Relief from Income Tax to Cooperative Sugar Mills
NEW DELHI, MARCH 20, 2025: Sugar factories operating in the co-operative sector in certain States of India pay 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, 1996.
The payment of FCP by the co-operative sugar factories over and above the SMP for purchase of sugarcane had resulted into tax litigation. 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.
In order to provide certainty in this matter and to encourage co-operative movement in sugar sector, a new clause (xvii) was inserted to amend sub-section (1) of section 36 of
the Income-tax Actto provide that the amount paid for purchase of sugarcane by the co-operative societies engaged in the manufacture of sugar at a price which is equal to or less than the price fixed by or fixed with the approval of the Government, including 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 shall be allowed as deduction for computing business income of the sugar co-operative factories w.e.f. 01.4.2016.
Resolving decades old pending issues related to income tax demand on Cooperative Sugar Mills: The provision at SI. No (i) above resolved the issue of treatment of additional payment for sugar price by CSMs as an income distribution to farmers w.e.f.01.04.2016. However, pending demands and litigation still persisted in respect of assessment years(AYs) prior to 2016-
- Therefore, to conclude the matter logically and 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 sub- section (19) vide Finance Act, 2023, w.e.f. 01 April 2023. It provides that in the case of a sugar mill cooperative, where any deduction in respect of any expenditure incurred for the purchase of sugarcane has been claimed by an assessee and such deduction has been disallowed wholly or partly in any previous year commencing on or before the 1ª day of April 2014, the Assessing Officer shall, based on an application made by such assessee in this regard, recompute the total income of such assessee for such previous year. The Assessing Officer shall allow such deduction to the extent such expenditure is incurred at a price which is equal to or less than price fixed or approved by the Government for that previous year. CBDT has also issued a Standard Operating Procedure in this regard on 27.07.2023.
Rs 10,000 crore loan scheme through NCDC for strengthening of Cooperative Sugar Mills: Ministry of Cooperation has launched a new scheme named ‘Grant-in-aid to NCDC for Strengthening of Cooperative Sugar Mills’, under which Government of India has provided a grant of Rs.1,000 crore to NCDC during financial year 2022-23 and 2024-25. NCDC will use this grant to provide loans up to Rs. 10,000 crores to Cooperative Sugar Mills, for setting up ethanol plants for setting up cogeneration plants or for working capital or for all three purposes. NCDC has so far sanctioned 87 loans of ₹ 9893.12 crore to 48 CSMs.
