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C.I.T. v. M.P. Udyog Ltd. - INCOME TAX REFERENCE No. 186 of 1991  RD-AH 17509 (11 October 2006)
Income Tax Reference No.186 of 1991
M/s M.P.Udyog Ltd. v. Commissioner of
Income Tax, Kanpur
Hon'ble R.K.Agrawal, J.
Hon'ble Vikram Nath, J.
(Delivered by R.K.Agrawal, J.)
The Income Tax Appellate Tribunal 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:-
1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal on the basis of the decision on similar issue in the assessment year 1976-77, is correct in law in holding that the assessee is not entitled to the deduction of Rs.2,80,396/- for liability for market fee on the sale of sugar and molasses in the market area as per the provisions of Bihar Agricultural Produce Market Act, 1960?
2. Whether in law and on facts of the case, the Hon'ble I.T.A.T. was justified in allowing assessee's claim of investment allowance on plant and machinery leased out to M/s J.K.Synthetics Ltd.?
3. Whether in law and on facts of the case, the I.T.A.T. was justified in holding that the assessee was entitled to deduction of interest of Rs.6,47,960/- claimed on account of interest payable on excess realisation of levy sugar price?
The reference relates to the Assessment Year 1983-84.
Briefly stated, the facts giving rise to the present reference are as follow:-
The assessee company has four different sets of accounts, i.e., Head Office set, Steel Foundry set, Vanaspati set and Sugar Mill set. In the Sugar Mill set, a deduction of Rs.2,29,571/- was claimed on account of liability for market fee. Details in respect of the said liability were filed in the compilation. The market fee as per the notice of demand issued by the concerned authority was required to be paid at the rate of 1% on the total purchase of sugar cane, total sale of sugar and molasses. The assessee company followed mercantile system of account and accordingly the liability for market fee was claimed as a revenue deduction. However, the Income Tax Officer disallowed the entire claim on the ground that the assessee company was not the buyer of sugar and molasses and thus not liable to pay market fee in terms of Section 27 of the Bihar Agricultural Produce Market Act, 1960. It was further held that even in respect of the purchase of sugar cane, the assessee company was not liable for the market fee. In the first appeal, the Commissioner of Income Tax (Appeals) upheld the disallowance for the reasons contained in para 3 of his order. In the second appeal filed by the assessee, the Tribunal discussing the said issue in paras 8 to 10 of its order following its own order for the assessment year 1982-83 held that the assessee company is liable to pay market fee on the sugarcane purchased by it and its liability does not extend in respect of the sale of sugar and molasses. Accordingly, out of the total claim, claim of the disallowance to the extent of Rs.2,80,396 was upheld by the Tribunal.
The assessee is an industrial company. It had not used the machinery purchased during this year and had leased out the same to J.K.Synthetics for being used in their industrial undertaking. The assessee claimed investment allowance on the said plant and machinery leased out to J.K.Synthetics. The said amount was disallowed by the Income Tax Officer on the ground that the assessee had not used the said machinery during the assessment year. The said order was confirmed by the Commissioner of Income Tax (Appeals) in appeal filed by the assessee. In second appeal filed by the assessee, the Tribunal accepted the claim of the assessee relying upon the decision of the Tribunal of Madras Bench in the case of First Leasing Co. of India v. Income Tax Officer, 3 ITD 808.
The assessee is a limited company deriving income from manufacture of steel, Vanaspati and sugar. The Income Tax Officer while framing the assessment disallowed a sum of Rs.6,47,960/- claimed by the assessee on account of provisions for interest on excess deduction of the said amount being interest at the rate of 12.5% on the additional price of levy sugar realised by the assessee as envisaged under Section 3(b) of the Levy Sugar Price Equalisation Fund Act, 1976. The Assessing Officer had disallowed the said claim mainly on the ground that the principal sum on which the interest had been claimed is in dispute and the liability is a contingent one. In appeal by the assessee, the Commissioner of Income Tax (Appeals) allowed the said claim of the assessee holding that the assessee was entitled for deduction of interest provided in the books subject to disallowance of 15% of the said interest under Section 40A(8) of the Act. In appeal filed by the Revenue as well as the assessee, the Tribunal held that the order disallowing 15% interest by the Commissioner of Income Tax (Appeals) under Section 40A(8) was misconceived in this case as the facts did not attract the applicability of section 40A(8). The Tribunal further held that the entire claim of the interest was allowable as a genuine business expenditure.
We have heard Sri R.S.Agrawal, learned counsel for the applicant, and Sri Shambhoo Chopra, learned Standing Counsel appearing for the Revenue.
It is agreed between learned counsel for the parties that so far the first question is concerned, it has to be answered against the assessee and in favour of the Revenue in view of decision in Income Tax Reference No.81 of 1990, decided on 26.9.2006.
So far as the second question is concerned, we find that the controversy is covered by a decision of the Apex Court in the case of Commissioner of Income Tax v. First Leasing Company of India Limited, 231 ITR 308, wherein the Apex Court has held that the lessor of the equipment is entitled to investment allowance under Section 32A of the Act and that it is not necessary that such lessor should utilise the machinery for the purposes of its business. Respectfully following the aforesaid decision, we find that the Tribunal was justified in accepting the claim of the assessee for investment allowance. This question is, therefore, answered in favour of the assessee and against the Revenue.
In so far as the third question is concerned, it is agreed between the learned counsel for the parties that the question is to be answered in favour of the assessee and against the Revenue in view of the decision in the case of Commissioner of Income Tax v. Dhampur Sugar Mills Ltd., 274 ITR 370.
In view of the foregoing discussions, we answer the questions accordingly. However, there shall be no order as to costs.
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