COMMISSIONER OF INCOME-TAX VS BHOPAL SUGAR INDUSTRIES LTD, 2000 PTD-MADHYA-PRADESH-HIGH-COURT-INDIA 1068 (1997)

(a) Income-tax---

----Income---Diversion of income by overriding title---Manufacture and sale of sugar---Reserve created by transfer from sales for construction of molasses tank in accordance with provisions of Molasses Control Order---No material to show that title to reserve fund did not vest in assessee---Amount not diverted by overriding title---Amount set apart assessable as trading receipt.

(b) Income-tax---

----Business - expenditure ---Bonus---Assessee carrying on manufacture and sale of sugar---Bonus paid to agricultural staff---Claim for deduction not made before Assessing Officer and claim failing when raised before CIT (Appeals)---Claim for deduction allowable.

(c) Income-tax---

----Appeal to Appellate - Tribunal---Additional ground---Tribunal, not prohibited from entertaining additional ground which arises in the matter and for just decision of case.

The assessee-company which derived income from manufacture and sale of sugar created a reserve out of sales in compliance with the Molasses Control Order, 1961. The assessee claimed before the Assessing Officer that the reserve was not income assessable to tax. The Assessing Officer held that the reserve was the income of the assessee. The Commissioner of Income-tax (Appeals) held that the amount of reserve was diversion of income by overriding title. The Tribunal held that the amount of reserve was diverted at source in view of the mandatory provisions of the Molasses Control Order. On a reference:

Held, that there was no material on record to show that title to the Molasses Storage Fund separately kept by the assessee, as enjoined by the Molasses Control Order, did not vest in the assessee. A part of the price of molasses received by the assessee was credited by the assessee to a separate fund to discharge an obligation imposed upon the assessee by the Molassses Control Order. This was not a case of diversion of income, but of application of income. The amount received by the assessee and credited to the Molasses Storage Fund constituted a trading receipt and was assessable as income.

Jiwajirao Sugar Co. Ltd. v. CIT (1989) 176 ITR 182 (MP) fol.

The bonus paid by the assessee-company to its agricultural staff is allowable as business expenditure though such claim was never made before the Assessing Officer and the claim having failed when raised before the Commissioner (Appeals).

There is do prohibition on the powers of the Appellate Tribunal to entertain an additional ground which, according to the Tribunal, arises in the matter and for just decision of the case.

CIT v. Brihan Maharasbtra Sugar Syndicate Ltd. (1989) 80 CTR 196 (Bom.) ref.

Abhay Sapre for the Commissioner.

Nemo for the Assessee.

JUDGMENT

A. K. MATHUR, C. J.---This is an income-tax reference under section 256(1) of the Income Tax Act, 1961, at the instance of the Revenue and the following questions have been referred by the Tribunal for answer by this Court:

"(1) Whether, on the facts and in - the circumstances of the case, the reserve created by the transfer from sales and not from profit and loss appropriation account for the construction of molasses tank in accordance with the provisions of the Molasses Control Order. 1961 and the Standing Order, dated December 3, 1976, has been rightly treated by the Tribunal as not includible in the income of the assessee?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the claim of bonus to agricultural staff when such claim was never made before the Assessing Officer and failed when raised before the Commissioner of Income-tax (Appeals)?"

The assessee-company derived income from manufacture of sugar and its sale. The assessee created a reserve of different amounts in all these years out of the sales in compliance with the Molasses Control Order, 1961, of -the Government of India with the Standing Order, dated December 3, 1976. The assessee claimed that the amount of the reserve made out of the sale was not its income, whereas the Assessing Officer held that it was the liability on the assessee. On appeal, the Commissioner of Income-tax (Appeals), following its own order, dated September 18, 1986, accepted the claim of the assessee for the years 1979-80 to 1981-82 holding that it was diversion of income by overriding title at source. Similar view was taken by the Commissioner of Income-tax (Appeals) for the assessment years 1984-85 to 1988-89. However, for the years 1982-83 to 1983-84, it was held by him that it was not a diversion of income by overriding title at source, -but was application of income. The Revenue filed an appeal before the Tribunal for the years 1979-80 to 1981-82 and 1984-85 to 1988-89. The assessee went up in appeal before the Tribunal for the assessment years 1983-84 and 1984-85. The Tribunal held that it was diversion of income by overriding title at source itself in view of the mandatory provisions of the Molasses Control Order, 1961, read with the Standing Order issued there under.

So far as facts regarding question No. 2 are concerned, it is with regard to the assessment years 1986-87 to 1988-89. The assessee did not claim payment of bonus to agricultural staff before the Assessing Officer. However, this claim was made for the fist time before the Commissioner of Income-tax (Appeals) by way of additional ground of appeal which was not entertained. It was again raised before the Tribunal. The Tribunal entertained the ground and following the judgment of the Bombay High Court in CIT v. Brihan: Maharashtra Sugar Syndicate ltd. (1969) 80 CTR 196, held that the assessee was entitled to deduction of bonus paid to agricultural staff. The Tribunal, therefore, directed the Assessing Officer to verify the claim of the assessee as to the payment of bonus to agricultural staff and to allow the same.

So far as the first question is concerned, this Court, in an identical situation, in the case of Jiwajirao Sugar. Co. Ltd. v. CIT (1969) 176 ITR 182, has taken the view that there was no material on record to. show that the title to the Molasses Storage Fund separately kept by the assessee as enjoined by the Molasses Control Order, did not vest in the assessee. A puart of the price of Molasses received by the assessee was credited by the assessee to a separate fund to discharge an obligation imposed upon the assessee by the Molasses Control Order. This was not a case of diversion of income, but of application of income. The sum of Rs.62,200 received by the assessee and credited to the Molasses Storage Fund constituted a trading receipt and was assessable. In view of the decision of this Court, it appears that such amount which has been utilised for construction of a statutory discharge under the Molasses Control Order was treated to be revenue receipt/trading receipt, and was held assessable to tax. Therefore, on account of the aforesaid decision of this Court, the first question is answered, in favour of the Revenue and against the assessee.

Now coming to the second question regarding grant of. bonus to the agricultural' staff, though this was not claimed before the Assessing Officer and thereafter, it was claimed at the appellate stage by raising an additional ground, it was declined by the Appellate Authority and it was again agitated before the Tribunal which found that the claim of bonus was justified and granted the same. There is no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arises in the matter and for just decision of the case.

Therefore, the Tribunal has rightly decided question No. 2.

Hence question No. 1 is answered in favour of the Revenue and question No. 2 is answered in favour of the assessee.

M.B.A./3355/FC???????????????????????????????????????????????????????????????????????????????? Order accordingly.