Skip to content


Mahabir Sugar Mills (P.) Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference Nos. 261 of 1968 and 60 of 1969
Judge
Reported in[1973]89ITR143(All)
ActsIncome Tax Act, 1961
AppellantMahabir Sugar Mills (P.) Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateDeokinandan, Adv.
Respondent AdvocateR.K. Gulati, Adv.
Excerpt:
- - in that belief the payment was clearly made, and there is nothing to show that at the time of making the payment the assessee thought otherwise. the appellate assistant commissioner observed :if the yield of sugarcane increases, the factory will get benefit through increased supplies and better recoveries. clearly, that consideration cannot form the basis for rejecting the claim......at rs. 24,000. the assessee paid the amount, and it claimed a deduction of the payment against its business income for the assessment year 1964-65. the income-tax officer rejected the claim in the view that it brought into existence an enduring benefit and was, therefore, capital in nature. the appellate assistant commissioner affirmed the view taken by the income-tax officer. a second appeal filed by the assessee was dismissed by the income-tax appellate tribunal. the tribunal observed that the assessee had no control over the actual expenditure under the scheme and the cane growers were not obliged to sell the sugarcane to the assessee alone nor would the mill close down in case the development was not undertaken in accordance with the scheme. on all those considerations the tribunal.....
Judgment:

Pathak, J.

1. The assessee is a private limited company and carries on the business of the manufacture and sale of sugar. During the previous year relevant to the assessment year 1964-65, the assessee contributed a sum of Rs. 24,000 to the Development Council, Siswa Bazar, pursuant to a scheme for intensive cane development in the area. The scheme was launched by the State Government on the recommendation of the Sugar Industry Advisory Committee, and the object of the scheme was to develop intensively an area of four thousand acres around the assessee's sugar mill for a period of three, years with a view to raising the average yield of sugarcane per acre. The scheme contemplated that the total cost would be borne by the factory, the canegrowers of the area, the State Government and the Government of India. The share of the sugar mill was determined at Rs. 24,000. The assessee paid the amount, and it claimed a deduction of the payment against its business income for the assessment year 1964-65. The Income-tax Officer rejected the claim in the view that it brought into existence an enduring benefit and was, therefore, capital in nature. The Appellate Assistant Commissioner affirmed the view taken by the Income-tax Officer. A second appeal filed by the assessee was dismissed by the Income-tax Appellate Tribunal. The Tribunal observed that the assessee had no control over the actual expenditure under the scheme and the cane growers were not obliged to sell the sugarcane to the assessee alone nor would the mill close down in case the development was not undertaken in accordance with the scheme. On all those considerations the Tribunal treated the expenditure as outside the legitimate purposes of the assessee's business.

2. At the instance of the assessee the Tribunal has referred the following question of law for the opinion of this court :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the contribution of Rs. 24,000 made by the assessee to the Development Council was not an allowable deduction under the Income-tax Act '

3. This is Income-tax Reference No. 261 of 1968.

4. In accordance with the conditions of the scheme the assessee made a similar contribution of Rs. 24,000 to the Development Council during the previous year relevant to the assessment year 1965-66. As before, be claimed a deduction of the amount in the assessment proceedings for that year. The Income-tax Officer did not accept the claim and the Appellate Assistant Commissioner also rejected it. On second appeal, the Tribunal took into consideration certain further material on the record and held that the claim should have been allowed. The Tribunal examined the terms and conditions of the scheme and deduced therefrom that the canegrowers were bound to sell their produce to the assessee, that full accounts of the expenses incurred by the Development Council were maintained and the assessee joined the scheme not under any compulsion but of its own volition. In the circumstances, the Commissioner of Income-tax had obtained a reference of the following question of law :

' Whether, on the facts and in the circumstances, the Tribunal was right in holding that the contribution of Rs. 24,000 made by the assessee to the Development Council was an allowable deduction under the Income-tax Act, 1961 ?'

