AROORAN SUGARS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The following two common questions of law have been referred to us for our consideration in respect of the asst. yrs. 1974-75, 1975-76 and 1978-79:

(2.) The assessee is a manufacturer of sugar in its factory. The assessee also grows sugarcane in its own lands and the sugarcane so grown is utilised in the manufacture of sugar. The case of the assessee before the ITO was that the income taxable under the IT Act, 1961 (in short 'the Act') should be computed by applying r. 7(2)(b) of the IT Rules, 1962 (in short 'the Rules'). Both the ITO and the CIT(A) rejected the claim of the assessee. The Tribunal, on an appeal preferred by the assessee also rejected the claim of the assessee on the basis of a judgment of this Court rendered in the assessee's own case in CIT vs. Thiru Arooran Sugars Ltd.,1983 36 CTR(Mad) 276 :, (1983) 144 ITR 4 for an earlier assessment year. The finding of the Tribunal was that while computing the income chargeable to income tax under the heads profits and gains of business, the deduction has to be made in accordance with r. 7(2)(a) of the Rules. It is also not in dispute that the Supreme Court in Thiru Arooran Sugars Ltd. vs. CIT, 1997 227 ITR 432 affirming the judgment of this Court in CIT vs. Thiru Arooran Sugar Ltd. (supra) held that r. 70(a) of the Rules would squarely apply to the facts of the case and the market value of the sugarcane produced and consumed by the assessee had to be computed accordingly. Following the said decision of the apex Court, we answer the first question of law referred to us by holding that the Tribunal was correct in holding that while computing the income chargeable to income-tax under the heads profits and gains of business, the deduction should be made in accordance with the provisions of r. 7(2)(a) of the Rules. Accordingly, we answer the first question of law referred to us in the affirmative and against the assessee.

(3.) In so far as the second question of law is concerned, the assessee claimed depreciation of the farm assets, after the income chargeable to income-tax under the Act was determined in accordance with r. 7 of the Rules. Both the ITO as well as the CIT(A) rejected the claim of the assessee holding that the assessee was not entitled to depreciation on farm assets. The Tribunal on consideration of r. 7(2)(a) of the Rules came to the conclusion that the income assessable under the Act was determined in accordance with r. 7 of the Rules an d no further deduction shall be made from the income so computed and thereafter the assessee was not entitled to the depreciation as claimed.