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Balrampur Sugar Co. Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 678 of 1979
Judge
Reported in[1982]135ITR227(Cal),[1982]51STC38(Cal)
ActsUttar Pradesh Sugarcane (Purchase Tax) Act, 1961 - Sections 3, 3(3) and 8; ;Income Tax Act, 1961 - Section 37; ;Uttar Pradesh Sugarcane Cess Act, 1956
AppellantBalrampur Sugar Co. Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateR.N. Bajoria, ;Samir Chakrabarty and ;A.K. De, Advs.
Respondent AdvocateA.K. Sengupta and ;B.K. Naha, Advs.
Excerpt:
- .....and sale of sugar, under section 3(3) of the u.p. sugarcane cess act, 1956, on arrears of cess payable on the entry of cane into the premises of a factory for use either for consumption or sale thereof. the tribunal in that case had held that interest on the arrears of cess constituted a permissible deduction but the high court on a reference, inter alia, held that the interest did not fall within the scope of section 10(2)(xv) of the indian i.t. act, 1922, as it was applicable in that year, because it was paid by way of penalty for an infringement of the cess act. there was an appeal preferred by the assessee before the supreme court. the revenue did not dispute that the payment of cess represented expenditure laid out wholly and exclusively for the purpose of business and that.....
Judgment:

Sabyasachi Mukharji, J.

1. This reference under Section 256(1) of the I.T. Act, 1961, relates to the assessment years 1972-73, 1973-74 and 1975-76. While making the assessments for the years involved, the ITO had allowed the claim of the assessee-company in respect of interest on arrears of cane purchase tax, properly called U.P. Sugarcane (Purchase Tax) Act, 1961, at Rs. 37,413, Rs. 67,362 and Rs. 9,603, respectively. The Commissioner of Income-tax was, however, of the view that the orders of the ITO allowing the claim of the assessee were erroneous in so far as these were prejudicial to the interest of revenue as the charge of interest on arrears under the U.P. Sugarcane (Purchase Tax) Act, 1961, was of a penal nature levied for a contravention of law. He was, therefore, of the view that the same was not eligible for deduction in the computation of the business profit. According to the Commissioner, the facts of the present case were similar to the facts in the case of CIT v. Mahalaxmi Sugar Mills Lid. : [1972]85ITR320(Delhi) , wherein the Delhi High Court had held that the interest payable under the U.P. Sugarcane Cess (Validation) Act, 1961, was of a penal nature and was not an allowable; expenditure in the computation of business profits for income-tax purposes. The Commissioner, therefore, set aside the assessments for the three years on the said grounds and certain other points which are not relevant for our present purpose arid directed the ITO to make fresh assessments after carefully examining the question of allow-ability of the interest (paid under the) U. P. Sugarcane (Purchase Tax) Act, 1961.

2. There was an appeal preferred by the assessee-company before the Tribunal and the Tribunal dealing with those contentions and after referring to the several decisions, viz., the decision of the Allahabad High Court in the case of Kamlapat Motilal v. CIT : [1976]104ITR783(All) , the decision of the Delhi High Court in the case of CIT v. Mahalaxmi Sugar Mills : [1972]85ITR320(Delhi) and the decision of the Allahabad Full Bench in the case of Saraya Sugar Mills (P.) Ltd. v. CIT : [1979]116ITR387(All) as well as the decision of the Calcutta High Court in the case of Vishnu Sugar Mills Ltd. v. CIT : [1978]113ITR583(Cal) was of the view that so far as the interest under the Sugarcane (Purchase Tax) Act was concerned, the finding and the directions of the Commissioner were very clear and he was justified in holding that the allowance of this claim by the ITO was prejudicial to the interest of the revenue and he had, therefore, based his findings on the decision of the Supreme Court in the case of Mahalakshmi Sugar Mills Co. v. CIT : [1980]123ITR429(SC) as that decision was applicable to this case. The Tribunal was of the view that the view taken by the Commissioner waslegal and tenable and, therefore, according to the Tribunal, it did not call for any interference by the Tribunal. In this view of the matter, the assessee's contention on this aspect of the matter was rejected.

3. Out of these facts, the following two questions have been referred to this court under Section 256(1) of the I.T. Act, 1961 :

' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest on purchase tax amounting to Rs. 37,413, Rs. 67,362 and Rs. 9,603 was not deductible in computing the business income of the assessee for the assessment years 1972-73, 1973-74 and 1975-76, respectively ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the direction of the Commissioner of Income-tax in so far as it held that the allowance of the interest on purchase tax by the Income-tax Officer was erroneous and prejudicial to the interest of revenue ?'

