Sugar - SMP – SAP - Income Tax - Supreme Court
SUGAR is not all that sweet now a days – poor Mr. Pawar is facing a lot of problems. While Sugar prices had hit the roof recently, government's promise of bringing down the price still seems to be a distant dream. India being the largest consumer of sugar, any attempt to import sugar will spiral the global price of sugar to unheard of levels. Last month the New York Sugar price is reported to have touched a 29 year high. Where does all this money go? Certainly not to the farmers who have cultivated sugarcane.
Unfortunately the production of sugar is linked to availability of sugar cane and that depends on farmers willing to grow sugar cane and they for some foolish reason are willing to do it only if they get a reasonable price for the cane. And as is the case with all agricultural produce, there is governmental interference and unlike in the case of rice and wheat, the interference does not cost the government anything.
There is a Statutory Minimum Price (SMP) fixed by the Central Government and there is a State Advised Price (SAP). The SAP is usually higher than the SMP and in between these two prices, there is a price decided by the millers – the farmer producer has no choice or voice. And if there is any profit in the scheme that goes to the millers who are powerful politicians. The farmer does not get any share in the huge price rise. What share in profits, they don't even get their agreed dues from the millers - sometimes even for two to three years. Their plight starts with getting a cutting order from the Sugar factory and extends over a couple of years till they get their dues settled. Now with all this confusion the price promise to sugar cane growers would be quite high this year and next and you can safely bet, we are going to be flooded with Sugar in 2013 and then the cycle will start again. One of our commentators had suggested taxing agriculturists – you can start with these poor farmers, who don't get their dues from the powerful sugar kings!
Now there is an income tax angle to the story.
It may be noted that the State Advised Price [S.A.P.] is determined on the basis of the price recommended by the Sugar factories after the finalisation of their annual accounts. Obviously they would recommend a higher price only if they had made good profits. The cane growers are paid the difference between the SMP and the SAP. Now the question for the Income Tax is whether such differential payment made after the closure of year/balance sheet date is an expenditure or simple distribution of profits?
The matter reached the Supreme Court recently through several Departmental appeals.
The Supreme Court noted that to decide the issue the Assessing Officer has to consider
1. the manner in which the business works
2. resolutions of the State Government
3. the modalities and the manner in which S.A.P. and S.M.P. are decided
4. the timing difference which will arise on account of the difference in the accounting years, etc
5. the question as to whether the obligation is attached to income or to its source.
So the Supreme Court remanded the cases to the Commissioner (Appeals). Incidentally these issues pertain to the Assessment Year 1992-93.