harmonious interpretation it must be held that provisions of section 297(2)(b) are attracted only if the Act of 1922 is applicable and not otherwise. In the present case, in view of section 297(2)(a) as interpreted by <ORG> in <NAME>'s case  68 ITR 760 (SC), we must be proceed on the footing that provisions of section 155 of the 1961 Act including provisions of section 34(3)(b) of that Act do not apply to this case.

12. A Division Bench of this court in <CITATION>  90 ITR 332 (Guj) has held that an assessee had no right to appeal under section 30(1) of the Act of 1922 , against an order of rectification made under section 35(1) Act. In view of this decision of this court, it is obvious that the assessee had no right of appeal before the Appellate Assistant Commissioner was not competent and, therefore, it was rightly held by the <ORG> by its order dated March 5, 1970, that the appeal before the Appellate Assistant Commissioner was not competent.

13. The question has also to be considered since this is a petition filed under articles 226 and 227 of the Constitution, from the point of view of the jurisdiction of the <ORG>. Under section 254 , subsection (2), of the 1961 Act, the Appellate <ORG> may, at any time within four years from the date of its order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Income-tax Officer. Thus, the jurisdiction of the <ORG> to pass an order of rectification is conferred upon it by section 254(2) only for the purpose of rectifying any mistake apparent from the record. We may also point out that under the Act of 1922, by virtue of section 254 , the provisions of section 35 were to apply in like manner to the rectification of mistake by the Appellate <ORG> and, therefore, under the Act of 1922, also, the <ORG> can rectify any mistake apparent from the record. The scope of the power of rectification has been explained by <ORG> in <CITATION>  82 ITR 50 (SC), and <ORG> has there held that a mistake apparent on the record must be an obvious and patent mistake and something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions, and a decision on a debatable point of law is not a mistake apparent from the record. Thus, it is obvious that the Appellate <ORG> in the instant case, when it passed the order of August 26, 1970, in rectification proceedings was comparing and contrasting the decision in <NAME>'s case  68 ITR 760 (SC) with the decision in <CITATION> .  63 ITR 663 (SC), and the <ORG> has in terms observed in its order of August 26, 1970, that it was in the light of the decision of <ORG> in <ORG>'s case  63 ITR 663 (SC), that it proceeded to rectify it mistake. To say the least this was a debatable point of law and a decision on a debatable point of law cannot be said to be a mistake apparent from the record. In the instant case, there cannot be said to be a mistake, much less a mistake apparent from the record. In my opinion, in view of <NAME>'s case  68 ITR 760 (SC), in the first place there was no mistake when the <ORG> passed the order of March 5, 1970, much less was there a mistake apparent from the record. Under these circumstances, it is obvious that the <ORG> was in error when it held that there was mistake apparent from the record and thereafter proceeded by its order of 26th August, 1970, to rectify the order of March 5, 1970.

14. We, therefore, allow the special civil application and quash and set aside the order passed by the <ORG> on August 26, 1970, a copy of which has been annexed as annexure "B" to the petition. The result of setting aside the order of August 26, 1970, is that the order of March 5, 1970, is automatically restored. Rule is, therefore, made absolute. The second respondent will pay the costs of this special civil application to the petitioner.


