Income Tax Appellate Tribunal - Delhi
Inspecting Assistant Commissioner vs Dhampur Sugar Mills Ltd. on 29 July, 1988
Equivalent citations: [1989]28ITD57(DELHI)
ORDER
Anand Prakash, Accountant Member
1. This is a departmental appeal. The first grievance of the revenue is that the CIT (Appeals) erred in directing that Rs. 31,70,412, being the additional cane price, should have been allowed to the assessee as deduction, as liability in respect of it had accrued and arisen against the company which follows mercantile system of accounting.
2. The additional price for sugarcane becomes payable to the assessee in terms of Clause 5A of the Sugarcane Control Order, 1966. The relevant portion of the said clause reads as below:
Where a producer of sugar or his agent purchases sugarcane from a sugarcane grower during each sugar year, he shall, in addition to the minimum sugarcane price fixed under Clause 3 pay to the sugarcane grower an additional price, if found due in accordance with the provisions of the Second Schedule annexed to this order.
The Second Schedule gives the formula for determining the additional cane price payable under Clause 5A referred to above. The said Schedule may be reproduced herebelow for the sake of ready reference:
The amount to be paid on account of additional price (per quintal of sugarcane) under Clause 5A by a producer of sugar shall be computed in accordance with the following formula, namely:--
X R-L+2A=B/2C Explanation - In this formula:
1. 'X' is the additional price in rupees per quintal of sugarcane payable by the producer of sugar to the sugarcane grower.
2. 'R' is the amount in rupees of sugar produced during the sugar year excluding the excise duty paid or payable to the factory by the purchaser.
3. 'L' is the value in rupees of sugar produced during the sugar year, as calculated on the basis of the unit cost per quintal ex-factory, exclusive of excise duty, determined with reference to the minimum sugarcane price fixed under Clause 3, the final working results of the year and the cost Schedule and return recommended by such authority (as the Central Government may specify) from time to time.
4. 'A' is the amount found payable for the previous year but not actually paid [vide Sub-clause (9)] .
5. 'B' is the excess or shortfall in relation from actual sales of the unsold stocks of sugar produced during the sugar year, as on 30th day of September [vide item 1(ii) below] which is carried forward and adjusted in the sale realisations of the following year.
6. 'C' is the quantity in quintals of sugarcane purchased by the producer of sugar during the sugar year.
7. The amount 'R' referred to in Explanation 2 shall be computed as under, namely:--
(i) the actual amount realised during the sugar year ; and
(ii) the estimated value of the unsold stocks of sugar held at the end of 30th September, calculated in regard to free sugar stocks at the average rate of sales made during the fortnight 16th to 30th September and in regard to levy sugar stocks at the notified levy prices as on the 30th September.
Explanation: In this Schedule 'Sugar' means any form of sugar containing more than ninety per cent sucrose.
'L' factor mentioned in the formula given above was determined after the accounting period in the present case ended, i.e., after 30th of September, 1980. On the basis of the aforesaid facts and the position of law, the IAC (Asst.) Moradabad felt that the liability to pay the additional cane price did not accrue and arise during the previous year. According to him "Central Government or the State Government is authorised to authorise any person or authority for this purpose who will determine the additional cane price payable which will be intimated in writing to the producer of sugar and the sugar growers as well as mode of payment will also be prescribed and this order is appealable by both the parties. Sub-clause (iv) of Clause 5A prescribes that such price shall be paid in accordance with this order only. As per Sub-clause (viii) of Clause 5A additional cane price is payable to the grower if it supplies no less than 85 per cent of the sugarcane agreed. It is clear from this provision that additional cane price becomes payable only when the government authorises any person or authority to determine the same and he passes an order in writing intimating both the parties in this connection as well as mode of payment also which clearly indicates that the legal liability accrues on the date when the sugar mill receives such order." The IAC (Asst.) further pointed out that, even though more than 2 years had elapsed since the accounting year ended, no order had been passed by the competent authority for paying additional cane price. In his opinion, therefore, the liability in question had not accrued and arisen during the accounting period.
3. The assessee appealed against the aforesaid order to the CIT (A), who accepted the assessee's submission that the liability to pay the additional cane price had accrued and arisen during the previous year. In his opinion, the additional cane price was qualitatively of the same nature as the normal price of sugarcane and, therefore, it had to be allowed as a liability against the income of the year in which sugarcane in question was purchased. While giving the said relief, the learned CIT (Appeals) observed, inter alia, as follows:
To determine whether a certain claim is admissible or not, it is necessary to first determine the nature of the claim or payment. This amount of Rs. 31,70,412 is the additional cane price' payable by the appellant to those suppliers of sugarcane who had supplied 85 per cent or more of the agreed quantity of sugarcane during the relevant accounting year.. It is, therefore, clear that the amount of additional cane price payable to these suppliers is part of the total purchase price paid for the supply of sugarcane. Therefore, its admissibility or otherwise in the assessment would have to be covered by the same conditions which cover the admissibility or otherwise of the normal sugarcane price. It is also clear from the Scheme of the Sugarcane (Control) Order, 1966 and the Second Schedule thereto that the computation of the additional cane price is linked with the determination of 'L' factor and the amount can be quantified only when this 'L' factor is known. I find, from the records that the value of the said. 'L' factor has been communicated by the Ministry of Agriculture to the Indian Sugar Mills Association vide their letter dated 21-8-1981. The claim preferred by the appellant company is based on the computation in accordance with the said factor. Therefore, there is nothing uncertain or vague about either the liability of the appellant regarding this payment or about its quantum. Further, this amount of Rs. 31,70,412 is a part of the total cane price payable by the appellant for the supplies of the cane during the relevant accounting year. If the minimum cane price is allowable as a deduction (as indeed it has been allowed by the assessing officer) there is no reason why the additional cane price should not be regarded as an admissible purchase price for the appellant's raw material and since the appellant is following the mercantile system of accounting, it has to be allowed as a deduction in computing its profit. This issue has already been decided by the Hon'ble Supreme Court in the case of M/s. Kedar Nath Jute Mills 82 ITR 363. Therefore, it is directed that claim of Rs. 31,70,412 be allowed.
