1. The assessee is a public limited company. The company owns a sugar mill at Gorakhpur in the State of Uttar Pradesh. It produces sugar in its mill. It sells and also exports sugar. It has adopted the mercantile system of accounting. The assessment year in both these references, under Section 66(2) of the Indian Income-tax Act, 1922, is 1961-62. The relevant previous year ended on October 31, 1960.
2. The facts stated by the Appellate Tribunal in Income-tax Reference No, 231 of 1971 are briefly as follows :
The Sugarcane (Control) Order, 1955, hereinafter referred to as the Control Order, was amended on September 23, 1958 (sic). Since the additional price payable by the company to the sellers of sugarcanes, who were the growers of sugarcanes, was not determined under Clause 3A(1) of the Control Order, the company made a provision for payment of Rs. 1,40,000 as additional price payable to them with regard to the purchases made by the company from 1st November, 1959, to 31st October, 1960. Accordingly, Rs. 1,40,000 was debited by the company in its profit and loss account for the year ended on October 31, 1960, as provisions for contingencies. Thereafter, on December 28, 1964, Rs. 1,13,371 was determined to be payable by the company to the sellers for the aforesaid period as additional price by the authorities appointed under the Control Order. While the first appeal filed by the company from the assessment order was pending, Rs. 1,13,371 was reduced to Rs. 18,895 on April 11, 1967, by the authority concerned in terms of second proviso to Clause 3A(1) of the Control Order by allowing the pending representations made by the company in that behalf.
3. In, the assessment proceedings, the company claimed Rs. 1,40,000 or in the alternative Rs. 1,13,371 as deduction. The Income-tax Officer rejected the said claim on the ground that the liability of the company to pay the additional price did not arise in the accounting year. The Appellate Assistant Commissioner has sustained the said disallowance in the appeal filed by the company, but the Appellate Tribunal, on further appeal by the company, has set aside the order of the Appellate Assistant Commissioner with a direction to the department to look into the matter afresh and to decide the issue on the basis of the observations made by the Tribunal in its appellate order.
4. Hence, at the instance of the Commissioner, we are now concerned in the Income-tax Reference No. 231 of 1971 with the following question of law:
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,40,000 debited to the profit and loss account for the year ended 31st October, 1960, as a provision for contingencies or any part of it relating to the liability determined and settled in subsequent years was a permissible deduction in the computation of the income of the assessee for the assessment year 1961-62 under the provisions of the Indian Income-tax Act, 1922?'
5. Before adverting to the contentions of Mr. B.L. Pal, the learned counsel for the revenue, and his learned junior, Mr. Ajit Sengupta, we would like to refer to the relevant provisions of the Control Order. Clause 3(1) provides for fixation of minimum price of sugarcanes payable by the producers of sugar to the growers of sugarcanes. Clause 3(2) prohibits the payment of price lower than the price fixed under Clause 3(1). The minimum price has to be paid within 14 days from the date of delivery of sugarcanes as enjoined by Clause 3(3) of the Control Order. Now Clause 3A reads as follows :
'(1) Where a producer of sugar or his agent purchases any sugarcane from a grower of sugarcane or 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 :
Provided that where sugar is produced in any new factory, the producer of such sugar shall not be liable to apply any amount under this sub-clause for any sugarcane purchased by him during such period after its establishment as the Central Government may, from time to time, specify in this regard :
Provided further that the Central Government made by order in writing exempt a producer :
(a) from payment of the whole of the amount due from him under this sub-clause, where the audited accounts of the factory for the season in which the sugarcane is purchased show that no profit has accrued to the producer for that season ; or
(b) from payment of such part the said amount as the Central Government thinks fit, where the said audited accounts show that the profit which would accrue to the producer for the season concerned, if the said amount is paid, would be less than the profit taken into account in determining the value of ' X ' referred to the schedule.
(2) Where the Central Government, having regard to the specialcircumstances prevailing in any State or part thereof and after consultation with the State Government, is of opinion that the provisions of theschedule should in their application to the State or part thereof, as the casemay be, varied or not applied, the Central Government may, notwithstanding anything contained in Sub-clause (1), direct that in lieu of the paymentprovided for therein, payment shall be made in accordance with such otherprovisions as may be notified in the official Gazette.
(3) Any amount payable under this clause may be paid at such time and in such manner as the Central Government may from time to time direct.
(4) The following Schedule shall be inserted at the end, namely:
See Clause 3-A(1).
6. The amount to be paid per maund or kilogram of sugarcane under Sub-clause (1) of Clause 3A by a producer of sugar to the seller of sugarcane shall be computed in accordance with the following formula, namely,--
X P-T-C-S -Y.