PETITIONER: <ORG>, ETC. Vs. RESPONDENT: S.N. GOVINDA PRABHU & BROTHERS AND OTHERS ETC. DATE OF JUDGMENT26/08/1986 BENCH: <NAME>, O. CHINNAPPA (J) BENCH: <NAME>, O. CHINNAPPA (J) DUTT, M.M. (J) CITATION: 1986 AIR 1999 1986 SCR (3) 628 1986 SCC (4) 198 JT 1986 261 1986 SCALE (2)313 CITATOR INFO : E 1990 SC1851 (36) R 1991 SC1473 (7,8A,22,27) ACT: Electricity Supply Act , 1948-Section 59-Electricity <ORG>-Formulation of price structure intended to yield sufficient revenue-Examination of by <ORG>-Electricity Tariff-Upward revision-Whether valid. HEADNOTE: The upward revision of Electricity Tariff made by the appellant <ORG> in 1980, 1982 and 1984 was challenged in <ORG> by the respondents on the ground that <ORG> acted outside its statutory authority by formulating a price structure intended to yield sufficient revenue to offset not merely the expenditure properly chargeable to the revenue account for the year as contemplated by s. 59 of the Electricity Supply Act, 1948, but also expenditure not so properly chargeable and that had s. 59 been strictly followed and had items of expenditure not chargeable to the revenue account for the year been excluded, the revised tariff would have resulted in the generation of a surplus far beyond the contemplation of s. 59 of the Act. The Full Bench of <ORG> struck down the tariff revisions holding that in the absence of specification by the <ORG>, a <ORG> was not entitled to generate a surplus at all and it had acted entirely outside its authority in generating a surplus to be adjusted against items of expenditure not authorised to be met from revenue receipts. The notifications prescribing, revised tariffs were, therefore, struck down. In appeal to this <ORG> on behalf of the appellant it was contended, that the 1978 Amendment of the Electricity Supply Act 1948 did not effectively improve matters as many <ORG> <ORG>s did not specify the quantum of surplus. <ORG> had, therefore, to intervene once again and that was in 1983 to fix the statutory minimum surplus, which was made clear by the 1983 Amendment which stipulated a minimum of 3 per cent surplus in the absence of specification by the 629 <ORG> <ORG> which had the liberty to specify a higher percentage than three. It was further contended, by submitting statements, that in the years 1978-79 to 1981-82, which were extraordinary years, but for the boom in the sale of energy to neighbouring <ORG>s, there would have been a serious deficit in every one of these years and that it is clear that <ORG> has not been earning huge profits and generating large surpluses as suggested by the consumers, and consequently the upward revision of the electricity tariff was justified. On behalf of respondent-consumers it was contended: (1) that <ORG> was barred from conducting its operations on commercial lines so as to earn a profit; (2) that in the absence of specifications by <ORG> the position would be as it was before the 1978 Amendment, i.e. the <ORG> was to carry on its affairs and adjust the tariffs in such a manner as not to incur a loss; (3) that while interest which accrued to be revenue expenditure, arrears of interest which accrued during the previous years and had not been paid could not be so considered; (4) that the 1980 <ORG> took into consideration the anticipated augmentation of the generating capacity from the proposed new power stations whereas these projects were not commissioned till 1984 and thus the cost structure arrived at by the <ORG> was vitiated: (5) that the <ORG> did not take into account the financial position of the <ORG> as brought out by the year 1978-79 which showed that the <ORG> had no need for enhancing the rates; (6) that the 1980 <ORG> having taken as the basis the 1982 projected cost, so as to maintain price stability for a period of five years, it was not proper to revise the tariff again in 1982; and (7) that it was not open to the <ORG> to give favoured treatment to Low Tension Domestic and Agricultural Consumers at the cost of the rest of the consumers. Allowing the appeals of <ORG>, ^ HELD: 1. The judgments of <ORG> are set aside and the validity of the notifications revising the tariffs upheld. The <ORG> will reconsider the revised tariff introduced in 1980 in regard to Low Tension Industrial and Low Tension Commercial Consumers only, with liberty to fix separate rates, if necessary for the years 1980 and 1981. [659D-E] 2. A <ORG> Electricity <ORG> created under the Electricity Supply Act is an instrumentality of the <ORG> subject to the same constitutional and public law limitations as are applicable to the <ORG> including the principle of law which inhibits arbitrary action by the <ORG>. It is a public utility monopoly undertaking. Service and not profit 630 should inform its actions and it must manage its affairs on sound economic principles. No public service undertaking can afford to ignore business principles which are as essential to public service undertakings as to Commercial ventures. If the <ORG> borrows sums either from the <ORG> or from other sources or by the issue of debentures and bonds, the <ORG> must of necessity make provision year after year for the payment of interest on the loans taken by it and for the repayment of the capital amounts of the loans. If the <ORG> is unable to pay interest in any year for want of sufficient revenue receipts, the <ORG> must make provision for payment of such arrear of interest in succeeding years. The <ORG> is not expected to run on a bare year-to-year survival basis. [644B- <CITATION> ,  3 SCR 59 and <NAME> v. <ORG>,  1 ALL ER 129, followed. 3. Section 18(a) prescribes that it is the duty of the <ORG> to arrange for the supply of electricity that may be required within the <ORG> and for the transmission and distribution of the same, in the most efficient and economical manner and s. 49(2) (b) requires the <ORG> to have regard, in fixing uniform tariffs, the coordinated development of the supply and distribution of electricity within the <ORG> in the most efficient and economical manner, both with particular reference to those areas which are not for the time being served or adequately supplied with electricity. The principles of efficiency and economy are, therefore, not foresaken but resolutely emphasised. [645B-D] 4. Pure profit motive, unjustifiable even in the case of a private trading concern, can never be the sole guiding factor in the case of public enterprise. If profit is made not for profit's sake but for the purpose of fulfilling, better and more extensively, the obligation of the services expected of it, it cannot be said that the public enterprise acted beyond its authority. [648G-H: 649A] 5. The total operational cost would include the interest on the capital outlay out of the national exchequer and that there was no justification to run a public utility monopoly service undertaking merely as a commercial venture with a view to make profits. [649D-E] 6. A reading of s. 59 (as amended in 1978) plainly indicates that it is the mandate of <ORG> that the <ORG> should adjust its tariffs so that after meeting the various expenses properly required to be met a 631 surplus is left. The original negative approach of functioning so as not to suffer a loss is replaced by the positive approach of requiring a surplus to be created. The quantum of minimum surplus is to be specified by <ORG>. Since many <ORG> <ORG>s did not specify the quantum of surplus, s. 59 was again amended in 1983, which stipulates a minimum of 3 per cent surplus in the absence of specification by <ORG> which has the liberty to specify a higher percentage than three. [646E- <CITATION> ,  3 SCR 59 followed, <CITATION> .,  I SCR 552, <CITATION> ,  2 SCR 42 and <CITATION> .,  I SCR 709, referred to. 7. The failure of the <ORG> to specify the surplus which may be generated by the <ORG> cannot prevent the <ORG> from generating a surplus after meeting the expenses required to be met. The <ORG> may not allow its character as a public utility undertaking to be changed into that of a profit motivated private trading or manufacturing house. Neither the tariffs nor the resulting surplus may reach such heights as to lead to the inevitable conclusion that the <ORG> has shed its public utility character. When that happens the <ORG> may strike down the revision of tariffs as plainly arbitrary. But not until then. Not, merely because a surplus has been generated, a surplus which can by no means be said to be extravagant. The <ORG> will then refrain from touching the tariffs. [650G-H;651A] <CITATION> AIR 1944 PC 71 and <CITATION> 1941 Madras 897, followed. 8. 'Price fixation' is neither the forte nor the function of the <ORG>. The occasional excursions into this field were made at the request and by the agreement of the parties. [651B] <CITATION> ,  3 SCR 59 and <CITATION> ,  3 SCR 293. followed. 9. Reading s. 59 alongwith ss. 49 , 67 , 67A etc. it is noticed that 632 the Electricity Supply Act , 1948, requires <ORG> to follow a particular method of accounting and it is on the basis of that method of accounting that the <ORG> is required to generate a surplus. Broadly, s. 59 requires that a surplus should be left from the total revenues, in any year of account, after meeting all expenses properly chargeable to revenues. Apart from subventions which may be received from <ORG>, which depend entirely on the bounty of the <ORG>, the only revenue available to the <ORG> are the charges leviable by it from consumers. [653B-D] 10. Section 59 (1) specifies 'operating maintenance and management expenses', 'taxes (if any) on income and profits', 'depreciation and interest payable on all debenture, bonds and loans', as in cluded in 'expenses properly chargeable to revenues'. Section 59 (2) stipulates that in specifying the surplus, the <ORG> shall have due regard to the availability of amounts accrued by way of depreciation and the liability for loan amortization. It also stipulates that a reasonable sum to contribute towards the cost of capital works and a reasonable sum by way of return on the capital provided by <ORG> should be left in the surplus. This sub-section, therefore, makes it clear that the <ORG> is to provide for (1) loan amortization; (2) contribution towards the cost of capital works; and (3) return on the capital. Section 67 prescribes the priority to be observed by the <ORG> in the matter of discharging the liabilities enumerated therein out of its revenues. First the operating maintenance and management expenses have to be met, next provision has to be made for payment of taxes on Income and Profits and thereafter various items of expenditure are mentioned in order of priority. If any amount is left after the discharge of the liabilities enumerated in s. 67 , the balance shall be utilised for the other purposes specified in s. 59 in such manner as the <ORG> may decide. [653E-H; 654A-B] 11. Payment of interest is expressly mentioned among the liabilities to be discharged, as also repayment of principal of loans becoming due for payment in the year. Clause (vi) of sub-s. (1) of s. 67 makes it clear that repayment of principal of any loan guaranteed by <ORG> will include loans which became due for payment in the year as well as loans which became due for payment in any previous year and had remained unpaid. [654B-C] 12. Under the scheme of the Act principal amount falling due in any year has to be met from the revenue receipts of the year. No payment towards principal could be made or accepted, if interest of previ 633 ous years continued to be outstanding. The very provision for repayment of capital necessarily implies payment of all interest accrued upto the date of repayment of the capital. If arrears of interest cannot be paid from revenue receipts, such arrears cannot be paid from the capital receipts. What may be paid out of capital receipts and the circumstances under which the payment may be made are expressly provided in s. 67 (2) which says that if for any reasons beyond the control of the <ORG> the revenue receipts in any year are not adequate to meet the operating, maintenance and management expenses, taxes on income and profits, and the liabilities referred to in clauses (i) and (ii) of s. 67 (1), then the shortfall shall be paid out of its capital receipts with the sanction of <ORG>. There is no doubt that arrears of interest are, under the scheme of accounting contemplated by the Act, required to be paid out of revenue receipts of the <ORG> and are expenses properly chargeable to revenues within the meaning of that expression in s. 59 of the Act. [654D-G] 13. The <ORG> has clarified the aforesaid position by the Amending Act 16 of 1983 which came into force from April 1, 1985. A separate section, s. 67A has been introduced alongwith a consequential amendment of s. 67 providing that interest of loans advanced under s. 64 or deemed to have been advanced under s. 60 , which is charged to revenues in any year may be paid out of revenue receipts of a year only after all other expenses referred to in s. 59 (1) are met and further providing that so much of interest as is not paid in any year by reason of the priority mentioned in s. 67 A shall be deemed to be a deferred liability to be discharged in accordance with provision of s. 67A in the subsequent year or years. These provisions show beyond doubt that payment of arrears of interest is an expense properly chargeable to the revenues under the scheme of the Act. [654G-H; 655A-B] 14. <ORG>ments containing details of interest payable in each year of accounting, the arrears of interest due and payable, the total revenue receipts and some other relevant particulars, in the present case show that <ORG> has not been earning huge profits and generating large surpluses as suggested by the consumers. Once it is established there is hardly any revenue surplus left after meeting the expenses required to be met by s. 59, the complaint of the consumers that there was no justification for the tariff increase because of large surpluses earned by the <ORG>, loses all force. [655G; 656H; 657A] 15. As regards the rates of tariff for the relevant years, in the case of Extra High Tension and High Tension Industrial Consumers, the 634 change effected by the 1980 revision was minimal but on the higher side in 1982. In the case of Low Tension Industrial and Commercial Consumers, the change effected in 1980 was very steep but tended to come down in 1982. [657D-E] 16. On the whole, it cannot possibly be said that the rates have been so fixed by <ORG> as to throw a heavy burden on any section of the consumers without regard to their ability to pay without regard to the nature of the supply and purpose for which the supply is required. 1980-81 and 1981-82 were the years when accounts of <ORG> recorded a net surplus after meeting all expenses including interest charges. It is, therefore, desirable that the <ORG> may reconsider the 1980 tariff for Low Tension Commercial and Low Tension Industrial Consumers. [658A-B] 17. A large part of expenditure involved in the setting up of the new projects had to be met in the several years preceding the actual commissioning of the projects. Therefore, it is not correct to say that the cost structure arrived at by the Tariff <ORG> was in any way affected by the non-commissioning of the new projects between 1980 and 1982. [658C-D] 18. The rise in revenue receipts in the year 1978-79 due to the unprecedented sale of energy to neighbouring <ORG>s, a special situation which was the result of peculiar circumstances, which prevailed that year and continued to prevail for a few years thereafter, cannot be taken as a permanent phenomenon to every year. [658E-F] 19. The actual cost of producing energy in 1981-82 and 1982-83 had risen much above the projected 1982 costs and therefore the 1982 <ORG> had no option but to again consider further revision of the tariff. It is not within the province of this <ORG> to examine the price structure in minute detail if it is established that the revision of tariff is not arbitrary and is not the result of the application of any wrong principle. [658G-H] 20. Section 49 (3) expressly reserves the power of the <ORG>, if it considers it necessary or expedient, to fix different tariff for the supply of electricity to any person having regard to the geographical position of any area, the nature of the supply and purpose for which supply is required and other relevant factors. [659B-C] 635 D.C.M. v. Rajasthan <ORG> Electricity <ORG>,  2 SCC 431, referred to. 21. Different tariffs for High and Low Tension Consumers and for different classes of consumers, such as, Industrial, Commercial, Agricultural and Domestic have been prescribed and the differention appears to be reasonable and far from arbitrary and based on intelligent and intelligible criteria. [659C] JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1639 of 1985 etc. From the Judgment and Order 15.1.1985 of <ORG> in O.P. 760 of 1981 <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME> and <NAME> for the Appellant.

<NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, Miss <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME> and <NAME> for the Respondents.

The Judgment of the Court was delivered by <NAME>, J. These appeals preferred by <ORG> raise the question of the extent of the authority of the <ORG> to increase the Electricity Tariff under the Electricity Supply Act . The upward revision of tariff made by the <ORG> in 1980, 1982 and 1984 was successfully challenged in <ORG>. The first two revisions were struck down by a Full Bench of three judges by a majority of two to one and, later, all three revisions were struck down by a Full Bench of Five judges by majority of four to one. The principal ground of challenge and that which was accepted by <ORG> was that <ORG> acted outside its statutory authority by formulating a price structure intended to yield sufficient revenue to off set not merely the expenditure properly chargeable to the revenue account for the year as contemplated by s. 59 of the Act but also expenditure not so properly chargeable. Had s.

59 been strictly followed and had items of expenditure not chargeable to the revenue account for the year been excluded, the revised tariff would have resulted in the generation of a surplus far beyond the contemplation of s. 59 of the Act. According to <ORG>, in the absence of a specification by the <ORG> the Board was not entitled to generate a surplus at all and it acted entirely outside its authority in generating a surplus to be adjusted against items of expenditure not authorised to be met from the revenue receipts. The notifications prescribing revised tariffs were therefore, struck down. The view of <ORG>, as might be seen, was based primarily on their construction of s.59 of the Electricity Supply Act .

In order to understand the questions at issue, it is necessary to set out s. 59 as it stood prior to 1978, as amended by Act No. 23 of 1978, and finally as amended by Act No. 16 of 1983:

____________________________________________________________ Section 59 prior Section 59 as Section 59 as further to 1978 amended by Act amended by Act No. 23 of 1978 No. 16 of 1983 (1) (2) (3) ____________________________________________________________ General principles General principles General Principles for Board's for Board's for Board's finance- finance- finance-

The Board shall not, (1) The Board shall (1) The Board as far as practicable after taking credit shall after taking and after taking for any subvention credit for any credit for any from the <ORG> subvention from subventions from the government under s. the <ORG> Govern- <ORG> Government 63, carry on its ment under s.63 under s.63, carry on operations under carry on its oper- its operations under this Act and adjust ations under this this Act at a loss, its tariffs so as Act and adjust its and shall adjust its to ensure that the its tarrifs so as charges accordingly total revenues in to ensure that the from time to time. any year of account total revenues provided that shall after meeting in any year of where necessary any all expenses prope- account shall, amounts due for mee- rly chargeable to after meeting all ting the operating, revenues, including expences properly maintenance and operating maintena- chargeable to nance and manageme- revenues,including nt expences, taxes operating, mainte- (if any on in- nance and management expenses come and profits, management ex- of the Board or for depreciation and penses. taxes (if the purposes of interest payable on any) on income and clauses (i) and (ii) debentures, bonds profits, deprecia- of s.67 may, to such and loans, leave tion and interest extent as may be san- such surplus as the payable on all ctioned by the <ORG> <ORG> Government debentures, bonds Government, be paid may, from time to and loans leave out of capital. time, specify. such surplus as is (2) In specifying not less than the surplus under three per cent or sub-section (1), such higher perce-

the State Governmentntage, as the shall have due reg- State Government ard to the may be notifica-

availibility of tion in the offi-

amounts accrued by cial Gazette, way of depreciation specify in this and the liability behalf, of the for loan amortiza- value of the fixed tion and leave- assets of the

(a) a reasonable Board in service sum to contribute at the beginning towards the cost of of such years.

capital works; and Explanation:-For

(b) where in res- the purposes of pect of the Board this sub-section a notification has "Value of the fix-

been issued under ed assets of the sub-section(1) of Board,in service s. 12A ,a reasonable at the begining sum by way return of the year" mean on the capital pro- the original cost vided by the state of such fixed as-

Goverment under sub sets as reduced section(3) of that by the aggregate section and the am- of the cumulative ount of the loans depreciation in (if any) converted respect of such by the state Govern assets calculated ment into capital in accordance with under sub-section(1)the provisions of of section 66A . this Act and consumers contributions for service lines.

(2) In specifying any higher percentage under sub-

section(1), the State Government shall have due regard to the availability of mounts accrued by way of depreciation and the liability for loan amortiza ation and leave-

(a) a reasonable sum to contribute towards the cost of capital works; and

(b) where in respect of the Board, a notification has been issued under sub-sec.(1) of s. 12A , a reasonable sum by way of return on the capital pro-

vided by <ORG> under sub-sec.(3) of that section and the amount of the loans (if any) converted by <ORG> into capital under sub-

section(1) of section 66A .

We may mention here that we are not really concerned with s. 59 as amended by Act No. 16 of 1983 since that came into effect from April 1, 1985 only. We have, however, extracted that provision also for a better understanding of s. 59 as it stood before the 1983 amendment. We consider that for the purpose of understanding and construing s. 59 , as it stood before the 1983 amendment, we are entitled to take into consideration the <ORG> exposition contained in the 1983 amendment. (See we will come back to the question of proper construction of s.59 later).

