2010 (2) TMI 1335 - HC - Income Tax

Cooperative additional payments to cane suppliers and concessional sugar sales to members held not disallowed u/s40A(2)(b); appeal dismissed

Whether s.40A(2)(b) disallows additional payments by a cooperative to cane suppliers and whether concessional sale of sugar to members constitutes ... Cane price - additional payment over and above the Statutory Minimum Price (SMP) - diversion of profit - Applicability of s.40A(2)(b) to payments by a cooperative to members/non-members for cane - sale of sugar at concessional rate to members - HELD THAT:- Similar issues are covered against the revenue by the judgment of a Division Bench of this Court in CIT v. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. [2007 (8) TMI 260 - BOMBAY HIGH COURT] Aainst the revenue by the judgment of a Division Bench of this Court in CIT v. Kisanveer Satara Sahakari Sakhar Karkhana Ltd. [2009 (6) TMI 1014 - BOMBAY HIGH COURT] In the circumstances, the appeal does not raise any substantial question of law and is accordingly dismissed. Issues: (i) Whether additional payment over and above the Statutory Minimum Price (SMP) constitutes cane price and is allowable as business expenditure under Section 37(1) of the Income-tax Act, 1961; (ii) Whether Section 40A(2)(b) of the Income-tax Act, 1961 applies to payments made by a cooperative society to members and non-members for purchase price of cane supplied; (iii) Whether the deletion of addition made on account of sale of sugar at concessional rate to members was correctly treated as not being a diversion of profit.Issue (i): Whether additional payment above SMP is cane price and deductible under Section 37(1).Analysis: The question involves classification of the additional payment whether it is part of the purchase price of cane (business expenditure) or a diversion of profit. The Court treated this question in light of binding Division Bench precedent which addressed similar factual and legal circumstances and held that such additional payments constitute cane price and are allowable as business expenditure under Section 37(1).Conclusion: The additional payment over and above SMP is to be treated as cane price and is allowable as business expenditure under Section 37(1) (in favour of the assessee).Issue (ii): Whether Section 40A(2)(b) applies to payments made by a cooperative society to members and non-members for cane purchase price.Analysis: The issue requires determining applicability of Section 40A(2)(b) to cooperative society payments to suppliers (members and non-members). The Court relied on binding Division Bench authority which held that Section 40A(2)(b) is not attracted to such payments in the circumstances considered.Conclusion: Section 40A(2)(b) does not apply to the payments made by the cooperative society towards purchase price of cane (in favour of the assessee).Issue (iii): Whether deletion of addition on account of concessional sale of sugar to members amounts to diversion of profit and was rightly deleted.Analysis: The question is whether concessional sales to members constitute diversion of profit and hence taxable. The Court followed a prior Division Bench decision which held that such concessional sales, on the facts and law there considered, do not amount to diversion of profits and the related additions were not sustainable.Conclusion: The deletion of the addition relating to sale of sugar at concessional rates to members was correctly made and does not amount to diversion of profit (in favour of the assessee).Final Conclusion: All formulated questions of law are answered in the same manner as the cited Division Bench precedents, resulting in no substantial question of law being raised and the appeal being dismissed.Ratio Decidendi: Payments by a cooperative sugar factory over and above the Statutory Minimum Price constitute cane price deductible as business expenditure under Section 37(1), Section 40A(2)(b) is not attracted to such payments in the circumstances considered, and concessional sales to members do not constitute diversion of profit.