B.P Jeevan Reddy, C.J:— In this case, eight questions are referred to this court, seven at the instance of the Revenue and one at the instance of the assessee. The eight questions are as under:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in holding that the interest payable on the outstanding amount of cane purchase tax was allowable expenditure in computing the total income of the assessee-company in respect of the assessment years 1971-72 and 1972-73?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in holding that the assessee was entitled to development rebate at a higher rate of 35% as against 20% allowed to the assessee in respect of the assessment year 1971-72?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the Appellate Assistant Commissioner's direction to the Income-tax Officer to reconsider the allowability of Rs. 4,76,966 paid for bonus and allowed by the Income-tax Officer for the assessment year 1972-73?
4. Whether the Tribunal was in law justified in holding that, besides the allowance of Rs. 4,76,966 as bonus on payment basis, the assessee was entitled in the same year to the deduction of Rs. 5,26,873 being provision under the Payment of Bonus Act, 1965?
5. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in upholding the Appellate Assistant Commissioner's order that the sum of Rs. 1,97,204 representing the difference in the price of the levy sugar charged and that fixed under the Government of India Notification dated 8.1.1971 was not includible in the assessee's income for the assessment year 1972-73?
6. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in upholding the Appellate Assistant Commissioner's order allowing the assessee's claim in respect of the liability of Rs. 2,05,065 representing the difference in the purchase price of the cane during the accounting year relevant to the assessment year 1972-73?
7. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in upholding the Appellate Assistant Commissioner's order that the manufacture of straw board was a priority industry and, accordingly, the assessee was entitled to the relief under section 80-I in respect of the assessment year 1972-73?
8. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the interest of Rs. 15,360 paid by the assessee company to the Income-tax Department for late payment of income-tax was not an allowable deduction under the Income-tax Act, 1961, in respect of the assessment year 1971-72?”
2. We shall proceed to deal with them in their proper order.
3. Question No. 1 pertains to the deductibility of interest paid by the assessee on the arrears of cane purchase tax. It has now been held by the Supreme Court in Mahalaxmi Sugar Mills Co. v. Cit, Delhi., [1980] 123 ITR 429 that the interest paid by the assessee under the provisions of the U.P Sugar Cane Cess Act, 1956, constitutes part and parcel of the debt and, therefore, constitutes an admissible deduction.
4. In Triveni Engineering Works Ltd. v. CIT, [1983] 144 ITR 732 [FB], a Bench of this court has applied the same principle to the interest paid under the U.P Sugar Cane (Purchase Tax) Act, 1961. Accordingly, we must hold that the Tribunal was right in allowing the amount of interest. We may point out that it is only interest and not penalty. Question No. 1 is, accordingly, answered in the affirmative, i.e, in favour of the assessee and against the revenue.
5. Questions Nos. 2 and 7 go together. The question is whether the strawboard section of the assessee falls under item No. (16) of the Fifth Schedule to the Income-tax Act. If it falls, it would be entitled to higher development rebate at the rate of 35%, otherwise not. It has been held by the Supreme Court in CIT v. Strawboard Manufacturing Co. Ltd., [1989] 177 ITR 431 that strawboard is paper and pulp within the meaning of the Fifth Schedule to the Act. Question No. 7 pertains to the benefit under section 80-I as it stood at the relevant time. Section 80-I provides for deduction in respect of profits and gains from a priority industry as also in the case of certain companies. Priority industry is defined in clause (7) of section 80-B as it stood at the relevant time. According to this definition, a priority industry is one engaged in manufacture or production of one or more of the articles or things specified in the Sixth Schedule as it stood at the relevant time. Item No. (16) of the Sixth Schedule related to “Paper and pulp including newsprint”. Following the decision of the Supreme Court referred to above, we must hold that strawboard is a priority industry and was, therefore, entitled to the benefit of section 80-I. Questions Nos. 2 and 7 are, accordingly, answered in the affirmative, i.e, in favour of the assessee and against the Revenue.
