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TMI Blog1988 (7) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... nexed to this order. " The Second Schedule gives the formula for determining the additional cane price payable under clause 5A referred to above. This said Schedule may be reproduced here below for the sake of ready reference. : "The amount to be paid on account of additional price (per quintal of sugarcane) under clause 5A by a producer of sugar shall be computed in accordance with the following formula, namely : X[(R - L+2A = B)/2C] Explanation - In this formula : 1. 'X' is the additional price in rupees per quintal of sugarcane payable by the producer of sugar to the sugarcane grower. 2. 'R' is the amount in rupees of sugar produced during the sugar year excluding the excise duty paid or payable to the factory by the purchaser. 3. 'L' is the value in rupees of sugar produced during the sugar year, as calculated on the basis of the unit cost per quintal ex-factory, exclusive of excise duty, determined with reference to the minimum sugarcane price fixed under clause 3, the final working results of the year and the cost Schedule and return recommended by such authority (as the Central Government may specify) from time to time. 4. 'A' is the amount found payable for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h more than 2 years had elapsed since the accounting year ended, no order had been passed by the competent authority for paying additional cane price. In his opinion, therefore, the liability in question had not accrued and arisen during the accounting period. 3. The assessee appealed against the aforesaid order to the CIT (A), who accepted the assessee's submission that the liability to pay the additional cane price had accrued and arisen during the previous year. In his opinion, the additional cane price was qualitatively of the same nature as the normal price of sugarcane and, therefore, it had to be allowed as a liability against the income of the year in which sugarcane in question was purchased. While giving the said relief, the learned CIT (Appeals) observed, inter alia, as follows : "To determine whether a certain claim is admissible or not, it is necessary to first determine the nature of the claim or payment. This amount of Rs. 31,70,412 is the additional cane price payable by the appellant to those suppliers of sugarcane who had supplied 85 per cent or more of the agreed quantity or sugarcane during the relevant accounting year. It is, therefore, clear that the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchased from the farmers. But if some conditions, over and above the condition of purchase of the sugarcane, were to be fulfilled, the liability to pay the additional cane price would not accrue till the conditions in question were fulfilled. The learned CIT (A) apparently erred in proceeding on the presumption that the nature of the additional sugarcane price was the same as that of the normal sugarcane price. It was not so, as is clear from the wordings of clause 5A of the Sugarcane (Control) Order, 1966. He also pointed out that in the assessee's own case, a certain method had been followed with regard to the allowance of additional cane price in the past, when for the asst. year 1961-62, the additional sugarcane price was allowed in asst. year 1966-67 and not in asst. year 1961-62. When a certain practice was being followed in the assessee's case, one should not make a departure from the said settled practice in the assessee's own case in respect of another year. 5. On behalf of the assessee, the order of the learned CIT (Appeals) is stoutly supported and it is urged that the nature of the additional sugarcane price was the same as that of the normal sugarcane price, and sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be determined only after the expiry of the accounting period because there are various factors indicated in the formula given in the Second Schedule which can be known only after the accounting period in question, during which the supply of sugarcane was made, as expired. Thus, factor 'B' can be determined only after the accounting period is over. Similar in the position with regard to the factor 'L' Both the above terms have been defined in the Explanation to Second Schedule extracted above and it is clear from the entire scheme that they have to be determined by an independent authority. It is because of this reason that the responsibility for determining the additional price of sugarcane payable by the manufacturer of the sugar has been left by sub-rule (2) of Rule 5A to the person or authority appointed by the Central Government or the State Government, Sub-rule (2) reads as below : " (2) The Central Government or the State Government, as the case may be, may authorise any person or authority, as it thinks fit, for the purpose of determining the additional price payable by a producer of sugar under sub-clause (1) and the person or authority, as the case may be, who determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for the additional sugarcane price payable to the sugarcane growers in terms of Rule 5A of the Sugarcane (Control) Order 1966 during this year. The order of the learned CIT (Appeals) on this point is, therefore, hereby reversed and the order of the IAC (Asst) is restored. 7. The second and third grounds of appeal of the revenue read as below : "That the learned CIT (A) has erred in law and on facts of the case in deleting the addition of Rs. 94,63,092 which was rightly made by the IAC (Asst.) on account of excess levy of sugar price. That the learned CIT (A) has erred in law and on facts of the case, in deleting the addition of Rs. 17,95,409 being the interest on excess levy of sugar price. " These points are covered by the order of the ITAT in the assessee's own case in respect of asst. year 1975-76 vide ITA No. 685/D/79 dated 4th June 1977 and the order of the Tribunal in the assessee's own case in respect of asst. year 1980-81 vide ITA No. 5031/D/84 dated 30th Aug., 1985, copies of which have been placed by the assessee on record at pages 20 to 25 and 32 and 33 of the assessee's paper book. No additional facts or reasonings were brought to our attention on behalf of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked for less than 30 day during the season. 