Allahabad High Court
Cit vs K.M. Sugar Mills Ltd. on 17 May, 2007
Author: R.K. Agrawal
Bench: R.K. Agrawal, Bharati Sapru
ORDER R.K. Agrawal, J.
1. The Income Tax Appellate Tribunal has referred the following questions of law under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for opinion to this Court:
At the instance of the Commissioner of Income-tax
1. Whether on the f acts and in the circumstances of the case, the ITAT was legally correct in holding that excess sale amounting to Rs. 21,57,611 realised by the assessee-company, over and above the levy sugar price fixed by the Government was not a trading receipt completely ignoring the facts that the excess price charged represented income which accrued to the assessee-company in terms of interim order of the Calcutta High Court restricting the Government from giving effect to the Sugar Price Control order of 12-9-1979 fixing the maximum ex-factory price of sugar?
2. Whether on the facts and in the circumstances of the case, the ITAT was legally correct in holding that a statutory liability arose against assessee-company in the previous year under consideration to credit the Levy Sugar Price Equalisation Fund Act, 1976 by an amount of Rs. 7,77,654 being alleged interest f or the year on the price realised by the company over and above the levy sugar price fixed by the Government?
3. Whether on the facts and in the circumstances of the case, the ITAT was legally correct in holding that a statutory liability arose against the assessee-company in the previous year under consideration to credit Levy Sugar Price Equalisation Fund Act, 1976 by an amount of Rs. 42,788in respect of excess realisation of sugar price f or 1971 -72 season arose to the assessee?
At the instance of the assessee
4. Whether on a true and correct interpretation of the scheme under which the subsidy was granted by the Government of Uttar Pradesh, read with the provisions of Section 28 of the Income Tax Act, the Tribunal was legally correct in holding that the sum of Rs. 20,11,000 receivable from the State Government was taxable as revenue receipt?
2. The reference relates to the assessment year 1985-86.
3. Briefly stated, the facts giving rise to the present reference are as follow:
The assessee is a limited company engaged in manufacture and sale of sugar. For the year under consideration, it had filed its return declaring a loss of Rs. 75,160. The assessment was completed on a total income of Rs. 62,59,180 vide order under Section 143(3), dated 31-3-1987, after making various additions/disallowances.
R.A. No. 240 (All) of 1996 (By the department)
4. During the year under consideration, the assessee provided for aliability of Rs. 21,57,611 in the "sugar sales suspense account underdispute" shown in the balance sheet under the head "current liability". The amount represented the difference between the price realised from the Food Corporation of India in respect of sale of levy sugar, as per the interim order of the High Court, and the price fixed by the Central Government.
The assessing officer brought the amount to tax treating the same as the trading receipt for the year under consideration.
5. In appeal by the assessee, the Commissioner (Appeals), following his order for the earlier year and the Tribunal's order for the assessment year 1977-78, held that the amount was not a trading receipt in the year but would become taxable on final disposal of the case by the competent Court. The addition of Rs. 21,57,611 was accordingly deleted.
6. The assessee had claimed deduction for liability of Rs. 7,77,654 on account of interest payable in terms of the provisions of the Levy Sugar Equalisation Fund Act, 1976. In the assessment for the assessment year 1981 -82, the Assessing Officer had held that under the aforesaid provisions there was no liability for interest. This action of the assessing officer was upheld by the first appellate authority in the assessment year 1981-82. Accordingly, the claim of the assessee for aforesaid deduction was negatived in this year also.
7. In appeal by the assessee, the Commissioner (Appeals) observed that the order of the first appellate authority for the assessment year 1981-82 stood reversed by the Tribunal. Accordingly, he decided the issue in favour of the assessee.
8. The assessee had also provided for a liability of interest of Rs. 42,788 on an amount of Rs. 3,42,478 representing excess realization for the sugar season 1971 -72. For the reasons given in his order for the assessment year 1981-82, which on this issue stood confirmed by the first appellate authority, the Assessing Officer disallowed the claim by observing that the liability was not an accepted liability.
9. The Commissioner (Appeals) observed that the aforesaid claim of the assessee stood allowed by the Tribunal in the assessment year 1981-82 and following that order, by him in the assessment year 1984-85. Accordingly, the issue was decided in favour of the assessee.
