Finance Act, 2023CoOperative Societies CoOperative Societies VisaVis Finance Act, 2023

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The Tax Publishers Finance Act, 2023--Co-Operative Societies Co-Operative Societies Vis-a-Vis Finance Act, 2023 CA. Nisha Bhandari The Finance Act, 2023 has made certain amendments to provide relaxation to co-operative societies and co-operative sugar factories. All these amendments are being discussed by the learned author in this write-up. 1. Machanism provided to provide relief to co-operative sugar factories in respect of pending demands Sugar factories operating in the co-operative sectors in certain States of India pay to sugarcane growers a final amount, often referred to as Final Cane Price (FCP) which is over and above the Statutory Minimum Price (SMP) fixed by the Central Government under the Sugarcane Control Order, 1996. FCP is decided on the basis of the particular factory's working results which take into account all the revenues and expenditure incurred by the factory. The payment of FCP by the co-operative sugar factories over and above the SMP for purchase of sugarcane had resulted into tax litigation. The co-operative sugar factories were claiming this excess payment as business expenditure whereas the same has been disallowed in the assessment on the ground that the excess price paid for purchase of sugar cane over and above SMP is in the nature of appropriation/distribution of profit and hence not allowable as deduction. In Shree Chhatrapati Shahu SSK Ltd. v. Asstt. CIT 2022 TaxPub(DT) 3379 (Pune-Trib) 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. It was held that 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. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Finance Act, 2023--Co-Operative Societies

Co-Operative Societies Vis-a-Vis Finance Act, 2023

CA. Nisha Bhandari

The Finance Act, 2023 has made certain amendments to provide relaxation to co-operative societies and co-operative sugar factories. All these amendments are being discussed by the learned author in this write-up.

1. Machanism provided to provide relief to co-operative sugar factories in respect of pending demands

Sugar factories operating in the co-operative sectors in certain States of India pay to sugarcane growers a final amount, often referred to as Final Cane Price (FCP) which is over and above the Statutory Minimum Price (SMP) fixed by the Central Government under the Sugarcane Control Order, 1996. FCP is decided on the basis of the particular factory's working results which take into account all the revenues and expenditure incurred by the factory.

The payment of FCP by the co-operative sugar factories over and above the SMP for purchase of sugarcane had resulted into tax litigation. The co-operative sugar factories were claiming this excess payment as business expenditure whereas the same has been disallowed in the assessment on the ground that the excess price paid for purchase of sugar cane over and above SMP is in the nature of appropriation/distribution of profit and hence not allowable as deduction.

In Shree Chhatrapati Shahu SSK Ltd. v. Asstt. CIT 2022 TaxPub(DT) 3379 (Pune-Trib) 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. It was held that 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.