1989 (9) TMI 188 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of excess price received by the assessee for levy sugar.
2. Deduction of liability for unpaid balance on sugarcane purchased.
3. Deduction of contribution to the Education Fund under the Maharashtra Co-operative Societies Act.

Issue-wise Detailed Analysis:

1. Taxability of Excess Price Received for Levy Sugar:

The Department's appeals pertain to the assessment years 1977-78 to 1979-80 and 1981-82 to 1982-83. The assessee, a sugar manufacturer, contested the reduction in levy sugar prices fixed by the Central Government, leading to writ petitions in the Bombay High Court. The High Court allowed the assessee to receive higher prices than notified, subject to furnishing bank guarantees and potential repayment with interest if the final price was lower. The Income Tax Officer (ITO) included these excess amounts as income, but the assessee argued they were deposits pending final court decisions and not trading receipts.

The Tribunal referenced the Special Bench decision in SHRI SOMESHWAR SAHAKARI SAKHAR KARKHANA (PUNE) LTD. vs. ITO, which held that such excess amounts were deposits and not income. Following this precedent, the Tribunal rejected the Department's appeals, affirming that the excess amounts did not constitute income in the year of receipt.

2. Deduction of Liability for Unpaid Balance on Sugarcane Purchased:

For the assessment year 1978-79, the assessee claimed a deduction of Rs. 27,65,005 for the unpaid balance on sugarcane purchased from Maharashtra State Farming Corporation. The agreed rate was Rs. 165 per M.T., but the assessee paid Rs. 121 per M.T. as fixed by the State Government, leading to a legal dispute. The ITO and CIT(A) disallowed the deduction, stating the liability was not yet crystallized and no provision was made in the accounts.

The Tribunal held that the principle laid down in KEDARNATH JUTE MFG. CO. LTD. vs. CIT, applicable to statutory liabilities, did not apply to disputed contractual liabilities. The liability was not accepted by the assessee and was still pending in court, indicating it had not crystallized. The Tribunal concluded that the deduction could only be claimed when the liability was finally settled by the court or mutual agreement, thus rejecting the assessee's appeal.

3. Deduction of Contribution to the Education Fund:

For the assessment year 1980-81, the assessee claimed a deduction of Rs. 50,000 paid to the Maharashtra State Education Fund under the Maharashtra Co-operative Societies Act. The ITO and CIT(A) disallowed the claim, considering it an appropriation of profits, not a business expenditure.

The Tribunal noted that the Special Bench in SHRI PANZARA-KAN SAHAKARI SAKHAR KARKHANA LTD vs. ITO had decided against the assessee, concluding that the contribution had no nexus with the business and was not laid out wholly and exclusively for business purposes. The Tribunal also distinguished the Karnataka High Court's decision in PANDAVAPURAM SAHAKARA SAKKARE KARKHANE LTD., which was based on different statutory provisions. Following the Special Bench decision, the Tribunal rejected the assessee's appeal.

Conclusion:

All the appeals by both the Department and the assessee were dismissed. The Tribunal upheld the decisions that excess amounts received for levy sugar were not taxable income, the liability for unpaid sugarcane purchases was not deductible until crystallized, and the contribution to the Education Fund was not a deductible business expenditure.