1. Under Section 256(1) of the Income-tix Act, 1961, the Income-tax Appellate Tribunal, Delhi Bench C, has at the instance of the assessee submitted a statement of the case inviting the opinion of this court on the following questions :
'1. Whether, on the facts and in the circumstances of the case and in accordance with the provisions of the law and rules, the assessee-company is entitled to 50 per cent, of the normal depreciation on the plant and machinery on account of double shift allowance for the whole year or for a proportionate period ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in deleting the sums of Rs. 3,49,742 and Rs. 44,509 being the extra price payable for the purchase of sugarcane by Messrs, Kundan Sugar Mills and Pannijee Sugar Mill?, respectively, as a deduction under the provisions of the Income-tax Act ?'
2. The assessment years involved in respect of the first question are 1954-55 to 1958-59, 1960-61 and 1961-62. The assessment year involved in respect of the second question is 1961-62.
3. The assessee was engaged in running two sugar mills, namely, Kundan Sugar Mills at Amroha and Pannijee Sugar Mills at Bulandshahr. Previous years ended on 31st day of August. The assessee claimed double shift allowance on its plant and machinery employed in its sugar mills at 50 per cent, of the normal depreciation allowance. The Income-tax Officer found that the sugar mills had worked double shift only for certain days and, therefore, allowed extra shift allowance proportionately at 50 per cent, of the normal depreciation on the plant and machinery for the actual number of days worked. On appeal, the Appellate Assistant Commissioner allowed the assessee's claim on the ground that the factories in question were seasonal and could, therefore, be deemed to have worked for the full year if it had worked during the season. On appeal by the department before the Income-tax Appellate Tribunal the order of the Appellate Assistant Commissioner was reversed and the order of the Income-tax Officer wasrestored. At the instance of the assessee the Tribunal has now referred the aforesaid question No, 1 mentioned above for the opinion of this court. The legal position is, however, concluded by the decision in the case of Raza Sugar Co. Ltd. v. Commissioner of Income-tax : 76ITR541(All) . We are, therefore, of the opinion that the assessee-company was entitled to 50% of the normal depreciation on the plant and machinery on account of double shift allowance proportionately for the actual number of days worked. The question is, therefore, answered in favour of the department and against the assessee.
4. The assessee for the assessment year 1961-62 provided Rs. 3,49,742 as extra price payable by Kundan Sugar Mills and Rs. 44,509 as extra price payable by Pannijee Sugar Mills under the provisions of the Sugar-cane (Control) Order. The Income-tax Officer disallowed this claim on the ground that it was a mere provision made for an anticipated liability and that the liability actually came to be ascertained in a much later year. On appeal, the Appellate Assistant Commissioner reversed the findings of the Income-tax Officer and directed the allowance of these sums. On appeal by the department the Income-tax Appellate Tribunal reversed the order of the Appellate Assistant Commissioner and restored that of the Income-tax Officer. Thereupon, at the instance of the assessee, question No. 2 has been referred to this court for its opinion.
5. It was argued by the learned counsel for the department that the liability to pay extra price for supply of sugarcane was only a contingent liability and that it was neither adjudged nor paid during the relevant year. He referred us to Clause 3A of the Sugarcane (Control) Order, 1955, as amended, under which extra price for cane purchased became payable. Clause 3A of the Sugarcane (Control) Order, 1955, makes provision for payment of additional price for sugarcane purchased from a grower or a growers' co-operative society. Sub-clause (1) of Clause 3A stipulates :
'Where a producer of sugar or his agent purchases any sugarcane from a grower of sugarcane or a growers' co-operative society during each of the four successive years beginning on the 1st day of November, 1958, the producer shall in addition to the minimum price of sugarcane fixed under Sub-clause (1) of Clause 3 pay to the grower or the co-operative society, as the case may be, an additional price if found due in accordance with the provisions of the Schedule hereto annexed.'
6. Sub-clause (4) of Clause 3A stipulates :
'The Central Government may appoint any person or authority as it thinks fit for the purpose of determining the additional price due from a producer of sugar under Sub-clause (1) for each of the four successive years beginning on the 1st day of November, 1958, and when the price is so determined, the person or authority, as the case may be, shall intimate thesame in writing to the producer and to the growers' co-operative society, or the local cane-growers' association, if any, connected with the supply of sugarcane to the factory.'
7. An appeal from the decision of the authority appointed under Sub-clause (4) lies before the Central Government under Sub-clause (5) thereof. Sub-clause (6) stipulates that the price determined under Sub-clause (4) or Sub-clause (5), as the case may be, shall be paid at such time and in such manner as the Central Government may from time to time direct.
8. In our view the liability for payment of additional price for sugarcane purchased by a producer of sugar or his agent during each of the four successive years beginning on the 1st day of November, 1958, was created under Clause 3A of the Sugarcane (Control) Order. The manner of quantification of the liability and the payment thereof have also been stipulated in Clause 3A. The authority who was to determine the amount of the additional price, was to be appointed by the Central Government. He had to determine the price in accordance with the provisions of the Schedule annexed to the Sugarcane (Control) Order. The accrual of the liability was not dependent or contingent upon any other factor and as such it could not be said to be a contingent liability. The liability was created by Sub-clause (1) of Clause 3A. What would be the extent of that liability, who is to determine that liability and what would be the time and manner for payment of that liability were the factors which did not control in any manner the liability itself. These are the factors which concern the determination of the amount of the liability which accrued in respect of the purchase of sugarcane in each relevant year but they cannot be construed to be the factors on the happening of which alone the liability could accrue. If a business liability has definitely arisen in the accounting year a deduction should be allowed although the liability may have to be estimated and discharged at a future date. [See Poona Electric Supply Co. Ltd. v. Commissioner of Income-fax : 57ITR521(SC) ]. It is not an uncertain and contingent liability. In fact it was capable of ascertainment with reference to the Schedule annexed to the Sugarcane (Control) Order. In the case of Metal Box Company of India Ltd. v. Their Workmen : (1969)ILLJ785SC , the Supreme Court observed :
'In the case of an assessee maintaining his account on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid.'
9. In that case a question arose as to whether provision for gratuity was an expenditure which could be deducted out of the gross profit of the company for the purposes of working out the available surplus for payment ofbonus to its workmen. The Supreme Court held that the estimatedliability of the assessee-company for payment of gratuity based on actuarialvaluation was a permissible deduction and that such a liability was aliability in praesenti though payable in future and it was ascertainable.As indicated above the liability for payment of additional price for sugarcane purchased during the relevant period could be ascertained by resortingto the provisions of the Schedule annexed to the Sugarcane (Control)Order. It was, therefore, a liability in praesenli though payable in future.We are, therefore, of the opinion that the Tribunal was not correct indeleting the amount of extra price payable for the purchase of sugarcaneby the two mills in question as a deduction under the provisions of theIncome-tax Act.
10. For the reasons stated above we answer question No. 2 in the negative in favour of the assessee and against the department.
11. No order as to costs.