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2017 (11) TMI 1363
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....formed as societies with the milk producers as its members and in turn, societies become the members in the assessee-company. Subsequently, the assessee-company has been converted as Sri Vijaya Visakha District Milk Producers Mutually Aided Cooperative Union Ltd., under AP State Mutually Aided Cooperative Society Act, 1995, which was further been converted into Producers company in the year 2006 and registered under the Companies Act 1956 as M/s. Vijaya Visakha Milk Producer Company Ltd. The main objective of the company is to procure milk from farmers through the societies situated in village of Srikakulam, Vizianagaram, Visakhapatnam, East Godavari and West Godavari Districts of Andhra Pradesh. The suppliers are the members of the assessee-company, from which milk is being procured every day. The milk procured from farmers through their cooperative societies is primarily being stored in bulk coolers provided by the assessee at the places of milk societies. The assessee-company procures milk from the bulk coolers and transports the milk through milk tankers to the main factory at Visakhapatnam, where milk is processed. The processed milk is packed in pouches and supplied to the co....
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....culars Buffalo Milk Rs. 1,75,34,54,590/- Cow Milk Rs. 1,13,10,63,892/- Total Rs. 2,88,45,18,482/- However, the Assessing Officer noted that the price of milk procured debited to profit & loss account is much higher by an amount of Rs. 96,60,12,828/-. On query, it was explained to the Assessing Officer that in addition to the above procurement price the milk producers were also piaid additional price/withheld price on 28/03/2010 and the details of such additional price paid was submitted to the Assessing Officer vide letter dated 18/10/2013 as follows:- Withheld price Buffalo Milk Rs. 49,27,19,254/- Cow Milk Rs. 47,32,93,574/- Total Rs. 96,60,12,828 5. The Assessing Officer called upon the assessee to explain why such additional or withheld price was paid and what is the basis. It was submitted before the Assessing Officer that Board considers various factors such as; (i) Rate per kg on buffalo milk and total solids for cow milk paid by competitors, (ii) Rate per kg fat and total solids paid by cooperative dairies in AP and other states and (iii) Competition prevailing in the market and producers demand for prices before finalization of t....
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....oes Milk and Rs. 19/- per KG total solids of Cow Milk supplied by the milk producers (share holders) out of the total proceeds of final purchase price as the company required funds to meet the capital expenditure to acquire machinery and equipment and to meet expenditure on the extension activities under procurement and marketing of the milk. E: In view of the request made by the members and considering the authorization given by them it is resolved to deduct Rs. 5/per kg fat on buffalo milk and Rs. 2.75/kg total solids on cow milk out of the withheld price payable to milk producers in West Godavari, East Godavari, Visakhapatnam Vizianagaram and Srikakularn Dist. As contribution to M.P & E.E.H. & M.W. Trust, Sheelanagar, Visakhapatnam since the milk producers of these districts are availing education and health care facilities provided by the Trust and pay directly to the said Trust by way of Cheque /Demand Draft upon the unanimous request of the members present at the Annual General Meeting. F: Resolved that the remaining portion of the withheld price, after deducting value of equity shares allotted to shareholders and amount payable to Trust as contribution shal....
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....s which cannot be a deductible expenditure. Accordingly, the Assessing Officer has disallowed an amount of Rs. 46,96,02,293/- which is debited to the profit & loss account, but had not been actually paid to the milk suppliers and taken to the capital / contributed to the trust is not allowable and so hereby disallowed. Accordingly, assessment is completed. 9. On being aggrieved, assessee carried the matter in appeal before the ld. CIT(A). During the course of appellate proceedings, the assessee filed a petition for admission of additional evidence vide letter dated 29/11/2013, the same is extracted as under:- Additional evidences: 1. Copy of the Board Resolution with subject No.29 dtd,28.02.2007 for withheld price for the financial year 2006-07 both in Telugu and true translation of the same in English. 2. Copy of the Board Resolution with subject No.13 dated 06.02.2008 for withheld price for the financial year 2007-08 both in Telugu and true translation of the same in English. 3. Copy of the Board Resolution with subject No.20 dated 27.12.2008 for withheld for the financial year 2008-09 both in Telugu and true translation of the same in English. ....