4. The department is aggrieved of the aforesaid finding of the learned CIT(A). According to the learned departmental representative, additional cane price was not something which was payable automatically on the purchase of the sugarcane. To become eligible to the additional cane price, the former in question had to fulfil certain additional conditions, and, if those conditions were not fulfilled during the previous year, the liability to pay the same would not arise. If the liability to pay the additional cane price was dependent on nothing but purchase of the sugarcane per se, the amount in question would become payable as soon as the sugarcane was purchased from the farmers. But if some conditions, over and above the condition of purchase of the sugarcane were to be fulfilled, the liability to pay the additional cane price would not accrue till the conditions in question were fulfilled. The learned CIT (A) apparently erred in proceeding on the presumption that the nature of the additional sugarcane price was the same as that of the normal sugarcane price. It was not so, as is clear from the wordings of Clause 5A of the Sugarcane (Control) Order, 1966., He also pointed out that in the assessee's own case, a certain method had been followed with regard to the allowance of additional cane, price in the past, when for the asst. year 1961-62, the additional sugarcane price was allowed in asst.. year 1966-67 and not in asst. year 1961-62. When a certain practice was being followed in the assessee's case, one should not make a departure from the said settled practice in the assessee's own case in respect of another year.
5. On behalf of the assessee, the order of the learned CIT (Appeals) is stoutly supported and it is urged that the nature of the additional sugarcane price was the same as that of the normal sugarcane price, and since the purchases had been made during the previous year the liability to pay the same arose. In any case, the other conditions mentioned in Rule 5A had also become known to the assessee by the time, when it closed its accounts for the year under consideration. The 'L' factor mentioned in the Second Schedule had become known to the assessee on 21-8-1981. The supply of the sugarcane was known to the assessee in the previous year in question itself, because the weight of the sugarcane supplied by the assessee was regularly maintained and from it, it was possible for the assessee to find out whether or not 85 per cent sugarcane agreed to. by the assessee had been supplied by him. Therefore, there was no justification to contend that the liability to pay additional sugarcane price had not accrued during the previous year under consideration.
6. We have given careful consideration to the facts of the case and the rival submissions. In our opinion, the CIT has erred in equating the liability to pay normal sugarcane price, which is determined vide Rule 3 of Sugarcane (Control) Order, 1966 with the liability to pay additional price for sugarcane in terms of Rule 5A. Whereas the former liability accrues and arises as soon as the supply of sugarcane is made by the sugarcane grower to the sugar manufacturer, the additional price of sugarcane does not become payable as soon as the supply of sugarcane is made. The accrual of additional sugarcane price is linked not merely with the supply of sugarcane, but it is to be determined with reference to certain additional factors apart from the supply of the sugarcane, as stipulated in Second, Schedule to the aforesaid order and various sub-clauses of Clause 5A, and there may be situations where no additional cane price is found payable. Whether or not the additional sugarcane price is payable has to be 'found' by an independent authority other than the sugarcane grower and the sugar manufacturer, namely, officer or authority nominated by the Central Government or the State Government as per Sub-rule (2) of Rule 5A. The said authority has to determine as to whether or not additional sugarcane price is in fact payable with regard to the supplies made during the sugar year by applying the formula given in Second Schedule. A perusal of the Second Schedule would indicate that the amount payable in terms of the said Second Schedule can be determined only after the expiry of the accounting period because there are various factors indicated in the formula given in the Second Schedule which can be known only after the accounting period in question, during which the supply of sugarcane was made, as expired. Thus, factor 'B' can be determined only after the accounting period is over. Similar is the position with regard to the factor 'L'. Both the above terms have been defined in the Explanation to Second Schedule extracted above and it is clear from the entire scheme that they have to be determined by an independent authority. It is because of this reason that the responsibility for determining the additional price of sugarcane payable by the manufacturer of the sugar has been left by Sub-rule (2) of Rule 5A to the person or authority appointed by the Central Government or the State Government. Sub-rule (2) reads as below:
(2) The Central Government or the State Government, as the case may be, may authorise any person or authority, as it thinks fit, for the purpose of determining the additional price payable by a producer of sugar under Sub-clause (1) and the person or authority, as the case may be, who determines the additional price, shall intimate the same in writing to the producer of sugar and the sugarcane grower connected with the supply of sugarcane to such producer of sugar.
The order of the aforesaid authority has been made the subject matter of appeal vide Sub-rule (3). When a certain matter is to be determined by the process of adjudication, the amount in question cannot be said to have become due unless the process of adjudication has been gone into and the order has been passed by the authority in question in accordance with Second Schedule read with Sub-rule (1) of Rule 5A of the Sugarcane (Control) Order, 1966. After the payability is thus determined, comes the question of making the payment which is the subject matter of Sub-rule (4) of Rule 5A. In a mercantile system of accounting, it is not the factum of payment or the date of payment which is relevant for determining the time when a certain liability becomes due. As soon as the right to receive payment vests in the sugarcane grower, corresponding liability would accrue and arise against the assessee-company. Such a right can vest in the sugarcane grower only after the determination referred to in Sub-rule (2) or the finalisation of the said adjudication by the method indicated in Sub-rule (3). The learned CIT(A) has ignored the Scheme of Sub-rule 5A in this regard. He has been impressed by the fact that the additional amount paid is the price for sugarcane and so, in his opinion, it should have the same quality as the normal price of the sugarcane determined by Rule 3 of the Sugarcane (Control) Order, 1966. In our opinion, the aforesaid is not the position, as becomes clear from the entire reading of Rule 5A along with the Second Schedule thereto. In the assessee's own case, the liabilities had been allowed in earlier years on the basis of the above principle. Thus, the additional sugarcane price which was determined as payable for the accounting period corresponding to asst. year 1961-62 was allowed not in the asst. order for asst. year 1961-62 but in the asst. for asst. year 1966-67, because the amount in question was found to be payable by the competent authority in the accounting period relevant to the aforesaid asst. year 1966-67. In respect of the year under consideration also, the same should be the position and as such, in our opinion, the learned CIT (A) was not correct in allowing deduction for the additional sugarcane price payable to the sugarcane growers in terms of Rule 5A of the Sugarcane (Control) Order, 1966 during this year. The order of the learned CIT (Appeals) on this point is, therefore, hereby reversed and the order of the IAC (Asst.) is restored.
7. The second and third grounds of appeal of the revenue read as below:
That the learned CIT(A) has erred in law and on facts of the case in deleting the addition of Rs. 94,63,092 which was rightly made by the IAC (Asst.) on account of excess levy of sugar price.
That the learned CIT (A) has erred in law and on facts of the case, in deleting the addition of Rs. 17,95,409 being the interest on excess levy of sugar price.
