1999 (4) TMI 21 - HC - Income Tax

Summary

Issues:
- Deductibility of additional price paid for cane purchase and additional purchase tax as a deduction for the accounting year ending September 30, 1981.

Analysis:
The judgment pertains to the deductibility of an additional price paid for cane purchase and additional purchase tax by a sugar mill for the accounting year ending September 30, 1981. The assessee claimed that the additional price paid should be allowed as a deduction for that year. The Income-tax Officer initially disallowed the deduction, stating that the amount paid should be accounted for in the year of payment, not when the cane was received. However, the appellate authority and the Tribunal ruled in favor of the assessee, leading to the Revenue seeking reference on the matter.

The State Government had directed all sugar mills to pay an additional price for cane supplied during the previous year. The assessee, a sugar mill, paid this additional price and the purchase tax on it after the accounting year ended. The court noted that the liability for the payment of additional price and tax arose from receiving the cane in the previous year, even though the payment was made and quantification was done later. The judgment emphasized that liabilities for tax, even if determined after the accounting year, should be considered to relate back to when the liability was incurred, ensuring accurate reflection of profits in the accounts.

The court highlighted the importance of maintaining accounts in the mercantile system to reflect incurred liabilities properly for profit determination. It emphasized that liabilities accrued during a specific year must be considered in that year's profit computation, as the objective of taxation is to tax profits based on commercial practices. The judgment emphasized that the assessee, having accepted the liability as part of the price for the cane received in the preceding year and paid the tax, should be allowed to claim the deduction in the relevant accounting year.

Ultimately, the court ruled in favor of the assessee, stating that the quantification of liability after the accounting year does not disentitle the assessee from claiming the deduction for that year. The liability was deemed to have arisen in the relevant accounting year and needed to be considered for income computation. The judgment favored the assessee and ruled against the Revenue, allowing the additional price paid for cane purchase and additional purchase tax to be deducted for the accounting year ending September 30, 1981.