We think that it is necessary at this stage itself to refer to some of the other important provisions of the Electricity Supply Act . Section 18 prescribes the general duties of the <ORG> and, it is as follows:

"18. General Duties of the <ORG>-Subject to the provisions of this Act, the <ORG> shall be charged with the following general duties, namely:

(a) to arrange, in co-ordination with the Generating Company or Generating Companies, if any, operating in the State, for the supply of electricity that may be required within the State and for the transmission and distribution of the same, in the most efficient and economical manner with particular reference to those areas which are not for the time being supplied or adequately supplied with electricity;

(b) to supply electricity as soon as practicable to a lincensee or other person requiring such supply if the <ORG> is competent under this Act so to do;

(c) to exercise such control in relation to the generation, distribution and utilisation of electricity within the State as is provided for by or under this Act;

(d) to collect data on the demand for, and the use of, electricity and to formulate perspective plans in co-ordination with <ORG> or Generating Companies, if any, operating in the State, for the generation, transmission and supply of electricity within the State;

(e) to prepare and carry out schemes for transmission, distribution and generally for promoting the use of electricity within the State; and

(f) to operate the generating stations under its control in co-ordination with the Generating Company or Generating Companies, if any, operating in the <ORG> and with the Government or any other Board or agency having control over a power system."

Section 49 was not amended either in 1978 or in 1983 and it is as follows:

"49. Provision for the sale of electricity by the <ORG> to persons other than licensees-(1) Subject to the provisions of this Act and of regulation, if any, made in this behalf, the <ORG> may supply electricity to any person not being a licensee upon such terms and conditions as the <ORG> thinks fit and may for the purposes of such supply frame uniform tariffs.

(2) In fixing the uniform tariffs, the <ORG> shall have regard to all or any of the following factors, namely-

(a) the nature of the supply and the purposes for which it is required;

(b) the co-ordinated development of the supply and distribution of electricity within the State in the most efficient and economical manner, with particular reference to such development in areas not for the time being served or adequately served by the licensee;

(c) the simplification and standardization of methods and rates of charges for such supplies;

(d) the extension and cheapening of supplies of electricity to sparsely developed areas. (3) Nothing in the foregoing provisions of this section shall derogate from the power of the <ORG>, if it considers it necessary or expedient to fix different tariffs for the supply of electricity to any person not being a licensee, having regard to the geographical position of any area, the nature of the supply and purpose for which supply is required and any other relevant factors.

(4) In fixing the tariff and terms and conditions for the supply of electricity, the Board shall not show undue preference to any person."

Section 63 enables <ORG>, with the approval of the State legislature, to make subventions to the <ORG> for the purposes of the act. Section 64 empowers <ORG> to advance loans to the <ORG> and Section 65 empowers the <ORG>, with the previous sanction of <ORG>. to borrow any sum required for the purposes of the Act by the issue of debentures or bonds or otherwise. Section 66 empowers the government to guarantee the loans proposed to be raised by the <ORG> Section 66A authorises <ORG> to convert any loan obtained from the <ORG> by the <ORG> capital provided by the <ORG>.

Section 67 was amended in 1978 and again 1983. It is useful to set out the section as it stood originally and as amended by the two amendments of 1978 and 1983:

----------------------------------------------------------- Section 67 prior Section 67 as amen- Section 67 as to 1978 ded by Act No. 23 further amended of 1983 (1) (2) (3)

----------------------------------------------------------- Priority of Priority of liabi- Priority of liab- liabilities of the lities of Board- ilities of the Board-The revenues (1)If in any year, Board-The Board of the Board shall, the revenue receipt shall distribute the after meeting its are not adequate to surplus, reffered to operating, mainte- to enable complianc in sub-section(1) of nance and manage- with the requirment s.59 to the extent ment expenses and of s. 59 , the Board extent available in after provision shall,after meeting a particular year in has been made for its operating, mai- in the following or- the payment of tenance and manage- der namely: taxes on its income ment expences and (i) repayment of and profits be dis- after provision has principal of any as far as they are been made for the loan raised available in the payment of taxes(if (including following order any) on income and redemption of deb- namely: profits, distribute entures or bonds

(i) interest on the revenue receipt issued) under s.65 bonds not guranteed as far as they are whichs becomes due under s.66; available, in the for payment in the

(ii) interest on following order, year or which became stock not so guara- namely: due for payment in nteed; (i) payment of int- any previous year

(iii) credits to erest on loans not and has remaind un-

(ii) repayment of principal of any loan advanced to the depreciation s.66; Board by the State reserve under s. 68 (ii) repayment of Government under

(iv) interest on principal of any s. 64 which becomes bond guaranteed un- loan raised (incl- due for payment in der s.66; uding redemption of the year or which

(v) interest on st- debentures or bonds became due for pay- ock so guaranteed; issued) under s. 65 ment in any previous

(vi)interest on sum which become due for year and remained paid by the State payment in the year (iii) payment for Government under (iii) payment of purposes specified guarantees under interest on loans in sub-section (2) section 66 ; guaranteed under of s. 59 in such

(vii)the write-down s.66; manner as the Board amounts paid from (iv)payment of in- may decide." capital under the terest on sums paid proviso to section by the State Govern-

59; ment in pursuance of (viia) the write- guarantees under down of amounts in s.66;

respect of intangi-

ble assets to the (v) payment of in-

to which they are terest on loans actually appropria- advanced to the <ORG> in any year for the <ORG> by the <ORG> for the purpose in Government under the books of the s. 64 or deemed to be <ORG>; advanced under sub-

(viii) contribution section (2) of to general reserve section 60 ;

of an amount not (vi) repayment of exceeding one half principal of any loan of one percentum guaranteed by the per annum of the State Government original cost of under s. 66 which be fixed assets empl- come due for payment oyed by the Board in the year or which be- so however that the come due for payment total standing to in any previous year the credit such and has remained reserve shall not unpaid;

exceed fifteen per-

centum of the orig-

inal cost of such (vii) repayment of fixed assets; principal of any loan (ix) interest on advanced to the Board loans

advanced or deemed under s. 64 which be- to be advanced to comes due for payment the <ORG> under s. in the year or which be- 64 including arrear came due for payment of such interest; in any previous year

(x) the balance to and has remained be appropriated to unpaid; and if any fund be called the balance amount is left Development Fund thereafter, the same to be utilised for- shall be utilised for

(a) purposes bene- the other purposes ficial, in the opi- specified in s. 59 nion of the Board, in such manner as <ORG> may decide.

lopment in the (2) If for any reason <ORG>; beyond the control of (b) repayment of the Board, the revenue

loans advanced to receipts in any year the Board under s. are not adequate to 64 and required to meet its operating, be repaid; maintenance and Provided that where management expenses, no such loan is out taxes (if any) on in-

standing, one-half comes and profits and of the balance the liabilities referred aforesaid shall be to in clauses (i) and credited to the (ii)of sub-section(1), <ORG> the shortfall shall, of the <ORG>. with the previous sanction of the <ORG> Government, be paid out of its capital receipts.

Section 67B which was introduced by Act 16 of 1983 defers payment of interest on loans advanced by <ORG> until after all other expenses are met. It is in the following terms:

"67A Interest on loans advanced by State Govt. to be paid only after other Expenses. Any interest which is payable on loans advanced under section 64 or deemed to have been advanced under section 60 to the Board by <ORG> and which is charged to revenues in any year may be paid only out of the balance of the revenues, if any, of that year which is left after meeting all the other expenses referred to in sub-section (1) of section 59 and so much of such interest as is not paid in any year by reason of the provisions of this section shall be deemed to be deferred liability and shall be discharged in accordance with the provisions of this section in the subsequent year or years, as the case may be."

