Additional sugarcane price to member growers counts as business expenditure, not profit distribution, under the Control Order.

Additional sugarcane price paid by a co-operative sugar factory to member growers over the Government-fixed price was treated as an allowable business expenditure, because the Sugarcane (Control) Order, 1966 fixed only the minimum fair and remunerative price and permitted higher agreed payment. Clause 5 specifically contemplated additional price to growers, and the payment was made to actual suppliers in the course of business under the managing committee's decision, not as dividend or profit distribution. Applying commercial expediency and real profit computation, the excess payment could not be regarded as appropriation of profits merely because it was quantified after the accounting year, so the disallowance was set aside.

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Issues: Whether the additional sugarcane price paid by a co-operative sugar factory to its member growers over and above the Government-fixed price was an allowable business expenditure or a distribution of profits.

Analysis: The price structure under the Sugarcane (Control) Order, 1966 fixed only the minimum fair and remunerative price, while clause 3(2) left room for a higher agreed price. Clause 5 of the Order specifically contemplated payment of additional price to growers, and clause 5(b) excluded purchases made by a co-operative society from its members from the general mechanism. The payment was made to the actual suppliers of the raw material in the course of the assessee's business, pursuant to the decision of its managing committee, and not by way of dividend or profit distribution. The reasoning was reinforced by the principles of commercial expediency and real profit computation, and by the line of authority holding that a higher rate or final price paid to members cannot be treated as application of profits merely because it is determined after the accounting year.

Conclusion: The additional sugarcane price was held to be an allowable business outgo and not an appropriation or distribution of profits, and the disallowance was set aside.

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