9911796707
TMI Blog1988 (7) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... eting the addition of Rs. 31,70,412 representing the liability for the additional cane price payable during the asst. yr. 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 order passed by my learned Brothers and also went through the various decisions relied upon in support of their respective contentions and came to the conclusion that the view taken by the learned Accountant Member is not just and proper and correct in law and that the view taken by the learned Judicial Member is proper, correct in law and what is more was in accordance with the view expressed by the jurisdictional High Court, namely, Hon'ble Allahabad High Court. 3. The assessee is a public limited company having a sugar mill, paper mills and a few other lines of business. In computing its income from the sugar mill business, as I mentioned earlier, it claimed a deduction of a sum of Rs. 31,70,412 representing the additional cane price payable to the sugarcane growers, which is a statutory liability payable as per the terms of cl. 5A of the Sugarcane Control Order, 1966. This order, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a formula laid down under the Second Schedule given to the Sugarcane Control Order, in which only 'L' factor was to be quantified and when that 'L' factor was communicated, there was nothing uncertain or vague either about the liability or the quantum and that the additional cane price had thus become a part of the total cane price payable by the assessee for the supplies of cane and when the minimum cane price paid was allowable as a deduction, there was no reason why the additional cane price should not be regarded as an admissible deduction. Under the system of accounting adopted by the assessee, he held that the additional cane price qualified for deduction as part of the purchase price of the assessee's raw material. He placed reliance upon the decision of the Supreme Court in the case of Kedarnath Jute Mills Mfg. Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 r/w sub-r. (1) of r. 5A of the Sugarcane (Control) Order, 1966". He also held that before a liability, on the part of the assessee, accrued, a right to receive payment must vest in the sugarcane grower and that right in the sugarcane grower vested only when the amount was quantified by the competent authority and, therefore, till that amount was quantified by the competent authority, no liability can be said to have been incurred by the assessee-company. He also took into consideration as to what had happened in respect of this liability in the asst. yr. 1961-62, referred to earlier and then held that in respect of this year the allowance of liability should be on the same lines as in respect of the asst. yr. 1961-62, namely, allowing it in the year of payment. 6. The learned Judicial Member disagreed with this line of approach made by the learned Accountant Member. According to him, the expression "if found due" used in cl. 5A of the Sugarcane (Control) Order and relied upon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rew 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, atleast in his knowledge. He submitted that the view of the learned Accountant Member was clearly insupportable. 8. The learned Departmental Representative, on the other hand, relying upon the decision of the Supreme Court in the case of Shree Sajjan Mills Ltd. vs. CIT Anr. (1985) 49 CTR (SC)) 193 : (1985) 156 ITR 585 (SC). Submitted that the liability to pay the additional cane price could be said to arise only when the order was made by the competent authority and not earlier. The competent authority having passed the order after the accounting year was over, there was no question of any liability to pay the additional cane price accruing to the assessee in the accounting year. The learned Accountant Member, he argued, had understood the provisions of law very correctly and his view should be upheld. 9. It is perhaps very necessary to notice cls. 3 and 5A before I proceed further. Clause 3 of the Sugarcane (Control) Order provides: "3. Minimum price of sugarcane payable by producer of sugar: The Central Government may, afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter 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 manner aforesaid and if neither of them has so paid or tendered payment, each of them be deemed to have contravened the provision of this clause. (5) At the time of payment at the gate of the factory or at the cane collection centre, receits, if any, given by the purchaser shall be surrendered by the cane grower, or the co-operative society. (6) Where payment has been made by transfer or deposit of the amount to the Bank account of the seller or the co-operative society, as the case may be, the receipts given by the purchaser, if any, to the grower or the co-operative society, if not returned to the purchaser, shall become invalid. (7) In case, the price of sugarcane remains paid on the last day of the sugar yr, in which cane supply was made to the factory on account of the suppliers of cane not coming forward with their claims therefore or for any other reason, it shall be deposited by the producer of sugar with the Collector of the distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-cl. (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-cl. (2) shall be paid by the producer of sugar to the sugarcane grower, at such time and in such manner as the Central Government or State Government, as the case may be, may, from time to time, direct. 5. No additional price determined under sub-cl. (2) shall become payable by a producer of sugar who pays a price higher than the minimum sugarcane price fixed under cl. (3) to the sugarcane grower. Provided that the price so paid shall, in no case, be less than the total price comprising the minimum sugarcane price fixed under cl. (3) and the additional price determined under sub-cl.(2). 6. Where any extra price is paid by the producer of sugar to the sugarcane grower for the supply of sugarcane in addition to the minimum sugarcane price fixed under cl. 3, the extra price so paid shall be adjusted against the additional sugarcane price determined under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after1st Oct., 1974. It is a price payable every year. This is in addition to the minimum sugarcane price fixed under cl. (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 the determination of the quantum to any person or authority to be designated. Since a person has been authorised to determine the additional cane price payable, a duty has been cast upon him to intimate the price determined to the producer as well as the sugarcane grower, the main parties concerned. Since there is a possibility of the authority committing a mistake in the calculations, a provision is made for filling an appeal to a higher authority to rectify those mistakes and it is also made clear that the appellate decision of the Central Government will become final. This was provided to ensure that litigation did not ensure for long so that the beneficiary, namely, the sugarcane grower is deprived of the amount due to him by having to embark upon vexatious and frivolous litigation. Then it also stipulated that the amount should be paid by the sugar producer to the sugarcane gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 to the sugarcane grower is what was determined by the designated authority, for the purpose of accounting, the liability estimated by the assessee can be said to be an accrued liability. All that was needed for the purpose of the IT Act was a scientific way of calculation. That was what was held by the Supreme Court in the leading case of Metal Box Company of India Ltd. vs. Their Workmen (1969) 73 ITR 53 (SC) (although this was a case arising in a different context but the question was whether gratuity would be allowed as a deduction and the Supreme Court had laid down the principle applicable to all situations of like nature repelling the contention that gratuity was a contingent liability; that gratuity, if it is ascertained on actuarial valuation, could be allowed as a liability in praesenti because the liability to pay gratuity accrues at the close of the year). Therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducer 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 Control Order. The liability does not depend upon any other circumstance for its accrual. No order of the Cane Commissioner or other authority is necessary. As soon as the purchase is effected and the minimum price is fixed no further condition needs to be satisfied before the liability arises. From the provisions of the Schedule it is apparent that the liability is easily capable of quantification. There appears to be some confusion in the orders of the ITO and the AAC. Those authorities appear to have been under the impression that an order by the Cane Commissioner was necessary before the liability to make payment of the additional price could arise". This case therefore clearly postulates that under the Sugarcane (Control) Order, the liability to pay the additional cane price arises no sooner than the purchase of sugarcane is made and the supply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability 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 vs. Swadeshi mining Mfg. Co. Ltd. Reported in (1978) 112 ITR 276 (Cal) held that: "an amount, if found due" used in cl. 3A (1) must be r/w the expression "in accordance with the provisions of the Schedule" used in this sub-clause. The Schedule is solely confined to the computation of the amount of additional price which is payable by the producer of sugar. The Schedule was in force at the time sugarcane was purchased by the assessee and, therefore, the liability to pay the additional price had already accrued in the accounting year". The Calcutta High Court went on to add in this case that the additional price formed part of the price of the sugarcane purchased by the assessee company in the accounting year and the assessee company had already incurred the liability to pay the additional cane price and hence it could not be said that this liability was inchoate or contingent in the accounting year. 13. Upon a c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