Now, <ORG> created under the provisions of the Electricity Supply Act is an instrumentality of the <ORG> subject to the same constitutional and public law limitations as are applicable to the government including the Principle of law which inhibits arbitrary action by the Government. (see <CITATION> ,  3 SCR

59). It is a public utility monopoly undertaking which may not be driven by pure profit motive not that profit is to be shunned but that service and not profit should inform its actions. It is not the function of the <ORG> to so manage its affairs as to earn the maximum profit even as a private corporate body may be inspired to earn huge profits with a view to paying large dividends to its shareholders. But it does not follow that the <ORG> may not and need not earn profits for the purpose of performing its duties and discharging its obligations under the statute. It stands to common sense that the <ORG> must manage its affairs on sound economic principles. Having ventured into the field of <ORG>, no public service undertaking can afford to say it will ignore business principles which are as essential to public service undertakings as to Commercial ventures. (see Lord <NAME> in <NAME> v. <ORG>, [1982] 1 ALL ER 129). If the <ORG> borrows sums either from the <ORG> or from other sources or by the issue of debentures and bonds, surely the <ORG> must of necessity make provision year after year for the payment of interest on the loans taken by it and for the repayment of the capital amounts of the loans. If the <ORG> is unable to pay interest in any year for want of sufficient revenue receipts, the <ORG> must make provision for payment of such arrear of interest in succeeding years. The <ORG> is not expected to run on a bare year-to-year survival basis. It must have its feet firmly planted on the earth. It must be able to pay the interest on the loans taken by it; it must be able to discharge its debts; it must be able to give efficient and economic service; it must be able to continue the due performance of its services by providing for depreciation etc; it must provide for the expansion of its services, for no one can pretend the country is already well supplied with electricity. Sufficient surplus has to be generated for this purpose. That we take it is what the <ORG> would necessarily do it was an ordinary commercial undertaking properly and prudently managed on sound commercial lines. Is the position any different because the <ORG> is the public utility undertaking or because of the provisions of the Electricity Supply Act ? We do not think that either the character of Electricity <ORG> as a Public Utility Undertaking or the provisions of the Electricity Supply Act preclude the <ORG> from managing its affairs on sound commercial lines though not with a profit-thirst. It may be noticed here that s. 18(a) prescribes it as one of the duties of the <ORG> to arrange for the supply of electricity that may be required within the <ORG> and for the transmission and distribution of the same, in the most efficient and economical manner and s. 49(2) (b) requires the <ORG> to have regard, in fixing uniform tariffs, the coordinated development of the supply and distribution of electricity within the <ORG> in the most efficient and economical manner, both with particular reference to those areas which are not for the time being served or adequately supplied with electricity. The principles of efficiency and economy are, therefore, not forsaken but resolutely emphasised. Now if we turn to s. 59 , what do we find? Though at one time it appears to have been thought that it was enough if the <ORG> did not carry on its operations at a loss it was realised that the statutory admonition to the <ORG> should be positive and not negative and that the <ORG> should be given an affirmative and self- assuring direction. So s. 59 was amended in 1978. The <ORG>ment of Objects and Reasons says.

"3. Section 59 of the Electricity (Supply) Act is proposed to be amended by clause 8 of the Bill to give a positive direction to <ORG> that after meeting all their expenses, there should be provision for a surplus for contribution towards immediate investment needs. A similar amendment is also proposed to be made in regard to <ORG> by inserting a new sub-section (3A) in section 75A by clause 18 of the Bill."

It was found that the 1978 amendment did not effectively improve matters as many State Government did not specify the quantum of surplus. <ORG> had, therefore, to intervene once again to fix a statutory minimum surplus. The Statement of Objects and Reasons relating to the 1983 amendment may also be extracted and it is as follows:

"Though section 59 of the Act, as amended in 1978, casts an obligation on the State Government has so far specied the quantum of any surplus. At present there is no uni-

formity in the manner of classification and presentation of accounts of the Boards and this renders inter-Board comparison of financial performance difficult. It is also considered necessary to re-arrange the priorities with regard to distribution revenues of the Boards. It is, therefore, proposed to amend the Act-

(a) to provide that each <ORG> shall have a surplus which shall not be less than three per cent, or such higher percentage as the State Government may specify, of the value of the fixed assets of the <ORG> in service at the beginning of the year;

(b) to re-arrange the priorities for distribution of revenues of the Boards;

(c) to bring the financial reporting system of the Boards in line with commercial accounting practice; and

(d) to empower with a view to securing uniformity in the manner of classification and presentation of accounts, <ORG> to prescribe the forms in which the accounts of the <ORG> and other records in relation thereto may be maintained."

A plain reading of sec. 59 (as amended in 1978) plainly indicates that it is the mandate of <ORG> that the Board should adjust its tariffs so that after meeting the various expenses properly required to be met a surplus is left. The original negative approach of functioning so as not to suffer a loss is replaced by the positive approach of requiring a surplus to be created. The quantum of surplus is to be specified by <ORG>. What <ORG> is to specify is the minimum surplus. This is made clear by the 1983 amendment which stipulates a minimum of 3 per cent surplus in the absence of specification by <ORG> which has the liberty to specify a higher percentage than three. That s. 59 , as it stood before 1983 contemplated a minimum surplus was also the view expressed by this court in <CITATION> (supra) where it was said, "Under the above provisions, the Board is under a statutory obligation to carry on its operations and adjust its tariffs in such a way to ensure that the total revenues earned in any year of account shall after meeting all expenses chargeable to revenue, leave such surplus as <ORG> may, from time to time, specify. The tariff fixation has, therefore, to be so made as to raise sufficient revenue which will not merely avoid any net loss being incurred during the financial year but will ensure a profit being earned, the rate of minimum profit to be earned being such as may be specified by <ORG>."

<NAME>, learned Counsel for the consumers placed great reliance on the observations of this Court in <CITATION> .,  1 SCR 552; <CITATION> ,  2 SCR 42 and <CITATION> .,  1 SCR 709 to contend that <ORG> was barred from conducting its operations on commercial lines so as to earn a profit. In the first case, the observations relied upon were.

"Furthermore, <ORG> are not trading corporations. They are public service corporations. They have to function without any profit motive. Their duty is to promote co- ordinated development of the generation, supply and distribution of electricity in the most efficient and economical manner with particular reference to such development in areas not for the time being served or adequately served by any licensee ( section 18 ). The only injunction is that as far as practicable they shall not carry on their operations at a loss ( section 59 ). They get subventions from the State Governments (Section

63). In the discharge of their functions they are guided by directions on questions of policy given by the State Governments ( Section 78A ). There are no shareholders and there is no distribution of profits."

In the second case the court observed, "<ORG> is not an ordinary commercial concern. It is a public service institution. It is not expected to make any profit. It is expected to extend the supply of electricity to unserved areas without reference to considerations of loss that might be incurred as a result of such extension."

In the third case where the court was considering the position of <ORG> it was observed, "<ORG> are a socialised public utility under taking. There is at present a general agreement among writers of repute that the price policy of such a <ORG> should neither make a loss nor a profit after meeting all capital charges and this is expressed by covering all costs or breaking even; and secondly, the price it charges for the services should correspond to relative costs. Keeping the history of the growth of the <ORG> and their functioning in view, the commendable view to accept may be that the rates and fares should cover the total cost of service which would be equal to operational expenses, interest on investment, depreciation and payment of public obligations, if any. We need not, however, express any opinion about it."

