Sugar mills across the country are apprehensive about the burden of retrospective income tax, following a recent decision of the Supreme Court on how the tax should be calculated for mills. Soon after the three-judge bench gave its verdict in the case on March 5, sugar mills have started receiving demand notices from the income tax department, asking them to pay their dues.
Since 2009, sugar mills in Maharashtra have been fighting a long and complicated legal battle on the amount of income tax payable by them. The income tax department had raised demands worth around Rs 1,200 crore on the mills that had paid above the then Statuary Minimum Price (SMP). The assessing officers had claimed that this was taxable income. Mills have argued against this and claimed that extra income paid to farmers was actually business expenditure, and not profit.
Since then, the SMP has been replaced by the Fair and Remunerative Price (FRP). The revenue sharing formula suggested by the C Rangarajan Committee has also been accepted, and the sugarcane price control board has taken on itself the task of distribution of profits and deciding the final cane price after the season is over. The formula mandates sharing of profits, with 70 per cent of it going to farmers, while the rest goes to the mills.
During the case, mills had argued that in order to ensure steady supply of cane, they have to pay well above the FRP. In its judgment, the court has called for a reassement of the situation. “Therefore, 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,” the judgment read.
Some of the cooperative mills have already received notices from the income tax department, with the tax officer putting retrospective claims as high as Rs 75 -100 crore on them. With mills struggling to pay even the FRP in the current season, this has come as a major shock for them.