SYNBIOTICS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) At the instance of the assessee, M/s Synbiotics Limited, Ahmedabad, the Income Tax Appellate Tribunal, Ahmedabad, Bench "C" has made this Reference in relation to Income tax Appeal No.1452/Ahd/1985 relating to assessment year, 1981-82, the following questions for opinion of this Court;

(2.) The short facts necessary for disposal of the present Reference are that the assessee is a limited company carrying on business of manufacturing and selling chemicals and pharmaceuticals. The assessee, in the course of its business, manufactures antibiotics namely Streptomycin and Tetracycline on bulk basis, which accounts for more than 90% of the production. In the year under consideration (assessment year 1981-82), the antibiotic production was 1,75,038 kgs. During assessment proceedings, the assessee claimed by way of deduction a sum of Rs. 1,34,65,048.00 being demand of Government under Drug Price Control Order for payment to Drug Price Equalisation Account (hereinafter referred to DPCO and DPEA for short) on the ground that Streptomycin being manufactured by the assessee in bulk is covered under DPCO and paragraph 7 of DPCO provides that Government may fix the pooled price for a bulk drug covered by it and a retention price for individual manufacture of the said bulk drug. Paragraph 17 of the DPCO provides that manufacturer shall pay into the DPEA the difference between the pooled price and the retention price on the quantity of the bulk drug manufactured and sold by him. The assessee asserted before the Assessing Officer that Government of India vide its letter dated 10-6-1980 called upon the assessee to pay into DPEA such difference and the total demand raised by the Government upto 31-3-1981 at Rs. 1,34,05,048.00, they were entitled to deduction of the said amount from their income. The Assessing Officer observed that the assessee had charged only the retention price from Sarabhai Chemicals, a sister concern to whom the Streptomycin was sold and the liability could not be quantified in the absence of difference between selling price and the retention price. It was also observed that the assessee company had contested the demand made by the Government by throwing a challenge in form of a writ application before the High Court of Delhi in January, 1981. The Assessing Officer observed that the said demand had not been entered into the books of account, therefore, the claim of the assessee could not be granted. Being dissatisfied with the said assessment order, the assessee appealed before the CIT (Appeals), the same grounds were raised and it was submitted that liability to pay the aforesaid demand of Rs. 1,34,05,048.00 was for the period ending on 31-3-1981 and, as the same was admissible, even though, disputed by the assessee and unpaid but in view of the judgment of the Supreme Court in the matter of Kedarnath Jute Manufacturing Co. v. CIT (Central) Calcutta 1971 (82) ITR 363, the assessee was entitled for such deduction. The learned CIT (Appeals) did not concede to the submission and proposed to distinguish the judgment of the Hon'ble Supreme Court. The matter was taken up in further appeal on the same grounds. After considering the facts and rival submissions, the Tribunal opined that as the assessee had filed the writ before the Hon'ble High Court of Delhi challenging the very demand of Rs. 1,34,05,048.00 and obtained the stay against the demand, then the said amount could not be treated as a liability. The Tribunal also distinguished the above referred judgment of the Supreme Court and dismissed the appeal. The assessee being aggrieved by the said judgment of the Tribunal, made an application under Section 256(1) of the Income Tax Act, 1961 on certain proposed questions. The Tribunal after hearing the parties in Reference Application Nos.625/Ahd/1987 and 1677/Ahd/1994, referred the question Nos.1 and 2, as proposed by the assessee and also referred the third question after redrafting the same.

(3.) So far as the first question is concerned, we must immediately observe that an identical question has been answered by Apex Court in 227 ITR 464, Additional Commissioner of Income Tax v. Akkamamba Textiles Ltd and 227 ITR 465, Commissioner of Income Tax v. Sivakami Mills Ltd. In both of the said judgments, the Supreme Court has observed that the guarantee commission paid to the banker and the insurance company for ensuring deferred payment of purchase consideration of machinery would constitute revenue expenditure. In light of the said two authoritative pronouncement of the Supreme Court, the question No.1 is necessarily to be answered in favour of the assessee.