These points are covered by the order of the ITAT in the assessee's own case in respect of asst. year 1975-76 vide ITA No. 685/D/79 dated 4th June, 1977 and the order of the Tribunal in the assessee's own case in respect of asst. year 1980-81 vide ITA No. 5031/D/84 dated 30th Aug., 1985, copies of which have been placed by the assessee on record at pages 20 to 25 and 32 and 33 of the assessee's paper book. No additional facts or reasonings were brought to our attention on behalf of the revenue. We have gone through the aforesaid orders of our learned brothers as also the order of the Hon'ble High Court of Allahabad dated 23-1-1980 placed at pages 18 and 19 of the assessee's paper book. In our opinion, the order of the learned CIT (A) on these points is correct for the same reasons as given by our learned brothers in the aforementioned orders of the Tribunal. His order, therefore, on these points is hereby confirmed.
8. Ground No. 4 of the appeal reads as below:
That the learned CIT (A) has erred in law and on facts of the case, in deleting the disallowance of Rs. 1,23,113 being the ex gratia payment to the employees because no amount exceeding the amount payable under Bonus Act can be allowed.
The IAC (Asst.) treated the aforesaid amount as bonus and as it was not in accordance with the Payment of Bonus Act, he disallowed it. The learned OIT (A) on the other hand, allowed the amount in question by pointing out that it was not bonus payment but an ad hoc payment made in accordance with the attendance of the workers. The Revenue is in appeal against the aforesaid order of the CIT (A). On behalf of the revenue, the order of the learned IAC (Asst.) was supported. On behalf of the assessee, the order of the learned CIT(A) was supported and in addition reliance was placed on the decision of CIT v. Sivanandha Mills Ltd. [1985] 156 ITR 629 (Mad.).
9. We have carefully examined the facts of the present case. The finding of the learned OIT(A) is, in our opinion, correct that the payments are linked with the attendance of the employees in question and that the payment is not bonus in terms of the Payment of Bonus Act.. A copy of the mutual agreement entered into between the assessee-company and the employees is placed at pages 34 to 36 of the paper book. On 6-3-1980 an office order was passed by the assessee-company stating, inter alia, as below:
The management has been pleased to announce Rs. 100 per employee to be paid on the following pattern:
1. The total season working days have been 118. One who has worked for 114 or more days during the season 1979-80 shall be entitled to full amount.
2. Those who have worked lesser than above, they will be paid pro rata according to the days worked (including rest days).
3. It will be paid only to those who remained on rolls till end of the season.
4. It will not be paid to those who worked for less than 30 days during the season.
5. The cost of revenue stamps shall be borne by the company.
From the reading of the aforesaid order, it is clear that the payment was being made with reference to the number of working days on which the employees in question were present and had worked in the factory. The payment is, therefore, not payment out of profits of the company. It is clearly a payment given on ad hoc basis related with the attendance of the employees. Such payment is an allowable deduction in terms of Sec. 37 of the IT Act, 1961. The ratio of the decision of Shivanandha Mills Ltd. (supra) clearly governs the facts of the present case. We, therefore, confirm the order of the learned CIT (A) on this point,
10. Ground No. 5 reads as below:
That the Ld. CIT(A) has erred in law and on facts of the case in deleting the addition of Rs. 3,50,000 which was rightly made because the assessee-company has not charged any interest on the loans given to subsidiary companies.
The aforesaid question came up for consideration before the Tribunal in the assessee's own case in respect of asst. year 1978-79 and the matter was decided against the revenue and in favour of the assessee by the Tribunal in the aforesaid order vide their observations in paragraphs 7, 8 & 9 of the T.O. We are in respectful agreement with the findings of our learned brothers given in the said order. No additional facts or reasonings were brought to our attention on behalf of the revenue to persuade us to depart from the finding given in the aforesaid order by our learned brothers. We, therefore, decline to interfere with the order of the learned CIT(A) on this point which is in accordance with the decision of the Tribunal noted above. Ground Nos. 6 & 7 are of general nature and do not require any discussion.
11. In the result, the departmental appeal stands partly allowed.
U.S. Dhusia, JM
1. In the order made by my brother, it has been the finding that assessee is not justified in claiming the deduction of the aforesaid sum because liability has not accrued. The basis for such finding is the expression 'if found due' in Clause 5A of the Sugarcane (Control) Order, 1966 read with the provision contained in the Second Schedule. According to the reasoning adopted unless the liability for additional sugarcane price is worked out by a competent authority as provided in Sub-rule (2) of Rule 5A, it would not cause the accrual of liability. It has been stated in para 6 of the order:
When a certain matter is to be determined by the process of adjudication, the amount in question cannot be said to have become due unless the process of adjudication has been gone into and the order has been passed by the authority in question in accordance with Second Schedule read with Sub-rule (1) of Rule 5A of the Sugarcane (Control) Order, 1966. After the payability is thus determined, comes the question of making the payment which is the subject matter of Sub-rule (4) of Rule 5A. In a mercantile system of accounting, it is not the factum of payment or the date of payment which is relevant for determining the time when a certain liability becomes due. As soon as the right to receive payment vests in the sugarcane grower, corresponding liability would accrue and arise against the assessee-company. Such a right can vest in the sugarcane grower only after the determination referred to in Sub-rule (2) the finalisation of the said adjudication by the method indicated in Sub-rule (3). The learned CIT(A) has ignored the Scheme of Sub-rule 5A in this regard. He has been impressed by the fact that the additional amount paid is the price for sugarcane and so, in his opinion, it should have the same quality as tlie normal price of the sugarcane, determined by Rule 3 of the Sugarcane (Control) Order, 1966.
In this connection, I would like to reproduce Clause 5A of the Sugarcane (Control) Order, 1966:
Where a producer of sugar or his agent purchases sugarcane from a sugarcane grower during each sugar year, he shall, in addition to the minimum sugarcane price fixed under Clause 3 pay to the sugarcane grower an additional price, if found due in accordance with the provisions of the Second Schedule annexed to this order.
As per Sub-clause (viii) of Clause 5A additional cane price is payable to the grower if it supplies no less than 85 per cent of the sugarcane agreed.
The Second Schedule gives the formula for determining the additional cane price payable under Clause 5A referred to above. The said Schedule may be reproduced herebelow for the sake of ready reference:
The amount to be paid on account of additional price (per quintal of sugarcane) under Clause 5A by a producer of sugar shall be computed in accordance with the following formula, namely:
X R-L+2A/2C B Explanation: In this formula:
1. 'X' is the additional price in rupees per quintal of sugarcane payable by the producer of sugar to the sugarcane grower.
2. 'R' is the amount in rupees of sugar produced during the sugar year excluding the excise duty paid or payable to the factory by the purchaser.
3. 'L' is the value in rupees of sugar produced during the sugar year, as calculated on the basis of the unit cost per quintal ex-factory, exclusive of excise duty, determined with reference to the minimum sugarcane price fixed under Clause 3, the final working results of the year and the cost schedule and return recommended by the (such authority as the Central Government may specify) from time to time.
