SHAHABAD COOPERATIVE SUGAR MILLS LTD VS COMMISSIONER OF INCOME-TAX
1999 P T D 2099
[226 I T R 582]
[Punjab and Haryana High Court (India)]
Before Ashok Bhan and NK. Sodhi, JJ
SHAHABAD COOPERATIVE SUGAR MILLS LTD
Versus
COMMISSIONER OF INCOME-TAX
Income-tax Case No-41 of 1995, decided on 19/04/1996.
Income-tax ---
----Reference---Assessee deciding to pay extra price of Rs.20 per quintal of sugarcane ---Assessee paying Rs.2 per quintal to cane growers and taking Rs.18 to capital account of respective cane growers members---Tribunal allowing Rs.2 paid to cane growers and disallowing Rs.18 claimed by way of credit to capital account---Findings of Tribunal are findings of fact---No referable question of law arises---Indian Income Tax Act, 1961, S.256(2).
The assessee, a cooperative society, for manufacture and sale of sugar decided to pay extra price of Rs.20 per quintal of sugarcane. But only Rs.2 per quintal was paid to the cane growers and Rs.18 was taken to the capital account of the respective cane growers, members of the society. The Tribunal held that the assessee had employed a device to increase its capital without paying taxes due to the exchequer and hence, allowed only Rs.2 paid to cane growers and disallowed Rs.18 claimed by way of credit to the capital account of the respective members. On an application to direct a reference:
Held, that the findings recorded by the Tribunal were findings of fact and no referable question of law arose.
Rakesh Garg and M.L. Garg for Petitioner
R.P. Sawhney, Senior Advocate and Sanjay Goel for Respondent.
JUDGMENT
ASHOK BHAN, J.---Shahabad Cooperative Sugar Mills Limited, Shahabad (hereinafter referred to as the assessee), has filed this petition under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act), for directing the Income-tax Appellate Tribunal, Chandigarh (hereinafter referred to as the Tribunal), to refer the following questions of law for the opinion of this Court:
"(1)Whether, on the facts and circumstances of the case, the addition sustained by the Income-tax Appellate Tribunal on account of additional cane price paid to the sugarcane growers is legally justified?
(2) Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was legally correct in upholding the additional cane price especially when the actual payments at the contracted rate had been paid to members of the petitioner-society who are separate legal entities?
(3) Whether, on the facts and circumstances of the case, the findings recorded by the Income-tax Appellate Tribunal regarding the expenditure being not at all laid out wholly and exclusively for business purposes' is based on irrelevant considerations and beyond the scope of the powers of the departmental authorities to assess the extent of its admissibility?
(4) Whether, on the facts and circumstances of the case, the findings of the Income-tax Appellate Tribunal that the transaction of payment of additional sugarcane price is not bona fide, is based on no evidence and is, thus, liable to be set aside?
(5) Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in restricting the allowance of payment of additional sugarcane price to the members cane growers to the extent of Rs.2 per quintal only and not allowing the same in toto?"
The assessee is a cooperative society under the Haryana Cooperative Societies Act, 1984, carrying on the manufacture and sale of sugar at Shahabad Markenda, District Kurukshetra. A return declaring an income of Rs.2,11,77,724 was filed on October 29, 1990, for the assessment year 1990-91. The Assessing Officer, during the course of assessment proceedings, found that a payment of additional cane price amounting to Rs.5,19,07,100, was claimed which was debited over and above the minimum price of sugarcane fixed by the Sugarcane Control Board which was a State body. The society has 23,526 members out of whom 21,463 members are cane growers and the remaining members are cooperative societies and gram panchayats, etc. The minimum price of COJ-64 variety of sugarcane was fixed at Rs.40 per quintal by the Government while the minimum price of other varieties of sugarcane was fixed at Rs.36 per quintal for the relevant year. The board of directors of the assessee in their meeting held on March 2, 1990, decided to pay Rs.60 per quintal for the COJ-64 variety and Rs.56 per quintal for the other variety.
