Commissioner of Income Tax vs Sir Shadilal Sugar and General Mills Ltd.

R.M. Sahai, J.—In pursuance of the order passed by this Court u/s 256(2) of the income tax Act, 1961, the Tribunal, Delhi Bench ''C�, New Delhi has referred the following questions of law for our opinion :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in holding that the interest on arrears of cane purchase tax leviable under the U.P. Sugarcane (Purchase Tax) Act, 1961, was an allowable deduction in computing the business income of the assessee ?

Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding the interest paid by the assessee because of delayed payment of cane price and commission on purchase of sugarcane leviable under the U.P. Sugarcane (Regulation of Supply and Purchases) Act, 1953, was an allowable deduction in computing the business income of the assessee ?"

The assessment years involved are 1967-68 and 1968-69. For both the years the assessee claimed interest on arrears of cane purchase tax and interest on delayed payment of cane price and commission on purchases of sugarcane as allowable deduction.

It was not accepted by the ITOs or the AAC but the Tribunal decided the issue in favour of the assessee in view of the decision of this Court in Kamlapat Motilal Vs. Commissioner of Income Tax, . Since then the matter has been examined by two Full Benches. In Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR, 387 (All.) it was held that such an expenditure was not business expenditure. Later on similar controversy came up for consideration before the Supreme Court in Mahalaxmi Sugar Mills Co. Vs. Commissioner of Income Tax , Delhi, . The Hon''ble Court upheld the contention of the assessee that it was an allowable deduction. It distinguished the decision of Saraya Sugar Mills (P.) Ltd.''s case (supra). Since the decision was not overruled, another Division Bench in view of the Supreme Court decision in Mahalakshmi Sugar Mills Co.''s case (supra) referred the matter for further consideration to a larger Bench. The larger Bench in Triveni Engineering Works Ltd. Vs. Commissioner of Income Tax, agreed with the view taken in Kamlapat Motilal''s case (supra) and held that such an expenditure was for the purposes of business. The decision of Saraya Sugar Mills (P.) Ltd.''s case (supra) was overruled and it was held that it did not lay down the correct law.

In view of this decision both the questions have to be answered in the affirmative, in favour of the assessee and against the department. There shall be no order as to costs.