4. 'A' is the amount found payable for the previous year but not actually paid [vide Sub-clause (9)].
5. 'B' is the excess or shortfall in relation from actual sales of the unsold stocks of sugar produced during the sugar year, as on 30th day of September [vide item 7(n) below] which is carried forward and adjusted in the sale realisations of the following year.
6. 'C' is the quantity in quintals of sugarcane purchased by the producer of sugar during the sugar year.
7. The amount 'R' referred to in Explanation 2 shall be computed as under, namely: --
(i) The actual amount realised during the sugar year; and
(ii) The estimated value of the unsold stocks of sugar held at the end of 30th September, calculated in regard to free sugar stocks at the average rate of sales made during the fortnight 16th to 30th September and in regard to levy sugar stocks at the notified levy prices as on the 30th September.
Explanation: In this Schedule 'Sugar' means any form of sugar containing more than ninety per cent sucrose.
2. In this connection attention is invited to corresponding provisions in the Income-tax Act, Wealth-tax Act and the Estate Duty Act, where a charge is created in favour of the State and simultaneously liability of the taxpayers also springs up. Section 4 of the Income-tax Act, 1961, provides:
4. (1) Where any Central Act enacts that Income-tax shall be charged for any assessment year at any rate or rates income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in -espect of the total income of the previous year or previous years, as the case may be, of every person:
Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income, of a period other than the previous year, income-tax shall be charged accordingly.
Section 3 of the Wealth-tax Act provides:
3. Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957 a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in Schedule I. Section 5(1) of the Estate Duty Act says that:
5. (1) In the case of every person dying after the commencement of this Act, there shall, save as hereinafter expressly provided, be levied and paid upon the principal value ascertained as hereinafter provided of all property, settled or not settled, including agricultural land situated in the territories which immediately before the 1st November, 1956, were comprised in the States specified in the First Schedule to this Act, and in the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu and Pondicherry which passes on the death of such person, a duty called 'estate duty' at the rates fixed in accordance with Section 35.
In all these provisions, liability for payment of tax accrues on the appointed dates but is ascertainable subsequently. Under the Income-tax Act, liability is ascertainable according to provisions of the IT Act and the rates given in the Annual Finance Act, In WT Act, the liability is ascertainable in accordance with the provisions of the Wealth-tax Act and the table of rates given in Schedule I. In Estate Duty, it is ascertained according to the provisions of the Estate Duty Act and the rates given in table contained in Schedule II. There is nowhere any specification in these charging sections that the quantification will be made by any authority--although under each of these a set of functionaries are appointed to work out the liability in accordance with the provisions contained in the Acts and rates provided in the aforesaid Schedules of the Finance Act of each year. Referring to the Income-tax Act one notices that ascertainment of liability is rather a very complicated process after making a provision of allowances and disallowances interspersed in 298 sections of the IT Act and numerous Income-tax Rules. The ITO under the IT Act ascertains the liability as WTO and ACED ascertains under the WT Act and Estate Duty respectively. But it is not on the ascertainment by the functionaries that liability for payment of taxes arises in the first instance. Nowhere the authorities are to act in arbitrary capricious discretion without taking help from the statutory provisions contained in the Act or the subordinate rules. The discretion is subject to the table of rates and scheme of allowances and disallowances interspersed in this Act. It is for this reason taxpayers also determine themselves on the specified dates with the help of table of rates and other provisions their liability under these Acts and provide for it. Exactly a similar provision has been made under the Sugarcane (Control) Order, 1966 for payment of additional price where liability is dependent on a sugarcane grower supplying 85 per cent of the agreed quantity to obtain the additional price. I repeat that sugarcane authorities are not authorised to work in arbitrary discretion. Their finding about the amount for the payment of the additional cane price is dependent upon the provisions of Second Schedule, but liability for payment of additional cane price is dependent upon the sugarcane grower supplying 85 per cent or more of the agreed quantity of sugarcane during the relevant accounting year. It is true that the amount of additional cane price to be paid to the cane growers is possible only when the 'L' factor is communicated to the sugar manufacturers. But it is not on the communication of 'L' factor that liability accrues. Rather it is the other way round on the accrual of liability only the authorities concerned communicate the 'L' factor. In this case, the value of the said factor had been communicated by the Ministry of Agriculture to the Indian Sugar Mills vide their letter dated 21-8-1981. Communication of 'L' factor would not go to show that liability for payment had accrued, only when the value of the 'L' factor had been communicated or when the competent sugar authority had computed the additional price payable. Quantification of liability is different from the accrual of liability. Accrual of liability is followed by quantification of liability. It is never the other way. Quantification of liability is not followed by accrual of liability. Accrual of liability has taken place when a sugarcane grower had supplied 85 per cent or more of the agreed quantity of sugarcane in the concerned accounting year. Unless liability has come into existence the authorities would riot have communicated the 'L' factor nor the authority would have worked out the exact amount of liability to be discharged. Therefore, the assessee was justified in making the provision for the liability for payment of additional cane price when the liability had accrued during the accounting year by the cane growers supplying more than 85 per cent of their commitment. The finding of CIT (A) was well founded while the finding of the IAC was patently erroneous.
3. The instance of deduction allowed in asst. year 1966-67 for earlier years liability are not to lead one to a finding that accrual of liability had not taken place in those years. Since the full facts of the allowance in those years are not known it is not safe to rely on it. Deduction in asst. year 1966-67 for liability of prior years may have been allowed because the assessee might have denied the liability altogether in those years and accepted the liability for payment only when some competent authority had rejected his plea and finally determined his liability or he having provided for lesser amount of liability in those years which on ascertainment was found to be larger than the provision made in those years.
4. Therefore, the finding of CIT(A) being well founded in law is entitled to be upheld while the plea of revenue being misconceived is liable to be rejected. We do so.
5. In the result, appeal of revenue is dismissed.
AS PER BENCH As it has not been possible for us to come to an agreed conclusion in the present appeal, we refer the following question for being referred to the Third Member for his valued opinion:
Whether, on the facts and in the circumstances of the case, the CIT (Appeals) was justified in deleting the addition of Rs. 31,70,412 represent the liability for the additional cane price payable during' the assessment year 1981-82 ?