The Assessing Officer came to the conclusion that payment of purchase price of Rs.60 and Rs.56 per quintal -for different varieties of sugarcane was not at all warranted by the genuine needs of the sugar mills and the assessee adopted a device only to camouflage the real profit of the mill without paying the proper taxes. He accordingly disallowed a sum of Rs.5,19,07,100 by disallowing the additional cane price of Rs.25 per quintal but, later on, an order under section 154 of the Act was passed on May 28, 1993, wherein the actual additional price of Rs.20 per quintal was disallowed and the addition was reduced to Rs.4,15,25,680 from Rs.5,19,07,100. The assessee, aggrieved by the assessment, preferred an appeal to the Commissioner of Income-tax (Appeals), Chandigarh, who vide his order, dated March 10, 1993, upheld the decision. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the assessee preferred further appeal to the Tribunal which ultimately allowed (sic) on April 5, 1994. It was held that a sum of Rs.2 per quintal paid to the cane growers members of the society was allowable as a deduction while the price of Rs.18 per quintal which was taken to the capital account of the respective cane growers members of the society, was for extra commercial purposes and was not wholly or exclusively laid out for the business purposes of the assessee. In the ultimate, addition to the extent of Rs.18 per quintal claimed by way of additional purchase price paid to the cane growers members of the society by way of credit to their respective capital account was disallowed.
The assessee thereafter, filed an application under section 256(1) of the Act to refer the questions reproduced in the earlier part of this judgment to this Court for opinion which has already been rejected. The Tribunal has found as a fact 'aat paying extra cane price of Rs.18 per quintal over and above the price fixed by the Government was not bona fide and had been done for extra commercial considerations. The findings recorded by the Tribunal are to the following effect:
"We, have carefully considered the rival submissions as also the facts on record. At our instance, the assessee supplied certain information with regard to the assessment years 1991-92, 1992-93 and 1993-94. For instance, we were told that as against the minimum price fixed at Rs.40 and Rs.36 per quintal, respectively, for two varieties of sugarcane in the year under consideration, the minimum price fixed for the assessment year 1991-92 was Rs.45 and Rs.41 per quintal, respectively, and similarly for the assessment years 1992-93 and 1993-94, the minimum price was Rs.49 and Rs.45 per quintal, respectively, and Rs.50 and Rs.46 per quintal, respectively. We were further informed that the price was increased to Rs.60 and Rs.56 per quintal, respectively, in the year under consideration Where as for the assessment year 1991-92, the sameprice was paid. It was also submitted that for the assessment year 1992-93 only a minimum purchase price was paid to the cane growers and that the same was the position for the assessment year 1993-94.
The enquiries made further revealed that for the assessment year 1987-88, the assessee declared a profit of Rs.31.62 lakhs but there were brought forward losses. For the assesment year 1988-89, the profit declared was of the order of Rs.1,53 crores. For the assessment year 1989-90, the profit declared was of Rs.2,36,76,836 and there was a brought forward loss of Rs.1.72 crores. For the assessment year 1990-91, the net profit declared was Rs.4,43,36,907. This was done after the payment of extra price of the sugarcane at Rs.4,15,25,680. In other words, if the extra price had not been paid for the sugarcane, the assessee would have for the first time shown bumper profits in its books of account. On the net profit of Rs.4,43,36,907, the assessee provided for income-tax for the year at Rs.1,15,52,000 and the balance of Rs.2,69,55,638 was taken to the general reserves account in the balance-sheet. It is also significant to note that it is only in the year under consideration that the accumulated loss of Rs.58,92,269 suffered in the previous years stood completely wiped out and there was a substantial positive income available to the assessee.
