TMI Blog2022 (10) TMI 820X X X X Extracts X X X X X X X X Extracts X X X X ..... ure under section 37(1) of the Income-tax Act. Accordingly, it is held that the assessing officer was justified in treating the amount paid by the appellant over and above the FRP as distribution of surplus and therefore, such excess payments cannot be allowed as business expenditure while computing business profits under the provision of the Income-tax Act. Payment of alleged excess sugarcane price is no more res integra as the tribunal s latest co-ordinate bench order in Shree Chhatrapati SSK Ltd.. [ 2022 (7) TMI 1332 - ITAT PUNE] Disallowance representing assessee s sale of sugar to its members at concessional rates - There is hardly any issue that the very co-ordinate bench has restored the instant issue as well back to the Assessing Officer for his afresh appropriate adjudication. Learned CIT DR could not dispute both the lower authorities have adopted the identical reasoning as it was the issue before the tribunal hereinabove. We thus direct the assessing authority to re-decide the instant latter issue as well in very terms. - ITA No.371/PUN/2020 - - - Dated:- 29-8-2022 - SHRI S.S.GODARA, JM AND SHRI DR. DIPAK P. RIPOTE, AM Assessee by: Shri None Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussion, I have considered the first direction of the Supreme Court to consider the modalities and methodology of the fixation of FRP. b) The methodology of fixing the final cane price by the appellant indicates that the 1st advance is based on the last years FRP with a mark up. There appears to be no rational basis for the mark up which is claimed to be based on negotiations with farmer unions. However the methodology of deciding the additional price to be paid is based on the formula discussed in the foregoing paragraphs. The very formula followed leaves nothing to imagination and is clearly distribution of surplus from sale of sugar. As the months pass and the crushing season progresses, the appellant is able to sell the sugar in the market and from time to time the net surplus from its sale is calculated. This is then linked to the cane purchased and distributed amongst the suppliers. It is reiterated that this net surplus from sale of sugar is computed after deducting all costs direct and indirect including depreciation from the sale revenues. It is also to be noted once again that for determining the net surplus , the cane price as per FRP is deducted as cost of can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The essential ingredients are that income is diverted at source, there is an overriding charge for such diversion and the charge or obligation is on the source of income and not on the receiver. On the other hand, application of income is merely an obligation to apply the income, which has accrued or arisen or has been received and amounts to mere apportionment of income. The essentials are that income accrues to the assessee, income reaches the assessee and income is applied to discharge an obligation which is self imposed or gratuitous. In the present case, it is clear that the payment of surplus over and above FRP is an application of income received by the appellant from the sale of sugar. There is no obligation on the appellant to apply the proceeds of sale of sugar for any particular purpose and there is also no overriding charge on the sale proceeds of sugar. The facts point to exactly the opposite that this is an application of income as all ingredients of application of income are satisfied. In the present case, it is the appellant society which is deriving income from sale of sugar, it actually receives the sale proceeds and the income is applied to benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med inter alia to acquire from the 'Maliks' their rights and to manufacture salt and its by-products. In terms of the bye-laws and other arrangements, the individual pieces of lands belonging to the members vested with the society. Society purchased and installed necessary plants and machinery to manufacture salt and other by-products. Assessee-society manufactured and sold salt and other by-products in its own name. The sale proceeds were being transferred to an account called 'Distributable Pool Fund Account' for distribution among the members of the society.After such transfer the society would offer remaining income to tax. For relevant assessment year also, the assessee transferred certain amount to Distributable Pool Fund Account and thereafter Nil income was declared in return of income. The Assessing Officer held that transfer to Distribution Pool Fund Account could not be considered as expenditure. He assessed income by adding amount transferred to Distribution Pool Fund Account. On appeal, the Commissioner (Appeals) partly allowed assessee's appeal. The Tribunal dismissed revenue s appeal. On appeal to the High Court: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits is not