.................................................. ................................................. "We have said earlier that the <ORG> are a public utility service run on monopoly basis. Since it is a public utility, there is no justification to run it merely as a commercial venture with a view to making profits. We do not know-at any rate it does not fall for consideration here-if a monopoly based public utility should ever be a commercial venture geared to support the general revenue of the <ORG> but there is not an iota of hestitation in us to say that the common man's mode of transport closely connected with the free play of this fundamental right should not be. We agree that <ORG> should be free to collect the entire operational cost which would include the interest on the capital outlay out of the national exchequer. Small marginal profits cannot be ruled out. The massive operation will require a margin of adjustment and, therefore, marginal profits should be admissible."

We do not think that any of these observations is in conflict with what we have said. Pure profit motive, unjustifiable according to us even in the case of a private trading concern, can never be the sole guiding factor in the case of a public enterprise. If profit is made not for profit's sake but for the purpose of fulfilling, better and more extensively, the obligation of the services expected of it, it cannot be said that the public enterprise acted beyond its authority. The observations in the first case which were referred to us merely emphasised the fact that <ORG> is not an ordinary trading Corporation and that as a public utility undertaking its emphasis should be on service and not profit. In the second case, for example, the court said that it is not expected to make any profit and proceeded to explain why it is not expected to make a profit by saying that it is expected to extend the supply of Electricity to unserved areas without reference to considerations of loss. It is of interest that in the second case, dealing with the question whether interest cannot be taken into account in working out profits, the court observed, "The facile assumption by the <ORG> that the interest should not be taken into account in working out the profits is not borne out by the provisions of the statute."

In the third case, the court appeared to take the view that the railway rates and fares should cover operational expenses, interest on investment, depreciation and payment of public obligations. It was stated more than once that the total operational cost would include the interest on the capital outlay out of the national exchequer. While the court expressed the view that there was no justification to run a public utility monopoly service undertaking merely as a commercial venture with a view to make profits, the court did not rule out but refrained from expressing any opinion on the question whether a public utility monopoly service undertaking should ever be geared to earn profits to support the general revenue of the <ORG>.

One of the submissions which found favour with <ORG> and which was seriously pressed before us was that in the absence of specification by <ORG> the position would be as it was before the 1978 amendment, that is, the Board was carry on its affairs and adjust the tariffs in such a manner as not to incur a loss and no more. We do not agree with the submission for the reasons already mentioned.

We may also refer here to the decision of <ORG> in <CITATION> , AIR 1944 PC 71 which affirmed the Judgment of <ORG> in Madras and Southern Maharatta Railway Com-

pany <CITATION> 1941 Madras 897. One of the questions there raised was whether in the absence of rules made by the State Government, <ORG> was entitled to determine the capital value of property in the face of a provision which stated, "Provided that such percentage or rates shall not exceed the maxima, if any, fixed by <ORG> and that the capital value of such lands shall be determined in such manner as may be prescribed."

<ORG>, in that case had observed, and we agree with what had been said, "We cannot accept the contention of the appellant that, merely because <ORG> has not prescribed the manner in which the capital value should be determined, the municipal council is deprived of the power of levying the tax under section 81(3) .... the omission of the rule-making authority to frame rules cannot take away the right of the municipal council to levy tax at the rate mentioned in the notification issued under clause 3. If, for instance, <ORG> refrained from prescribing the manner in which the value of such lands should be determined, it cannot, we think, be said that the municipal council has no power at all to levy the tax at a percentage of the capital value merely because the method of determining the capital value has not been prescribed by <ORG>. If <ORG> does not prescribe it, then the municipal authority is free in our opinion to fix it in any manner it chooses."

We are of the view that the failure of the Government to specify the surplus which may be generated by the <ORG> cannot prevent the <ORG> from generating a surplus after meeting the expenses required to be met. Perhaps, the quantum of surplus may not exceed what a prudent public service undertaking may be expected to generate with out sacrificing the interests it is expected to serve and without being obsessed by the pure profit motive of the private enterpreneur. The <ORG> may not allow its character as a public utility undertaking to be changed into that of a profit motivated private trading or manufacturing house. Neither the tariffs nor the resulting surplus may reach such heights as to lead to the inevitable conclusion that the <ORG> has shed A its public utility character. When that happens the <ORG> may strike down the revision of tariffs as plainly arbitrary. But not until then. Not, merely because a surplus has been generated, a surplus which can by no means be said to be extravagant. The court will then refrain from touching the tariffs. After all, as has been said by this court often enough 'price fixation' is neither the forte nor the function of the court.

The occasional excursions that have been made into that field were at the request and by the agreement of the parties. This was made clear by a Constitution Bench of seven judges of this <ORG> in Prag Ice and oil <CITATION> ,  3 SCR 293 where it was said, "It is customary in price fixation cases to cite the oft quoted decision in <ORG> & Anr. etc. vs. <ORG> which concerned the fixation of price of motor cars. It is time that it was realized that the decision constitutes no precedent in matters of price fixation and was rendered for reasons peculiar to the particular case. At page 535 of the Report <NAME>, J., who spoke for <ORG>, stated at the outset of the judgment. "Counsel for all the parties and the learned Attorney General are agreed that irrespective of the technical or legal points that may be involved, we should base our judgment on examination of correct and rational principles and should direct deviation from the report of the <ORG> which was an expert t body presided over by a former judge of <ORG> only when it is shown that there has been a departure from established principles or the conclusions of the <ORG> are shown to be demonstrably wrong or erroneous." By an agreement of parties the court was thus converted into a Tribunal for considering every minute detail relating to price fixation of motor cars. Secondly, as regards the escalation clause the <ORG> recorded at page 543 that it was not ,,, disputed on behalf of the <ORG> and the Attorney General accepted the position, that a proper method should be devised for escalation or de-escalation. Thirdly, it is clear from page 544 of the Report that the Learned Attorney-General also agreed that a reasonable return must be allowed to the manufacturers on their investment. The decision thus proceeded partly on an agreement bet-

ween the parties and partly on concessions made at the <ORG>. That is the person why the judgment in <ORG> mobiles (supra) cannot be treated as a precedent and can not afford any appreciable assistance in the decision of price fixation cases."

The position was again clarified in <CITATION> (supra):

"As pointed out by this Court in Prag Ice & oil <CITATION> , in the ultimate analysis, the mechanics of price fixation is necessarily to be left to the judgment of the executive and unless it is patent that there is hostile discrimination against a class of person, the processual basis of price fixation is to be accepted in the generality of cases as valid."

On the question of appropriate pricing policy we may conveniently refer, at this juncture to what <ORG> had to say in the Seventh Five Year Plan. At page 128 of Vol. II in para 6.31 it was said, "6.31 The Sixth Plan had emphasised the need to give high priority to the evolution of a structure of energy prices which reflect true costs, curb excessive energy use and pro mote conservation of scarce fuels. Except in the case of oil, timely adjustments have not been made in the prices of coal and electricity to reflect the real costs. Energy pricing has not promoted, to the desired extent, inter-fuel substitution. Energy users have generally not adopted conservation measures already identified. While action is being taken to L promote technologically energy-efficient equipment and processes on the one hand, appropriate energy pricing policy would have to be followed, on the other hand, in order to induce economics in the use of energy in all sectors and encourage desired forms of inter-fuel substitution, including renewable energy wherever viable. The pricing of energy should not only reflect the true costs to the economy but also help to ensure the financial viability of the energy industries. This is particularly relevant in respect of coal and power industry. As we have said in the past, it is wrong to think that an adjustment in the prices of a basic input like energy would aggrevate the inflationary A situation; the costs to the economy are not reduced by not reflecting them in proper pricing. Indeed the continuance of wrong pricing policy has a far more deleterious effect on the health of the economy than is often realised. The formulation of an integrated energy pricing structure on the above lines should receive the highest priority in the beginning of the Plan period."

