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TMI Blog2004 (8) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... 974-75 for which the relevant previous year ended on September 30, 1973. The assessee is a public limited company engaged in the manufacture and sale of crystal sugar. The Government of India, vide notification dated June 15, 1972, issued under section 3 of the Essential Commodities Act, 1955, fixed the price of levy sugar of D-30 grade (exclusive of excise duty) for the Central Zone at Rs. 138.87 per quintal. The assessee was required to supply the sugar to the nominees of the Government at the above rate. The assessee felt that the price fixed was low. It, therefore, filed a writ petition before this court wherein an interim order was passed on July 27, 1972, whereby the Government of India was restrained from giving effect to the impugned notification dated June 15, 1972, on the condition that the assessee furnishes bank guarantee before the registrar of this court in respect of the difference between the price fixed by the Government and the price at which the sugar was actually sold. The assessee was, therefore, allowed to charge the higher price of Rs. 188.21 per quintal for the sale of the levy sugar from the nominees of the Government. The assessee complied with the above r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld by the Tribunal. In the assessment year 1973-74, the Income-tax Officer himself did not tax it. The Income-tax Officer rejected the assessee's contention. He observed that in the year under appeal, the amount was realised as part and parcel of the sugar price and, therefore, it formed part of the sale proceeds of sugar and was liable to be taxed as the assessee's income. The Income-tax Officer further observed that the order of the Tribunal had not been accepted by the Department and the matter had been taken in reference to this court. The Income-tax Officer, as a corollary, also rejected the assessee's claim for deduction of interest. The assessee appealed to the Appellate Assistant Commissioner who accepted its claim that the amount of Rs. 12,66,429 did not form part of the assessee's income. The Appellate Assistant Commissioner also found that the Supreme Court in its judgment dated November 6, 1972, in the case of Panipat Co-operative Sugar Mills v. Union of India, AIR 1973 SC 537 had upheld the validity of the fixation of price of levy sugar by the Government of India. He further found that the Supreme Court, vide order dated July 8, 1975, in the case of L.H. Sugar Fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relied upon a decision of the apex court in the case of K.C.P. Ltd. v. CIT [2000] 245 ITR 421. Learned counsel for the respondent-assessee, however, submitted that the respondent had realised the amount of excess levy sugar price under the interim order passed by this court on July 27, 1972, in the writ petition filed by it. It was required to furnish security in the form of bank guarantee for the amount realized by it every month and the court had observed that it will be open to the court to deal with the bank guarantee and pass order as to how that amount is to be distributed at the time of final order on the writ petition. He, thus, submitted that the amount so realized was hedged with certain conditions and, therefore, it cannot be said that the assessee had an unfettered right to deal with the amount of excess levy sugar price. It was subject to further orders which may have been passed by this court. He relied upon the following decisions: (i) CIT v. Chodavaram Co-operative Sugars Ltd. [1987] 163 ITR 420 (AP); (ii) CIT v. Mysore Sugar Co. Ltd. [1990] 183 ITR 113 (Karn); (iii) Dhampur Sugar Mills Ltd. v. CIT [1991] 188 ITR 787 (All); (iv) CIT v. Seksaria Biswan Sugar F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pass orders as to how that amount is to be distributed at the time of final orders on the writ petition." Subsequently, the writ petition preferred by the respondent in which the aforesaid interim order had been passed, had been dismissed vide judgment and order dated March 13, 1975, with the following observations: "In the result the petition fails and is dismissed without any order as to costs. The security furnished by the petitioner under the interim order of this court is discharged. The bank guarantee will be returned to counsel for the petitioner. It is made clear that nothing contained in this order will affect the right of any person entitled to claim any relief with regard to any excess price charged by the petitioner in appropriate proceedings." From a reading of the aforesaid two orders, it will be seen that the respondent was required to furnish security in the form of bank guarantee with the Registrar of this court every month in respect of the difference between the price fixed by the Government and the price at which the sugar was actually sold. How the bank guarantee would be dealt with and how the amount is to be distributed, was to be considered by