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Commissioner of Income-tax Vs. L.H. Sugar Factories and Oil Mills (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 482 of 1976
Judge
Reported in[1980]123ITR599(All)
AppellantCommissioner of Income-tax
RespondentL.H. Sugar Factories and Oil Mills (P.) Ltd.
Excerpt:
- - however, at the same time, there has as well been a fall in the amount of guarantee commission paid. however, from its side, it has as well been pointed out that the total loan liabilities were also around rs. in view of the partial failure and success of the parties, there will be no order as to costs......find that the decision of the aac for assessment year 1963-64 on which reliance was placed for the present year was reversed in second appeal by the tribunal. the entire guarantee commision of rs. 1,49,484 was held allowable. the learned members constituting the bench had further observed that the payment could not be called in question as being influenced by extra-commercial considerations and it must be taken that it passed all the tests laid down in section 40(c). we find that there has been no substantial change in the facts of the present year. there has, of course, been a diminution of liability from rs. 18 lakhs to rs. 12 lakhs to a bank. however, at the same time, there has as well been a fall in the amount of guarantee commission paid. it is next correct that the assessee earned.....
Judgment:

1. The Tribunal has referred the following questions for the opinion of this court.

'(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest payments on arrears of cane price and purchase tax were admissible deductions in the computation of the total income of the assessee ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payment of Rs. 1,16,996 on account of guarantee commission paid by the assessee to its directors and shareholders was admissible ?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing consequential relief in the surtax assessment '

2. So far as the interest paid on arrears of purchase tax is concerned, that is covered by the decision of this court in the case of L. H. Sugar Factories & Oil Mills (P.) Ltd. v. CIT : [1979]118ITR985(All) . As respects interest paid on arrears of cane price, that too is covered by the decision of the Full Bench in Saraya Sugar Mills Ltd. v. CIT : [1979]116ITR387(All) . So far as the guarantee commission paid by the assessee to its directors and shareholders, the Tribunal has recorded the following findings:

' It is as Such that both the sides feeling aggrieved have moved the present appeals before us. We have heard the parties and given our due consideration to all the circumstances. We find that the decision of the AAC for assessment year 1963-64 on which reliance was placed for the present year was reversed in second appeal by the Tribunal. The entire guarantee commision of Rs. 1,49,484 was held allowable. The learned members constituting the Bench had further observed that the payment could not be called in question as being influenced by extra-commercial considerations and it must be taken that it passed all the tests laid down in Section 40(c). We find that there has been no substantial change in the facts of the present year. There has, of course, been a diminution of liability from Rs. 18 lakhs to Rs. 12 lakhs to a bank. However, at the same time, there has as well been a fall in the amount of guarantee commission paid. It is next correct that the assessee earned large profits during the two preceding years and they were to the tune of about Rs. 25 lakhs. Its assets also exceeded Rs. 2.13 crores. However, from its side, it has as well been pointed out that the total loan liabilities were also around Rs. 2 crores. Moreover, the bankers had insisted upon the personal sureties of the directors and the shareholders. The Tribunal has discussed the necessity which obliged the assessee to furnish that security. It was noted that in case the same was not done, the assessee might have been required to pay a larger amount of interest. Respectfully following that decision, we hold that the entire guarantee commission was allowable in the present year. It is directed accordingly. '

3. On the findings recorded, the matter is covered by the principles laid down in the assessee's own case referred to earlier. Counsel for the department, however, urged that the principles of that case should not be applied to the present one as the Tribunal has found that there has been a diminution of liability from Rs. 18 lakhs to Rs. 12 lakhs to a bank. This may be so ; but, nevertheless, the company was borrowing from the bank in the relevant previous year, and in order to secure the loans the directors and the shareholders had stood sureties. The loans would not have been advanced in case these persons had not stood sureties. This being so, the case will fall within the dictum of the assessee's case for the earlier assessment year [since reported in : [1980]123ITR596(All) (supra)].

4. So far as the third question is concerned, as the answers to the first two questions will be reflected in the surtax assessment, the relief which the Tribunal should have granted, should be in consonance with the answers given to the first and second questions.

5. We, therefore, answer the first question in the negative and the second question in the affirmative. As for the third question, surtax relief consequential to our answers to the first and second questions is to be granted. In view of the partial failure and success of the parties, there will be no order as to costs.


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