GRASIM INDUSTRIES LTD. Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) By an order dated 8th August 1989, passed under Section 256(1) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal has referred the following question of law for the opinion of this Court:

(2.) Pursuant to its policy to attract industrial investment in the State, the Government of Kerala granted a concession in 1958 to Gwalior Rayon Ltd (the earlier name of the assessee) to fell and remove bamboos from the Nilamber valley for conversion into rayon grade wood pulp. Agreements were entered into between the assessee and the Government of Kerala. The Company purchased three lakh acres of private forest and planted eucalyptus for use as raw material on an undertaking by the Government not to acquire the forest for a period of sixty years. In 1963, the Company set up a plant at Calicut for the manufacture of rayon grade wood pulp. The raw material required for the plant consisted of forest produce, namely, bamboo, reed and eucalyptus. The Government of Kerala agreed to provide any shortfall in the raw material from other areas. The rate of seigniorage was fixed at Re. 1 per ton. In 1971, private forests in the State of Kerala were nationalized by the Kerala Private Forests (Vesting and Assignment) Act, 1971. Upon the enforcement of the Act, there was no private forest in the State of Kerala and all forest produce had to be purchased from the Government alone. On 10th July 1971, an agreement was entered into between the Company and the State Government for the supply of raw material, including eucalyptus at approximately Rs.23 per ton. The State Legislature enacted the Kerala Forest Produce (Fixation of Selling Price) Act, 1978, by which the Government was required by notification to fix the selling price of all forest produce (Section 3) and all forest produce was required to be sold at a price not less than the notified price (Section 5). The Government of Kerala issued a notification fixing prices of forest produce on 9th March 1979 and thereafter, for the period ending on 31st March 1981 and for the period commencing from 1st April 1981, being the previous year relevant to the Assessment Year 198283. The validity of these notifications was questioned by the Company in a Writ Petition filed before the Kerala High Court.

(3.) The Company had been allowed a deduction of the following amounts, including interest, during the course of Assessment Years <p>198081, 198182 and 198283: A.Y. 198081 (y/e 31.3.80) 93,89,183 A.Y. 198182 (y/e 31.3.81) 72,13,634 A.Y. 198283 (y/e 31.3.82) 9,29,783 1,75,32,600