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Commissioner of Income Tax (Central, Kanpur v. K.M. Sugar Mills Ltd. Kanpur. - INCOME TAX REFERENCE No. 166 of 1988 [2004] RD-AH 1668 (10 December 2004)


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Court No. 37.

                    I.T.R. No. 166 of1988.

Commissioner of Income Tax (Central), Kanpur


K.M.Sugar Mills Ltd. Kanpur.


Hon. R.K.Agrawal,J.

Hon. Vikram Nath,J.

The Income Tax Appellate Tribunal, Allahabad has referred the following questions of law under Section 256(1) of the Income - tax Act, 1961(hereinafter referred to as the Act ) for opinion to this Court.

"Whether on the facts and circumstances of the case, the Tribunal was legally correct in holding that a statutory liability arose against the assessee company in the previous year under consideration to credit Levy Sugar Price Equalisation Fund, 1976, by an amount of Rs. 42,788/- being interest for the year on the price realised by the Co. over and above levy sugar price fixed by the Government?"

The reference relates to the assessment year 1980-81. The facts giving rise to the present reference are as fallows.

The respondent is a company, which is following the mercantile system of accounting.  The respondent derived income from manufacture and sale of sugar. During the assessment year in question the respondent had claimed deduction of Rs. 42788/- being the amount of interest which had accrued during the previous year relevant for the assessment year in question on the excess price of realized by it over and above the suger price fixed by the government and which was to be paid over in the Levy Suger Price Equalisatioin Fund. The Assessing of price has held that if was not allowable deduction, which order has been upheld by the Commissioner of Income Tax Appeal. However, in further appeal, the Tribunal has accepted the claim.

We have heard Sri A.N. Mahajan learned Standing Counsel for the Revenue  and Sri Shakeel Ahmad, learned counsel for the assessee.

This Court in I.T.R. NO. 18 OF 1983, Commissioner of Income Tax, Lucknow vs. Dhampur Sugar Mills Ltd. Dhampur, decided on 25.8.2004 has held that levy of interest under the Levy Sugar Price Equalisation Fund Act, 1976, accrued for the first time, when the Act was enforced on 1st April 1976 and the amount of excess realization along with interest is to be deposited within a specified period after the commencement of the Levy Act i.e. 1st April 1976. The liability for interest accrued from year to year. In the present case, the liability for payment of interest on the unpaid amount for the Assessment year in question had accrued during the year and, therefore, it had been rightly allowed as a deduction as the respondent Company is following the mercantile system of accounting.

In view of the foregoing discussion, our answer the question in the affirmative, i.e. in favour of the Assessee and against theRevenue.

However, in the fact of the case the parties shall bear their own costs.


v.k.updh. (v-26)


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