Income Tax Exemption to Co-operative Society engaged in manufacture of Sugar: State Advised Price may be considered to Compute Exemption, CBDT clarifies [Read Circular]

The Central Board of Direct Taxes (CBDT) has clarified that in order to compute the amount of deduction allowed to co-operative society engaged in the business of manufacture of sugar as per the new provision, the State advised Price shall also be considered while granting the same.

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 a 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 is applicable from 01 .04 .2016 and accordingly applied to the assessment year 2016-17 and subsequent assessment years.

Regarding the issue of treatment of additional payment for sugarcane price by Cooperative sugar mills as an income distribution to farmer members and the resultant tax liabilities, the Board clarified that “the matter has been examined by the Board and in this regard, it is clarified that the phrase ‘price fixed or approved by the Government’ in clause (xvii) in sub-section (1) of section 36 of the Act includes 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.”

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