9911796707
TMI Blog1994 (4) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... minimum price of COJ-64 variety of sugarcane was fixed at Rs. 40 per qtl. by the Government and the minimum price for the general variety of sugarcane was fixed at Rs. 36 per qtl. At the time of supply of the sugarcane, the individual members had to enter into an agreement with the assessee for the supply of sugarcane at the minimum price fixed by the Government and if they failed to supply their requisite quantity of sugarcane, then they could be penalised for the same. In the instant case, however, the Board of Directors in their meeting held on 2-3-1990 decided to pay Rs. 60 per qtl. for COJ-64 variety and Rs. 56 per qtl. for the other varieties. At page 87 of the assessee's compilation is a copy of the minutes recorded at the Board's meeting aforesaid. While considering item at serial No. 6 (to consider and approve the cane price for the crushing season 1989-90), the following minutes were recorded :-- "The Board considered the matter of fixation of cane price for the crushing season 1989-90. The Board was informed that cane producer members of this Mills had demanded a higher cane price in view of better quality of cane supplied by them and to increase the area under cane cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had gone up and that the members of the cooperative society should be adequately compensated for the increase in the cost of inputs and that minimum price should be paid @ Rs. 64 to Rs. 70 per qtl. The learned Counsel for the assessee also drew our attention to a sort of handbill issued by the assessee, a copy of which is available at page 62 of the assessee's compilation. In the said handbill which is for the necessary information of the farmers, an appeal has been made by the management that they should start giving sugarcane to the assessee-mill without waiting for the fixation of the price for the sugarcane as a promise has been held out that the Board shall sympathetically consider their demands. Shri Gupta submitted that there was lot of unrest in the ranks of the canegrowers to the effect that they were not being suitably rewarded or adequately compensated for the sugarcane supplied by them to the assessee whereas the employees had been given two months' wages as bonus. According to the learned Counsel for the assessee, there was an imminent threat of strike and if the assessee had not raised the price of sugarcane to Rs. 56 and Rs. 60 per qtl., the assessee's calculations f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the assessee that the area for cultivation of sugarcane increased and the total quantum of sugarcane available also registered an increase. 8. The learned Counsel for the assessee submitted that the expenditure in question was laid out wholly and exclusively for business purposes by the assessee and the department could not sit in judgment as to whether this expenditure was necessary or not. Relying on the Tribunal's decision in the case of Haryana Cooperative Sugar Mills Ltd. v. ITO [IT Appeal No. 2551 (Delhi) of 1981 dated 11-12-1981] for assessment year 1976-77, it was submitted that a similar issue had arisen in that case also whereas against the minimum price of Rs. 13.75 per qtl. fixed by the Government of India, the assessee paid the price of Rs. 15.25 per qtl. which was held to be reasonable and laid out wholly and exclusively for the purposes of business of the assessee. Reliance was also placed on the Supreme Court judgment in Pravara Sahakari Sakhar Karkhana Ltd. v. CIT [1974] 94 ITR 321 in which the assessee-cooperative society manufacturing sugar had paid to its members at a rate higher than the minimum price fixed by the Government for sugarcane produced and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to increase the share capital of the cooperative society. It was submitted that since the capacity of the mill was to be increased, more capital was required for that purpose. It was submitted that in the Board's meeting held on 2-3-1990, the first item on the agenda was regarding raising of share capital because that was upper-most in the minds of the Board of Directors and that the payment of Rs. 20 per qtl. extra to the canegrowers was employed as a device to have more capital without paying the taxes. The learned D.R. submitted that on the one hand, the assessee talked of the clamour being raised by the members of the cooperative society for compensation for the rise in the cost of inputs and, on the other hand, out of the increase of Rs. 20 per qtl. a sum of Rs. 18 was utilised for increasing the share capital and only Rs. 2 was earmarked for paying in the form of cash to the members. The learned D. R. submitted that after the canegrowers had agreed to the payment of minimum price as per the individual agreements entered into by them with the assessee, there were no compelling circumstances or considerations of business expediency which warranted the increase in price. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 1988-89, the profit declared was of the order of Rs. 1.53 crores. For assessment year 1989-90, the profit declared was of Rs. 2,36,76,836 and there was a brought forward loss of Rs. 1.72 crores. For assessment year 1990-91, the net profit declared was Rs. 4,43,36,907. This was done after the payment of extra price of the sugarcane at Rs. 4,15,25,680. In other words, if the extra price had not been paid for the sugarcane, the assessee would have for the first time shown bumper profits in its books of account. On the net profit of Rs. 4,43,36,907 the assessee provided for income-tax for the year at Rs. 1,15,52,000 and the balance of Rs. 2,69,55,638 was taken to the general reserves account in the balance-sheet. It is also significant to note that it is only in the year under consideration that the accumulated loss of Rs. 58,92,269 suffered in the previous years stood completely wiped out and there was substantial positive income available to the assessee. 