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TMI Blog2007 (8) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and in the circumstances of the case, the Appellate Tribunal was right in holding that the additional payment over and above the statutory minimum price (SMP) was cane price and not diversion of profit and as such allowable as business expenditure under section 37(1) of the Income Tax Act, 1961 ? 3. Whether on the facts and in the circumstances of the case cane price / Khodki charges paid by the assessee was not "Bonus" within the meaning of 2(4) of the Maharashtra Co-op. Societies Act, 1960 and it was allowable as business expenditure ? 2. All the aforesaid 47 appeals are admitted on the aforesaid questions of law and by consent of both the parties these group of 47 appeals are heard and finally disposed of by this common Judgment. 3. Although the facts in all these appeals are not in dispute, for better appreciation of the disputes involved herein, we may note few facts in Income Tax Appeal No.318 of 2007. Counsel on both sides agree that the decision in Income Tax Appeal No.318 of 2007 would apply to the remaining appeals as well. 4. The respondent / assessee is a Co-operative Sugar Factory engaged in the manufacture of sugar by utilising sugarcane as raw material. 5. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indonesia, USA, Cuba, Mexico, Phillipines, Mauritius, South Africa and Puerto Rico and by its order dated 19/8/2004 (reported in Deputy CIT v. Manjara Shetakari Sakhar Karkhana Ltd. [2004] 85 TT J 369 (Mumbai) held that section 40A (2)(b) (ii) is not applicable to the co-operative societies and further held that price fixation is a legislative function and the payments made to the cane growers at the rate fixed by the State Advise Price (SAP) cannot be disallowed by treating the differential amount between SMP and SAP as appropriation of profits or bonus. Similarly, the Special Bench held that the expenses incurred by the assessee as Khodki charges cannot be disallowed. As per the decision of the Special Bench, the Tribunal has dismissed the appeal filed by the revenue and allowed the appeal filed by the assessee. Challenging the aforesaid order, the revenue has filed these appeals. 9. Thus, the question to be considered in all these appeals are, firstly, whether section 40A (2) of the Act applies to a cooperative society and secondly, whether part of the cane price paid to the sugar cane suppliers and the khodki charges incurred by the assessee could be disallowed on the ground t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and against the revenue. Regarding question Nos.2 & 3. 13. According to Mr.Chatterjee, learned counsel for the revenue, once the statutory minimum price (SMP) is fixed by the Central Government the assessee is bound to pay that price to the cane growers and any price paid in excess of SMP would not be allowable expenditure. He submitted that the State Advice Price (SAP) is fixed by the State Government based on the particulars submitted by the assessee after finalisation of the accounts and determination of the profits. Thus, the SAP fixed by the State Government is based on the profits earned by the assessee and, therefore, the differential amount between SMP and SAP would be in the nature of distribution of profits and such a payment which is in the nature of distribution of profits cannot be allowed as business expenditure. 14. Mr.Chatterjee further submitted that payment of cane price in excess of the fair market price would also constitute 'bonus' within the meaning of section 2(4) of the 'MCS Act'. Bonus is nothing but sharing of profits and, therefore, the excess cane price which is in the nature of profit sharing cannot be allowed as business expenditure. In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the rival submissions. In all these appeals, it is not in dispute that the share capital contributed by the State Government in the case of each assessee has not been fully repaid. It is also not in dispute that under the provisions of M.C.S. Act and the bye laws made thereunder, the State Government is entitled to fix the SAP till the share capital contributed by the State Government is repaid fully. The State Government fixes the final cane price in public interest and it is in the nature of a direction issued by the State Government under section 79A of the M.C.S. Act which is binding on the assessee. Failure to comply with such a direction given by the State Government, inter alia may result in removal of the Managing Committee of the society under section 78 of the M.C.S. Act. 18. The Apex Court in the case of U.P.Co-op. Cane Unions Federation V/s. West U.P.Sugar Mills Association reported in (2004) 5 SCC 430 after reviewing the entire case law on the subject observed in para 39 thus (page 470):- " These cases clearly lay down that under under the 1966 Order the Central Government only fixes the minimum price and it is always open to the State Government to fix a higher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government is based on the price recommended by the assessee after the finalisation of the accounts would not constitute appropriation of profits / bonus because, appropriation of profits would arise only after the profits are determined and profits can be determined only after all the expenses incurred for the business are deducted from the gross income. As per the bye-laws framed under the M.C.S. Act, every assessee is obliged to recommend the final cane price after the finalisation of accounts in the respective year. In order to secure better price for the cane growers the scheme evolved by the State Government in the State of Maharashtra is to determine the final cane sugar price after completion of accounts at the end of the year. As noted earlier, the final cane sugar price determined by the State Government is binding and there is no challenge to the SAP fixed by the State Government. Therefore, payment of the final cane sugar price as per SAP fixed by the State Government based on the price recommended by the assessee after the finalisation of accounts cannot be said to be appropriation of profits. 22. Moreover, Section 65 of the M.C.S. Act provides for the mode and the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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