Case BriefsSupreme Court

Supreme Court: On the question relating to assessment of the taxable income of a Co-operative Society engaged in the business of production of sugarcane and sale thereof, the 3-judge bench Dr. AK Sikri, SA Nazeer and MR Shah, JJ said that the entire amount of difference between the Statutory Minimum Price (SMP) and State Advisory Price (SAP) per se cannot be said to be an appropriation of profit.

The Court noticed that to the extent of the component of profit which will be a part of the final determination of the SAP and/or the final price/additional purchase price fixed under Clause 5A of the Sugarcane Control Order, 1966 would certainly be and/or said to be an appropriation of profit.

It further said:

“only that part/component of profit, while determining the final price worked out/SAP/additional purchase price would be and/or can be said to be an appropriation of profit and for that an exercise is to be done by the assessing officer by calling upon the assessee to produce the statement of accounts, balance sheet and the material supplied to the State Government for the purpose of deciding/fixing the final price/additional purchase price/SAP under Clause 5A of the Control Order, 1966.”

Mechanism of determining additional purchase price under Clause 5A

  • different prices may be fixed for different areas or different qualities or varieties of sugarcane. As per sub-clause 2 of Clause 3, no person shall sell or agree to sell sugarcane to a producer of sugar or his agent, and no such producer or agent shall purchase or agree to purchase sugarcane, at a price lower than that fixed under sub-clause 1 of Clause 3.
  • Clause 5A of the Control Order was inserted in the year 1974 on the basis of the recommendations made by the Bhargava Commission. The clause provides for an additional price to be paid for sugarcane purchased on or after 01.10.1974. Where a producer of sugar or his agent purchases 18 sugarcane, from a sugarcane grower during each sugar year, he shall, in addition to the minimum sugarcane price fixed under Clause 3, pay to the sugarcane grower an additional price, if found due in accordance with the provisions of the Second Schedule annexed to the Control Order, 1966.
  • Bhargava Commission had recommended payment of additional price at the end of the season on 50:50 profit sharing basis between growers and factories, to be worked out in accordance with Second Schedule to the Control Order, 1966.
  • The additional price is fixed/determined under Clause 5A at the end of the season and as per Second Schedule to the Control Order, 1966. Therefore, at the time when the additional purchase price is determined/fixed under Clause 5A, the accounts are settled, and the particulars are provided by the concerned cooperative society what will be the expenditure; what can be the profit etc.
  • So far as the SMP determined under Clause 3 of the Control Order, 1966 by the Central Government is concerned, it is at the beginning of the season and while determining/fixing the SMP by the Central Government, the afore-stated things are required to be considered. Therefore, the difference of amount between the SMP determined under Clause 3 and the SAP/additional purchase price determined under Clause 5A has an element of profit and/or one of the components would be the profit.

The Court, hence, said:

“the assessing officer will have to take into account the manner in which the business works, the modalities and manner in which SAP/additional purchase price/final price are decided and to determine what amount would form part of the profit and after undertaking such an exercise whatever is the profit component is to be considered as sharing of profit/distribution of profit and the rest of the amount is to be considered as deductible as expenditure.”

[CIT Bombay v. Tasgaon Taluka SSK Ltd., 2019 SCC OnLine SC 318, decided on 05.03.2019]

Case BriefsSupreme Court

Supreme Court: The Bench comprising of A.K Sikri and Abhay Manohar Sapre, JJ., said that where economic interest competes with the rights of other persons, need is to strike a balance between the two competing interests and have a balanced approach. The Bench was hearing the dispute as existence of 2 sugarcane factories within the radius of 15 km, thereby, violating Clause 6A of the Sugarcane (Control) Amendment Order, 2006.

Appellant stated that at the time of setting up of factory he received all the required permissions and his IEM also stood acknowledged, respondent also granted the no objection certificate to the new setup of the factory, even the Survey of India and Director of Sugar stated that, no similar factory lies within its radius of 15 km. The Appellant argued that at the time of establishment of the factory no “existing” sugar factory was there as per the definition given in clause 6A stating that an existing sugar factory is a factory which is in “operation” and respondent’s factory was not carrying out its crushing operations for last five sugar seasons therefore was not an existing factory and large amount of sugarcane was wasted amounting to huge losses to sugarcane farmers and appellant further prayed that a huge amount of investment has already been made by him therefore this economic factor should also be considered.

Accepting the argument, the Court held that at the time of establishment of the sugar factory by the appellant, he had bona fide intention and followed the requirements under clause 6A of Sugarcane (Control) Amendment Order 2006, the Court said that the requirement of distance mentioned in the Amendment Order was inserted keeping in mind the benefit of the existing sugar factories. In a situation like this, when such a factory itself gave no objection certificate, thereby waived the requirement, the bona fides of the appellant cannot be doubted.

The Court also considered the economic factors such as the expenditure of approximately Rs.300 crores by the appellant in establishing the factory; loans raised to the tune of Rs. 237 crores; operational cost of Rs. 150 crores; generation of employment of 377 persons on regular basis and indirect employment of more than 7000 persons; and setting up of co-generation plant for production of electricity which is giving supply of 37 MW of electricity. The Court, hence, held that these factors, particularly, bank loans, employment, generation and production at the factory serve useful public purpose and such economic considerations cannot be overlooked, in the context where there is hardly any statutory violation. [Shivashakti Sugars Ltd. v Renuka Sugar Ltd., 2017 SCC OnLine SC 6024, decided on 9-5- 2017]