Clarification on treatment of additional payment for sugarcane price by Cooperative sugar mills

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The CBDT vide Circular No. 18/2021 dated October 25, 2021 issued clarification regarding treatment of additional payment for sugarcane price by Cooperative sugar mills as an income distribution to farmer members and the resultant tax liability.

The Finance Act, 2015 inserted the following clause (xvii) in sub-section (1) of section 36 of the Income-tax Act, 1961 (“the IT Act”) to provide for deduction on account of the amount of expenditure incurred by a co-operative society engaged in the business of manufacture of sugar —

“(xvii) 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;”

This clause took effect from April 01, 2016 and accordingly applied to assessment year 2016-17 and subsequent assessment years.

The issue of treatment of additional payment for sugarcane price by Cooperative sugar mills as an income distribution to farmer members and the resultant tax liabilities has been brought to the notice of the Central Board of Direct Taxes (“CBDT”).

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 IT 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.

The Circular can be accessed at: https://incometaxindia.gov.in/communications/circular/circular-no-18-2021.pdf

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