4. We need not in detail discuss the several authorities, to some of which our attention was drawn, which have been referred by the Tribunal. The point came up before the Supreme Court in appeal from the decision of the Delhi High Court in the case of CIT v. Mahalaxmi Sugar Mills Ltd. : [1972]85ITR320(Delhi) and the decision of the Supreme Court is reported in : [1980]123ITR429(SC) (Mahalakshmi Sugar Mills Co. v. CIT). There, the. Supreme Court analysed the U.P. Sugarcane Cess Act, 1956, and was of the view that the interest was paid by the assessee-company, engaged in the business of manufacture and sale of sugar, under Section 3(3) of the U.P. Sugarcane Cess Act, 1956, on arrears of cess payable on the entry of cane into the premises of a factory for use either for consumption or sale thereof. The Tribunal in that case had held that interest on the arrears of cess constituted a permissible deduction but the High Court on a reference, inter alia, held that the interest did not fall within the scope of Section 10(2)(xv) of the Indian I.T. Act, 1922, as it was applicable in that year, because it was paid by way of penalty for an infringement of the Cess Act. There was an appeal preferred by the assessee before the Supreme Court. The revenue did not dispute that the payment of cess represented expenditure laid out wholly and exclusively for the purpose of business and that it was in the nature of revenue expenditure. It was held by the Supreme Court reversing the decision of the Delhi High Court that the interest paid under Section 3(3) of the Cess Act was not a penalty paid for an infringement of law and was an allowable deduction under Section 10(2)(xv) of the Indian I.T. Act, 1922. The Supreme Court was of the view that the interest payable on arrear of cess under Section 3(3) was in reality a part and parcel of the liability to pay tax. It was an accretion to the cess. The arrear of cess carried interest. If the cess was not paid within a prescribed period, a larger sum became pay-able as cess. The enlargement of cess liability was automatic under Section 3(3). No specific order was necessary in order that the obligation to pay interest could accrue. The liability to pay interest was as certain as the liability to pay cess. As soon as the prescribed date would cross without payment of cess, interest begins to accrue. It was not a penalty for which provision had been separately made under Section 3(5) of the said Act. Nor was it a penalty within the meaning of Section 4 which provided for a criminal liability and a criminal prosecution. The penalty payable under Section 3(5) lay in the discretion of the collecting officer or the authority. In the case of the penalty under Section 4, no prosecution could be instituted unless, under Section 5(1), a complaint was made by or under the authority of the Cane Commissioner or the District Magistrate. In truth, interest provided under Section 3(3) was in the nature of compensation paid to the Government for delay in the payment of cess. Therefore, the basic question that has to be considered is whether the interest in the present case which was claimed to have been paid was really a compensation for delayed payment, or it was in the nature of penalty imposed for the infraction of law. The Supreme Court analysed the different provisions of Section 3 of the U.P. Sugarcane Cess Act, 1956. It will be relevant in this connection to refer to the material portions of the provisions of the U.P. Sugarcane Cess Act, 1956, along with the U.P. Sugarcane (Purchase Tax) Act, 1961, with which we are concerned, which read as follows ;

The Sugarcane Cess Act, 1956

' 3. Imposition of cess.--

(1) The State Government may by notification in the Official Gazette impose a cess not exceeding four annas per maund on the entry of the cane into the premises of a factory for use, consumption or sale therein......

(2) The cess imposed under Sub-section (1) shall be payable by the owner of the factory and shall be paid on such date and at such place as may be prescribed.

(3) Any arrear of cess not paid on the date prescribed under Subsection (2) shall carry interest at 6 per cent. per annum from such date to the date of payment....

(5) Where any person is in default in making the payment of the cess, the officer or authority empowered to collect the cess may direct that in addition to the amount of the arrears and interest, a sum not exceeding 10 per cent. thereof shall by way of penalty be recovered from the person liable to pay the cess.

(6) The officer or authority empowered to collect the cess may forward to the Collector a certificate under his signature specifying the amount of arrears including interest due from any person, and on receipt ofsuch certificate the Collector shall proceed to recover the amount specified from such person as if it were an arrear of land revenue.

(7) Any sum imposed by way of penalty under Sub-section (5) shall be recoverable in the manner provided in Sub-section (6) for the recovery of the arrear of cess.

