Commissioner Of Income Tax vs Dalmia Dadri Cement Ltd.
1999 Latest Caselaw 101 Del

JUDGMENT

D.K. Jain, J.

1. In these two references under s. 256(1) of the Income-tax Act, 1961 (for short the 'Act'), at the instance of the Revenue, pertaining to the asst. yrs. 1969-70 and 1970-71, the Tribunal has referred the following questions of law for the opinion of this Court:

"(1) Whether on the facts and in the circumstances of the case, was the Tribunal right in holding that there was a subsisting and valid agreement for payment by the assessee, of freight advantage in Cement Corporation of India and whether the amounts of Rs. 27,69,819 and Rs. 22,27,469 respectively for the asst. yrs. 1969-70 and 1970-71 represented accrued and ascertained liabilities relevant to those assessment years ?

(2) Whether on the facts and in the circumstances of the case the assessee is entitled to the deduction claimed by way of provision made in respect of its liability for the payment of gratuity to its employees and, if so, the basis on which such a deduction could be permitted ?"

2. In so far as question No. 1 is concerned, the controversy is with regard to the liability of amounts payable by the assessee-company, engaged in the business of manufacture and sale of cement, under the Cement Control Order which came into force w.e.f. 1st January, 1968.

3. From 1st January, 1966, the statutory control on the price and distribution, which had been imposed earlier by the Government, gave place to an informal self-regulating control by the cement industry itself through an organisation called the Cement Allocation and Co-ordinating Organisation (for short 'CACO'). The purpose of CACO was to organise a proper distribution of cement int he country on a uniform destination price so that there was a moot change over from a long period of control to a period of decontrol and to 23rd December, 1967. Since certain difficulties and defects had been noticed in the working of this organisation, the Government decided that w.e.f. 1st January, 1968 a Govt. controlled agency should take over the distribution of cement in the country. This Government controlled agency was named as Cement Corporation of India. In pursuance of this decision, the Government of India issued the Cement Control Order, 1967, which, as noted above, came into force w.e.f. 1st January, 1968. Clause 9 of this Order, which is material for our purpose, was in the following terms :

"Every producer shall, in respect of each transaction by way of cement effected by him, pay within one month of the date on which he realises the prices of such cement, the Controller, an amount equivalent to the amount, if any, by which cement realised by him exceeds the aggregate of the following amounts.".

Under the said order, like under the earlier arrangement/scheme, when CACO was in seizing of the matter, a fixed price, called the "destination price", was fixed for selling the cement throughout the country. Under this arrangement though the ultimate consumer paid the fixed "destination price", the amount so fixed was not to go to the manufacturer which each manufacturer was allowed to retain. The said "destination price" was fixed additional cost, freight charges, packing charges, excise duty, selling agency commission the earlier scheme, the whole of the "destination price" received by the manufacturer was not to be appropriated by him. He could only retain the retention price and the actual manufacturer had to incur much less than the average freight element which had been account had to be passed on to the Cement Corporation of India within one month of the date on which the manufacturer realised the price of such cement. As a result of operation of the said Cl. 9 of the Order, the assessee-company had to pay Rs. 27,69,819 and Rs. 22,27,469 to the Cement Corporation of India for the asst. yrs. 1969-70 and 1970-71 respectively. The said amounts were not actually paid by the assessee to Cement Corporation of India but still the same were claimed as deduction while computing its income for the said assessment years.

4. When the assessment proceedings for the said assessment years were taken up by the ITO he took the view that since the assessee-company had not only paid these amounts but had even disputed its liability to pay the said sums though ultimately the validity of the Cement Control Order, 1967, was upheld by this Court in LPA No. 17/1970 (R. D. Aggarwala & Anr. vs. Union of India), these amounts were only contingent liabilities and were, therefore, not allowable as deduction. He, therefore, disallowed the assessee-company's claim to deduct the said amounts.

The AAC upheld the view taken by the ITO and the matter had to be carried in further appeal to the Income-tax Appellate Tribunal by the assessee-company.

5. The Tribunal found that this very issue had come up for consideration before it in the asst. yrs. 1967-68 and 1968-69 and it had taken the view that the assessee-company was entitled to the deduction of the freight advantage which it had to pass on to CACO. While entitled to the deduction of the freight advantage which holding so the Tribunal had relied on the judgment of the Supreme Court in the case of Kedar Nath Jute Manufacturing Co. Ltd. ... vs. CIT (1971) 82 ITR 363 (SC). The Tribunal was, therefore, of the opinion that the assessee-company was on a stronger ground in the present assessment years than int he previous years as in the present years the Cement Control Order was issued by the Central Government and the Cement Corporation of India was under the direct control of the Government as compared to the earlier scheme which, although had the approval of the Government, was being managed by a body incorporated by the cement manufacturers themselves. Accordingly, the Tribunal without going into the controversy all over again held that the aforesaid two amounts were allowable as deduction in the asst. yrs. 1969-70 and 1970-71. It is this part of the order of the Tribunal that has given rise to the first question.

6. The consolidated order of the Tribunal pertaining to the asst. yrs. 1967-68 and 1968-69 was the subject matter of two references, being ITR Nos. 213 to 215/1977 (since reported a CIT vs. Dalmia Dadri Cement Ltd., before this Court. Vide our separate judgment, delivered today, in the said references, we have agreed with the view taken by the Tribunal and have opined that assessee-company is entitled to the deduction of the freight advantage payable by it to CACO in the years in which this liability has been incurred. Following our judgment in ITR Nos. 213 to 215/1977, we are in complete agreement with the conclusion of the Tribunal that the assessee company is entitled to the deduction of the aforesaid amounts, payable by it to the Cement entitled to the deduction of the aforesaid amounts, payable by it to the Cement Corporation of India, in the previous years, relevant to the assessment years in question.

7. As regards the second question, vide our same judgment, referred to above, on a concession being made by the counsel for the Revenue on a similar question, we have endorsed the view taken by the Tribunal that liability on account of gratuity payable to the employees of the assessee company should be allowed as deduction in the relevant previous year if it is capable of being worked out on an actuarial basis. Following the said judgment, we record our agreement with the view taken by the Tribunal for the present assessment year as well.

8. For the reasons aforesaid, we answer both the questions in the affirmative, in favour of the assessee and against the Revenue.

9. As no one has appeared on behalf of the assessee, there shall be no order to costs.