Circular No. 6/2007

Allowability of harvesting and transportation expenses in the cases of Co-operative sugar mills

What this is

Circular No. 6/2007 was issued by the Central Board of Direct Taxes on 11 October 2007. Its subject is Allowability of harvesting and transportation expenses in the cases of Co-operative sugar mills.

What it does

Tells Assessing Officers that harvesting and transportation expenses incurred by a co-operative sugar mill in procuring sugarcane from its member farmers are allowable in computing the mill's income. The Board's reasoning is that a mill needs an adequate and sustained supply of freshly cut cane to run continuously, so the expenditure is incurred out of commercial expediency and is prima facie wholly and exclusively for the purpose of business.

Why it was issued

Instances came to the Board's notice where Assessing Officers had disallowed such claims, the farmers being members of the mill who were bound by agreement to supply cane exclusively to it.

Who it reaches

Co-operative sugar mills claiming cane harvesting and transport costs
Member farmers supplying cane under an exclusive supply agreement
Assessing Officers examining such disallowances
Appellate authorities hearing pending cane expense appeals

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

Allowability of harvesting and transportation expenses in the cases of Co-operative sugar mills
CIRCULAR NO. 6/2007, DATED 11-10-2007

Instances have come to the notice of the Board wherein Assessing Officers have disallowed the claim of harvesting and transportation expenses incurred by the Co-operative sugar mills for procuring sugarcane from farmers, who are members of such Co-operative Sugar Mills and who are bound under an agreement to supply the sugarcane exclusively to the concerned sugar Mill.
2. The issue of allowability of such expenses in the case of Co-operative Sugar Mills has been examined by the Board. These expenses are incurred by the Sugar Mills for ensuring an adequate and sustained supply of freshly cut sugarcane that is an essential input for the continuous running of such Mills. These expenses are, therefore; incurred for a commercial expediency and are prima facie wholly and exclusively for the purpose of business. Such expenses are, therefore, allowable in the computation of the income of the Co-operative Sugar Mills.

What to watch

The circular speaks of co-operative sugar mills and of cane bought from member farmers under an exclusive supply agreement; it does not address other buyers or other crops.
It calls the expenditure allowable prima facie, so the quantum and genuineness of what was actually spent remain open to examination.
No assessment year is limited, but the circular says nothing about years already closed.

Where you meet it

A disallowance of harvesting and transport charges in a scrutiny assessment of a co-operative sugar mill, or the same ground in a first appeal.

What it names

It mentions. Circular No. 6/2007

← Circular No. 7/2007 · Circular No. 5/2007 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.