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,

...2/-

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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,

...3/-

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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,

...4/-

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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

...5/-

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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.