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Facts
The assessee, a co-operative sugar factory, paid Rs. 2,500/- per metric ton for sugarcane. The Assessing Officer (AO) disallowed the excess amount paid over the Fair and Remunerative Price (FRP) determined by the Central Government, making an addition of Rs. 15,54,94,967/-.
Held
The Tribunal held that the price fixed by the State Government under the Maharashtra Regulation of Sugarcane Price (Supplied to Factories) Act, 2013, even if higher than the Central Government's FRP, is an allowable deduction under Section 36(1)(xvii) of the Income Tax Act. The CBDT circular clarified this position.
Key Issues
Whether the sugarcane price paid by a co-operative sugar factory, as determined by the State Government, is an allowable deduction under Section 36(1)(xvii) of the Income Tax Act, even if it exceeds the FRP fixed by the Central Government.
Sections Cited
36(1)(xvii), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “B” :: PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
ORDER
PER VINAY BHAMORE, JM:
This appeal filed by the assessee is directed against the order of ld.Add.Commissioner of Income Tax/JCIT(A)-8, Delhi u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 15.06.2024 for A.Y.2017-18. “1. The A.O. has erred in adding to income of Rs.15,54,94,967/- being excess sugar cane price paid to member s and non Members. The addition made by the Assessing Officer be deleted.
Not appreciating the fact that the price determined by State Government under Maharashtra Regulation of Sugarcane Price(Supplied to factories) Act, 2013 is an allowable deduction u/s.36(1)(xvii) of the Income Tax Act.
The appellant craves leave to add, alter, amend or revise the above ground of appeal
at the time of hearing of the above appeal.” Submission of ld.AR :
2. Ld.AR submitted that the state government has decided FRP of Rs.2,500/- per metric ton. Ld.AR submitted copy of the relevant order. Ld.AR submitted that assessee has purchased sugar cane at a price of Rs.2,500/- per metric ton. Therefore, as per section 36(1)(xvii), the entire expenditure is allowable. However, ld.AR also submitted a written note which is reproduced as under : “Appellant is a co-operative sugar factory operating in Maharashtra. Payment of sugar cane price during the year is governed by the provisions under two laws. First provision i.e. Fair and Remunerative Price (FRP) is notified under powers conferred by Sugarcane Control Order, 1966 which is issued under the Essential Commodities Act, 1955. The said notification is noted in assessment order on page 4 and 5. Appellant is also governed under the Maharashtra Regulation of Sugarcane Price (Supplied to Factories) Act, 2013 which is a state government Act (attached in Sr. no. 2 of the paper book). Section 4(a) of Maharashtra Regulation of Sugarcane Price (Supplied to Factories) Act, 2013 reads as "The Board shall discharge the following functions, namely 4 (a) to decide Sugarcane price payable to the farmers, which shall be in addition to the Fair and Remunerative Price (hereinafter referred to as "FRP") decided by the Central Government under the provisions of the Sugarcane (Control) Order, 1966, on revenue sharing basis." Section 5(1) of the Act reads as under [A]
5. Payment to Sugarcane growers. - (1) As soon as the Sugarcane is supplied to the occupier of a factory, the factory shall be liable to pay, within fourteen days of the receipt thereof, the minimum price as per FRP applicable at the relevant time. While Section 5(3) reads as 'Sec 5(3) The actual payment for Sugarcane fixed by the Board shall be paid in two steps. The first would be payment of FRP. Balance payment of Sugarcane dues will be paid subsequent to publication of half yearly ex-mill prices and values, determined by the Board in accordance with the provisions of clause (a) of section 4.' Cumulative reading of these provisions make this abundantly clear that the price paid under the State Act calculated by RSF (Revenue Sharing Formula) is to be mandatorily paid by sugar factory even if it is in excess of FRP. We humbly submit that THE SUGARCANE (CONTROL) ORDER, 1966 under Section 3 of the Essential Commodities Act, 1955 which fixes FRP is a Central Govt Law while Maharashtra Regulation of Sugarcane Price (Supplied to Factories) Act, 2013 is a State Govt Law. Provisions of both these laws are to be read together. Also it is to be noted that complying with both laws is