Income Tax Relief for Sugar Co-operative Societies – Circular No. 14/2023

Circular No. 14 of 2023 Dated: 27th July, 2023 brings good news for co-operative societies engaged in the business of sugar manufacture in India. This circular offers significant income tax relief to sugar factories operating in co-operative sectors.

Applicability: Co-operative society engaged in the business of manufacture of sugar

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, 1966.

Earlier Scenario

The payment of FCP by the co-operative sugar factories over and above the SMP for purchase of sugarcane had resulted into tax litigation i.e. 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.

Amendment came in Finance Act 2015

(Applicable from the AY 2016-17)

A new clause (xvii) was inserted to amend section 36(1) of the Income Tax Act, 1961 which allows the expenditure if such price is less than or equal to price fixed by or fixed with the approval of Government.

Section 36(1)(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;”

But what about the cases which were pending prior to AY 2016-17?

To extend the benefit of the abovementioned relief to all the applicable years, section 155 of the Act has been amended to insert a new subsection (19) vide Finance Act, 2023, w.e.f. 1st April 2023

Section 155(19)

Where any deduction in respect of any expenditure incurred for the purchase of sugarcane has been claimed by an assessee, being a co-operative society engaged in the business of manufacture of sugar, and such deduction has been disallowed wholly or partly in any previous year commencing on or before the 1st day of April, 2014, the Assessing Officer shall, on the basis of an application made by such assessee in this regard, recompute the total income of the assessee for such previous year after allowing deduction to the extent such expenditure is incurred at a price which is equal to or less than the price fixed or approved by the Government for that previous year, and the provisions of section 154 shall, so far as may be, apply thereto, and the period of four years specified in sub­section (7) of that section shall be reckoned from the end of previous year commencing on the 1st day of April, 2022

Rectification u/s 154: Application for the rectification can be made within the period of 4 years (till 31^st March 2027)

SOP prescribed under CBDT Circular

1. The applicant must be a “co-operative society”, as defined in sub-section (19) of section 2 of the Income-tax Act, engaged in the business of manufacturing of sugar.

2. Such Cooperative Society should seek relief u/s 155(19) from the Jurisdictional AO by filing an application.

3. Application should relate to AY 2015-16 or any earlier AY

4. Jurisdictional AO may seek the following documents for the purpose of re-computation under sub-section (19) of section 155 of the Act:

a. Computation of tax, audit report u/s. 44ab of the act, audited profit & loss account and balance sheet

b. Assessment Order/Appellate Order reflecting disallowance made on account of excess price paid for purchase of sugarcane above the Statutory Minimum Price (SMP)

c. Notice of Demand issued u/s 156 of the Income Tax Act, 1961

d. Challan of taxes paid, if any

e. Copy of Order(s)/Other legal instrument(s) regarding price fixation by Government based on which excess price was paid for purchase of sugarcane over and above Statutory Minimum Price (SMP).

f. Documentary evidence regarding registration of co-operative society under State/Central Act.

g. Any other document as considered necessary by the Jurisdictional Assessing Officer for the purposes of re-computation of total income under sub-section (19) of section 155 of the Act.

5. Time Limit to file Rectification Petition: Till 31^st March 2027

Conclusion: Circular No. 14 of 2023 Dated: 27th July, 2023 introduces essential amendments that provide tax relief for co-operative sugar factories in India. By rectifying past assessments and adhering to the prescribed SOP, these co-operative societies can now benefit from these changes, ensuring fair treatment regarding sugarcane purchase expenses. This development offers financial respite and a more favorable tax environment for the co-operative sugar industry in India.