4. Penalties.--If any person defaults in the payment of cess imposed under Sub-section (1) of Section 3, or contravenes any provision of any rule made under this Act, he shall without prejudice to his liability therefor under Sub-section (5) of Section 3, be liable to imprisonment up to six months or to a fine not exceeding rupees five thousand or both and in the case of continuing contravention to a further fine not exceeding rupees one thousand for each day during which the contravention continues. '

The U.P. Sugarcane (Purchase Tax) Act, 1961:

'3. (I) There shall be levied, and collected in such manner as may be prescribed a tax on the purchase of sugarcane by the owner of:

(a) a factory at the rate of sixty-seven naye paise per quintal of sugarcane; and

(b) a unit at the rate of sixteen naye paise per quintal of sugar-cane.

(2) The tax levied under Sub-section (1) shall be payable by the owner of the factory or the owner of the unit, as the case may be, and shall be paid on such date, at such place and in such instalments as may be prescribed.

(3) Any tax payable under this Act, if not paid by the date prescribed for payment thereof, shall carry interest at the rate of six per cent. per annum from such date till the date of payment.

(4) Where any tax payable under this Act, or interest thereon or both, as the case may be, remains unpaid for a period exceeding fifteen days beyond the date prescribed for payment thereof, the person liable to pay the same shall, in addition to the amount of arrears of tax and interest thereon, be also liable to pay, by way of penalty, a further sum, not exceeding ten per cent. of the total sum payable, calculated at such rate or rates as may be prescribed,

(5) Any person aggrieved by an order of assessment made under this Act, or by the imposition of interest under Sub-section (3) or penalty under Sub-section (4) may, within thirty days of the intimation of the order, or imposition, as the case may be, prefer an appeal to the Cane Commissioner.

(6) Without prejudice to the right to effect recovery of the tax payable under this Act by any other method, the tax, interest or penalty, as the case may be, may be realised by adjustment out of any sum payableby the State Government to the person by whom the tax, interest or penalty is payable.

(8) The officer or authority empowered to collect the tax may forward to the Collector of the district where the factory or the unit, as the case may be, is situate, a certificate under his signature specifying the amount of arrears of tax and interest if any, due from any person, and on receipt of such certificate the Collector shall proceed to recover the amount specified from such person as if it were an arrear of land revenue.

(9) Any sum imposed by way of penalty under Sub-section (5) may also be recovered in the manner provided in Sub-section (8).

8. If any person defaults in the payment of tax levied under Subsection (1) of section 3, or contravenes any of the provisions of this Act, or of the rules made thereunder, he shall, without prejudice to his liability for the payment of interest or penalty, or both, as the case may be, under Sub-section (3) or Sub-section (4), of Section 3, be liable, upon prosecution and conviction by a court of competent jurisdiction, to imprisonment up to six months, or to a fine not exceeding rupees five thousand, or both, and in the case of continuing contravention to a further fine not exceeding rupees one thousand for each day during which the contravention continues. '

5. The Supreme-Court in analysing Section 3(2) of the Cess Act observed that the cess was payable on the date prescribed under the Rules. It was further observed by the Supreme Court that if any arrear of cess was not paid within the specified date then under Section 3(3) it would carry interest at 6 per cent. per annum from the specified date to the date of payment. Section 3(5), according to the Supreme Court, was a very different provision. It did not deal with interest paid on arrear of cess but provided for an additional sum recoverable by way of penalty from a person who made default in making payment of the cess. It was a thing apart from an arrear of cess and the interest due thereon. The Supreme Court, further, observed that interest payable on an arrear of cess under Section 3(3) was in reality part and parcel of the liability to pay cess. It was an accretion to the cess.

6. The arrear of cess carried interest; if the cess was not paid within the prescribed period a larger sum would become payable as cess. The enlargement of the cess liability was automatic under Section 3(3). No specific order was necessary in order that the obligation to pay interest should accrue. The liability to pay interest was as certain as the liability to pay cess. As soon as the prescribed date was crossed without payment of the cess, interest began to accrue. It was not a penalty for which provision had been separately made by Section 3(5). The Supreme Court observed, inter alia, as follows (p. 434):