6. Questions Nos. 3 and 4 go together. They pertain to the deductibility of the bonus amount. After the enactment and coming into force of the Payment of Bonus Act, which created a statutory liability to pay bonus to the employees, the assessee has been claiming both the amounts actually paid as well as the amount which it was liable to pay as a permissible expenditure. The Income-tax Officer was, however, allowing only the amount actually paid. For the assessment year 1972-73, however, the assessee carried the matter in appeal claiming that it is entitled not only to deduction of the amount actually paid, but also to the additional amount which it was liable to pay in this year in law though it may not have actually paid it. This was disallowed by the Income-tax Officer and the Appellate Assistant Commissioner, but was allowed by the Tribunal. Prima facie, it would appear that there is an inconsistency in what has been done, inasmuch as, for the assessment year 1972-73, the assessee is claiming deduction of both the amounts, i.e, the amount actually paid (which may not pertain to the said assessment year) and the amount which it is liable to pay according to law during the said assessment year, which inconsistency has rightly been pointed out by the Tribunal. What has been allowed by the Income-tax Officer cannot, however, be corrected by the Tribunal in second appeal even though it was wrong. It is on that score that the deduction of the amount actually paid — and which deduction was allowed by the Income-tax Officer—was sustained by the Tribunal. So far as the other question is concerned, there can be no dispute in law. Since it is a statutory liability, it ought to have been deducted. It is made clear that the assessee shall consistently follow the liability method and not the actual payment basis for subsequent assessment years. For the above reasons, questions Nos. 3 and 4 are also answered in the affirmative, i.e, in favour of the assessee and against the Revenue.
7. Question No. 5 relates to the difference amount which the assessee was allowed to collect under the interim order of this court subject to the condition that such amount is put in an account in the name of the District Magistrate which it was not entitled to operate. What happened was that, by a notification dated January 8, 1971, the Government of India fixed the price of levy sugar at Rs. 125.34 per quintal. The assessee, however, claimed that it should be at a higher figure. This court allowed it to collect the price from the purchasers at the rate of Rs. 147.53 per quintal, but the difference amount was to be put in the account aforesaid. Actually, the writ petition filed by the assessee was allowed and it was entitled to the refund of the said amount, but the matter was carried to the Supreme Court which set aside the order subject to certain observations and directions. Be that as it may, so far as the assessment year herein is concerned, the said difference amount cannot be treated to be its income. If, however, the assessee had received this amount by way of refund in subsequent years, that can be added to its income under section 41(1) of the Income-tax Act. Accordingly, this question is also answered in the affirmative, i.e, in favour of the assessee and against the Revenue.
8. Question No. 6, in fact, represents a situation converse to the one dealt with under question No. 5. Here the cane price was fixed at Rs. 7.37 per quintal for others, but in the case of the assessee it was fixed at Rs. 7.57 per quintal. Questioning this higher figure, the assessee filed a writ petition and by an interim order, it was permitted to purchase sugarcane at the price of Rs. 7.37 per quintal subject to the condition that it deposited in a separate account in bank the differential amount. The assessee's writ petition was allowed. The matter was, however, carried by the Government to the Supreme Court in appeal. The assessee debited the above difference amount of Rs. 2,05,065 and claimed it as a deduction. The Tribunal held that, in so far as this amount is concerned, the assessee has paid this amount into a separate account over which it has no control. We agree with the Tribunal subject to the direction that if, in the subsequent years, it got the said amount by way of refund, it may be added to its income under section 41(1) of the Income-tax Act. We agree with the Tribunal and, accordingly, answer this question in the affirmative, i.e, in favour of the assessee and against the Revenue.
9. So far as question No. 8 is concerned, we answer the same in the affirmative, i.e, against the assessee and in favour of the Revenue following the decision of the Punjab and Haryana High Court in CIT v. Oriental Carpet Manufacturers (India) P. Ltd., [1973] 90 ITR 373. We have not been persuaded to take a contrary view.
10. We answer all the eight questions referred to this court accordingly. No costs.