BALAPUR VIBHAG JUNGLE KAMDAR MANDALI LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Tribunal, Ahmedabad Bench 'C' has referred the following question of law, at the instance of the assessee, for our opinion under S. 256(1) of the IT Act, 1961 :

(2.) THE facts leading to this reference shortly stated are as under: The assessee is a co operative society. It takes jungles on royalty from the State Government for exploitation. According to agreement with the Forest Department and the State Government, the assessee had to make payment of 80% of the sale price to the Government as its share. During the relevant asst. year 1970 71, accounting period being year ending 30th Sept., 1969, the assessee took two coupes bearing No. 9/60 and 4/65 for exploitation. They were situated in the forest comprised in Nesu Range of Vyara Division of Surat district. The assessee had executed two agreements in favour of the Government with respect to the contracts pertaining to exploitation of trees in both these coupes. During the accounting year, some of the timber extracted by the assessee from these coupes could not be sold and that portion was taken into closing stock. The said closing stock was actually valued by the assessee at the market rate. On the debit side of its profit and loss account for the accounting year, coup expenses were fully debited and 80% share which was payable to the Government was indicated at 80% of the value of closing stock which was yet to be sold. Thus, it was merely an estimate of 80% royalty which the assessee was liable to pay to the Government so far as unsold stock was concerned. However, after the close of the accounting year, the timber that was shown in the closing stock for the accounting year was actually sold by the assessee at a price higher than that at which the closing stock was valued earlier and the accounts were accordingly settled with the Government after the sales. As a result of this settlement and on ascertainment of the actual amount of 80% royalty which the assessee had in fact to pay to the Government pursuant to the aforesaid two contracts, the assessee had to pay something more than what was included on the debit side of the trading account of 80% share of the Government. The assessee claimed that as at the time of assessment before it was finalised, actual figure of the amount payable to the Government by way of 80% was available, the net profit should be reduced by additional share that was paid to the Government as a result of the higher price obtained for the closing stock. The assessee did not of course disturb the closing stock i.e., the value of stock on credit side of the trading account was retained at the original lower figure, but the claim of the assessee was that instead of estimated figure of 80% share of the Government as actual figure of 80% paid to the Government was available, the actual figure of 80% share payable and paid to the Government should be substituted for the earlier estimated figure and the assessment proceedings deserved to be completed on that basis.

(3.) THE assessee took the matter in appeal before the AAC. It was urged that in the past, the entire amount of royalty as finally determined was allowed in the first year of the contract itself and the ITO had changed the basis of assessment without any reasonable cause. The AAC, however, confirmed the order of the ITO on this aspect. He gave some other reliefs to the assessee with which we are not concerned in the present proceedings.