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....t considering the availability of milk; price being paid by the competitors and requirement of milk for processing. The price so fixed is circulated among the members of the society, who would in turn circulate among the milk producers from time to time. The assessee company also published the procurement price of milk in the local newspapers for information of all the concerned including the milk producers. The amount so fixed shall be the amount payable and such liability accrues at the time of supply of milk. However, the entire amount payable as per the procurement price would not be paid immediately at the time of supply. A part of the amount payable would be retained or withheld for the benefit for the suppliers. Such amount payable is known as withheld price and shall be dealt in separately with the concurrence of the suppliers. 13 It was further submitted that the Board of Management conducts meetings not only at its registered office but also in the villages, where milk societies are functioning so as to motivate and to encourage supply of milk to the assessee company. The assessee company explains the suppliers the need of participation of the milk producers. The asses....
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....y the Board. 16 It was further submitted before the ld. CIT(A) that by paying differential price/ withheld price at the end of the year, the assessee company would be gaining an advantage of receiving continuous supply of milk from the producers. Such producers of milk would be continuously supply milk only to the assessee. If the producers are allotted equity shares, they will have the sense of participation and the assessee would have better liquidity. The milk producers would get a lump sum amount at the end of the year which can be utilized by them for purchase of buffaloes or for improvement of their infrastructure for the development of dairy. In other words, indirectly a habit of small savings is cultivated among the milk producers by payment of differential price/ withheld price at a time. Therefore, it is a win situation for both the assessee and the milk producers. 17 It was further submitted that assessee-company makes the payment to the member societies every fortnight through their bank accounts. In turn, the concerned societies would make the payments to the milk producers in proportion to their supply of milk depending on the rate of kg FAT & SNF contents. The ....
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....ay and ECG Clinics for the benefit of community at large and in particular to the dairy farmers and their families, and milk cattle. 19 The Authorized Representative for the assessee also filed copy of Articles of Association where in withheld price defined "withheld price means part of the price due and payable for goods supplied by any member to the producer company; and as withheld by the producer company for payment on a subsequent date." 20 In this regard, the Authorized Representative for the assessee also referred to the definition of „Producer Company‟, and „withheld price‟ in the Companies Act. The Authorized Representative for the assessee also referred to section 581E and 581D of the Companies Act. The same is reproduced by the ld. CIT(A) as under:- MUTUTAL ASSISTANCE PRINCIPLES Sub-section (2) of section 581G provides that the Articles shall contain the following mutual assistance principles, namely: a. The membership shall be voluntary and be available to individual producers and producer Institutions who can participate or avail of the facilities or services of the producer company and are willing to accept the duties....
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....nd adoption of annual accounts. b. Approval of patronage bonus c. Issue of bonus shares. 7.12 With reference to the above legislative provisions/ the AR brought to my attention the following Articles of Association of the Company:- 10. The Board of Directors may determine from time to time the benefits that may be conferred on members by way of Limited return, Patronage Bonus and determination of withheld price and such other benefits as the Board may deem fit in the larger interest of members of the company. (a) Limited return The members shall receive limited return on the share capital contributed and the board, on basis of available profit will determine such return for each year at the end of each financial year. (b) Withheld price Each member shall receive initial payment of such amount as may be determined by the Board for the produce or products pooled and supplied by them. Every member shall receive withheld price (remaining price) which will be disbursed later in cash or kind or allotment of Equity Shares in proportion to the produce supplied to the company during the financial year to such e....
