No income tax on additional payments made by sugar mills

October 28, 2021
The Times of India |

Kolhapur: The threat of income tax over the additional payment made to the farmers has been finally withdrawn. 

The Union finance ministry on Monday issued a circular stating that as per the suggestion of the Central Board of Direct Taxes, the clause of Income Tax Act, 1961, which mandates the cooperative sugar mills to pay the income tax over on the amount paid in addition to the fair and remunerative price (FRP) fixed by central government or State Advised Price (SAP) fixed by state government has been amended. 

It now states that the no income tax will be charged over the price paid higher than the fixed price.For last two decades, the sugar mills were fighting to withdraw the clause. The I-T department used to issue demand notices to the mills. The mills have income tax worth of crores of rupees to be paid to the department as per the clause. 

The I-T officials used to consider the amount paid in addition to the FRP as the profit of the mills. "Usually, the mills pay amount equal to FRP to the farmers. However, if they reap large benefits from sugar and byproduct business during the season, they pay the share to the farmers. It is not profit; rather, those are the expenses made," said Vijay Autade, sugar industry expert in Kolhapur. 

Autade said that they fought till the Supreme Court to get the clause repealed. The mills would not be able to operate if the income tax dues worth thousands of crores are to be collected from the mills. They will simply collapse, he said. 

He added that now that the decision has been taken and government will have to take the decision to the Parliament to ament the Act. As per the circular, the income tax over higher price paid to the farmers has been done away with from 2016. 

"We are hopeful that the amendment is made such that the decision is implemented retrospectively," said Autade.