-- x -------
7. Explanation.--In this formula-
(1) 'X' is the percentage cost of sugarcane to the total cost of sugar excluding taxes as determined by the Central Government from time to time on the basis of the recovery and duration of season of the factory for the year;
(2) 'P' means the sum of the (per maund or kilogram) average ex-factory price of sugar realised by the producer adjusted to ISS grade D-29 according to the price differentials fixed by the Central Government, and of the money realised by the producer from the sale of molasses and press mud in relation to each maund or kilogram of sugar;
(3) 'T' means the amount paid in relation to each maund or kilo-gram of sugar on account of excise duty, cane cess, commission paid to co-operstive societies, any sum paid to workmen as bonus or as a result of any award and any other tax levy, or cess imposed on sugar or sugarcane by the Central or State Government or by any other authorities and any sum spent on approved scheme of sugarcane development ;
(4) 'C' means the actual amount of commission paid in relation to each maund or kilogram of sugar on the transport of sugarcane by a producer of sugar in excess of the rebate allowed for the purpose by the Government in the minimum price of sugarcane purchased at centres other than factory gate ;
(5) 'S' means the actual amount of commission paid in relation to each maund or kilogram of sugar ; provided that such amount shall not exceed seventy-five naye paise for every sum of hundred rupees of sugar sold ; provided further that no commission shall be taken into account in respect of sugar sold directly by a producer of sugar or in pursuance of any order of the Central Government;
(6) 'M' means the weight in maunds or kilogram of sugarcane required to produce a maund or kilogram of sugar and such weight shall be calculates by dividing the total weight of the sugarcane, purchased by the weight of sugar produced therefrom and for this purpose the weight of sugarcane purchased shall be the total weight of sugarcane crushed plus actual driage subject to a ceiling of 1% on the weight of sugarcane purchased at centres other than the factory gate;
(7) 'Y' means the total sum of the minimum price of sugarcane per maund of kilogram fixed by the Central Government under Clause 3(1) and the premium, if any, paid for and approved by the Central Government for payment of price for sugarcane on the basis of quality : Provided that the rebate, if any, allowed in the minimum price aforesaid (excluding a rebate allowed on account of transport charges), shall be deducted from the total sum aforesaid.'
8. The submission of Mr. Pal is that the liability of the company to pay the additional price in the accounting year was contingent or inchoate in view of the second proviso read with the expression 'an amount, if found due', used in Clause 3A(1) of the Control Order and the provisions for rebate provided for in the Schedule. It is also his submission that since the amount of additional price was determined after the close of the accounting year, the Income-tax Officer was justified in rejecting the claim of the company. The submission of Mr. Sengupta is that the aforesaid liability of the company was contingent in view of the power of the Central Government under Clause 3A(2) of the order.
9. We are, however, not impressed by their contentions. The liability to pay the additional price is a statutory liability. This liability accrues at the point of purchase of sugarcanes from the sugarcane growers by the producers of sugar. The additional price is a part of the price of sugarcanes, but its payment is deferred until it is quantified by the authority under the Control Order. Though the Central Government may exempt the payment of additional price, it is not a contingent or an inchoate liability because this exemption is subsequent to the accrual of liability. In other words, it is not the liability but the exemption which is contingent.
10. The expression 'an amount, if found due' used in Clause 3A(1) must be read with the expression 'in accordance with the provisions of the Schedule' used in this sub-clause. The Schedule is solely confined to the computation of the amount of additional price which is payable by the producer of sugar. This Schedule was in force at the time sugarcanes were purchased by the assessee and, therefore, the liability to pay the additional price had already accrued in the accounting year. The formula set forth in the Schedule also shows that the amount of such liability must be determined after the close of the accounting year. Further, the liability to pay the additional price does not depend upon its exception, quantification or allowance of rebate but on the purchase of sugarcanes by the company from the growers of sugarcanes.
11. The reduction of additional price has only reduced the liability of the company and has not done away with it. Further, the liability of the company to pay the additional price could not be wiped away even if the Central Government had acted in terms of Clause 3A(2) of the Control Order and the payment had to be made by the company in terms of the notification, if issued, in the official gazette in that behalf.
12. As already stated, the additional price formed part of the price of sugarcanes purchased by the company in the accounting year. The company had already incurred the liability to pay the additional price and hence it cannot be said that this liability of the company was contingent or inchoate in the accounting year. The company was entitled to make a provision for discharging this obligation out of the profits of the year in question and it is not the case of the revenue that Rs. 1,40,000 provided for by the company for discharging this liability was excessive at the time this provision was made.
13. The income-tax authorities are solely concerned with the relevant accounting year in question for the purpose of assessment. The company has incurred this liability in the accounting year ending on 31st October, 1960 and, therefore, the Income-tax Officer and the Appellate Assistant Commissioner were not justified in disallowing the deduction of Rs. 1,40,000 claimed by the company in the assessment year 1961-62, as rightly contended by Mr. R.N. Bajoria, the learned counsel for the assessee.