THIRD MEMBER ORDER G. Krishnamurthy, President
1. This appeal is filed before the Income-tax Appellate Tribunal by the Inspecting Asstt. Commissioner (A), Moradabad against the order of the Commissioner (A), by which he allowed, inter alia, the deduction cf a sum of Rs. 31,70,412 in computing the income of the assessee for the assessment year 1981-82. This appeal was heard by Delhi Bench 'D'. The learned Members constituting the Bench could not agree upon the conclusion. The learned Accountant Member held that the payment was not deductible on the ground that the liability to incur this expenditure did not arise in the accounting year, while the learned Judicial Member held that the liability to incur this expenditure accrued in the accounting year and therefore the sum in question was allowable as a deduction. It was as a consequence of this difference of opinion between the two learned Members that the point of difference of opinion was referred for the opinion of the Third Member:
Whether, on the facts and in the circumstances of the case, the CIT (Appeals) was justified in deleting the addition of Rs. 31,70,412 representing the liability for the additional cane price payable during the assessment year 1981-82 ?
2. I have heard the learned representative of the assessee Dr. R.C. Vaish and the learned Departmental Representative Shri S.K. Bansal, perused carefully the orders passed by my learned brothers and also went through the various decisions relied upon in support of their respective contentions and came to the conclusion that the view taken by the learned Accountant Member is not just and proper and correct in law and that the view taken by the learned Judicial Member is proper, correct in law and what is more was in accordance with the view expressed by the jurisdictional High Court, namely, Hon'ble Allahabad High Court.
3. The assessee is a public limited company having a sugar mill, paper mills and a few other lines of business. In computing its income from the sugar mill business, as I mentioned earlier, it claimed a deduction of a sum of Rs. 31,70,412 representing the additional cane price payable to the sugarcane growers, which is a statutory liability payable as per the terms of Clause 5A of the Sugarcane (Control) Order, 1966. This order, it was stated, was issued in exercise of the powers conferred upon the Central Government under the Essential Commodities Act, 1955. The claim of the assessee-company before the assessing officer was that under Clause 5A of the Sugarcane (Control) Order, 1966, which came into force with effect from 1-10-1974, the additional cane price payable was determined by the competent authority, i.e., Ministry of Agriculture (Deptt. of Pood), New Delhi by letter dated 28-1-1981 in a communication addressed to the Indian Sugarcane Mills Association, which in turn communicated to the individual sugar mills. It was on the basis of this communication that the additional cane price payable worked out to Rs. 31,70,412 for the payment of which a provision was made. The accounting year of the assessee-company was the year ending September 1980. In other words, the designated authority under the Sugar (Control) Order determined the sum. payable as additional cane price four months after the end of the accounting year. From this circumstance, the assessing officer concluded that additional cane price became payable only when authorised by the competent authority to determine the amount payable and when that authority passes an order in writing intimating the amount payable, which indicated that the legal liability to pay the additional cane price arose on the date when the sugar mill received the intimation and not earlier under the system of accounting adopted by the assessee, namely, mercantile system of accounting. The assessing officer concluded that a provision made without accrual of liability to pay the same could not qualify for a deduction. This was the prime reason advanced by the Inspecting Asstt. Commissioner (A), who was the assessing officer in this case to disallow the claim of the assessee. He also referred to another circumstance, namely, that for the assessment year 1961-62 a similar claim made by the assessee was allowed as a deduction not in the year when the sugarcane was purchased in respect of which the additional cane price became payable but only in a later assessment year, namely, 1966-67 when the amount was actually paid. In respect of that proceeding the letter determining the additional cane price payable was passed on a date that fell within the assessment year 1966-67 and for that reason it was held that the legal right to incur this expenditure arose in the assessment year 1966-67 and not earlier.
4. When the matter came on appeal before the Commissioner (A) he considered the issue from all angles, went through the scheme of the Sugarcane (Control) Order, 3966 and held that the payment of additional cane price was a statutory liability that arose as and when purchases of sugarcane were made from sugarcane growers, that the additional sugarcane price was linked with a formula laid down under the Second Schedule given to the Sugarcane (Control) Order, in which only 'L' factor was to be quantified and when that 'L' factor was communicated, there was nothing uncertain or vague either about the liability or the quantum and that the additional cane price had thus become a part of the total cane price payable by the assessee for the supplies of cane and when the minimum cane price paid was allowable as a deduction, there was no reason why the additional cane price should not be regarded as an admissible deduction. Under the system of accounting adopted by the assessee, he held that the additional cane price qualified for deduction as part of the purchase price of the assessee's raw material. He placed reliance upon the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 for his view. As I have already mentioned, it was against this view of the Commissioner (A) that the Department had filed a further appeal before the Tribunal and it was during the hearing of that appeal that the Members have differed on the question of allowability of this sum.
5. Going through the order of the learned Accountant Member, I find that he held after referring to the relevant clauses of the Sugarcane (Control) Order, 1966 and the Second Schedule providing for the formula for determining the additional cane price payable that the Commissioner (A) was not right in his view. He substantially agreed with the view of the Inspecting Asstt. Commissioner (A) by holding that under the provisions of Clause 5A of the Sugarcane (Control) Order, 1966, the additional cane price became payable only when the Govt. authorised any person or authority to determine the additional cane price payable and when that authority passed an order in writing intimating both the parties in this connection as well as specifying the mode of payment also. He also held that the Commissioner (A) has erred in equating the liability to pay normal sugarcane price with the liability to pay additional sugarcane price because the payment of additional sugarcane price was linked not merely with the supply of sugarcane but to fulfilment of certain additional factors stipulated in the Second Schedule. In Clause 5A, which provided for the payment of additional cane price an expression was used stating that the additional cane price would become payable "if found due in accordance with the provisions of the Second Schedule annexed to this order". Relying and laying stress upon the expression "if found due", the learned Accountant Member observed that this contemplated situations where nothing would also be payable towards additional cane price, that in any case the amount payable in terms of Rule 5A would always be determined only after the expiry of the accounting period, which meant that the computation of the amount payable would have to wait till the accounting year came to a close and in such an event it could not be said that the liability to pay additional cane price had accrued during the accounting year. According to him, "if found, due" mean something must be found to be due. Finally he observed:
When a certain matter is to be determined by the process of adjudication, the amount in question cannot be said to have become due unless the process of adjudication has been gone into and the order has been passed by the authority in question in accordance with Second Schedule read with Sub-rule (1) of Rule 5A of the Sugarcane (Control) Order, 1966.
He also held that before a liability on the part of the assessee accrued, a right to receive payment must vest in the sugarcane grower and that right in the sugarcane grower vested only when the amount was quantified by the competent authority and therefore till that amount was quantified by the competent authority, no liability can be said to have been incurred by the assessee-com-pany. He also took into consideration as to what had happened in respect of this liability in the assessment year 1961-62 referred to earlier and then held that in respect of this year the allowance of liability should be on the same lines as in respect of the assessment year 1961-62,. namely, allowing it in the year of payment.
