Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of  Commission and subsidy paid by assessee-sugar manufacture to cane growers formed part of purchase price of cane and was, thus, allowable for deduction under section 37(1). [A.Y. 1985-86, 1986-87]. The assessee-company was engaged in the manufacture of sugar, country liquor as also Indian-made foreign liquor at its factories at Shamli and Pilkhani. The assessee-company purchased sugarcane from two sources, i.e., at the mill premises and from village centers, earmarked for the purpose by the District Cane Officer appointed by the Government of Uttar Pradesh. It paid society commission and cane development subsidy and claimed the same as deduction. The assessee's claim was accepted but the commissioner acting under section 263, held that the commission and subsidy were allowable only under section 35C and since that section was not operative for expenditure incurred after 28-2-1984, that expenditure should not have been allowed under section 37(1). The Tribunal, however, allowed the assessee's claim. Held that it was not in dispute that the amount of subsidy and commission had actually been paid by the respondent-assessee to the cane growers. It did form part of the cane price and, thus, was allowable under sub-section (1) of section 37. JUDGMENT R.K. Agrawal, J.-The Income-tax Appellate Tribunal, New Delhi, has referred the following question of law under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Inspecting Assistant Commissioner (Tribunal) is correct in law in holding that the commission and subsidy paid to the cane growers formed part of the purchase price of the cane and thus allowable for deduction under section 37(1) of the Income-tax Act, 1961 ?" 2. The reference relates to the assessment years 1985-86 and 1986-87. 3. Briefly stated, the facts giving rise to the present reference are as follows: 4. The previous years to the assessment years 1985-86 and 1986-87 ended on September 30, 1984, and September 30, 1985, respectively. The asses-…

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