Supreme Court Of India
DCIT vs. Shri Satpuda Tapi Parisar Ssk Ltd. & Ors.
Section 28(i), 37(1), 40A(2)
Asst. Year 1992-93
S.H. Kapadia & H.L. Dattu, JJ.
Civil Appeal Nos. 617, 618, 620 to 702, 704 to 725, 731 to 741 & 744 of 2010
20th January, 2010
Counsel appeared :
Parag P. Tripathi & Vivek Tankha with H. Raghavendra Rao, Varun Sarin, Arijit Prasad, Rahul Kaushik, D. Mohta, Amey Nargolkar, Anuj Bhandari, T.A. Khan, B.V. Balaram Das, K.K. Chaithanya, S. Sukumaran & Anand Sukumar, for the Petitioners : S.K. Dholakia, U.U. Lalit & R.F. Nariman with Chinmoy Khaladkar, Vimal Chandra S. Dave, Ms. Neha Sharma, Uday B. Dube, Kuldip Singh, Ms. Aruna Gupta, Bhargava V. Desai, Rahul Gupta, Nikhil Sharma & Sudhanshu S. Choudhari, for the Respondents
ORDER
By the court :
Delay condoned.
Leave granted in special leave petitions.
Having heard learned counsel at length on the applicability of s. 40A(2) of the IT Act, 1961, as it stood at the relevant time, we are of the view that large number of questions have remained unanswered in these cases. The applicability of s. 40A(2) of the IT Act, 1961 (‘Act’, for short) is linked to computation under s. 28 and s. 37 of the Act. It is the case of the Department in all these cases that the State Advised Price (SAP) is determined on the basis of the price recommended by the assessee(s) after the finalisation of accounts and, therefore, the differential amount between SAP and Statutory Minimum Price (SMP) would constitute appropriation of profits and not expenditure/expense under s. 37 of the Act. On the other hand, it is the case of the assessee(s) that they are bound to pay to the cane growers the final cane price as per the SAP fixed by the State Government and the mere fact that SAP fixed by the State Government is based on the price recommended by the assessee (s) after finalisation of accounts would not constitute appropriation of profits because appropriation would arise only after the profits are determined and profits can be determined only after all the expenses incurred for the business are deducted from the gross income.
5. On the above contentions, two questions were required to be considered by the Department, which are as follows “
Whether the above-mentioned differential payment made by the assessee(s) to the cane growers after the close of the financial year or after the balance sheet date would constitute an expenditure under s. 37 of the IT Act, 1961; and whether such differential payment would, applying the real income theory, constitute an expenditure or distribution of profits ?
” In deciding the above questions, the AO will take into account the manner in which the business works, resolutions of the State Government, the modalities and the manner in which SAP and SMP are decided, the timing difference which will arise on account of the difference in the accounting years, etc. In a given case, if the assessee has made a provision in its accounts, then the AO shall enquire whether such provision is made out of profits or from gross receipts and whether such differential payment is relatable to the cost of the sugarcane or whether it is relatable to the division of profits amongst the members of the society ? One of the points which will also arise for determination by the AO will be on the theory of overriding title in the matter of accrual or application of income. Therefore, in each of these cases, the AO will decide the question as to whether the obligation is attached to income or to its source. None of these questions have been examined by the authorities below. These questions are required to be examined because, in these cases, we are not only concerned with the applicability of s. 40A(2) of the Act but we are primarily required to consider whether the said differential payment constitutes an expense or distribution of profits ? Ordinarily, we would not have remitted these matters, particularly when they are for asst. yr. 1992-93, but, for the fact that this issue is going to arise repeatedly in future. It will also help the assessee(s) in a way that they will have to rewrite their accounts in future depending upon the outcome of this litigation. Therefore, in the interest of justice, we remit these cases to the concerned CIT(A). We make it clear that both the parties are given liberty to amend their pleadings before the CIT(A) takes up the matter for final hearing. We express no opinion on the merits of the case. The parties are at liberty to argue their respective points uninfluenced by any observations made in the impugned judgments on the applicability of s. 28 or s. 37 of the Act. The civil appeals filed by the Department, accordingly, stand disposed of with no order as to costs.
[Citation : 326 ITR 42]