6. The learned Judicial Member disagreed with this line of approach made by the learned Accountant Member. According to him the expression "if found due" used in Clause 5A of the Sugarcane (Control) Order and relied upon by the learned Accountant Member did not limit or postpone the accrual of liability. He held that as per Sub-clause (8) of Clause 5A, additional cane price became passable to the sugarcane grower if it supplied not less than 85 per cent of the sugarcane agreed to be supplied. According to him this factor is possible to be ascertained from the accounts of the assessee and no sooner the supply of sugarcane exceeds 85 per cent, the liability to pay the additional cane price arose automatically and what remained thereafter was only its quantification by an independent authority. The quantification of an accrued liability did not postpone the accrual of liability. In support of this view, he placed reliance upon the scheme of the Income-tax Act, Wealth-tax Act, Estate Duty Act to say that in all these enactments liability for payment accrued on the appointed date and it was never held that the accrual was postponed merely because some designated authority had to determine the precise liability as per the provisions of the relevant Statutes. Therefore merely because the 'L' factor was communicated to the sugar manufacturers by the Government after the end of the accounting year, it did not mean that the liability to pay the additional cane price did not accrue earlier. He also disagreed with, the view that the instance of deduction allowed in the assessment year 1966-67 was a guide for the determination of the question of accrual of liability in respect of assessment year 1980-81.
7. The learned Chartered Accountant appearing for the assessee Dr. R.C. Vaish after tracing the history of the case submitted that there was nothing in the Sugarcane (Control) Order to suggest that the liability had not accrued in the accounting year. He relied upon the order of the Commissioner (A) and supported the view taken by the learned Judicial Member. He submitted that the provisions of the Sugarcane (Control) Order were so clear that it was not at all possible to say that the liability had not accrued. While supporting the view taken by the learned Judicial Member, he drew my attention to three judgments given by the Allahabad High Court allowing the claim for deduction of additional cane price in exactly similar circumstances and pointed out that in the light of these judgments the issue must be held to have had a quietus at least in so far as within the jurisdiction of the Allahabad High Court is concerned. He also drew my attention to a decision of the Calcutta High Court taking a similar view emphasising that no contrary view was taken by any other High Court, at least in his knowledge. He submitted that the view of the learned Accountant Member was clearly unsupportable.
8. The learned Departmental Representative, on the other hand, relying upon the decision of the Supreme Court in the case of Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 515, submitted that the liability to pay the additional cane price could be said to arise only when the order was made by the competent authority and not earlier. The competent authority having passed the order after the accounting year was over, there was no question of any liability to pay the additional cane price accruing to the assessee in the accounting year. The learned Accountant Member he argued, had understood the provisions of law very correctly and his view should be upheld.
9. It is perhaps very necessary to notice Clauses 3 and 5A before I proceed further. Clause 3 of the Sugarcane (Control) Order provides:
3. Minimum price of sugarcane payable by producer of sugar:
The Central Government may, after consultation with the authorities, bodies or associations as it may deem fit, by notification in the Official Gazette, from time to time, fix the minimum price of sugarcane to be paid by producers of sugar or their agents for the sugarcane purchased by them, having regard to--
(a) the cost of production of sugarcane ;
(b) the return to the grower from alternative crops and the general trend of prices of agricultural commodities ;
(c) the availability of sugar to the consumer at a fair price ;
(d) the price at which sugar produced from sugarcane is sold by producers of sugar ; and
(e) the recovery of sugar from sugarcane:
Provided that the Central Government or, with the approval of the Central Government, the State Government may, in such circumstances and subject to such conditions as specified in Clause 3A allow a suitable reb"ate in the price so fixed.
Explanation: (1) Different prices may be fixed for different areas or different quantities or varieties of sugarcane.
(2) No person shall sell or agree to sell sugarcane to a producer of sugar or his agent, and no such producer or agent shall purchase or agree to purchase sugarcane, at a price lower than that fixed under Sub-clause (1).
(3) Where a producer of sugar purchases any sugarcane from a grower of sugarcane or from a sugarcane growers' co-operative society, the producer shall, unless there is an agreement in writing to the contrary between the parties, pay within fourteen days from the date of delivery of sugarcane to the seller or tender to him the price of the cane sold at the rate agreed to between the producer and the sugarcane grower or sugarcane growers' co-operative society or that fixed under Sub-clause (1), as the case may be, either at the gate of factory or at the cane collection centre or transfer or deposit the necessary amount in the Bank account of the seller or the co-operative society as the case may be.
(3A) Where a producer of sugar or his agent fails to make payment for the sugarcane purchased within 14 days of the date of delivery, he shall pay interest on the amount due at the rate of 15 per cent per annum for the period of such delay beyond 14 days. Where payment of interest on delayed payment is made to a cane growers' society, the society shall pass on the interest to the cane growers concerned after deducting administrative charges, if any, permitted by the rules of the said society.
(4) Where sugarcane is purchased through an agent, the producer or the agent shall pay or tender payment of such price within the period and in the matter aforesaid and if neither of them has so paid or tendered payment, each of them be deemed to have contravened the provision of this clause.
(5) At the time of payment at the gate of the factory or at the cane collection centre, receipts, if any given by the purchaser, shall be surrendered by the cane grower, or the co-operative society.
(6) Where payment has been made by transfer or deposit of the amount to the Bank account of the seller or the co-operative society, as the case may be, the receipt given by the purchaser, if any to the grower or the co-operative society, if not returned to the purchaser, shall become invalid.
(7) In case, the price of sugarcane remains unpaid on the last day of the sugar year in which cane supply was made to the factory on account of the suppliers of cane not coming forward with their claims therefor or for any other reason, it shall be deposited by the producer of sugar with the Collector of the district in which the factory is situated, within three months of the close of the sugar year. The Collector shall pay out of the amount so deposited, all claims, considered payable by him and preferred before him within three years of the close of the sugar year in which the cane was supplied to the factory. The amount still remaining un-disbursed with the Collector, after meeting the claims from the suppliers, shall be credited by him to the Consolidated Fund of the State immediately after the expiry of the time limit of three years within which, claims therefor could be preferred by the suppliers. The State Government shall as far as possible, utilise such amounts for development of sugarcane in the State.
Clause 5A of the Sugarcane (Control) Order provides:
5A. Additional price for sugarcane, purchased on or after 1st October, 1974:
1. Where a producer of sugar or his agent purchases sugarcane from a sugarcane grower during each sugar year, he shall, in addition to the minimum sugarcane price fixed under Clause 3 pay to the sugarcane grower an additional price, if found due in accord with the provisions of the Second Schedule annexed to this Order.