10. In appeal by the department, the Tribunal observed that the aforesaid three issues were decided by it in favour of the assessee and against the department vide order dated 6-4-1985 for the assessment year 1977-78,which was foliowed in subsequent years. There being no change in the facts and circumstances, the issues raised by the department, namely, the taxability of the amount of excess sale price of sugar over and above the levy price f ixed by the Government and the points regarding deduction of interest payable in terms of Levy Price Sugar Equalisation Fund Act and that in respect of excess realisation for sugar season 1971-72, were decided against the department and in favour of the assessee vide order dated 21-5-1996 in ITA No. 277 (All.) of 1988.
RA. No. 196 (All) of 1996 (By the assessee)
11. The assessee had paid purchase tax of Rs. 20,12,046 against which ithad received a subsidy of Rs. 20,11,000. The claim of the assessee was that the amount received on account of subsidy was a capital receipt and not liable to tax. This was negatived by the assessing officer. He also refused to accept assessee's alternative plea that the amount having been received on 1 -10-1984 in the previous year relevant to the assessment year 1986-87, it cannot, in any case, be taxed in the year under consideration. In appeal, the Commissioner (Appeals) observed that the nature of subsidy received by the assessee was different from the subsidy which was held to be a capital receipt by the Madhya Pradesh High Court in the case of CIT v. Dusadh Industries ', because it was neither f or encouragement of industries in backward areas nor f or setting up of the industries. The Commissioner (Appeals) f urther pointed out that in the assessment year 1984-85, the assessee had himself offered the subsidy for inclusion in its total income as revenue receipt. After referring to the relevant notification and the fact that the purchase tax, when paid, was claimed as a deduction, the Commissioner (Appeals) held that the refund of the same purchase tax received by the assessee as subsidy was taxable as a trading receipt. Further, it was held that as the amount had accrued to the assessee in the previous year relevant to the assessment year under consideration and it related to the sugar season covered by the said assessment year, it was the income of the assessee for the year under consideration, the accounts having been maintained on mercantile system. The actual receipt of the draft in next year was not considered to be relevant. Accordingly, the order of the Assessing Officer was up he learned In appeal by the assessee, after analysing the nature of subsidy in this case and referring to the guiding factors laid down in various judicial decisions, referred to in the order, the Tribunal upheld the finding of the Commissioner (Appeals) that the subsidy received by the assessee against the payment of purchase tax was a trading receipt in its hand and, therefore, liable to tax. It was also held that the assessee was maintaining its accounts on mercantile basis and the accrual of subsidy had taken place in the year under appeal, which was liable to be taxed in this year irrespective of the fact that it was actually received in the subsequent year.
12. We have heard Sri R.K. Upadhaya, learned standing counsel for the revenue and Sri S.K. Garg, learned Counsel for the respondent assessee.
13. So far as the questions referred at the instance of the Commissionerof Income-tax are concerned, we find that this Court in CIT v. K.M. Sugar Mills (P.)Ltd. , which is inter-parties and related to the assessment year 1984-85, had answered similar questions in favour of the assessee and against the revenue.
14. Respectfully following the aforesaid decision, all the three questions referred at the instance of the Commissioner of Income-tax, are answeredin favour of the assessee and against the revenue.
15. Sofar as the question referred at the instance of the assessee is concerned, we find that under the Government order dated 24-8-1984 issued by the State Government providing aid was to be given to the extent of the purchase tax paid by the Sugar Mills on purchase of sugarcane in order to facilitate payment of cane price. It may be mentioned here that the cane price paid by the assessee is a revenue expenditure and, there-f ore, any amount provided as aid for making revenue expenditure, would partake the nature of a revenue receipt.
16. We are fortified by a decision of the Apex court in the case of Sahney Steel & Press Works Ltd. v. CIT ', where in the Apex court has held that the payment in the nature of subsidy from the public fund are made to the assessee to assist him in carrying on his trade or business, they are trade receipts.
17. In view of the aforesaid decision, we answer the question referred at the instance of the assessee in favour of the revenue and against the assessee. In view of divided success, the parties are directed to bear their own costs.