5. That is Income-tax Reference No. 60 of 1969.

6. Considering the facts pertaining to the reference concerning the assessment year 1964-65, it seems to us that the Tribunal has erred in law in holding that the deduction claimed could not be allowed. The considerations which have prevailed with the Tribunal are that the payment was made at the instance of the governmental authorities and it could not be said with certainty how the money was spent by the Government, if at all, and there was nothing to show that pursuant to the scheme the canegrowers were obliged to sell the sugarcane to the assessee alone and also that it was not established that the mills would be closed down if the development was not carried out under the scheme. These considerations, in our opinion, do not warrant the conclusion to which the Tribunal has come. The scheme was formulated by the Government, but because of that it is not possible to infer that in making the payment the assessee did something which was not expected to benefit its business. Whether or not the money was spent by the Government, and how it was spent, was not a circumstance which could justify rejection of the claim made by the assessee. It is sufficient that the assesses made the payment and made it in circumstances which indicated that it would benefit from the payment. In that belief the payment was clearly made, and there is nothing to show that at the time of making the payment the assessee thought otherwise. In fact, when the Income-tax Officer rejected the claim he did not doubt that the payment was made by the assessee for the purpose of benefiting its business. He rejected the claim on the ground that it brought into existence an enduring benefit and the expenditure was, therefore, capital in nature. The Appellate Assistant Commissioner observed :

' If the yield of sugarcane increases, the factory will get benefit through increased supplies and better recoveries. '

7. He rejected the claim on the ground that the expenditure incurred for intensive development activities could not be said to be expended for the day-to-day carrying on of the business and that, therefore, it was capital in nature. So far as the supply of sugarcane to the assessee is concerned, the Tribunal did not doubt that the supply would be effected to the assessee. What appears to have weighed with the Tribunal is that the supply would not be made by the canegrowers to the assessee alone. Clearly, that consideration cannot form the basis for rejecting the claim. The last consideration was that there was nothing to show that the mills would be closed down in case the development was not undertaken. It is not necessary, we think, that for expenditure to be admissible it must be incurred only to prevent the closure of the business.

8. We are of the view that the considerations which prevailed with the Tribunal do not in law warrant the rejection of the assessee's claim.

9. In Lakskmiji Sugar Mills Co. P. Ltd. v. Commissioner of Income-tax, [1971] 82 I.T.R. 376, 379 (S.C.) the Supreme Court considered the admissibility of a deduction of an amount expended by the assessee in the development of roads used by it for the transport of cane from the cane producing centres to its mills. The Supreme Court, observed :

' The criteria has to be applied from the business point of view and on a fair appreciation of the whole situation. In the present case, apart from the element of compulsion, the roads which were constructed and developed were not the property of the assessee nor is it the case of the revenue that the entire cost of development of those roads was defrayed by the assessee. It only made certain contributions for road development between the various cane producing centres and the mills. The apparent object and purpose was to facilitate the running of its motor vehicles or other means employed for transportation of sugarcane to the factory. From the business point of view and on a fair appreciation of the whole situation the assessee considered that the development of the road in question could greatly facilitate the transportation of sugarcane. This was essential for the benefit of its business which was of manufacturing sugar in which the main raw material admittedly consisted of sugarcane. These facts would bring it within the second part of the principle mentioned before, namely, that the expenditure was incurred for running the business or working it with a view to produce the profits without the assessee getting any advantage of an enduring benefit to itself. '

10. The observations of the Supreme Court, it seems to us, considerably assist the case of the assessee. It is not disputed that the sugarcane supplied by the canegrowners to the assessee would result in a higher yield of sugar and would, therefore, be of direct benefit to the business carried on by the assessee. That is also the finding of the Appellate Assistant Commissioner, and the Tribunal has not found to the contrary.

11. Accordingly, we are of opinion that the Tribunal was not right in holding that the contribution of Rs. 24,000 made by the assessee to the Development Council was not an allowable deduction under the Income-tax Act. The question referred is answered in the negative.

12. As regards the question referred for the assessment year 1965-66, it seems clear to us that upon the facts found by the Tribunal it must also be decided in favour of the assessee. Those facts have been set out above and the considerations which should govern the case are substantially the same as those already referred to by us. The question referred is answered in the affirmative.

13. In the circumstances, the assessee is entitled to its costs, which weassess at a consolidated sum of Rs. 200. Counsel's fee is assessed ,in thesame figure.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //