High Court Of Madhya Pradesh
CIT vs. Gwalior Sugar Co. (P) Ltd.
N.D. Ojha, C.J. & K.K. Adhikari, J.
Misc. Civil Case No. 468 of 1983
15th January, 1988
Rawat, for the Revenue : Y.K. Munshi, for the Assessee
D. OJHA, C.J.:
This order shall govern disposal of Misc. Cases Nos. 469 to 472 of 1983 (CIT vs. Gwalior Sugar Co. (P) Ltd.) also.
The Gwalior Sugar Company (P) Ltd., which is the opposite party in these cases, in proceedings for assessment with regard to different assessment years, claimed certain deductions. In order to appreciate the nature of the deductions claimed, it may be pointed out that the assessee, which is a sugar company engaged in the business of manufacturing sugar, entered into an agreement with Gwalior Agricultural Company. This agreement, inter alia, stipulated advancement of loans by the assessee to the agricultural company. Further, under the terms of the agreement, the agricultural company had to utilise the whole of its land and farms which were in close proximity to the sugar factory of the assessee for growing sugarcane and was bound to sell its entire production of sugarcane to the assessee. There was also a term in the agreement to charge premium for cane of better variety than what was normally supplied by similar growers of cane and which was capable of giving a higher percentage of recovery of sugar.
It appears that the agricultural company fell in financial stringency and in order to help it out, the assessee advanced loans of substantial amounts to it and also paid extra price for the sugarcane supplied by it. The assessee had also to forgo certain amounts of interest payable by the agricultural company on the loans advanced to it as aforesaid. It is the amount of extra price so paid and the interest which was forgone which were sought to be deducted from its income by the assessee. The questions of law to the effect that as to whether, in the facts and circumstances of the case, the assessee-company was entitled to deduction of the amount of extra price paid as also the amount of interest forgone in different years were ultimately referred by the Tribunal to this Court for its opinion. Relying on a Full Bench decision of this Court in Addl. CIT vs. Kuber Singh Bhagwandas (1979) 118 ITR 379 (MP)(FB) : TC16R.394, it was held that the test to treat expenses in the nature of expenditure incurred wholly and exclusively for the purpose of the business of the assessee in order to qualify for deduction under s. 37(1) of the IT Act, 1961 (hereinafter referred to as “the Act”), is that the expenses incurred should have a direct bearing and nexus with the business of the assessee or, in other words, should have been incurred to facilitate the carrying on of the business of the assessee on considerations of business expediency. No dispute has been raised before us in regard to the principles enunciated by the Full Bench and followed in the instant cases. Applying those principles, this Court answered the questions referred to it in favour of the assessee-company by its order dt. 5th Sep., 1983. It is with regard to this order that the five applications under s. 261 of the IT Act, 1961, have been made by the Department for grant of the requisite certificate that the case is a fit one for appeal to the Supreme Court.
In Lachminarayan Madan Lal vs. CIT (1972) 86 ITR 439 (SC) : TC54R.395, it was held by the Supreme Court that the question, whether the amount of expenditure was made wholly and exclusively for the purpose of the business has to be decided on the facts and in the light of the circumstances of each case. No dispute having been raised before us with regard to the principles enunciated by the Full Bench about the application of s. 37 of the Act, the only question which remained for consideration in these cases was, whether on the facts and in the light of the circumstances of this case, those principles were applicable or not. In India Machinery Stores (P) Ltd. vs. CIT (1970) 78 ITR 50 (SC) : TC56R.702, it was held in para. 12 of the report “that under s. 66(1) and (2) of the Indian IT Act, 1922, only a question of law may be referred to the High Court for opinion, but the right to obtain a certificate under s. 66A(2) arises only when in the proposed appeal, a question of great public or private importance arises. It cannot be held that because a question of law alone may be referred to the High Court under s. 66 of the Indian IT Act, 1922, in the proposed appeal, question of law of great public or private importance necessarily arises. Any other view would make every opinion of the High Court in a reference under s. 66 appealable to this Court.”
On the facts of the instant case, we are of the opinion that it is not a fit case for grant of certificate as contemplated by s. 261 of the IT Act, 1961. All these applications are accordingly dismissed. In the circumstances of the case, there shall be no order as to costs.
[Citation : 174 ITR 1]