mandatory on the assessee. Section 36(1)(xvii) provides that the amount of expenditure incurred by a co-operative society engaged in the business of manufacture of sugar for purchase of sugarcane at a price which is equal to or less than the price fixed or approved by the Government is an allowable deduction. In the instant case Cane price order issued by the Commissioner of Sugar, State government which has approved cane price paid of Rs. 2,500 P.M.T. which is calculated by RSF (Revenue Sharing Formula) under the Maharashtra Regulation of Sugarcane Price (Supplied to Factories) Act, 2013. Copy of the order is noted in assessment order on page 7. Hence cane price paid under the Maharashtra Regulation of Sugarcane Price (Supplied to Factories) Act, 2013 is approved by the government as required under Section 36(1)(xvii). We have also attached Circular-no-18-2021 dtd. 25th Oct 2021. Para 3 states that 'the matter has been examined by the Board and in this regard, it is clarified that the phrase 'price fixed or approved by the Government' in clause (xvii) in sub-section (1) of section 36 of the Act includes price fixation by State Governments through State-level Acts/Orders or other legal instruments that regulate the purchase price for sugarcane including State Advised Price, which may be higher than [A] the Statutory Minimum Price/ Fair and Remunerative Price fixed by the Central Government.' Cumulative reading of all above makes it abundantly clear that the cane price paid by assessee of Rs. 2,500 PMT is an allowable deduction u/s 36(1)(xvii) and AO has erred in adding to income Rs 15,54,94,967.” Submission of ld.DR: 3. Ld.DR for the Revenue relied on the order of AO &ld.CIT(A)
Findings &Analysis : 4. We have heard both the parties and perused the records. Assessee is a Co-operative Sugar Factory.
4.1 As per assessment order, Assessee has paid Rs.2,500/- per metric ton to Members and Non-Members for purchase of sugar cane. Ld.Assessing Officer and ld.CIT(A) referred to the Central Government order which has decided FRP @ Rs.2,759.80 per metric ton, ld.AO deducted harvesting and transportation charges from Rs.2759.80 per metric ton and arrived at a Net FRP of Rs.2,121.53 per metric ton. Then, ld.AO held that since assessee has paid more than the FRP of Rs.2,121.53 per metric ton, decided by Central Government under the Sugar Cane Control Order 1966, the excess amount paid needs to be disallowed. Accordingly, ld.AO made an addition of Rs.15,54,94,967/-. Aggrieved by the assessment order, Assessee filed appeal before the ld.CIT(A).
4.2 The ld.CIT(A) upheld the order of the AO. Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal.
In this case, the Assessee has paid Rs.2,500/- metric ton to Members and Non-Members for purchase of sugar cane. It is observed that Commissioner of Sugar, Govt. of Maharashtra, vide order dated 24.07.2018 has decided Rs.2,500/- per metric ton rate for purchase of Sugar Cane for 2016-17. The ld.AO has relied on the rate decided by the order of the Central Government. The relevant section 36(1)(xvii) is reproduced here as under : “the amount of expenditure incurred by a co-operative society engaged in the business of manufacture of sugar for purchase of sugarcane at a price which is equal to or less than the price fixed or approved by the Government.”
The Central Board of Direct Taxes(CBDT) vide Circular No.18/2021, dated 25.10.2021 has made following clarifications: “3. The matter has been examined by the Board and in this regard, it is clarified that the phrase ‘price fixed or approved by the Government’ in clause (xvii) in sub-section (1) of section 36 of the Act includes price fixation by State Governments through State-level Acts/Orders or other legal instruments that regulate the purchase price for sugarcane, including State Advised Price, which may be higher than the Statutory Minimum Price/Fair and Remunerative Price fixed by the Central Government.”
Thus, CBDT has absolutely clarified that for the purpose of section 36(1)(xvii), the price fixed by State Government, even if it is higher than the FRP decided by Central Government, shall be considered. In this case, the price decided by State Government was Rs.2,500/- per metric ton and Assessee has paid the same. Therefore, the said amount qualifies for Section 36(1)(xvii) of the Act, accordingly, the Assessing Officer is directed to allow the deduction. Accordingly, grounds of appeal raised by the assessee are allowed.