INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Purchase of sugarcane by Sahkari Samiti from its members - Purchase price consisting of element of distribution of profit - Extent of allowability

Assessee-Sahkari samiti purchased sugarcane from growers who were its members, as well as from non-members and used the same for manufacturing of sugar. For the purchase of sugarcane, assessee paid to members and non-members a final price which was in excess of that payable under clauses 3 and 5A of the Sugarcane (Control) Order, 1966. AO took the view that difference between the price paid by assessees and in terms of clause 3 of the Order, determined by Central Government, and the price determined by the State Government under clause 5A of the Order (and consequently paid by the assessee to the cane growers) was a distribution of profits and not deductible as expenditure. Held: Production of sugar is covered by the Essential Commodities Act, 1955 and the Government issued Sugar Cane (Control) Order, 1966, which deals with all aspects of production of sugarcane and sales thereof including the price to be paid to the cane growers. Clause 3 of the Sugar Cane (Control) Order, 1966 authorizes Government to fix minimum sugarcane price. In addition, additional sugarcane price is also payable as per clause 5A of the Control Order, 1966. Considering the fact that Statutory Minimum Price (SMP), determined under clause 3 of the Control Order, 1966, which is paid at the beginning of the season, is deductible in the entirety and difference between SMP determined under clause 3 and SAP/additional purchase price determined under clause 5A, has an element of distribution of profit which cannot be allowed as deduction, AO was directed to consider the modalities and manner in which SAP/additional purchase price/final price is decided. He was directed to carry out an exercise of considering accounts/balance sheet and the material supplied to the State Government for the purpose of deciding/fixing the final price/additional purchase price/SAP under clause 5A of the Control Order, 1966 and thereafter determine as to what amount would form part of the distribution of profit and the other as deductible expenditure.

Followed:ITA No. 2061/PUN/2017 for assessment year 2014-15 in the case of Karmaveer Shankarrao Kale Sahakari Sakhar Karkhana Ltd., dt. 22-12-2020.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15 & 2015-16

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