1974 (4) TMI 14 - HC - Income Tax

Summary

Issues:
1. Deduction claimed by the assessee under the price-linking formula.
2. Accrual of liability for additional sugarcane price.
3. Dispute regarding the liability and accounting treatment.
4. Interpretation of relevant legal provisions and case laws.

Analysis:
1. The assessee, a sugar manufacturing company, claimed a deduction of Rs. 1,00,000 in each of the assessment years 1960-61 and 1961-62 as deferred cane price under the price-linking formula in accordance with the Sugarcane Control Order, 1955. However, the claim was initially rejected by the Income-tax Officer, and subsequent appeals upheld this decision. The main issue was whether the claimed deduction was valid under the law.

2. The key question revolved around the accrual of liability for the additional sugarcane price during the relevant assessment years. Case law, including Commissioner of Income-tax v. Janki Sugar Mills Co. Ltd. and Kundan Sugar Mills v. Commissioner of Income-tax, established that the liability under the Sugarcane Control Order accrued as soon as the sugarcane was purchased and the minimum price was fixed. In this case, both events occurred during the assessment years in question, confirming the assessee's liability.

3. The dispute arose regarding the accounting treatment of the liability and whether the failure to record the liability in the profit and loss account affected its accrual. The revenue argued that the absence of entries in the accounts indicated a lack of accrued liability. However, legal precedents, such as Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax, clarified that the existence of entries in the books of account does not determine the accrual of liability if it is legally established. The case of Commissioner of Income-tax v. Poonam Chand Trilok Chand further supported this principle by allowing deductions even if the expenditure was not actually expended but the liability accrued.

4. In conclusion, the court ruled in favor of the assessee, confirming the accrual of liability for the additional sugarcane price and allowing the deduction claimed. The judgment emphasized that the legal accrual of liability is independent of accounting entries and must be recognized for tax purposes. The decision was based on a thorough analysis of relevant legal provisions, case laws, and the specific circumstances of the case.