Turning back to sec. 59 and reading it along with sections 49 , 67 , 67A etc. we notice that the Electricity Supply Act requires <ORG> to follow a particular method of accounting and it is on the basis of that method of accounting that the <ORG> is required to gene- rate a surplus. Broadly, sec. 59 requires that a surplus should be left from the total revenues, in any year of account, after meeting all expenses properly chargeable to revenues. It has to be remembered that apart from subventions which may be received from the State <ORG>, which depend entirely on the bounty of the <ORG>, the only revenues available to the <ORG> are the charges leviable by it from consumers. Bearing this in mind, we may now consider what expenses are properly chargeable to revenues under the Electricity Supply Act . For this purpose, we may not be justified in having recourse to the principles of corporate accounting or the rules which determine what is revenue expenditure under the Indian Income-tax Act . It appears to us that the Electricity Supply Act prescribes its own special principles of accounting to be followed by the <ORG>. To begin with s. 59(1) specifies 'operating maintenance and management expenses' 'taxes (if any) on income and profits', 'depreciation and interest payable on all debentures, bonds and loans', as included in 'expenses properly chargeable to revenues'. Section 59(2) further stipulates that in specifying the surplus, the <ORG> shall have due regard to the availability of amounts accrued by way of depreciation and the liability for loan amortization. It also stipulates that a reasonable sum to contribute towards the cost of capital works and a reasonable sum by way of return on the capital provided by the State <ORG> should be left in the surplus. This sub-section, therefore makes it clear that the <ORG> is to provide for (1) loan amortization (2) contribution towards the cost of capital works; (3) return on the capital. We may now turn to s. 67 which prescribes the priority to be observed by the <ORG> in the matter of discharging the liabilities enumerated therein out of its revenues. First the operating maintenance and management expenses have to be met, next provision has to be made for payment of taxes on Income and Profits and thereafter various items of expenditure are mentioned in order of priority. If any amount is left after the discharge of the liabilities enumerated in s. 67 it is further provided that the balance shall be utilised for the other purposes specified in s. 59 in such manner as the <ORG> may decide. Payment of interest is expressely mentioned among the liabilities to be discharged, as also repayment of principal of loans becoming due for payment in the year. Clause (vi) of sub-section (1) of sec. 67 makes it clear that repayment of principal of any loan guaranteed by the State <ORG> will include loans which became due for payment in the year as well as loans which became due for payment in any previous year and had remained unpaid. The submission strenuously urged on behalf of the consumers before <ORG> and before us was that while interest which accrued during the year might be properly considered to be revenue expenditure, arrears of interest which accrued during the previous years and had not been paid could not be so considered. We fail to see why that should be so. Under the scheme of the Act principal amount falling due in any year has to be met from the revenue receipts of the year. It is difficult to understand how any payment towards principal could be made or accepted. If interest of previous years continued to be outstanding. The very provision for repayment of capital necessarily implies payment of all interest accrued upto the date of repayment of the capital. If as argued on behalf of the consumers arrears of interest cannot be paid from revenue receipts, how then may such arrears be paid? Not from the capital receipts. What may be paid out of capital receipts and the circumstances under which the payment may be made are expressly provided in s.67(2) which says that if for any reason beyond the control of the <ORG> the revenue receipts in any year are not adequate to meet the operating, maintenance and management expenses, taxes on income and profits, and the liabilities referred to in clauses (i) and (ii) of s. 67(1) , then the shortfall shall be paid out of its capital receipts with the sanction of the State <ORG>. We do not therefore, have any doubt that arrears of interest are, under the scheme of accounting contemplated by the Act, required to be paid out of revenue receipts of the <ORG> and are expense properly chargeable to revenues within the meaning of that expression in s. 59 of the Act. The <ORG> has presently clarified the position by the amending Act 16 of 1983 which came into force from April 1, 1985. By this Act a separate section, s. 67A has been introduced along with a consequential amendment of s. 67 providing that interest on loans advanced under s. 64 or deemed to have been advanced under s. 60 , which is charged to revenues in any year may be paid out of revenue receipts of a year only after all other A expenses referred to in s. 59(1) are met and further providing that so much of interest as is not paid in any year by reason of the priority mentioned in s. 67A shall be deemed to be a deferred liability to be discharged in accordance with provision of s. 67A in the subsequent year or years. In our view these provisions show beyond doubt that payment of arrears of interest is an expense properly chargeable to the revenues under the scheme of the Act.

We may now assess the factual situation, <NAME>, learned counsel for <ORG> has placed before us statements containing details of interest payable in each year of accounting, the arrears of interest due and payable, the total revenue receipts and some other relevant particulars. The statements have been prepared, taking the figures from the published annual accounts of <ORG>. In the year of account 1978-79, the total revenue receipts were Rs.8421.75 lakhs out of which the revenue earned by sale of energy to neighbouring States was Rs.2926.73 lakhs. After meeting operation and maintenance expenses and depreciation the balance of revenue receipts was Rs.4161..60 lakhs. The amount of interest payable in the year of account was Rs.1946.37 lakhs. The revenue surplus left after payment of interest in the year of account was therefore, Rs.2215.23 lakhs. The arrears of interest accrued in previous years and not paid was Rs.4270.58 lakhs, since the revenue surplus available after meeting the current interest was Rs.2215.23 lakhs only there was a deficit of Rs.2055.35 lakhs. In the year of account 1979-80 the total revenue receipts were Rs.9124.90 lakhs which included revenue of Rs.3856.15 lakhs from sale of energy to neighbouring States. After meeting operation and maintenance expenses and depreciation the revenue surplus left was Rs.3253.94 lakhs. The interest which became payable in the year of account was Rs.2107.85 lakhs and after meeting it, the revenue surplus left was Rs.l146.09 lakhs. The old arrears of interest which could not be met fully in the previous year was Rs.2055.35 lakhs. Thus in the year of account year 1979-80, there was a deficit of Rs.909.27 lakhs. In the year of account 1980-81 the total revenue receipts were Rs.10,686.54 lakhs and this included a sum of Rs.4326.92 lakhs earned by sale of energy to neighbouring States. After meeting the operation and maintenance expenses and depreciation the revenue surplus left was Rs.3615.90 lakhs and after meeting interest of Rs.2369.42 lakhs which had become payable in the year of account a revenue surplus of Rs.1246.48 lakhs was left. The unpaid interest of previous years was Rs.909.27 lakhs and after meeting it we find for the first time a net surplus of RS.337.21 lakhs. In the year of account 1981-82 the total revenue receipts were RS.12,144.02 lakhs which included revenue of RS.4532.42 lakhs from sale of energy to neighbouring States. After meeting operation and maintenance expenses and depreciation; there was a revenue surplus of RS.3183.77 lakhs. The total interest payable in the year of account was RS.3105.15 lakhs, this left a revenue surplus of RS.78.62 lakhs and since there was no arrears of interest what was payable the net revenue surplus was 78.62 lakhs. In the year of account 1982-83 the total revenue receipts were RS.11,228.40 lakhs which included revenue of RS.1948.63 lakhs from sale of energy to neighbouring States. After meeting operation and maintenance expenses and depreciation the revenue surplus left was RS.2810.60 lakhs. The interest which was payable in the year of account was RS.3187.62 lakhs and thus left a net revenue deficit of RS.376.76 lakhs. In the year of account 1983-84, the total revenue receipts were RS.10,518.35 lakhs including revenue of RS.175.76 lakhs from sale of energy to neighbouring States. The revenue surplus after meeting operation maintenance expenses and depreciation was RS.2246.30 lakhs. The amount of interest which had become payable was RS.3426.53 lakhs, the arrears of interest was RS.376.76 lakhs leaving a total deficit of RS.1556.99 lakhs. We may mention here that the annual account for the year 1978-79 to 1983-84 have been certified by <ORG> and the annual accounts for the year 1984-85 are awaiting certification. The accounts awaiting certification show that in the year of account 1984-85, the revenue receipts after meeting operation and maintenance expenses and depreciation were 4692.92 lakhs, while the interest which had become payable during the year was RS.3719 and the interest of the previous year Rs. 1556.99 lakhs this left a deficit of RS.584.OO lakhs. The revised estimates for the year 1985-86 show a revenue surplus of RS.5567.00 lakhs after meeting operation and maintenance expenses and depreciation. The interest payable during the year was RS.4574.80 lakhs and the interest of previous year was RS.584 lakhs. The left a surplus of RS.409.00 lakhs. These figures show that 1978- 79,1979-80, 1980-81 & 1981-82 were extraordinary years when there was a boom in the sale of energy to neighbouring States consequent on the conditions prevailing there. In those years also it would be seen from the accounts that but for the boom in the sale of energy to neighbouring States there would have been a serious deficit in every one of those years. It is clear that <ORG> has not been earning huge profits and generating large surpluses, as suggested by the consumers. Once we arrive at this position that there is hardly any revenue surplus left after meeting the expenses required to be met by s. 59, the complaint of the A consumers that there was no justification for the tariff increase because of large surpluses earned by the <ORG> loses all force.

