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C.I.T. v. Dhampur Sugar Mills Ltd - INCOME TAX REFERENCE No. 166 of 1985 [2004] RD-AH 844 (21 September 2004)


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Court No.37

I.T.R. No.166 OF 1985

The Commissioner of Income tax, Lucknow.           .....Applicant


Dhampur Sugar Mills Ltd., Dhampur                    ...Respondent


Hon'ble R.K. Agarwal, J.

Hon'ble K.N. Ojha, J.

The Income Tax Appellate Tribunal, Allahabad, has referred the following question 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 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 30.9.75.  Further Rs.8,59,596 was collected from 2.10.74 to 26.12.74 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% for the previous year relevant to A.Y. 76-77.  The claim was disallowed in that year for the reasons detailed in the assessment order. The assessee has deducted the full amount of interest upto 30.9.76 amounting to Rs.31,52,222 in the accounts this year and has claimed it as a deduction.  The claim can not 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 16.2.76.

(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 Saraya Sugar Mills P. Ltd. v C.I.T. while over-ruling their judgment in 104 ITR 783 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 deparment 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 Standing 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.

Dated : 21/9/04


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