Commissioner of Income Tax vs Thiru Arooran Sugars Ltd. Thiru Arooran Sugars Ltd. Vs Commissioner of Income Tax

R. Jayasimha Babu, J.—The question referred to us at the instance of the assessee is regarding its claim for deducting legal expenses incurred by it in contesting the quantum of compensation awarded by the State for the compulsory deprivation of agricultural land which was held by the assessee primarily on lease. The assessee was also deprived of some extent of land which it had owned. All this was the consequence of the legislation imposing a ceiling on land holdings and the award of very limited compensation therefore under the provisions of the land ceiling legislation.

The assessee claims that though it is engaged in the business of manufacture of sugar, the lands owned by it were being used for producing sugarcane and the activity of producing sugarcane was an activity which was integral to the manufacture of sugar, sugarcane being the raw material. The assessee, however, did not at any time treat the income obtained by it from the production of sugarcane as income assessable under the Indian Income Tax Act. That income was regarded as agricultural income, and was not offered to tax under the Central Act, but was reported only for rate purposes.

The Tribunal has found that the legal expense was incurred in contesting the quantum of compensation awarded. The assessee claiming a larger sum than the one the State had provided for in the legislation. The Tribunal has held that the expenditure obviously is an expenditure incurred in connection with the agricultural lands from which the assessee was deriving agricultural income which income was not subject to tax under the Central enactment. That was subjected to tax under the State legislation. Any expenditure incurred in connection therewith therefore was an expenditure which the assessee could claim by way of deduction only in its assessment under the State Act governing the taxation of agricultural income. The Tribunal was therefore right in disallowing that expenditure. The question referred to us at the instance of the assessee is answered against the assessee and in favour of the Revenue.

The question referred to us at the instance of the Revenue is regarding the taxability of a sum of Rs. 39.1 lakhs received by the assessee as additional price of levy sugar. That amount, however, was an amount which was directed by the court to be kept in deposit and not to be adjusted towards price so long as the litigation concerning the fixation of price was pending in the court. Such a deposit could not, therefore, properly be regarded as constituting income of the assessee during the relevant assessment year which is the assessment year 1981-82. A question similar to this was considered by us in the case of Commissioner of Income Tax Vs. South India Sugars Ltd., . It has been held therein that the amount so held by the assessee subject to the orders of the court, was not to be regarded as the assessee''s income, as the ultimate outcome of the litigation was not capable of being predicted at that time, and the amount held subject to the orders of the court was not capable of being regarded as an amount which belonged to the assessee and which it could retain as its income. The question referred to us at the instance of the Revenue is therefore answered against the Revenue and in favour of the assessee.