Commissioner of Income Tax vs Dhampur Sugar Mills Ltd.

The income tax Appellate Tribunal, Allahabad, has referred the following question of law u/s 256(1) of the income tax Act, 1961 ("the Act") for opinion to this Court: Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in confirming the deletion of Rs. 11,38,507 on account of interest on the amount of excess levy sugar price claimed by the assessee for the assessment year 1977-78?

Briefly stated facts giving rise to the present reference are as follows :-

The reference relates to the assessment year 1977-78. The respondent- company enjoys income from Sugar Mill, Straw Board Unit, Mini Paper Unit, Petrol Pump and Property. It claimed deduction of Rs. 31,52,222 being interest on excess levy sugar price. The income tax Officer has disallowed the claim on the following grounds :

The assessee had collected Rs. 69,79,152 by way of excess levy sugar price under various orders of Allahabad High Court up to 30-9-1975. Further Rs. 8,59,596 was collected from 2-10-1974 to 26-12-1974 showing total collections of Rs. 78,58,949. An amount of Rs. 9,74,258 was claimed as deduction in respect of accrued interest on the above amount @ 12.5 per cent for the previous year relevant to assessment year 1976-77. The claim was disallowed in that year for the reasons detailed in the assessment order. The assessee has deduced the full amount of interest up to 30-9-1976 amounting to Rs. 31,52,222 in the accounts this year and has claimed it as a deduction. The claim cannot be accepted for the reasons detailed below :

(a) the excess levy sugar price has been held as assessee''s income and hence any interest thereon is also nothing but assessee''s own income.

(b) excess price realized has not been transferred to levy sugar price equalization fund within 30 days from 16-2-1976.

(c) in the alternative it is in the nature of penalty or fine and is not admissible. The Hon''ble High Court of Allahabad in Kamlapat Motilal Vs. Commissioner of Income Tax, observed as under :--

The position would, in my opinion, be not different in the case of interest which is also a criminal sanction payable for pay the statutory demand in time. If he does not do so, the payment of interest as well as penalty is in a character other than that of a trader".

(d) The Tribunal''s order on this point in favour of the assessee has not been accepted by the department and a reference has been filed in assessment year 1975-76.

(e) As the amount of interest in past years was disallowed and because it is not related to this year, the whole amount debited in account this year is to be added back. Add Rs. 31,52,222.

In the appeal preferred by the respondent, the Commissioner of income tax (Appeals) has allowed a sum of Rs. 11,38,507 towards claim of interest. According to him, this amount related to the year under consideration. Feeling aggrieved by the order passed by the Commissioner of income tax (Appeals), the revenue as also the respondent-assessee preferred appeals before the Tribunal. The Tribunal has upheld the order passed by the Commissioner of income tax (Appeals) on this issue.

We have heard Shri A.N. Mahajan, learned Standing counsel for the Revenue and Shri R.R. Agrawal, learned Counsel for respondent. It may be mentioned here that the question whether interest on excess levy sugar price is allowable deduction or not have been considered by this Court in income tax Reference No. 18 of 1983 decided on 25th August, 2004 which is inter parties. This Court after considering the provisions of Levy Sugar Price Equalization Fund Act, 1976 has held that liability of interest accrued after 7th April, 1976 and not before that date. Since liability for payment of interest amounting to Rs. 11,38,507 is relatable to the assessment year in question, the Tribunal was justified in allowing its deduction. We are in respectful agreement with the view taken by the Court in the aforesaid decision. In view of the foregoing discussions, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the revenue. There shall be no order as to costs.