logical and has no relevance to determination of taxable profit under the Income-tax Act. [Para 18] Non-compliance of statutory provisions is sought to be justified by the society on a plea that society indulges in such enterprise on behalf of members of the society and tax demand on the entire income would run counter to co-operative movement. [Para 20] There can be perhaps no disagreement with the proposition that co-operative movement is benevolent to its members. Nonetheles, an ideology however lofty does not ipso facto exempt such entity from the solemn duty and sacrosanct obligation of obeying the law of the land nor does it insulate the entity from the vigour of penal actions in case of default. Thus, assessee a co-operative entity which runs a business enterprise is duty bound to offer its profits to tax before diverting any funds to the Distributable Pool Fund Account. [Para 21] In the result, this appeal merits consideration and it is accordingly allowed. [Para 22] 17. A careful analysis of the rival contentions urged by the Revenue, the Assessee and perusal of records, leads us to infer and deduce that; (a) that no person other tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There can be perhaps no disagreement with the proposition that Co-operative movement is benevolent to its members. Nonetheless, an ideology however lofty does not ipso facto exempt such entity from the solemn duty and sacrosanct obligation of obeying the law of the land nor does it insulate the entity from the vigour of penal actions in case of default. Thus, assessee a co-operative entity which runs a business enterprise is duty bound to offer its profits to tax before diverting any funds to the Distributable Pool Fund Account. 22. In the result, this appeal merits consideration and it is accordingly allowed. The substantial question of law raised by the Revenue is answered in its favour. The impugned order in I.T.A.No.252/PNJ/2014 dated 23.1.2015 passed by the ITAT, Panaji Bench is set aside. The facts of this case are strikingly similar to our present case at hand. In the Karnataka case, the society utilized the assets of the members to make profits and the distributable profits were credited to a separate fund and claimed as a deduction out of taxable profits. In the present appeal, the society utilizes the cane supplied by the farmers to make profits. The surplus of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f profits? This has been clearly laid down by the Hon ble Supreme Court in the case of Satpuda Tapi Parasar. I have merely examined the case of the appellant vis-a-vis the directions of the Hon ble Court. On the face of it, the differential payments being linked to cane supplied would lead one to believe that the same is cane price. However on scratching the surface a bit, and examining the methodology of determining the differential, it is seen that the differential price is based on the net surplus from sale of sugar. This read along with the fact that the final sugar price has already been factored in while deciding the FRP and the FRP also takes into account the profit margins to the farmer, leads one to conclude that the differential payments is only distribution of surplus from sale of sugar and it is only incidental that the same is actually paid on a per ton basis. Once again to repeat, it is open to the appellant to pay more than FRP, and it is equally open to the AO to examine the nature of the differential payment. From the discussion above, it is apparent that the producer members are receiving two distinct types of payments. One being the payment for the cane represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3C) of the ECA that 'minimum price excludes additional payments under the clause 5A or any other payment made is the most appropriate cane purchase price and fits into the concept of purchase price as per ordinary commercial principles and is in accordance with the provision of section 37(1) of the Income-tax Act. Therefore, any amount paid over and above FRP on the basis of operational profits minus expenses and reserves is not business expenditure under section 37(1) of the Income-tax Act. Accordingly, it is held that the assessing officer was justified in treating the amount paid by the appellant over and above the FRP as distribution of surplus and therefore, such excess payments cannot be allowed as business expenditure while computing business profits under the provision of the Income-tax Act. 3. We next find that the instant first and foremost issue regarding assessee s payment of alleged excess sugarcane price is no more res integra as the tribunal s latest co-ordinate bench order in ITA Nos.313 to 316/PUN/2019 Shree Chhatrapati SSK Ltd. V/s ITO dated 28/07/2022 has restored the very issue that to the assessing authority as follows:- Mr. Jasanani vehemently ..... X X X X Extracts X X X X X X X X Extracts X X X X
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