Mahalakshmi Sugar Mills Co. Ltd. vs Commissioner of Income Tax

Arijit Pasayat, C.J.—At the instance of the assessee, the following questions have been referred for the opinion of this court u/s 256(1) of the Income Tax Act, 1961 (in short, the "Act"), by the Income Tax Appellate Tribunal, New Delhi (in short, "the Tribunal") :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the payment of guarantee commission of Rs. 78,935 to Shri Devi Chand Sawhney was (not ?) allowable as a deduction in computing the assessor�s taxable income ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not allowing interest of Rs. 56,186 paid on arrears of cane purchase tax as a revenue expenditure ?"

The factual position, as indicated in the statement of the case, is as follows :

The dispute relates to the assessment year 1971-72. The assessee, a limited company, was at the relevant point of time carrying on the business of manufacture and sale of sugar. The assessed was following the mercantile system of accounting and relevant accounting year ended on June 30,1970. The Income Tax Officer disallowed a sum of Rs. 78,935 claimed by the assessed as guarantee commission paid to one Shri Devi Chand Sawhney, a director of the assessee-company. The said guarantee commission was paid to him for having stood as guarantor as regards the loan taken by the assessed from the Punjab National Bank. Similarly, a sum of Rs. 36,186 paid by the assessed as interest on arrears of cane purchase tax was disallowed. Both the disallowances were assailed in appeal before the Appellate Assistant Commissioner (in short "the AAC"). The conclusions of the Assessing Officer were upheld by the Appellate Assistant Commissioner, The matter was carried in further appeal before the Tribunal. By its order dated December 14,1977, in ITA No. 5096 (Delhi), the Tribunal upheld the disallowances.

On being moved for reference, as set out above, the questions have been referred for opinion of this court.

We have heard learned counsel for the parties. Both the questions seem to be covered by the ratio of the decisions of the apex court in Additional Commissioner of Income Tax Vs. Akkamamba Textiles Ltd., and Commissioner of Income Tax Vs. Luxmi Devi Sugar Mills P. Ltd., ) , respectively. Following the ratio, laid down in these two cases, our answer to both the questions is in the negative, in favor of the assessed and against the Revenue.

Accordingly, this reference is disposed of.