2007 (10) TMI 231 - HC - Income Tax

State Advise Price fixed by the State Govt. doesn t contain any direction to deduct the cost of the binding materials from the SAP - rebate was not mandatory It is not in dispute that the assessee has made payments to members and non members as per the SAP fixed by the State Govt., hence it cannot be said that the payments made was in excess of the Sugarcane (Control) Order & consequently making addition on that ground does not arise revenue s appeal dismissed

Summary

Issues:
1. Interpretation of provisions of Section 40A(2)(a) for a cooperative society.
2. Allowability of additional payment over statutory minimum price as business expenditure.
3. Treatment of cane price/Khodki charges as business expenditure.
4. Deletion of addition made on account of sugar supplied at concessional rate.
5. Allowability of expenditure incurred towards binding material charges.

Analysis:

Issue 1:
The High Court addressed the interpretation of Section 40A(2)(a) in the context of a cooperative society. It was established that Section 40A(2) does not apply to cooperative societies based on a previous judgment. Therefore, the addition made under Section 40A(2) towards the cost of binding materials was deleted.

Issue 2:
Regarding the additional payment over the statutory minimum price, the Court examined whether it constituted diversion of profit or allowable business expenditure under Section 37(1) of the Income Tax Act. The Court ruled in favor of the assessee, holding that the additional payment was considered as cane price and allowable as business expenditure.

Issue 3:
The Court analyzed whether the cane price/Khodki charges paid were akin to "Bonus" under the Maharashtra Co-op. Societies Act, 1960 and thus allowable as business expenditure. The Court upheld that the payments were not "Bonus" and were allowable as business expenditure.

Issue 4:
The Court deliberated on the deletion of the addition made on account of sugar supplied at a concessional rate. The assessing officer's decision was in line with a circular, but as the revenue did not press this question, it was not considered further.

Issue 5:
The primary focus was on the allowability of expenditure incurred towards binding material charges. The Court examined the Sugarcane (Control) Order and concluded that the directions regarding deduction of binding material costs were directory, not mandatory. The Court also emphasized that Section 40A(2) did not apply to cooperative societies. The payments made were found to be in accordance with the State Advice Price, and hence, no disallowance/addition was warranted.

In conclusion, the High Court dismissed the appeal, ruling in favor of the assessee on all the issues discussed, with no order as to costs.