We have examined the two reports of <ORG> of the years 1980 and 1982 and the revised tariffs based on those reports in the light of the legal and factual position explained by us. Before the 1980 revision, the prevailing rates were, Extra High Tension: 8.81 ps per unit, High Tension Industrial: 14.98 ps per unit, Low Tension Domestic: 38 ps per unit, Low Tension Industrial: 14.15 ps per unit, <ORG>: 38 ps per unit, <ORG> 14.15 ps per unit, <ORG> worked out the cost per unit at 10.9, 18.6, 57.5, 43.5, 56.5 and 53.5 ps per unit respectively in that order, but recommended, in the same order, 11.55, 21.4, 38,27.5, 74 and 18 ps per unit respectively. However, the actual tariff rates as introduced in 1980 were l0.8, 18.24, 38, 24.5, 66 and 15 ps per unit. The 1982 <ORG> recommended rates of 24.5, 37.3, 47.5, 48, 55-70 and 34 ps per unit. The actual tariff introduced in 1982 was 17.65, 27.24, 42.5, 24.5, 50-70 and 15 ps per unit. We notice that in the case of Low Tension Domestic and Agricultural consumers, the change is minimal. In the case of Extra High Tension and High Tension Industrial Consumers, the change effected by the 1980 revision was minimal but on the higher side in 1982. In the case of Low Tension Industrial and Commercial Consumers, the change effected in 1980 was very steep but tended to come down in 1982. On the whole, it cannot possibly be said that the rates have been so fixed by <ORG> as to throw a heavy burden on any section of the consumers without regard to their ability to pay without regard to the nature of the supply and purpose for which the supply is required. Now do we find that the principle of uniformity of tariffs has in any way been l: sacrificed. But, as we mentioned a little earlier the Low Tension Industrial and Commercial Tariff was subjected to a very steep rise in 1980 and brought down again in 1982 apparently in recognition of the fact that the raise had been too steep in regard to them in 1980. In the case of Low Tension Industrial Consumers, the tariff was increased from 14.5 ps per unit to 24.5 ps per unit in 1980 and maintained at the rate of 24.5 ps per unit in 1982. In the case of <ORG> Consumers, the tariff was increased from 38 ps per unit to 66 ps per unit in 1980 but brought down again considerably in 1982 to 50.70 ps per unit. The very circumstance that the tariff was either brought down or maintained at the same level in 1982 when compared with the 1980 tariff appears to be an indication that the increase in 1980 was thought by the Board itself to be rather steep. We have already noticed that 1980-81 and 1981-82 were the years when the accounts of <ORG> recorded a net surplus after meeting all expenses including interest charges. In the circumstances, we think that it is desirable that the Board may re-consider the 1980 tariff for <ORG> and Low Tension Industrial Consumers.

<NAME> submitted that the 1980 <ORG> took place consideration the anticipated augmentation of the generating capacity from the proposed new power stations of Idukki, Saharigiri and Idamalyar, whereas these projects were not commissioned till 1984 and thus the cost-structure arrived at by the <ORG> was vitiated. We do not think so. From the figures supplied to us we find that notwithstanding the failure to commission the new projects, there was no shortfall in the production of energy. A large part of expenditure involved in the setting up of the new projects had to be met in the several years preceding the actual commissioning of the projects. Therefore, it is not correct to say that the cost structure arrived at by the <ORG> was in any way affected by the non-commissioning of the new projects between 1980 and 1982. Another submission made by <NAME> was that the <ORG> erred in not taking into account the financial position of the <ORG> as brought out by the year 1978-79 which showed that the <ORG> had already turned the corner and that there was therefore no need for enhancing the rates. This submission is again without substance. As we mentioned earlier, the rise in revenue receipts in the year 1978-79 due to the unprecedented sale of energy to neighbouring states, a special situation which was the result of peculiar circumstances which prevailed that year and continued to prevail for a few years thereafter. The sale of energy to neighbouring States was not to l be taken as a permanent phenomenon to every year. Yet another submission of <NAME> was that the 1980 <ORG> having taken as the basis the 1982 projected cost so as to maintain price stability for a period of five years, it was not proper to revise the tariff again in 1982 But we find that the actual cost of producing energy in 1981-82 and 1982-83 had risen much above the projected 1982 cost and therefore the 1982 <ORG> has no option but to again consider further revision of the tariff. We are not delving into more details as we are satisfied that it is not within our province to examine the price structure in minute detail if we are satisfied that the revision of tariff is not arbitrary and is not the result of the application of any wrong principle. Relying upon the observation, "It would have been manifestly unjust and discriminatory that one consumer should benefit at the cost of other consumers or general tax payers;" made in D.C.M. v. Rajasthan State Electricity <ORG>, [1986]2 SCC 431 it was argued by <NAME> that it was not open to the <ORG> to give favoured treatment to Low Tension Domestic and Agricultural Consumers at the cost of the rest of the consumers. We do not find any force in this submission. Section 49 (3) expressly reserves the power of the <ORG>, if it considers it necessary or expedient, to fix different tariff for the supply of electricity to any person having regard to the geographical l,, position of any area, the nature of the supply and purpose for which supply is required and other relevant factor. Different tariffs for High and Low Tension Consumers and for different classes of consumers, such as, Industrial, Commercial, Agricultural and Domestic have been prescribed and the differention appears to us to be reasonable and far from arbitrary and to be based on intelligent and intelligible criteria.

In the result, we allow the appeals filed by <ORG>, set aside the judgments of <ORG>, uphold the validity of the notifications revising the tariffs and dismiss the writ petitions filed in <ORG>, subject to direction that <ORG> will reconsider the revised tariff introduced in 1980 in regard to Low Tension Industrial and Low Tension Commercial Consumers only, with liberty to fix separate rates, if necessary for the years 1980 and 1981. This direction will not affect the 1982 and 1984 tariff revisions. There will be no order regarding costs.

<ORG> allowed.