We have, therefore, to see in the background of the entire facts and circumstances of the case whether there was any justification for paying the extra cane price of Rs.20 per quintal, over and above the minimum price fixed by the Government and whether there were business considerations which actuated the assessee to increase the price or the increase was done for extra commercial considerations. We have carefully looked into the sort of representation signed by a few cane growers, a copy of which is available at page 61 of the assessee's compilation. In the said representation, it is mentioned that the assessee has shown excellent results and looking to the increase in the cost of fertilizers, etc., the cane growers should be compensated and rewarded and paid at the rate of Rs.64 to Rs.70 per quintal. 'this in a way is a request to the management to fix a particular price over and above the minimum price. There is no threat held out in this representation that if it is not done, they will not supply the sugarcane and/or that they will not increase the area for sugarcane cultivation, Learned counsel for the assessee has submitted that there was an imminent threat of strike by the cane growers with the result that the management had to issue appeals to the cane growers to continue the supply of cane to the mill so that the manufacturing motivation were not hampered and business wag conducted 5rnoothly. A similar point was raised in the written submissions before the lower authorities also. We specifically asked learned counsel for the assessee to prove the existence of a threat by the cane growers in this regard. The best that learned counsel for the assessee could do in these circumstances was to point out to an appal issued by the management, a copy of which is available at page 62 of the assessee's compilation in which the cane growers have been asked to continue supplying the sugarcane to the assessee and they have been assured that they will be paid the minimum price as and when fixed. There is absolutely no evidence produced before us to show that things had reached such a point that if the assessee had not increased the price by Rs.20 per quintal as purchase price the business of the assessee would have been jeopardised. The said appeal also appears in the context of the start of the crushing season and the farmers have been issued an appeal by the management to continue supplying the sugarcane with the promise that they will be given the minimum price as and when fixed by the Government. 'there is no whisper much less a promise of an increase which has been done at the fag end of the crushing season. If the assessee had capitalised the amount after paying the taxes, there would have been no difficulty or quarrel with the approach of the assessee. But, in the present case, it is clear that the assessee has employed a device to increase its capital without paying the taxes which are due to the exchequer. It is also significant to note that whereas in the year under consideration the sugarcane has been purchased at the rate of Rs.60 and Rs.56 per quintal, respectively, the purchase prices paid in the assessment years 1992-93 and 1993-94 are much less being Rs.49 and Rs.45 per quintal for the assessment year 1992-93 and Rs.50 and Rs.46 per quintal, respectively, for the assessment year 1993-94.
Much has been made by learned counsel for the assessee that it was because of this incentive that the area under cultivation increased and the availability of sugarcane also increased. We notice that up to the crushing season 1989-90, more than acres (sic) of land was under sugarcane cultivation and more than 45 lakhs quintal of cane was available. In the year under consideration, the area went up to 28,959 acres and the cane available rose to 53.84 lakhs quintal. There was further increase in the area as well as in the availability of cane for the crushing season 1991-92. These figures, however, do not show that it was as a result of increase in the purchase price for the assessment year 1990-91 that either the area under cultivation went up or the quantity of cane available showed an increase. When the growers came to know that the capacity of the mill had been increased and they found that the minimum price paid to them was quite remunerative, the sugarcane area was bound to increase and so was the case with the availability of sugarcane. These figures do not show that it was because of the increase in the purchase price that the cane growers had done something extraordinary to justify the increase in the rate."
Counsel for the assessee argued that determination of the question as to whether the "expenditure was laid out or expended wholly or exclusively for the purpose of the business" was a question of law. At best it can be said to be a mixed question of fact and law and the Tribunal on ascertainment of facts has held that the action of the assessee was not bona fide and the assessee employed this as a device to avoid payment of its dues towards tax to the Revenue.
The assessee increased the price of Rs.20 per quintal. Out of this, a sum of Rs.18 was capitalised without agreement with the cane growers and only a sum of Rs.2 per quintal was paid to the cane growers in cash. The increase of Rs.20 per quintal was held to be absolutely disproportionate and unreasonable and the assessee employed this as a device to enhance the capital without paying the tax which was due to the exchequer. It was noted that in the subsequent year 1992-93 and 1993-94, the purchase price paid was much less than Rs.60 and Rs.56 per quintal. In the ultimate, the Tribunal concluded that the assessee by employing this device of increasing the sugarcane price which is not a bona fide transaction has deprived the Revenue of its dues and has, therefore, indulged in tax avoidance.
The findings recorded by the Tribunal are findings of fact and no referable question of law arises. Dismissed.
M.B.A./1956/FCApplication dismissed.