CBDT Clarification on treatment of higher payment for sugarcane price by sugar mills

The CBDT vide in 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.

If sugar cooperative mills purchase sugarcane from farmers at a price greater than the fair and remunerative price, they will no longer be required to pay income tax. The five-year-old dispute was finally settled on Wednesday, when the Union Finance Ministry issued a statement clarifying the situation.

The issue of cooperative sugar mills treating additional payments for sugarcane prices as an income distribution to farmer members and the resulting tax liability, according to the ministry, has been brought to the attention of the Central Board of Direct Taxes. Last week, Devendra Fadnavis led a team of BJP sugar cooperative owners to meet Union home and co-operatives minister Amit Shah, demanding an equal playing field for all sugar cooperatives.

The Notification Stated :

The Finance Act, 2015 inserted the following clause (xvii) in sub-section (1) of section 36 of the Income-tax Act, 1961 (the 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 01.04.2016 and accordingly applied to assessment year 2016-17 and subsequent assessment years.

To Read Official Circular Download PDF Given Below :