Around 100 cooperative sugar mills in Maharashtra have lost one round of a battle on income tax (I-T) arrears dating back to 1992-93, with an appellate authority rejecting their argument on dues. If the decision, by the commissioner of income tax (appeals), is not appealed again, the mills may have to pay Rs 2,500 crore in arrears.

Vijaysinh Mohite-Patil, chairman of the Federation of Cooperative Sugar Factories in Maharashtra, told Media: “The Federation, which interacts on behalf of cooperative sugar mills with the state and central governments, Reserve Bank of India, National Bank for Agriculture and Rural Development and other agencies, is examining the order.”

The commissioner has ruled that in the case of payments by co-op mills to their members, any aditional payment made over the statutory minimum price (SMP) amounts to diversion of profit. Hence, it cannot be treated as business expenditure, which is set off before calculating tax.

The order has been issued on the Dnyaneshwar cooperative sugar mill in Ahmadnagar district, after the Supreme Court remitted the latter’s case with the cases of 102 other mills back to the CIT (A).The mills and the I-T department have been in a legal battle on the issue since 1992-93.

In Maharashtra, the cane price is fixed by a ministers’ committee, chaired by the chief minister. It is always higher than the SMP. After the principle is fixed, the office of the commissioner of sugar issues the final cane price for each mill. The co-op federation and individual mills have consistently argued that the payment to cane growers was part of their price of raw material and, therefore, a business expenditure.

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