2. The Central Government or to the State Government as the case may be, may authorise any person or authority, as it thinks fit, for the purchase of determining the additional price payable by a producer of sugar under Sub-clause (1) and the person or authority, as the case may be, who determines the additional price, shall intimate the same in writing to the producer of sugar and the sugarcane grower connected with the supply of sugarcane to such producer of sugar.
3. (a) Any producer of sugar or sugarcane grower, who is aggrieved by any decision of the person or authority, referred to in Sub-Clause (2) may, within thirty days from the date of communication of such decision under that sub-clause, appeal to the Central Government or the State Government, as the case may be:
Provided that the Central Government or the State Government, as the case may be, if it is satisfied that the appellant had sufficient cause for not preferring the appeal within the aforesaid period of thirty days, admit the appeal, if presented within a further period of fifteen days.
(b) The Central Government or the State Government, as the case may be, may, after giving an opportunity to the appellant to represent his case and after making such further enquiry as may be necessary pass such order as it thinks fit.
(c) The decision of the person or authority referred to in Sub-clause (2) where no appeal is filed, and of the Central Government or State Government, as the case may be, where an appeal is filed shall be final.
4. The additional price determined under Sub-clause (2) shall be paid by the producer of sugar to the sugarcane grower, at such time and in such manner as the Central Government or the State Government, as the case may be, may, from time to time, direct.
5. No additional price determined under Sub-clause (2) shall become payable by a producer of sugar who pays a price higher than the minimum sugarcane price fixed under Clause 3 to the sugarcane grower:
Provided that the price so paid shall, in no case, be less than the total price comprising the minimum sugarcane price fixed under Clause 3 and the additional price determined under Sub-clause (2).
6. Where any extra price is paid by the producer of sugar to the sugarcane grower for the supply of sugarcane in addition to the minimum sugarcane price fixed under Clause 3, the extra price so paid shall be adjusted against the additional sugarcane price determined under Clause 2, and the balance, if any, shall be paid to the sugarcane grower.
7. Subject to the provisions of Sub-clause (4), the additional price shall become payable to a sugarcane grower if he, in performance of his agreement with a producer of sugar, supplied not less than 85 per cent of the sugarcane so agreed:
Provided that the additional price shall become payable to a sugarcane grower, even when he supplied less than 85 per cent of the sugarcane so agreed, if for the same supply he has not been subjected to any penalty by or under any Central or State Act or any rules or order made thereunder for his failure to supply 85 per cent of sugarcane so agreed.
8. Where the additional price determined under Sub-clause (2) or Sub-clause (3), as the case may be, is paid to a sugarcane growers' co-operative society or the local sugarcane growers' association of whatever name it may be called, it shall disperse the said additional price to such of its member who has supplied not less than 85 per cent of the agreed sugarcane in performance of his agreement with it, within one month of the receipt of such additional price by it from the producer of sugar.
9. The additional price payable but not actually paid in view of Sub-clause (7) shall be added to the amount found payable for the following sugar year arrived at as per provisions of the Second Schedule.
Under Second Schedule given to Clause 5A, the amount to be paid on account of additional cane price to be computed in accordance with the following formula:
X = R-L+2A+B/20 'L' has been defined as under:
'L' is the value in rupees of sugar produced during the sugar year, as calculated on the basis of the unit cost per quintal ex-factory, exclusive of excise duty determined with reference to the minimum sugarcane price fixed under Clause 3, the final working results of the year and the cost Schedule and return recommended by (such authority as the Central Government may specify) from time to time.
'B' means:
'B' is the excess or shortfall in relation from actual sales of the unsold stocks of sugar produced during the sugar year, as on 30th day of September [vide item 7(n) below] which is carried forward and adjusted in the sale realisations of the following year.
10. The payment of additional cane price under Clause 5A is a statutory liability fastened upon a producer of sugar in respect of purchases made on or after 1-10-1974. It is a price payable every year. This is in addition to the minimum sugarcane price fixed under Clause 3 quoted above. The amount is to be computed in accordance with the provisions of the Second Schedule. Since this involves calculation, a power is taken by the Government to entrust the determination of the quantum to any person or authority to be designated. Since a person has been authorised to determine the additional cane price payable, a duty has been cast upon him to intimate the price determined to the producer as well as the sugarcane grower, the main parties concerned. Since there is a possibility of the authority committing a mistake in the calculations, a provision is made for filing an appeal to a higher authority to rectify those mistakes and it is also made clear that the appellate decision of the Central Government will become final. This was provided to ensure that litigation did not ensue for long so that the beneficiary, namely, the sugarcane grower is deprived of the amount due to him by having to embark upon vexatious and frivolous litigation. Then it also stipulated that the amount should be paid by the sugar producer to the sugarcane grower in the manner prescribed by the Central Government. Cases may arise or a possibility may arise that a producer of sugar has to pay more than the minimum sugarcane price fixed even at the initial stage, i.e., the purchases from the sugarcane grower and in such an event it was provided in the order that no additional cane price shall be payable in those cases provided that the minimum price paid is equal to the minimum price plus additional cane price.