5. The cost of revenue stamps shall be borne by the company." From the reading of the aforesaid order, it is clear that the payment was being made with reference to the number of working days on which the employees in question were present and had worked in the factory. The payment is, therefor, not payment out of profits of the company. It is clearly a payment given on ad hoc basis related with the attendance of the employees. Such payment is an allowable deduction in terms of Section 37 of the IT Act 1961. The ratio of the decision of Shivanandha Mills Ltd. clearly governs the facts of the present case. We, there fore, confirm the order of the learned CIT (A) on this point. 10. Ground No. 5 reads as below : "That the Ltd. CIT (A) has erred in law and on facts of the case in deleting the addition of Rs. 3,50,000 which was rightly made because the assessee-company has not charged any interest on the loans given to subsidiary companies. " The aforesaid question came up for consideration before the Tribunal in the assessee's own case in respect of asst. year 1978-79 and the matter was decided against the revenue and in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the same quality as the normal price of the sugarcane, determined by Rule 3 of the Sugarcane (Control) Order, 1966." In this connection, I would like to reproduce clause 5A of the Sugarcane (Control) Order, 1966 : "Where a producer of sugar or his agent purchases sugarcane from a sugarcane grower during each sugar year, he shall, in addition to the minimum sugarcane price fixed under clause 3 pay to the sugarcane grower an additional price, if found due in accordance with the provisions of the Second annexed to this order. " As per sub-clause (viii) of clause 5A additional cane price is payable to the grower if it supplies no less than 85 per cent of the sugarcane agreed. The Second Schedule gives the formula for determining the additional cane price payable under clause 5A referred to above. The said Schedule may be reproduced here below for the sake of ready reference : "The amount to be paid on account of additional price (per quintal of sugarcane) under clause 5A by a producer of sugar shall be computed in accordance with the following formula, namely : X = [(R-L+2A)/2C]B Explanation : In this formula : 1. 'X' is the additional price in rupees per quintal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in respect of the income, of a period other then the previous year, income-tax shall be charged accordingly. Section 3 of the Wealth-tax Act provides : "3. Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957 a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in Schedule I. " Section 5(1) of the Estate Duty Act says that : "5. (1) In the case of every person dying after the commencement of this Act, there shall, save as hereinafter expressly provided, be levied and paid upon the principal value ascertained as hereinafter provided of all property, settled or not settled, including agricultural land situated in the territories which immediately before the 1st November, 1956, were comprised in the States specified in the First Schedule to this Act, and in the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu and Pondicherry which passes on the death of such person, a duty called 'estate duty' at the rates fixed in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the sugarcane grower supplying 85 per cent or more of the agreed quantity of sugarcane during the relevant accounting year. It is true that the amount of additional cane price to be paid to the cane growers is possible only when the 'L' factor is communicated to the sugar manufacturers. But it is not on the communication 'L' factor that liability accrues. Rather it is the other way round on the accrual of liability only the authorities concerned communicate the 'L' factor. In this case, the value of the said factor had been communicated by the Ministry of Agriculture to the Indian Sugar Mills vide their letter dated21-8-1981. Communication of 'L' factor would not go to show that liability for payment had accrued only when the value of the 'L' factor had been communicated or when the competent sugar authority had computed the additional price payable. Quantification of liability is different from the accrual of liability. Accrual of liability is followed by quantification of liability. It is never the other way. Quantification of liability is not followed by accrual of liability. Accrual of liability has taken place when a sugarcane grower had supplied 85 per cent or more of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '. The learned Members constituting the Bench could not agree upon the conclusion. The learned Accountant Member held that the payment was not deductible on the ground that the liability to incur this expenditure did not arise in the accounting year, while the learned Judicial Member held that the liability to incur this expenditure accrued in the accounting year and therefore the sum in question was allowable as a deduction. It was as a consequence of this difference of opinion between the two learned Members that the point of difference of opinion was referred for the opinion of the third Member : "Whether, on the facts and in the circumstances of the case, the CIT (Appeals) was justified in deleting the addition of Rs. 31,70,412 representing the liability for the additional cane price payable during the liability for the additional cane price payable during the assessment year 1981-82 ?" 