14. The difference between Rs. 1,40,000 and Rs. 1,13,371 can be brought to tax in the accounting year beginning with the 1st November, 1964, and ending with the 31st October, 1965, and thereafter the difference between Rs. 1,13,371 and Rs. 18,895 can be included in the computation of the total income of the company in the accounting year beginning with the 1st November, 1966, and ending with the 31st October, 1967, under Section 41(1) of the Income-tax Act, 1961.
15. In this view of the matter it is unnecessary for us to discuss the cases of Calcutta Co. Ltd. v. Commissioner of Income-tax : 37ITR1(SC) , Commissioner of Income-tax v. A. Gajapathy Naidu : 53ITR114(SC) , Commissioner of Income-tax v. Swadeshi Cotton and Flour Mills P. Ltd. : 53ITR134(SC) and Metal Box Company of India Ltd. v. Their Workmen : (1969)ILLJ785SC , cited at the bar.
16. And we return our answer to the question in the Income-tax Reference No. 231 of 1971 by saying that Rs. 1,40,000 is a permissible deduction in the computation of the total income of the assessee for the assessment year 1961-62 under the provisions of the Indian Income-tax Act, 1922.
17. We will now take up the Income-tax Reference No. 232 of 1971. The facts stated by the Tribunal are briefly as follows :
In the course of the assessment proceedings the Income-tax Officer found that the company had debited to its profit and loss account a sum of Rs. 2,48,000 as a provision for loss on exportation of sugar. The company was required to export 274 93 tons of sugar under a governmental order dated October 5, 1960. This quantity was subsequently reduced to 270.14 tons as per the order dated January 27, 1961. The company was also to export 270.14 tons of sugar in terms of a letter dated February 17, 1961, of the Indian Sugar Mills Association. The company exported the above quantities of sugar on ex-factory price amounting to Rs. 5,56,666 against which it received only Rs. 3,05,477 and also got a rebate of Rs. 29,414 on account of cess in respect of the quantities exported. Thus, the company suffered loss of Rs. 2,21,775 and at the time of finalising its accounts it estimated the said loss at Rs. 2,48,000 and accordingly made the above provision.
18. It was found by the Income-tax Officer that the company had received the final order subsequent to the accounting year and had exported those goods after the close of the accounting year. It was also found by the Income-tax Officer that no part of the closing stock was set apart by the company for export; accordingly, the Income-tax Officer added back Rs. 2,48,000 in the assessment.
19. The Appellate Assistant Commissioner has allowed half of the export loss of Rs. 2,21,775 in this assessment year on the appeal filed by the company by accepting its contentions as stated in the statement of the case. The Tribunal has, however, remanded the appeal filed by the department without going into its merits on the following reasons:
'Coming to the appeal of the department, we find that the departmental authorities have allowed half of the export loss during the year under consideration and the other half has been allowed in the subsequent year. The assessee has not come up in appeal for the subsequent year, and therefore, if the department's appeal succeeds, the assessee will not be left with any remedy in the subsequent year. This matter, therefore, should also be decided once again and decision should be taken whether the entire amount of export loss should be allowed in the year under consideration or should be allowed half in the year under consideration and the other half in the subsequent year. For this purpose, it may also be necessary that the export loss of earlier years which might have been allowed during the year under consideration would require verification and adjustment.'
20. The Tribunal having rejected the application made by the Commissioner under Section 66(1) of the Income-tax Act, this court, at the instance of the Commissioner, called for the following question under Section 66(2) of the Act for its determination :
'Whether, on the facts and in the circumstances of the case and on a proper interpretation of Section 254(1) of the Income-tax Act, 1961, the Tribunal has exceeded its jurisdiction in directing that a decision should be made once again as to whether the entire amount of export loss or half of it should be allowed in the year under appeal and the remaining half in the next year under appeal or in subsequent year ?'
21. Mr. Bajoria has accepted the contentions made by Mr. Pal on this question. We also agree with Mr. Pal that though the Appellate Tribunal has jurisdiction to remand an appeal, it can do so only on certain well settled principles, but not on the aforesaid grounds. Accordingly, we return our answer to the question in Income-tax Reference No. 232 of 1971 in the affirmative and in favour of the revenue, but at the same time we direct the Tribunal to decide whether the Appellate Assistant Commissioner was justified in allowing half of the export loss in the assessment year under appeal with which the Tribunal was concerned.
22. In view of the divided success, we direct the parties to pay and beartheir own costs of these references.
Dipak Kumar Sen, J.
23. I agree.