Amount collected as per direction given in Molasses Control (Amendment) Order, is deductible as revenue expenditure

The learned counsel appearing for the assessee submitted that the amount collected as per the direction given in the Molasses Control (Amendment) Order, is also entitled to be deducted as revenue expenditure, while computing the total income of the assessee. In order to support this contention, the learned counsel appearing for the assessee, relying upon the decision cited supra, submitted that inasmuch as the Supreme Court pointed out that deduction cannot be given as revenue expenditure, since the provision is not for loan and existing liabilities and inasmuch as in the present case the expenditure for constructing a molasses storage tank is for loan and existing liabilities, which should be allowed as revenue expenditure under s. 37 of the Act. Reliance was also placed upon the decision of the Calcutta High Court in CIT vs. New India Sugar Mills Ltd. , wherein the Calcutta High Court held that contribution to molasses storage reserve fund for the purpose of constructing a storage tank would be revenue in nature and accordingly allowable as such under s. 37 of the Act. So also, relying upon the decision of the Calcutta High Court in CIT vs. Sijua (Jharriah) Electric Supply Co. Ltd. , the learned counsel appearing for the assessee submitted that inasmuch as the expenditure incurred for constructing the storage tank is wholly and exclusively laid down for the purpose of the business, it should be allowed as revenue expenditure. On the other hand, the learned standing counsel appearing for the Department, by placing reliance upon the passage occurring at page 2451 in the Text Book of Sampath Iyengar’s Law of Income-tax, submitted that inasmuch as the storage tank would ultimately come to the assessee, it would go to increase the capital asset and hence the expenditure incurred for constructing the storage tank cannot be allowed as revenue expenditure. The fact remains that no specific question was referred by the Tribunal on this aspect. The counsel for the assessee submitted that inasmuch as the question postulates that the expenditure incurred by the assessee for constructing the storage tank is allowable as a deduction, it is open to the assessee to claim deduction under s. 37 of the Act. It also remains to be seen that while rendering its order, the Tribunal followed an earlier order of its own in ITA No. 1675/Mad/1976-77, dt 31st Aug., 1977 in the case of Madura Sugars Ltd., Pandiarajapuram (supra). In the decision rendered by the Tribunal in the abovesaid case, the Tribunal has not considered the allowability of the claim as revenue expenditure under s. 37 of the Act. The Tribunal was concerned only with regard to the question whether there is any diversion of income by overriding title. Therefore, the Tribunal while deciding the present case has not applied its mind for allowing the expenditure claimed for constructing the storage tank as revenue expenditure under s. 37 of the Act. In the absence of an order by the Tribunal on this aspect and in the absence of the specific question raised in this regard it is not possible for us to consider the assessee’s submission that the amount incurred for construing the molasses storage tank should be allowed as a revenue expenditure, since it is laid out wholly and exclusively for the purpose of the business. Accordingly, we answer the question referred to us in the affirmative and against the Department.

Madras High Court

Commissioner Of Income Tax

vs

Salem Co-Operative Sugar Mills Ltd.

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