2. I have heard the learned representative of the assessee Dr. R. C. Vaish and the learned Departmental Representative Shri. S. K. Bansal, perused carefully the orders passed by my learned brothers and also went through the various decisions relied upon in support of their respective content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not qualify for a deduction. This was the prime reason advanced by the Inspecting Asstt. Commissioner (A), who was the assessing officer in this case to disallow the claim of the assessee. He also referred to another circumstance, namely, that for the assessment year 1961-62 a similar claim made by the assessee was allowed as a deduction not in the year when the sugarcane was purchased in respect of which the additional cane price became payable but only in a later assessment year, namely, 1966-67 when the amount was actually paid. In respect of that proceeding the letter determining the additional cane price payable was passed on a date that feel within the assessment year 1966-67 and for that reason it was held that the legal right to incur this expenditure arose in the assessment year 1966-67 and not earlier. 4. When the matter came on appeal before the Commissioner (A) he considered the issue from all angles, went through the scheme of the Sugarcane (Control) Order, 1966 and held that the payment of additional cane price was a statutory liability that arose as and when purchases of sugarcane were made from sugarcane growers, that the additional sugarcane price was linked with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me payable "if found due in accordance with the provisions of the Second Schedule annexed to this order". Relying and laying stress upon the expression "if found due", the learned Accountant Member observed that this contemplated situations where nothing would also be payable towards additional cane price, that in any case the amount payable in terms of Rule 5A would always be determined only after the expiry of the accounting period, which meant that the computation of the amount payable would have to wait till the accounting year came to a close and in such an event it could not be said that the liability to pay additional cane price had accrued during the accounting year, According to him, "if found due" mean something must be found to be due. Finally he observed : "When a certain matter is to be determined by the process of adjudication, the amount in question cannot be said to have become due unless the process of adjudication has been gone into and the order has been passed by the authority in question in accordance with Second Schedule read with sub-rule (1) or rule 5A of the Sugarcane (Control) Order, 1966." He also held that before a liability on the part of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountant appearing for the assessee Dr. R. C. Vaish after tracing the history of the case submitted that there was nothing in the Sugarcane (Control) Order to suggest that the liability had not accrued in the accounting year. He relied upon the order of the Commissioner (A) and supported the view taken by the learned Judicial Member. He submitted that the provisions of the Sugarcane (Control) Order were so clear that it was not at all possible to say that the liability had not accrued. While supporting the view taken by the learned Judicial Member, he drew my attention to three judgments given by the Allahabad High Court allowing the claim for deduction of additional cane price in exactly similar circumstances and pointed out that in the light of these judgments the issue must be held to have had a quietus at least in so far as within the jurisdiction of the Allahabad High Court is concerned. He also drew my attention to a decision of the Calcutta High Court taking a similar view emphasising that no contrary view was taken by any other High Court, a t least in his knowledge. He submitted that the view of the learned Accountant Member was clearly unsupportable. 8. The learned Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the seller or tender to him the price of the cane sold at the rate agreed to between the producer and the sugarcane grower or sugarcane grower' co-operative society or that fixed under sub-clause (1), as the case may be, either at the gate of factory or at the cane collection center or transfer or deposit the necessary amount in the Bank account of the seller or the co-operative society as the case may be. (3A) Where a producer of sugar or his agent fails to make payment for the sugarcane purchased within 14 days of the date of delivery, he shall pay interest on the amount due at the rate of 15 per cent per annum for the period of such delay beyond 14 days. Where payment of interest on delayed payment is made to a cane growers' society, the society shall pass on the interest to the cane growers concerned after deducting administrative charges, if any, permitted by the rules of the said society. (4) Where sugarcane is purchased through an agent, the producer or the agent shall pay or tender payment of such price within the period and in the matter aforesaid and if neither of them has so paid or tendered payment, each of them be deemed to have contravened the provision of this cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r connected with the supply of sugarcane to such producer of sugar. 