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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.

"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....