C.I.T.,NASHIK Vs SHRI SATPUDA TAPI PARISAR SSK LTD.
Case number: C.A. No.-000617-000617 / 2010
Diary number: 10681 / 2008
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.617 OF 2010 (Arising out of S.L.P. (C) No.11930 of 2008)
Dy. Commissioner of Income Tax, Nashik ...Appellant(s)
Versus
Shri Satpuda Tapi Parisar SSK Limited ...Respondent(s)
With Civil Appeal No.618/2010 @ S.L.P. (C) No.9280/2009, Civil Appeal No.620/2010 @ S.L.P. (C) No.2862/2009, Civil Appeal No.621/2010 @ S.L.P. (C) No.28203/2008, Civil Appeal No.622/2010 @ S.L.P. (C) No.28206/2008, Civil Appeal No.623/2010 @ S.L.P. (C) No.28208/2008, Civil Appeal No.624/2010 @ S.L.P. (C) No.28220/2008, Civil Appeal No.625/2010 @ S.L.P. (C) No.4764/2009, Civil Appeal No.626/2010 @ S.L.P. (C) No.4751/2009, Civil Appeal No.627/2010 @ S.L.P. (C) No.6427/2009, Civil Appeal No.628/2010 @ S.L.P. (C) No.7495/2009, Civil Appeal No.629/2010 @ S.L.P. (C) No.8337/2009, Civil Appeal No.630/2010 @ S.L.P. (C) No.7501/2009, Civil Appeal No.631/2010 @ S.L.P. (C) No.8125/2009, Civil Appeal No.632/2010 @ S.L.P. (C) No.8127/2009, Civil Appeal No.633/2010 @ S.L.P. (C) No.8131/2009, Civil Appeal No.634/2010 @ S.L.P. (C) No.8132/2009, Civil Appeal No.635/2010 @ S.L.P. (C) No.8130/2009, Civil Appeal No.636/2010 @ S.L.P. (C) No.8895/2009, Civil Appeal No.637/2010 @ S.L.P. (C) No.7757/2009, Civil Appeal No.638/2010 @ S.L.P. (C) No.7489/2009, Civil Appeal No.639/2010 @ S.L.P. (C) No.9281/2009, Civil Appeal No.640/2010 @ S.L.P. (C) No.9285/2009, Civil Appeal No.641/2010 @ S.L.P. (C) No.9286/2009, Civil Appeal No.642/2010 @ S.L.P. (C) No.9287/2009, Civil Appeal No.643/2010 @ S.L.P. (C) No.9284/2009, Civil Appeal No.644/2010 @ S.L.P. (C) No.9132/2009, Civil Appeal No.645/2010 @ S.L.P. (C) No.12122/2009,
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Civil Appeal No.646/2010 @ S.L.P. (C) No.13047/2009, Civil Appeal No.647/2010 @ S.L.P. (C) No.13049/2009, Civil Appeal No.648/2010 @ S.L.P. (C) No.13048/2009, Civil Appeal No.649/2010 @ S.L.P. (C) No.9275/2009, Civil Appeal No.650/2010 @ S.L.P. (C) No.12132/2009, Civil Appeal No.651/2010 @ S.L.P. (C) No.12127/2009, Civil Appeal No.652/2010 @ S.L.P. (C) No.22114/2008, Civil Appeal No.653/2010 @ S.L.P. (C) No.15947/2009, Civil Appeal No.654/2010 @ S.L.P. (C) No.15638/2009, Civil Appeal No.655/2010 @ S.L.P. (C) No.15996/2009, Civil Appeal No.656/2010 @ S.L.P. (C) No.15634/2009, Civil Appeal No.657/2010 @ S.L.P. (C) No.7816/2009, Civil Appeal No.658/2010 @ S.L.P. (C) No.15898/2009, Civil Appeal No.659/2010 @ S.L.P. (C) No.18044/2009, Civil Appeal No.660/2010 @ S.L.P. (C) No.18753/2009, Civil Appeal No.661/2010 @ S.L.P. (C) No.17420/2009, Civil Appeal No.662/2010 @ S.L.P. (C) No.18752/2009, Civil Appeal No.663/2010 @ S.L.P. (C) No.18022/2009, Civil Appeal No.664/2010 @ S.L.P. (C) No.17813/2009, Civil Appeal No.665/2010 @ S.L.P. (C) No.18524/2009, Civil Appeal No.666/2010 @ S.L.P. (C) No.18430/2009, Civil Appeal No.667/2010 @ S.L.P. (C) No.18006/2009, Civil Appeal No.668/2010 @ S.L.P. (C) No.19662/2009, Civil Appeal No.669/2010 @ S.L.P. (C) No.19663/2009, Civil Appeal No.670/2010 @ S.L.P. (C) No.19830/2009, Civil Appeal No.671/2010 @ S.L.P. (C) No.19831/2009, Civil Appeal No.672/2010 @ S.L.P. (C) No.19415/2009, Civil Appeal No.674/2010 @ S.L.P. (C) No.28523/2008, Civil Appeal No.675/2010 @ S.L.P. (C) No.28524/2008, Civil Appeal No.676/2010 @ S.L.P. (C) No.27929/2008, Civil Appeal No.677/2010 @ S.L.P. (C) No.20176/2009, Civil Appeal No.678/2010 @ S.L.P. (C) No.2624/2009, Civil Appeal No.679/2010 @ S.L.P. (C) No.1486/2009, Civil Appeal No.680/2010 @ S.L.P. (C) No.5172/2009, C.A. Nos.681-682/2010 @ S.L.P. (C) Nos.20384-85/2009, C.A. Nos.683-693/2010 @ S.L.P. (C) Nos.20387-97/2009, Civil Appeal No.694/2010 @ S.L.P. (C) No.2619/2009, Civil Appeal No.695/2010 @ S.L.P. (C) No.21776/2009, Civil Appeal No.696/2010 @ S.L.P. (C) No.1318/2009, C.A. Nos.697-698/2010 @ S.L.P. (C) Nos.24014-15/2009, Civil Appeal No.699/2010 @ S.L.P. (C) No.2860/2009, Civil Appeal No.700/2010 @ S.L.P. (C) No.2861/2009, Civil Appeal No.701/2010 @ S.L.P. (C) No.1397/2009,