3. (a) Any producer of sugar or sugarcane grower, who is aggrieved by any decision of the person or authority, referred to in sub-clause (2) may, within thirty days from the date of communication of such decision under that sub-clause, appeal to the Central Government or the State Government, as the case may be : Provided that the Central Government or the State Government, as the case may be, if it is satisfied that the appellant had sufficient cause for not preferring the appeal within the aforesaid period of thirty days, admit the appeal, if presented within a further period of fifteen days. (b) The Central Government or the State Government, as the case may be, may be, after giving an opportunity to the appellant to represent his case and after making such further enquiry as may be necessary pass such order as it thinks fit. (c) The decision of the person or authority referred to in sub-clause (2) where no appeal is filed, and of the Central Government or State Government, as the case may be, where an appeal is filed shall be final. 4. The additional price determined under sub-clause (2) shall be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la : X = [R-L+2A+B]/20 'L' has been defined as under : "'L' is the value in rupees of sugar produced during the sugar year, as calculated on the basis of the unit cost per quintal ex-factory, exclusive of excise duty determined with reference to the minimum sugarcane price fixed under clause 3, the final working results of the year and the cost Schedule and return recommended by (such authority as the Central Government may specify) from time to time." 'B' means : "'B' is the excess or shortfall in relation from actual sales of the unsold stocks of sugar produced during the sugar year, as on 30th day of September [vide item 7(ii) below] which is carried forward and adjusted in the sale realisations of the following year." 10. The payment of additional cane price under clause 5A is a statutory liability fastened upon a producer of sugar in respect of purchases made on or after1-10-1974. It is a price payable every year. This is in addition to the minimum sugarcane price fixed under clause 3 quoted above. The amount is to be computed in accordance with the provisions of the Second Schedule. Since this involves calculation, a power is taken by the Government to entrust t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the sugarcane is supplied during a particular season, which does not extent to the entire 12 months of the accounting year. By the time the accounting year of any assessee comes to a close, he will have known from the accounts maintained in respect of each sugarcane grower as to how much quantity of sugarcane, each grower had supplied and whether it was in excess of 85 per cent of the contracted quantity or less. The formula is already given in the Second Schedule. The liability to pay additional cane price accrues to the assessee under clause 5A when he realises that the sugarcane grower had supplied more than 85 per cent of the contracted quantity of sugarcane. What remains then is only the quantification of the additional cane price payable. With the help of the formula any assessee can estimate the amount payable towards additional cane price, that may be less, that may be more than the quantum determined by the designated authority. While the quantum determined by the designated authority may be precise, had there been no appeal, the quantum determined by an assessee is liable to vary in comparison to the figure determined by the designated authority. While what is payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een passed by the authority in question...." This statement in my opinion is at variance with the settled law of the land in so far as the Income-tax proceedings are concerned. 12. It is unfortunate that the attention was not drawn to the existing decisions of the jurisdictional High Court, which in my view clinch the issue. 12A. As pointed out by the learned representative for the assessee a similar topic had come for decision before the Allahabad High Court in the case of CIT v. Janki Sugar Mills Co. Ltd. [1972] 84 ITR 348. Justice R. S. Pathak, as he then was, speaking for the Allahabad High Court observed considering similar provisions of the Sugarcane (Control) Order and additional price payable by virtue of para 3(3A) of that order, which are analogous to clause 5A of the present order, that that clause imposed a personal liability upon the producer of the sugar to pay to the sugarcane grower or growers' society an amount in addition to the price fixed under para 3 of the Control Order. The learned Judge thereafter explained : "It is a liability which arises as soon as the sugarcane has been purchased and the minimum price fixed in respect of such purchase under the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1977] 106 ITR 988. In this case there was no order passed as in the case before me now but yet the Allahabad High Court held that since in law the liability to pay an additional price had accrued in the year in which the sugarcane was purchased, the assessee was entitled to claim deduction of a reasonable estimated amount. It went on to say that in the alternative if during the course of assessment proceedings, the actual amount was quantified, the quantified amount should be allowed as a deduction. There is therefore no question of holding that one should wait to claim the deduction till the amount was quantified nor would it be correct to say that the liability did not accrue in the accounting year. In the latest case of Addl. CIT v. M. P. Sugar Mills (P.) Ltd. [1984] 148 ITR 203, the Allahabad High Court reiterated again that in law the liability to pay additional cane price did accrue in the year in which the sugarcane was purchased and within which the minimum price was fixed and the assessee was entitled to claim deduction of a reasonable estimated amount. The Calcutta High Court in the case of CIT v. Swadeshi Mining Mfg. Co. Ltd. [1978] 112 ITR 276, held that - "'an am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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