C.I.T BOMBAY vs. TASGAON TALUKA S.S.K.LTD

C.A. No.-008890-008890 - 2012Supreme Court2019 INSC 30905 March 2019Bench: HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE S. ABDUL NAZEER HON'BLE MR. JUSTICE M.R. SHAHAuthor: HON'BLE MR. JUSTICE M.R. SHAH23 pages
For Petitioner: ANIL KATIYAR
AI SummaryRemanded

What did the Supreme Court hold?

The Supreme Court held that the additional sugarcane purchase price paid by the assessee, exceeding the minimum statutory price (SMP) fixed under Clause 3 of the Sugarcane (Control) Order, 1966, and the State Advisory Price (SAP)/additional purchase price determined under Clause 5A, contains a component of profit. The Court referred to the Bhargava Commission's recommendations for a 50:50 profit sharing basis between growers and factories. It clarified that only the profit component within the SAP/additional purchase price determined under Clause 5A would be considered an appropriation of profit. The entire difference between the SMP and SAP cannot be treated as profit. The AO must undertake an exercise to determine the actual profit component by examining the assessee's accounts, balance sheet, and material supplied for fixing the final price. The rest of the amount paid above the SMP, after identifying the profit component, is deductible as expenditure. The matters were remitted to the AO for this exercise, with an opportunity for the assessee to be heard. The impugned orders were quashed and set aside.

What were the facts?

The assessee, Tasgaon Taluka Sahakari Sikhar Karkhana Limited, a co-operative society engaged in sugarcane production and sale, filed its return for AY 1998-99 declaring NIL income, carrying forward losses and unabsorbed depreciation. A revised return showed a business loss. The Assessing Officer (AO) issued notices under Sections 143(2)/142(1). An issue arose regarding disallowance under Section 37(1) for excessive cane purchase price paid to members and non-members. The assessee paid Rs. 875/- per metric tonne (PMT) for sugarcane seasons 1996-97 and 1997-98, exceeding the prices fixed under Clause 3 and Clause 5A of the Sugarcane (Control) Order, 1966. The AO concluded that the excess payment was a distribution of profit, not deductible expenditure. The High Court, ITAT, and CIT(A) orders were challenged.

What were the issues?

1. Whether the additional sugarcane purchase price paid by the assessee to its members, exceeding the minimum statutory price fixed under the Sugarcane (Control) Order, 1966, constitutes a deductible business expenditure under Section 37(1) of the Income Tax Act, 1961, or an appropriation of profit. Assessee's Contention: The payment was made as per the rate fixed by the Commissioner of Sugar, Maharashtra State, Pune, and guidelines of the Mantri Committee. The price was agreed upon at the time of purchase, forming a contract, and thus should be allowed as a deduction. No disallowance should be made under Section 40A(2) or otherwise. Revenue's Contention: The excess price paid over the statutory minimum price (SMP) fixed under Clause 3 of the Control Order, 1966, and the price determined under Clause 5A, which includes an element of profit, is not deductible expenditure but a distribution of profit. The AO's conclusion that the excess payment is a distribution of profit is correct.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 40A(2),Section 143(1)(a),Section 143(2),Section 142(1)

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Cause title — parties, addresses and appearances
1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 8890 OF 2012 C.I.T. BOMBAY ..APPELLANT VERSUS TASGAON TALUKA S.S.K.LTD. ..RESPONDENT WITH CIVIL APPEAL NO.2485 OF 2019 (Arising out of SLP (C) No.1279/2009) CIVIL APPEAL NO.2484 OF 2019 (Arising out of SLP (C) No.1281/2009) CIVIL APPEAL NO.2482 OF 2019 (Arising out of SLP (C) No.1278/2009) CIVIL APPEAL NO.2483OF 2019 (Arising out of SLP (C) No.1282/2009) CIVIL APPEAL NO.2486 OF 2019 (Arising out of SLP (C) No.5700/2009) CIVIL APPEAL NO. 4801 OF 2014 CIVIL APPEAL NO. 8891 OF 2012 CIVIL APPEAL NO. 4549 OF 2013 CIVIL APPEAL NO.2487 OF 2019 (Arising out of SLP (C) No.6412/2011) CIVIL APPEAL NO. 302 OF 2013

J U D G M E N T Sikhar Karkhana Limited) is treated and

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