1. The question referred for our opinion by the Income-tax Appellate Tribunal is:
' Whether, on the facts and in the circumstances of the case, a sum of Rs. 2,05,787 has to be deducted for computing the assessee-firm's income of the previous year '
2. M/s. Janki Sugar Mills Company, the assessee before us, manufactures and sells sugar. During the previous year ending October 28, 1960, relevant to the assessment year 1961-62, it purchased its requirement of sugar-cane from sugar-cane growers' co-operative societies. In its accounts, which it maintained on the mercantile system, it debited the price of the sugar-cane. It also debited a sum of Rs. 2,05,787 as the additional price payable by it under Clause 3-A of paragraph 3 of S.R.O. No. 1863, dated August 27, 1955, issued by the Central Government under Section 3 of the Essential Commodities Act, 1955. The provision, as set out in the statement of the case, reads thus :
' Where a producer of sugar or his agent purchases any sugar-cane from a grower of sugar-cane or a growers' co-operative society, the producer shall, in addition to the price fixed under Sub-clause (1) of Clause 3, pay to the grower or the society, as the case may be, an amount, if found due, in accordance with the provisions of the Schedule. '
3. In assessment proceedings for the assessment year 1961-62, the assessee claimed a deduction of Rs. 2,05,787 on the ground that it was a liability for payment in connection with the sugar-cane purchased by it. The claim was rejected by the Income-tax Officer, who observed :
' This deferred payment has been calculated at Rs. 2,05,787. No doubt these orders exist but in spite of the fact that 16 months have passed after the said accounting period of the company, no order whatsoever for payment of such deferred price has been passed by the Government either for this company or for any other. Under the circumstances, this liability being undetermined is not allowed. '
4. The assessee appealed to the Appellate Assistant Commissioner, contending that the additional payment had to be made over and above the minimum price for sugar-cane fixed under the Sugar-cane Control Order. It pointed out that the extra payment was to be made at the rate of 0.08 paise per maund. The liability being ascertained and capable of quantification, the assessee claimed that it was entitled to a deduction of the amount in the computation of its profits. The contention was not accepted by the Appellate Assistant Commissioner. He proceeded on the view that the liability did not arise so long as an order was not made by the CaneCommissioner requiring the assessee to pay the additional amount. He observed that such an order lay in the discretion of the Government and no such order had yet been made. Thereafter, the assessee preferred an appeal before the Tribunal. The Tribunal allowed the appeal, taking the view that the law did not contemplate any order by the Cane Commissioner or other authority before the liability to pay the additional price arose. Though the liability was an existing liability, the amount payable was a fixed amount computed by reference to the provisions of the. Schedule and therefore the assessee was right in its claim to deduction.
5. At the instance of the Commissioner of Income-tax, this reference has been made to this court.
'It appears from the record before us that the minimum price had been fixed under paragraph 3(1) of the Sugar-cane Control Order and all that was necessary then was to compute the additional price payable by virtue of paragraph 3(3A) of the order. The provisions of the Sugar-cane Control Order as they stood at the relevant time have not been produced before us, but we take it that the provision of Clause (3A) of paragraph 3 as recited in the statement of the case has been correctly set out. Clause (3A) imposes a personal liability upon the producer of sugar to pay to the sugar-cane grower or the growers' co-operative society from whom he purchased his sugar-cane an amount in addition to the price fixed under paragraph 3(1) of the Control Order, It is a liability which arises as soon as the sugar-cane has been purchased and the minimum price fixed in respect of such purchase under the Control Order. The liability does not depend upon any other circumstance for its accrual. No order of the Cane Commissioner or other authority is necessary. As soon as the purchase is effected and the minimum price is fixed no further condition needs to be satisfied before the liability arises. From the provisions of the Schedule it is apparent that the liability is easily capable of quantification. There appears to be some confusion in the orders of the Income-tax Officer and the Appellate Assistant Commissioner. Those authorities appear to have been under the impression that an order by the Cane Commissioner was necessary before the liability to make payment of the additional price could arise. The Tribunal, in disposing of the appeal, has clearly held that no such order was necessary. Nothing has been produced before us to show that the Tribunal is wrong in this regard. Upon the well-settled principles applicable in the mercantile system of accounting, there can be no doubt that a clearly ascertained liability arose during the previous year and the assessee was entitled to the deduction of that liability against the profits earned by it during the previous year.
6. The question referred is answered in the affirmative and in favour ofthe assessee. We make no order as to costs. Counsel's fee is assessed atRs. 200.