1967 (12) TMI 17 - HC - Income Tax

Business of manufacture and sale of sugar - Whether the rebate allowed under Notification No.S.R.O. 3419 can be taken into account in fixing the average price of sugarcane under the rule 23 of the rules framed under the IT Act, 1922 - Held, no

Summary

Issues:
Interpretation of rule 23 of the Rules framed under the Indian Income-tax Act, 1922 in conjunction with Government Notification No. S.R.O. 3419, dated November 22, 1955 regarding the allowance of rebate in fixing the average price of sugarcane.

Analysis:
The judgment pertains to a case where the Income-tax Appellate Tribunal, Bombay, referred a question of law to the High Court of Madhya Pradesh concerning the interpretation of rule 23 of the Rules framed under the Indian Income-tax Act, 1922, and Government Notification No. S.R.O. 3419, dated November 22, 1955. The case involved an assessee, a public limited company engaged in the manufacture and sale of sugar, which purchased sugarcane from other farms due to insufficient production from its own farm. The Government notification fixed the minimum price of sugarcane at Rs. 1-7-0 per maund at the factory gate, with a rebate for purchases made at outlying centers. The dispute arose when the Income-tax Officer disallowed transportation charges and quality differences claimed by the assessee in determining the market value of sugarcane. The Appellate Assistant Commissioner allowed the claim, but the Tribunal overturned this decision, leading to the reference to the High Court.

Upon analysis, the High Court held that the Appellate Assistant Commissioner's conclusion was correct. The court examined the relevant provisions of rule 23, which dictate the deduction of the market value of agricultural produce used as raw material in business for income tax purposes. The court also scrutinized the Government notification, which fixed the minimum price of sugarcane and allowed for a rebate based on transportation distances. The court emphasized that the minimum price did not restrict growers from receiving higher prices based on quality and market dynamics.

Furthermore, the court interpreted rule 23(2) to determine the market value of agricultural produce, emphasizing that the average price should reflect actual prices paid at the center of supply. The court rejected the notion of computing the average price based on the minimum price at the factory gate minus rebates, as it would disregard higher prices paid. The court highlighted that the factory gate could be considered a market for sugarcane, and growers delivering sugarcane there should receive the minimum price. Therefore, the court concluded that the rebate under the notification could not be factored into calculating the average price of sugarcane.

In conclusion, the High Court answered the question in favor of the assessee, directing the department to bear all costs. The judgment provides a detailed analysis of the legal provisions and notifications involved, clarifying the method for determining the market value of agricultural produce for income tax purposes in the context of sugarcane pricing regulations.