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Civil Appeal No.702/2010 @ S.L.P. (C) No.30253/2009, Civil Appeal No.704/2010 @ S.L.P. (C) No.31384/2009, Civil Appeal No.705/2010 @ S.L.P. (C) No.19636/2008, Civil Appeal No.706/2010 @ S.L.P. (C) No.8160/2009, Civil Appeal No.707/2010 @ S.L.P. (C) No.32047/2009, Civil Appeal No.708/2010 @ S.L.P. (C) No.32048/2009, Civil Appeal No.709/2010 @ S.L.P. (C) No.32049/2009, Civil Appeal No.710/2010 @ S.L.P. (C) No.32986/2009, Civil Appeal No.711/2010 @ S.L.P. (C) No.32984/2009, Civil Appeal No.712/2010 @ S.L.P. (C) No.32983/2009, Civil Appeal No.713/2010 @ S.L.P. (C) No.27427/2008, Civil Appeal No.714/2010 @ S.L.P. (C) No.33745/2009, Civil Appeal No.715/2010 @ S.L.P. (C) No.33760/2009, Civil Appeal No.716/2010 @ S.L.P. (C) No.34098/2009, Civil Appeal No.717/2010 @ S.L.P. (C) No.34739/2009, Civil Appeal No.718/2010 @ S.L.P. (C) No.34738/2009, Civil Appeal No.719/2010 @ S.L.P. (C) No.34749/2009, Civil Appeal No.720/2010 @ S.L.P. (C) No.34748/2009, Civil Appeal No.721/2010 @ S.L.P. (C) No.35947/2009, Civil Appeal No.722/2010 @ S.L.P. (C) No.35607/2009, Civil Appeal No.723/2010 @ S.L.P. (C) No.35609/2009, Civil Appeal No.724/2010 @ S.L.P. (C) No.35611/2009, Civil Appeal No.725/2010 @ S.L.P. (C) No.35612/2009, Civil Appeal No.731/2010 @ S.L.P. (C) No.634/2010, Civil Appeal No.732/2010 @ S.L.P. (C) No.664/2010, Civil Appeal No.733/2010 @ S.L.P. (C) No.662/2010, Civil Appeal No.734/2010 @ S.L.P. (C) No.663/2010, Civil Appeal No.735/2010 @ S.L.P. (C) No.1120/2010, Civil Appeal No.736/2010 @ S.L.P. (C) No.1706/2010, Civil Appeal No.737/2010 @ S.L.P. (C) No.6742/2009, Civil Appeal No.738/2010 @ S.L.P. (C) No.6994/2009, Civil Appeal No.739/2010 @ S.L.P. (C) No.7003/2009, Civil Appeal No.740/2010 @ S.L.P. (C) No.7006/2009, Civil Appeal No.741/2010 @ S.L.P. (C) No.7007/2009 and Civil Appeal No.744/2010 @ S.L.P. (C) No.12209/2009.
O R D E R
Delay condoned.
Leave granted in special leave petitions.
Having heard learned counsel at length on the
applicability of Section 40A(2) of the Income Tax Act,
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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 Section 40A(2) of the Income
Tax Act, 1961 [`Act', for short] is linked to computation
under Section 28 and Section 37 of the Act. It is the
case of the Department in all these cases that the State
Advised Price [S.A.P.] is determined on the basis of the
price recommended by the assessee(s) after the
finalisation of accounts and, therefore, the differential
amount between S.A.P. and S.M.P. would constitute
appropriation of profits and not expenditure/expense under
Section 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 S.A.P. fixed by
the State Government and the mere fact that S.A.P. 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.
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 Section 37 of
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the Income Tax 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 Assessing
Officer will take into account the manner in which the
business works, resolutions of the State Government, the
modalities and the manner in which S.A.P. and S.M.P. 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 Assessing Officer 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 Assessing Officer will be on the
theory of over-riding title in the matter of accrual or
application of income. Therefore, in each of these cases,
the Assessing Officer 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 case, we are not only concerned
with the applicability of Section 40A(2) of the Act but we
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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
Assessment Year 1992-1993, 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
re-write their accounts in future depending upon the
outcome of this litigation. Therefore, in the interest of
justice, we remit these cases to the concerned
Commissioner of Income Tax (Appeals). We make it clear
that both the parties are given liberty to amend their
pleadings before the Commissioner of Income Tax (Appeals)
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 judgements on the
applicability of Section 28 or Section 37 of the Act.
The civil appeals filed by the Department,
accordingly, stand disposed of with no order as to costs.
......................J. [S.H. KAPADIA]
......................J. [H.L. DATTU]
New Delhi, January 20, 2010.