this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Janta Co-operative Sugar Mills Ltd. [1998] 233 ITR 635, the Punjab and Haryana High Court has agreed with the aforementioned decisions of the Andhra Pradesh High Court, the Karnataka High Court and the Bombay High Court and had held that the difference in price of the levy sugar realised by the assessee could not be treated as its income arising or accruing to it for the relevant assessment year 1975-76 as the difference of price in levy sugar realised by it under the orders of the High Court, was hedged by certain conditions. In the case of K.C.P. Ltd. [2000] 245 ITR 421, the apex court was considering the realisation of excess levy sugar price during the assessment year 1972-73 on the basis of an interim order passed by the Andhra Pradesh High Court on March 31, 1970, which was to the following effect: "... the operation of notification issued by the respondent herein namely the Union of India, Ministry of Food and Agriculture, Community Development and Co-operation, New Delhi, dated February 20, 1970, and March 1, 1970, insofar as it relates to Zone No. 2 be and hereby is suspended pending further orders on this petition and it is further ordered that the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss price. Though the interim orders of the High Courts are differently worded in the three cases, one common feature of all the orders is that the realisation of the excess price by the respective assessees was hedged by several conditions one of which was that the assessee shall refund the amount received in excess of the price fixed in the event of the pending dispute being decided adversely to the assessee by the court. Thus the receipt of the amount by the assessee was clearly associated with a liability to refund the amount, which liability was ascertainable and quantified. Such is not the case at hand." In the case of South India Sugars Ltd. [2001] 248 ITR 92, the Madras High Court has applied the distinction pointed out by the apex court in the decisions of the Andhra Pradesh High Court, the Karnataka High Court and the Bombay High Court referred to above, in the case of K.C.P. Ltd. [2000] 245 ITR 421 (SC). In the case of Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524, the apex court has laid down that: "there is a clear distinction between cases such as the present one, where the right to receive payment is in dispute and it is not a question of mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the affirmative, i.e., in favour of the assessee and against the Revenue. So far as the question as to whether the amount of interest of Rs. 2,89,026 and Rs. 1,43,282 on the amount of excess levy sugar price is allowable deduction or not is concerned, it may be mentioned here that the Levy Act came into effect from April 1, 1976. The liability for payment of interest arose only after the Levy Act came into force, i.e., April 1, 1976. Prior to it, there was no liability. No doubt, it is true that, under the provisions of the Levy Act, the respondent-assessee was liable to deposit the entire amount of excess levy sugar price along with interest at 12.5 per cent, per annum. The apex court in the case of K.C.P. Ltd. [2000] 245 ITR 421 has held that the transfer of amount to the Levy Sugar Price Equalisation Fund to the Government at a subsequent date, does not have any bearing on the taxability of the amount which was a trading receipt in the earlier assessment year. There is a distinction between the actual liability in praesenti and a liability de futuro which for the time being is only contingent. The former is taxable but not the latter as held in Peter Merchant Ltd. v. Stede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usick Coal Co. Ltd. [1981] 129 ITR 62. Further it is not in all cases correct to say that a statutory liability created in a particular year, becomes a liability for deduction in that year under the mercantile system of accounting. It depends on the facts and circumstances of the case and on the statutory provisions in that regard, as held by the Calcutta High Court in the case of CIT v. Padmavati Raje Cotton Mills Ltd. [1993] 203 ITR 375. In the aforesaid case an ordinance levying market fees was promulgated on May 15, 1980. The demand for the market fees relating to earlier years was made during the accounting year relevant to the assessment year 1983-84. On these facts, it has been held that though the statutory liability was created in the year 1980, the said liability became real and enforceable when the demand was made. Therefore, the assessee was held entitled to deduction in respect of such demand for the assessment year 1983-84. The Levy Act, as already mentioned hereinbefore, came into force on April 1, 1976. By section 3(1) of the Levy Act, a fund, called the Levy Sugar Price Equalisation Fund, was established. Sub-section (2) of section 3 provides that all amounts repr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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