11. So far there was nothing extraordinary about the provision of these rules except to state that the amount of additional cane price becomes payable after it was found clue. The expression "if found due" does not, in the context, means that there would not be a case where it would not be found due. It would only refer to the quantum of payment found payable, because Sub-clause (7) extracted above would show that the additional cane price shall become payable to the sugarcane grower, if he supplies more than 85 per cent of the sugarcane agreed to be supplied. In other words, the eligibility for the sugarcane grower to claim additional cane price arises when he supplies more than 85 per cent of the contracted sugarcane so a right always accrues--to quote the observations of the learned Accountant Member--to the sugarcane grower the moment he supplies more than 85 per cent of the contracted sugarcane. This can be verified from the accounts of the assessee even by the assessee-company before the accounting year comes to a close. Normally the sugarcane is supplied during a particular season, which does not extend to the entire 12 months of the accounting year. By the time the accounting year of any assessee comes to a close, he will have known from the accounts maintained in respect of each sugarcane grower as to how much quantity of sugarcane, each grower had supplied and whether it was in excess of 85 per cent of the contracted quantity or less. The formula is already given in the Second Schedule. The liability to pay additional cane price accrues to the assessee under Clause 5A when he realises that the sugarcane grower had. supplied more than 85 per cent of the contracted quantity of sugarcane. What remains then is only the quantification of the additional cane price payable. With the help of the formula any assessee can estimate the amount payable towards additional cane price, that may be less, that may be more than the quantum determined by the designated authority. While the quantum determined by the designated authority may be precise, had there been no appeal, the quantum determined by an assessee is liable to vary in comparison to the figure determined by the designated authority. While what is payable to the sugarcane grower is what was determined by the designated authority, for the purpose of accounting the liability estimated by the assessee can be said to be an accrued liability. All that was needed for the purpose of the Income-tax Act was a scientific way of calculation. That was what was held by the Supreme Court in the leading case of Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 (although this was a case arising in a different context but the question was whether gratuity could be allowed as a deduction and the Supreme Court had laid down the principle applicable to all situations of like nature repelling the contention that gratuity was a contingent liability ; that gratuity if it is ascertained on actuarial valuation could be allowed as a liability in present because the liability to pay gratuity accrues at the close of the year). Therefore if the liability could be scientifically arrived at, that has to be allowed as a deduction in computing the income under the mercantile system of accounting. The assessee in this case had been following the mercantile system of accounting. Therefore the estimated liability has to be allowed as a deduction. For the allowance of the deduction, one need not wait till the amount was quantified although it was provided for in the order that the amount was to be quantified by an independent authority notwithstanding the fact that an appeal has been provided against that decision. That machinery is provided with the object of quantification of the precise amount. It has no other purpose. It does not postpone the accrual of liability. It is therefore to be seen that 'if found due' must be read in the context as referring to the quantum, the precise amount payable and it should not be read as if the accrual of liability itself has been postponed. It is now a well settled law that if a liability under the mercantile system of accounting accrues, that liability has to be allowed as a deduction in computing the income even though its quantification is postponed. The principle of 'debitum in praesenti, solvendum in future is recognised. It is therefore in my opinion not a correct statement of law to say that:
When a certain matter is to be determined by the process of adjudication, the amount in question cannot be said to have become due unless the process of adjudication has been gone into and the order has been passed by the authority in question. ...
This statement in my opinion is at variance with the settled law of the land in so far as the Income-tax proceedings are concerned.
12. It is unfortunate that the attention was not drawn to the existing decisions of the jurisdictional High Court, which in my view clinch the issue.
12A. As pointed out by the learned representative for the assessee a similar basic had come for decision before the Allahabad High Court in the case of CIT v. Janki Sugar Mills Co. Ltd. [1972] 84 ITR 348. Justice U.S. Pathak, as he then was, speaking for the Allahabad High Court observed considering similar provisions of the Sugarcane (Control) Order and additional price payable by virtue of para 3(3A) of that order, which are analogous to Clause 5A of the present order, that that clause imposed a personal liability upon the producer of the sugar to pay to the sugarcane grower or growers' society an amount in addition to the price fixed under para 3 of the Control Order. The learned Judge thereafter explained:
It is a liability which arises as soon as the sugarcane 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.
This case therefore clearly postulates that under the Sugarcane (Control) Order the liability to pay the additional cane price arises no sooner than the purchase of sugarcane is made and the supply to the producer exceeds 85 per cent of the contracted quantity. This view was followed by the same High Court in the case of Kundan Sugar Mills v. CIT [1977] 106 ITR 704. In this case the assessee did not make any provision in the accounts but the claim was made before the assessment was completed. Allowing the claim of the assessee, the Allahabad High Court held:
... that the liability for payment of additional price for sugarcane purchased by a producer of sugar or his agent was created under Clause 3A of the Sugarcane (Control) Order, 1955. 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 was not a contingent liability. It was a liability in praesenti though payable in future. If a business liability has definitely arisen in an accounting year a deduction should be allowed although the liability may have to be estimated and discharged at a future date. The sums claimed by the assessee were allowable as a deduction under the provisions of the Income-tax Act, 1961.
Again the same view was reiterated by the Allahabad High Court in the case of Motilal Padampat Sugar Mills v. CIT [1977] 106 ITR 988. In this case there was no order passed as in the case before me now but yet the Allahabad High Court held that since in law the liability to pay an additional price had accrued in the year in which the sugarcane was purchased, the assessee was entitled to claim deduction of a reasonable estimated amount. It went on to say that in the alternative if during the course of assessment proceedings, the actual amount was quantified, the quantified amount should be allowed as a deduction. There is therefore no question of holding that one should wait to claim the deduction till the amount was quantified nor would it be correct to say that the liability did not accrue in the accounting year. In the latest case of Addl. CIT v. M.P. Sugar Mills (P.) Ltd. [1984] 148 ITR 203, the Allahabad High Court reiterated again that in law the liability to pay additional cane price did accrue in the year in which the sugarcane was purchased and within which the minimum price was fixed and the assessee was entitled to claim deduction of a reasonable estimated amount. The Calcutta High Court in the case of CIT v. Swadeshi Mining & Mfg. Co. Ltd. [1978] 112 ITR 276, held that--
'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. The Schedule was in force at the time sugarcane was purchased by the assessee and, therefore, the liability to pay the additional price had already accrued in the accounting year.
The Calcutta High Court went on to add in this case that the additional price formed part of the price of the sugarcane purchased by the assessee-company in the accounting year and the assessee-company had already incurred the liability to pay the additional cane price and hence it could not be said that this liability was inchoate or contingent in the accounting year.
13. Upon a consideration of the above and following respectfully the binding precedents of the jurisdictional High Court in similar circumstances interpreting a similar order and a similar expression, I am of the view that the view expressed by the learned Judicial Member is correct and tenable in law.
14. In so far as the learned Departmental Representative's arguments are concerned, I am unable to subscribe to the view that the rule laid down by the Supreme Court in the case of Shree Sajjan Mills Ltd. (supra) has any application to the issue before us. There the question was about the meaning of the expression "provision made by the assessee" used in Section 40A(7) of the Income-tax Act, 1961. That was in the context of allowing the provision made for payment of gratuity to the employees. That is nowhere near the issue before us. It is no doubt true that the Supreme Court in that case laid down the principle that under the mercantile system of accounting, contingent liabilities do not constitute expenditure. This is only a reiteration of an earlier principle laid down by the Supreme Court and not a new-principle laid down for the first time. Neither the facts of that case nor the provision involved for interpretation, nor the law laid down therein can have any application to the issue before me now. As I have observed earlier, the Allahabad and Calcutta High Courts have consistently held interpreting provisions in pan materia that the amount payable towards additional cane price is a liability in praesenti and not a contingent liability. I am therefore unable to deprive any assistance from the decision of the Supreme Court in Shree Sajjan Mills Ltd.'s case (supra) relied upon by the learned departmental representative. I agree with the view of the learned Judicial Member.
15. The matter will now go before the regular Bench for disposal of the appeal according to majority opinion.