1992 (1) TMI 146 - AT - Income Tax

High Court Income From Business Interest On Excess Collection Mercantile System Sugar Manufacturing Company Supreme Court Writ Petition

Summary

Issues Involved:
1. Disallowance of liability to pay interest on amounts credited to the Sugar Cess Fund.
2. Investment allowance on Weighbridge and Scale.

Detailed Analysis:

1. Disallowance of Liability to Pay Interest on Amounts Credited to the Sugar Cess Fund:

Background:
The assessee, a Public Limited Company manufacturing sugar, follows the mercantile system of accounting. The company contested the disallowance of liability to pay interest on amounts credited to the Sugar Cess Fund. The Government of India had bifurcated the country into different zones for fixing levy sugar prices, which the assessee and other sugar mills contested in writs before the High Court. The High Court allowed the assessee to collect prices as before, subject to furnishing a bank guarantee and liability to pay interest at 12.5% per annum on excess collections if the writ petitions were decided against it. The Supreme Court, in its judgment dated 13-3-1990, upheld the zonal classification, thereby rejecting the assessee's challenge.

Arguments:
The assessee claimed the liability to pay interest as a deduction in computing its business income for the assessment year 1985-86. The Assessing Officer and CIT(A) rejected this claim, considering it a contingent liability. The assessee argued that the Supreme Court judgment declared the law from its inception, making the liability to pay interest a real and ascertained liability accruing every year. The department countered that the liability was contingent and only ascertainable when the High Court acted on the Supreme Court's judgment.

Judgment:
The Tribunal overruled the preliminary objection by the department, emphasizing that the Supreme Court's judgment, being the highest authority, declared the law from its inception, binding on all lower courts and tribunals. The Tribunal concluded that the liability to pay interest accrued yearly from the inception due to the statutory obligation under section 3(2)(b) of the Levy Sugar Price Equalisation Fund Act, 1976. The Tribunal distinguished this case from the earlier Tribunal decision, noting the Supreme Court's subsequent judgment. The Tribunal allowed the deduction of Rs. 24,43,148 as an ascertained liability for the assessment year under appeal.

2. Investment Allowance on Weighbridge and Scale:

Background:
The assessee claimed investment allowance on Weighbridge and Scale, which was disallowed by the authorities below.

Arguments:
The assessee cited the jurisdictional High Court decision in Tribeni Tissues Ltd. v. CIT [1991] 190 ITR 487, which classified Weighbridge as a plant, eligible for investment allowance. The assessee argued that the Weighbridge and Scale should be treated similarly for investment allowance purposes.

Judgment:
The Tribunal, following the Calcutta High Court's decision, directed the authorities to allow investment allowance on the Weighbridge and Scale, subject to other conditions being satisfied.

Conclusion:
The assessee's appeal was allowed, with the Tribunal recognizing the liability to pay interest on amounts credited to the Sugar Cess Fund as a deductible expense and granting investment allowance on Weighbridge and Scale.