'Nor is it a penalty within the meaning of Section 4, which provides for a criminal liability and a criminal prosecution. The penalty payable under Section 3(5) lies in the discretion of the collecting officer or authority. In the case of the penalty under Section 4, no prosecution can be instituted unless, under Section 5(1), a complaint is made by or under the authority of the Cane Commissioner or the District Magistrate. There is another consideration distinguishing the interest payable under Section 3(3) from the penalty imposed under Section 3(5). Section 3(6) provides that the officer or authority empowered to collect the cess may forward to the Collector a certificate under his signature specifying the amount of arrears including interest due from any person, and on receipt of such certificate the Collector is required to proceed to recover the amount specified from such person as if it were an arrear of land revenue. The words used in Section 3(6) are 'specifying the amount of arrears including interest', that is to say, that the interest is part of the arrear of cess. In the case of a penalty imposed under Section. 3(5), a separate provision for recovery has been made under Section 3(7). Although the manner of recovery of a penalty provided by Section 3(7) is the same as the manner for recovery provided by Section 3(6) of the arrears of cess, the Legislature dealt with it as something distinct from the recovery of the arrears of cess including interest. In truth, the interest provided for under Section 3(3) is in the nature of compensation paid to the Government for delay in the payment of cess. It is not by way of penalty. The provision for penalty as a civil liability has been made under Section 3(5) and for penalty as a criminal offence under Section 4. The Delhi High Court proceeded entirely on the basis that the interest bore the character of a penalty. It was, according to the learned judges, 'penal interest'. The learned judges failed to notice Section 3(5) and Section 4 and the other provisions of the Cess Act. '

7. Reference was made to the several other decisions before the Supreme Court and also to the decision of the Full Bench of Allahabad High Court in the case of Saraya Sugar Mills (P.) Ltd. : [1979]116ITR387(All) , where a Full Bench of the Allahabad High Court held that the payment of interest under Section 3(3) of the U.P. Sugarcane (Purchase Tax) Act, 1961, was a penal liability which accrued on an infraction of the law. The Supreme Court went on to say that although Section 3(3) of the Sugarcane (Purchase Tax) Act, 1961, did seem to be in pari materia with Section 3(3) of the Cess Act, their Lordships refrained from expressing any final opinion on this aspect.

It has now fallen to us to consider whether these in fact in essence are in pari materia.

8. On an analysis we find that the liability to pay interest arises under the U.P. Sugarcane (Purchase Tax) Act on delay in payment of cess. It is a payment of damages for delayed payment though the method of imposition and the method of enforcement are slightly procedurally different,but that procedural difference, in our opinion, does not affect the liability which is in the nature of damages for delayed payment.

9. Our attention was drawn to Sub-section (5) of Section 3 of the U.P. Sugarcane Cess Act, 1956, as well as Sub-section (5) of Section 3 of the U.P. Sugarcane (Purchase Tax) Act, 1961, in aid of the proposition that a separate order was necessary and the imposition of interest did not follow automatically on delayed payment. On a closer analysis, however, we find that only the method of its imposition is differently prescribed. Our attention was also drawn to Section 4 of the Sugarcane Cess Act, 1956, and it was argued that unlike Section 8 of the U.P. Sugarcane (Purchase Tax) Act it was for the contravention of any provision of the Rules. We, however, do not find any substance in this difference.

10. Our attention was also drawn to the Full Bench decision of the Allahabad High Court, in the case of Saraya Sugar Mills (P.) Ltd. v. CIT : [1979]116ITR387(All) , There, the Allahabad High Court Full Bench, inter alia, observed as follows :

'Penalty is a civil sanction. So is interest. The object of both is to render evasion or infraction of the law unprofitable, and to secure to the State compensation for damages caused by attempted evasion. Prosecution resulting in fine and/or imprisonment is a criminal sanction.'

11. But there, in our opinion the Full Bench of the Allahabad High Court, with very great respect, was in slight error because the interest is not for an infraction of law as such but it is for the default in time which is a kind of damage in default in the performance of an obligation. In that view of the matter, in our opinion, the provisions of these two Acts are in pari materia.

12. Therefore, the ratio of the decision of the Supreme Court in the case of Mahalakshmi Sugar Mills Co. : [1980]123ITR429(SC) would be applicable in the facts and circumstances of the case ; if that is the position in law, the sums were deductible, then the Commissioner was obviously in error in the view he took. In the aforesaid view of the matter, we will answer the first question in the negative and as a consequence the second question must also be answered in the negative. Both the questions are answered in favour of the assessee. The parties will pay and bear their own costs.

Suphindra Mohan Guha, J.

13. I agree.


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