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....on or subscription may be made for the purpose of promoting the social and economic welfare of Producer Members or Producers or general public or assistance principles. The ceiling limit for all such donation and subscription in any financial year shall not exceed 3% of the net profits of the company in the financial year immediately preceding the donation or subscription was made. The company shall not make directly or indirectly to any political party or for any political purpose to any person, any contribution or subscription or make available any facilities, material. The provisions of Section 581ZH of the. Companies Act, 1956 shall apply to this company. 21 With reference to the above legislative provisions and its Articles of Association, it was submitted that the entire procurement price would not be paid immediately at the time of supply; part of the procurement price is withheld and paid at a later stage as per Board Resolution and this is authorized under the statute and under its Articles of Associatio; the payment of the withheld price through allotment of equity shares / donation is also authorized in the statute and the Articles of Associ....
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....ar quality. 24 It was further submitted before the ld. CIT(A) that the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Mehsana District Cooperative Milk Producers Union Ltd. (282 ITR 024) is squarely applicable to the facts of the assessee‟s case. The assessee also given a comparative chart to demonstrate that decision of the Gujarat High Court is squarely applicable to the assessee‟s case. 25 The ld. CIT(A) by considering the details given by the assessee directed the Assessing Officer to delete the addition. The relevant portion of the order is extracted as under:- 7.17 I have considered the various submissions and details filed. It is to be noted that out of the total withheld price of Rs. 96,60,12,828/-, the AO had disallowed Rs. 46,96,02,293/- which pertain to payment said to be capitalized of Rs. 41,23,18,509/- and contribution to trust of Rs,5,72,83,783/-. The AO had taken a view that these payments are not for commercial reasons, and that the amounts have been unilaterally capitalized without offering to taxation. However, the payments made to farmers/milk producers out of the withheld price of Rs. 49,64,10,534/- was found to....
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....er or subject to such condition as may be decided by the Board. 15 The Board of Directors of the company shall exercise such powers and functions, at its meeting which are authorized by the Act and these Articles. The Board can exercise powers like: a. Determination of dividend payable. b. Determination of quantum of withheld price and recommend patronage to be approved at general meeting. 7.20 Thus it is evident that the procurement price normally comprise an initial payment and withheld price, the latter price may be paid in cash or in kind or allotment of equity of shares as determined by the Board. The copies of resolutions filed by the assessee also show that the payment made initially is on a tentative/adhoc price. The AO also refers to such resolutions in his assessment order. Further the AR has filed details showing that procurement price was paid by way of initial payment and withheld price in the earlier years also. In the light of these discussions with reference to the details filed, I am of the view that there was no infirmity in the assessee's practice of procuring milk through initial payment and withheld price, and such practi....
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.... not in accordance with market price and higher than any comparable price. It is in this context, the payment made to the producers directly was accepted and allowed. I find that as no infirmity has been found out on the quantum of withheld price determined, an alternative mode of payment of such price cannot be a ground for its disallowance. The assessee. has filed details of shares allotted to the individual members of the society with reference to the additional withheld price of Rs. 41,20,66,000/-. The copy of form-2 filed with Registrar for such allotment was filed. The AR also submitted the relevant extract of the bank statement of the assessee showing the payment of contribution of Rs. 5,72,83,783/- to the trust, and also extract of bank statement of the MPEEAMWT-trust showing receipt of the said amount. It was also submitted that the amount is utilized by the trust to expand the hospital facilities and educational facilities rendered to the member of the assessee company. In the light of these details, I find that the genuineness of the payment is established. I have also perused the details submitted relating to the comparative price position in the industry in the nearby ....
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....h allow payment of withheld price and allotment of equity shares out of the withheld price/ The fixation of withheld price and allotment of equity shares out of withheld price is as per Board's resolution which are published and was not unilateral act of the company. Thus decisions in the case of Shahabad Co-operative Sugar Mills Ltd and Budhewal Cooperative Sugar Mills Ltd are distinguishable" and are not applicable to the factual matrix of the assessee's case. 7.24 The AO also noted that the decision in the case of CIT Vs. Mehsana District Cooperative Milk Producers Union Ltd is distinguishable for the reasons (a) that the entire additional price was paid to the milk producers; (b) price notifying circulars have clearly mentioned that price is adhoc and provisional. In the assessee's case also, as already discussed some of the resolutions passed for price fixation have clearly stated that the price fixed was tentative. The AO also referred to such resolution in the assessment order. Further it is dearly stated in the articles of association that every member shall receive initial payment of such amount as determined by the Board and the withheld price shall b....