16. We have, therefore, to see in the background of the entire facts and circumstances of the case whether there was any justification for paying extra cane price of Rs. 20 per qtl. over and above the minimum price fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of the crushing season. If the assessee had capitalised the amount after paying the taxes, there would have been no difficulty or quarrel with the approach of the assessee. But in the present case, it is clear that the assessee has employed a device to increase its capital without paying the taxes which are due to the exchequer. It is also significant to note that whereas in the year under consideration the sugarcane has been purchased at the rate of Rs. 60 and Rs. 56 per qtl. respectively, the purchase prices paid in assessment years 1992-93 and 1993-94 are much less being Rs. 49 and Rs. 45 per qtl. for assessment year 1992-93 and Rs. 50 and Rs. 46 per qtl. respectively for assessment year 1993-94. 17. Much has been made by the learned Counsel for the assessee that it was because of this incentive that the area under cultivation increased and the availability of sugarcane also increased. We notice that up to the crushing season 1989-90, more than 24500 acres of land was under sugarcane cultivation and more than 45 lac qtls. of cane was available. In the year under consideration, the area went up to 28959 acres and the cane available rose to 53.84 lac qtls. There was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and above the minimum price of the sugarcane fixed by the Government of India was a payment laid out wholly and exclusively for purposes of the business of the assessee. It is also significant to note that in that case, the increase was only of Rs. 1.50 per qtl. against the minimum price of Rs. 13.75 per qtl. whereas in the present case, the increase is Rs. 20 per qtl. It is also important to note that in the case of Haryana Cooperative Sugar Mills Ltd. the representatives of the canegrowers were present when the decision was arrived at and they voluntarily agreed that the amount of additional cane price may be retained by the mill as interest-free loan till 30-6-1977 and thereafter the amount may be paid in cash. In the present case, however, a fantastic increase of Rs. 20 per qtl. was given and a sum of Rs. 18 per qtl. was capitalised without the agreement with the canegrowers and only a sum of Rs. 2 per qtl. was to be paid in cash. No details have been furnished before us as to when the cash component was actually paid to the growers. Be that as it may, the increase of Rs. 20 per qtl. was absolutely disproportionate and not reasonable. Moreover, the facts of the case relied upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rage or entertain the belief that it is honourable to avoid the payment of tax by dubious methods. According to the Supreme Court, it is the obligation of every citizen to pay the taxes honestly without resorting to certain subterfuges. The observations of tax avoidance in A. Raman Co.'s case were disapproved by this later decision of the Supreme Court. Justice Chinnappa Reddy made very succinct observations on the theme of tax avoidance to which the other Judges of the Supreme Court agreed as mentioned at page 171 of the report. 22. We have no doubt in our mind that in the present case, the assessee by employing this device of increasing the sugarcane price which is not a bona fide transaction has deprived the Revenue of its dues and has, therefore, indulged in tax avoidance which should be frowned upon and not permitted. On the amount of Rs. 18 per qtl. which has been retained by the assessee, no dividend has been declared and the canegrowers have not received any benefit out of the same till date. This is what we were told at the time of hearing of the appeal. 23. The learned Counsel for the assessee also relied on the Madhya Pradesh High Court decision in Gwalior Sugar Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year under consideration. The facts before the Madhya Pradesh High Court were, therefore, clearly distinguishable. 25. The learned Counsel for the assessee relied on the Supreme Court decision in the case of Sassoon J. David Co. (P.) Ltd. In the said case, the Supreme Court held that the expenditure may be incurred voluntarily and without any necessity but if it is incurred for promoting the business and to earn profit, the assessee can claim deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922 corresponding to section 37 of the Income-tax Act, 1961. The proposition of law laid down by the Supreme Court is a salutary proposition but does not advance the case of the present assessee. It is true that the Assessing Officer cannot sit in judgment as to whether a particular expenditure incurred by the assessee is necessary or not but that expenditure has to be wholly and exclusively for purposes of the business of the assessee. When we apply this test, we find that the payment of additional price of Rs. 20 per qtl. was not at all laid out wholly and exclusively for business purposes of the assessee. 26. In the case of Swadeshi Cotton Mills Co. Ltd. v. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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