Orissa High Court
Aska Co-Operative Sugar Industries ... vs Commissioner Of Income-Tax on 30 August, 1977
JUDGMENT R.N. Misra, J.
1. The assessee is a co-operative society engaged in the manufacture of sugar and molasses. The year of assessment is 1970-71, corresponding to the accounting period ending with 30th of June, 1969. For the year, the assessee filed a return showing a net loss of Rs. 27,21,834 and in the computation of this loss, a sum of Rs. 6,86,464 had been taken into account representing expenditure incurred by the assessee under the early plantation of sugarcane scheme. In the areas around the assessee's factory at Aska, sugarcane is widely grown but ordinarily cultivation used to be undertaken in the month of February or March. The management of the assessee-found that if sugarcane cultivation was undertaken earlier than February the sugar content was higher and, therefore, the sugar yield would be more. On 5th of March, 1967, by a resolution, the assessee's control board decided that a price incentive of Rs. 2 more per ton of cane should be given to encourage early plantation. As this did not generate sufficient incentive, by a later resolution dated 26th of November, 1967, a modified scheme was adopted and it was decided that subsidy for early plantation not being later than February would be advanced at the rate of Rs. 300 per acre and the cultivator was to deliver in the minimum 40 tons of sugar-cane per acre. If there was default in undertaking early cultivation or delivering the sugarcane as undertaken, the cultivator would pay a penalty to the managing director of the assessee and would refund the advance with interest. Persons who received the advances were obliged to sell their outputs to the assessee's factory and in case there was compliance with the undertaking, the advance would go as a prize. Under the scheme, during the period between November 10, 1967, and June 30, 1968, a sum of Rs. 6,79,314 was paid to the cultivators. During the subsequent year, between July 2, 1968, and September 10, 1968, similarly a sum of Rs. 7,150 had been paid. In the first year, the amounts advanced were not adjusted an4 were shown as suspense and claimed by way of deduction in the relevant assessment year. The Income-tax Officer did not accept the claim of deduction as admissible in law and completed the assessment overlooking the claim.
2. The Appellate Assistant Commissioner held that the claim was admissible and in fact gave relief to the extent of Rs. 7,150 which was found to have been advanced during the year. He, however, disallowed the balance claim of Rs. 6,86,464 on the basis that it did not appertain to the year. The revenue appealed to the Tribunal and contended that the expenditure could not have been considered as a revenue expenditure. A memorandum of cross-objection was filed by the assessee challenging the disallowance of the major portion on the basis that it did not appertain to the year. The Tribunal affirmed the finding of the Appellate Assistant Commissioner that the claim related to revenue expenditure but was not admissible in the year under consideration. At the instance of the assessee, the Cuttack Bench of the Income-tax Appellate Tribunal lias stated this case and referred the following question for our opinion :
"Whether, on the facts and in the circumstances of the case, the expenditure incurred for payment of the reward under early plantation scheme accrued at the time of payment or any other time ?"
3. The Appellate Assistant Commissioner as also the Appellate Tribunal have upheld the assessee's claim that the amount in dispute represented revenue expenditure. No challenge has been offered against that finding. In fact, in regard to the sum of Rs. 7,150 paid during the year, the claim for which bad been allowed, has become final. We must say that on the facts found, the conclusion seems to be appropriate. The only question that remains in dispute is as to whether the claim of expenditure is admissible in this year. The question therefore, should be slightly reframed to represent the exact point in issue and should read as follows :
"Whether, on the facts and in the circumstances of the case, the claim of expenditure which has been found to be of revenue character is admissible in this assessment year ?"
4. A copy of the agreement is in the paper book and has been marked as annexure "E". Translated into English, the relevant clauses of the agreement read as follows :
"(4) I undertake to supply to the Aska Co-operative Sugar Factory for the purposes of manufacture of sugar at the rate of 40 tons sugarcane per acre in the minimum as directed by the Sugar-cane Development Officer or employees under him.
(5) Without leave of the authorities of the Aska Co-operative Sugar Industries in writing, I shall not make molasses or khandasari from sugar-cane grown on my land and shall not utilise such sugarcane for any other purpose..........
(8) I hereby state that during 1967-68 crushing season, I have not made any molasses without leave of the factory nor my name has been entered in the records of the factory.................. If there be any default, I undertake to pay such compensation as may be determined by the managing director of the factory....
(11) If I violate any of the undertakings and fail to supply 40 tons of sugarcane or more from my land, then 1 would be obliged to return the advance, fertiliser or its costs, any loan for digging wells along with thrice the prize money with interest.................. "
5. The resolution of 26th November, 1967 (annexure "3") shows :
" 1. ............
2. Review of early plantation drive Subsidy for early plantation and enhancement of subsidy for early (end of Feb. '68) of sugar-
plantation, cane would be Rs. 300 per acre."
6. The previous year during which the substantial advance had been made ended on June 30, 1968. By then it was certainly difficult to know whether there had been appropriate performance by the cultivators who had received the advances. In fact, as has been found by the Tribunal, the advances had been made between November 19, 1967, and June 30, 1968. The performance could only be considered in the period thereafter. The assesses had, therefore, appropriately treated the amount as suspense during the previous year and had proceeded to give a final look at the matter during the current year. The nature of the arrangement was such that it would not have been possible to assess the performance and take a final decision in the matter during or at the close of the preceding assessment year. In fact, the terms of the agreement are such that the relative position could only be determined after the supply had been effected. In the facts of the case, therefore, the appropriate year in which the amount could be taken into account is the assessment year and the assessee had rightly claimed the deduction in this year and not the previous year. No cogent reason has been advanced by any of the authorities of the revenue for rejecting the claim. On the facts of the case, we are led to hold that there is force in the assessors stand that the amount became due for deduction during the year. Our answer to the question, therefore, is:
On the facts and in the circumstances of the case, the claim of expenditure which had been found to be of revenue character was admissible in this assessment year.
7. Assesses shall have the costs of this reference. Hearing fee is assessed at rupees one hundred.
Panda, J.
8. I agree.