COMMISSIONER OF INCOME TAX1 Vs. SARVARAYA SUGARS LIMITED

JUDGEMENT

(1.) The ITAT referred the following six questions of law under s. 256(1) of the IT Act :

(2.) The first question of law above referred relates to the asst. yr. 1972-73 as well as 1973-74, whereas, questions 2 to 6 relate only to the asst. yr. 1973-74. We have heard the ld. standing counsel for the revenue and also Sri Parvatha Rao, ld. counsel for the assessee. It is represented that questions 1, 2 and 3 are covered in favour of the assessee by a decision of this court in R.C. 117/79 dt. 9-10-1984. We accordingly answer these three questions in the affirmative, that is, in favour of the assessee and against the revenue. We are also informed that questions No. 6 is concluded by a decision of this court in Addl. CIT, A.P. v. Maddi Venkataratnam and Co. Ltd. 1977 CTR (AP) 18 : (1979) 119 ITR 514 (AP). We accordingly answer question No. 6 also in the affirmative that is, in favour of the assessee and against the revenue.

(3.) That leaves questions 4 and 5 relating the asst. yr. 1973-74. Both these questions relate to the same matter and represent different aspects of the same question arising for consideration. A few facts may be noticed. The assessee carries on business in the manufacture and sale of sugar. The accounting year relevant for the asst. yr. 1973-74 ended on 30-9-1972. During the period 1-10-1971 to 30-9-1972 the assessee purchased 1,95,753 tons of sugarcane. Under a scheme drawn by the State Government the State Government directed the sugar manufacturers to part with a portion of the extra consideration received on the sale of sugar to the cane growers. Following the above scheme, the Board of Directors of the assessee company passed a resolution on 26-9-1972 to pay to the cane growers at Rs. 90 per ton in respect of the sugarcane supplied during the accounting year relevant for the assessment year under consideration. It appears, when the resolution was passed on 26-9-1972, the exact amount payable to the sugarcane growers was not determined with reference to the formula devised by the State Government, as, by that time, the amount of consideration realised on the sale of sugar was not fully known. All the same, the assessee-company having accepted the principle to part with a portion of the sale consideration realised in favour of the cane growers in accordance with the formula fixed by the State Government, the price was tentatively fixed in the resolution dt. 26-9-1972 at Rs. 90 per ton. After the end of the accounting year on 30-9-1972, the assessee made up the accounts and found the actual amount realised on sale of sugar and applying the formula devised by the State Government, it found that the price payable to the cane growers was Rs. 94 per ton instead of Rs. 90 as was tentatively determined in the resolution dt. 26-9-1972. On 12-2-1973, before the accounts for the previous year relevant to the asst. yr. 1973-74 were made up, the Board of Directors passed another resolution to pay to the cane growers at the rate of Rs. per ton in respect of 1,95,753 tons of sugarcane purchased during the accounting year relevant for the assessment year under consideration. The extra price payable with reference to the resolution dt. 12-2-1973 is stated to be Rs. 7,83,102 (the correct figure appears to be Rs. 7,83,012). The assessee-company claimed deduction of this amount out of its income from business for the assessment year under consideration. The claim was rejected on the ground that the amount became payable pursuant to the resolution on 12-2-1973 which was after the close of the accounting year and, therefore, the liability to pay the said amount did not accrue before the close of the accounting year relevant for the assessment year under consideration. The assessee-company carried the matter in appeal and it transpires that the ITAT accepted the claim of the assessee company for deduction of the sum of Rs. 7,83,102 on the ground that the principle to pay the cane growers a portion of the sale price was determined by the resolution dt. 26-9-1972 and the quantification pursuant to the acceptance of the above principle was done on 12-2-1973. The Tribunal held that the mere postponement of quantification did not postpone the accrual of liability also. Aggrieved by the decision of the Tribunal direction the allowance of the above expenditure, the CIT had questions 4 and 5 referred to this court, under s. 256(1) of the IT Act.