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....eld price equity shares also issued according to section 581E & 581E of the Companies Act to distribute the withheld price as per companies Act and also Articles of association, the assessee company passed resolutions according to payments are made. Therefore, he submitted that withheld price paid to the farmers/milk producers is in accordance with law. 29 In support of his arguments, he drew our attention to page No. 53 of the paper book which is Board of Directors Meeting held on 05/10/2009, 22/03/2010, 30/05/2009 & 28/02/2007. It is also submitted that it is not first time, the assessee company has paid withheld price to the milk suppliers even earlier assessment years also, it was paid and same was allowed by the Assessing Officer. For the first time, it was not accepted by the Assessing Officer . It has further been submitted that the assessee company has paid some amounts to the suppliers, equity shares are issued and contribution towards trust, out of which cash payment made to the suppliers was allowed by the Assessing Officer. 30 It has further been submitted that it is not correct to allow some of the amount out of withheld price and disallowed other part of the amo....
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.... for buffalo milk and total solids for cow milk paid by competitors, rate per kg fat and total solids paid by cooperative dairies in AP and other states and the competition prevailing in the market and producers demand for prices before finalization of the final price for payment of milk price from farmers. The assessee also filed a comparative prices from website of NABARD. Thereafter, the Assessing Officer has asked the assessee company to furnish the details of the withheld price of Rs. 96,60,12,828/- paid to the milk producers that the amount actually paid to the suppliers of milk of Rs. 49,64,10,534.61, equity shares issued in the name of the milk suppliers of Rs. 41,23,18,509.91, contribution to the trust of Rs. 5,72,83,783.48. The above breakup filed by the assessee has been considered by the Assessing Officer and observed that out of total withheld price of Rs. 96,60,12,828/-, the actual amount paid to the milk suppliers only of Rs. 49,64,10,534.61, the amount of Rs. 41,23,18,509.91 claimed as expenditure was in fact capitalized and the amount of Rs.5,72,83,783/- was taken as contribution to the trust. Accordingly, the Assessing Officer took the view that the amount actuall....
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....withheld may be disbursed to seller member in cash or by allotment of equity share in proportion to the produce supplied during the concerned financial years to such extent as may be decided by the Board. Thus, the concept of withheld price is not alien in the conduct of business of a producer company. As per the Articles of Association of the assessee company, Board of Directors may determine from time to time the benefits that may be conferred on members by way of limited return, patronage bonus and determination of withheld price and such other benefits as the Board may deem fit in the larger interest of the members of the company. It is further observed by the ld. CIT(A) that the procurement price normal price normally comprise an initial payment and withheld price, the latter price may be paid in cash or in kind or allotment of equity shares as determined by the Board. The copies of resolutions filed by the assessee also show that the payment made initially is on a tentative/adhoc price and the ld.CIT(A) is of the opinion that there is no infirmity in the assessee‟s practice of procuring milk through initial payment and withheld price, and such practice is consistent wit....
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....eive initial payment as may be determined by the Board for the produce/products. Every member shall receive withheld price (remaining price) which will be disbursed in cash or in kind or by allotment of equity shares in proportion to the quantity of milk supplied to the assessee company. Even as per section 581 of the Companies Act, the price withheld may be disbursed to the seller member in cash or through allotment of equity shares in proportion to the milk supplied during the financial year to such extent as may be decided by the Board. We find that the assessee company as per section 581 of the Companies Act and also Articles of Association, passed the resolution dated 05/10/2009 and equity shares are issued. Therefore, the Assessing Officer is not correct in saying that it is a tax avoidance device adopted by the assessee to avoid the payment of tax. The ld. CIT(A) by considering all the details has correctly decided that out of withheld price, equity shares issued is in accordance with law. 34 Insofar as contribution paid to the trust is concerned, as per Memorandum of Association of Companies Act, it is under obligation of the assessee to establish schools, colleges, trai....