Circular No. 18/2021

Clarification regarding section 36 1 xvii of the income tax act 1961 inserted vide finance act 2015

What this is

Circular No. 18/2021 was issued by the Central Board of Direct Taxes on 25 October 2021. Its subject is Clarification regarding section 36 1 xvii of the income tax act 1961 inserted vide finance act 2015.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Clarifies the reach of the words "price fixed or approved by the Government" in section 36(1)(xvii), the clause inserted by the Finance Act 2015 allowing a sugar co-operative a deduction for sugarcane purchased at a price equal to or below the Government fixed price. The Board takes the view that the phrase covers price fixation by State Governments through State-level Acts, orders or other legal instruments regulating the purchase price for sugarcane, including the State Advised Price, even where that price is higher than the Statutory Minimum Price or Fair and Remunerative Price fixed by the Central Government.

Why it was issued

The treatment of the additional sugarcane price paid by co-operative sugar mills as a distribution of income to farmer members, and the tax liability that followed, was brought to the notice of the Board.

Who it reaches

Co-operative sugar mills paying a State Advised Price above the central minimum
Assessing Officers examining disallowance of excess cane price under section 36(1)(xvii)
Sugarcane grower members of such co-operatives
Representatives arguing old cane price disallowances

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.36	s.2, s.29, s.30, s.31, s.32, s.66

The instrument, as the Board published it

The department publishes this one only as a PDF, so the words below were read out of that PDF by machine. That reading can carry its own mistakes — a misread number, a broken line. Check the signed document before you rely on a figure in it.

F.NO.173/146/2021/ITA-I
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
Circular No. 17/2021
New Delhi, Dated 20 October, 2021

Subject: Clarification regarding Section 36(1)(xvii) of the Income-tax Act, 1961 inserted vide Finance Act, 2015 - reg.

The Finance Act, 2015 inserted the following clause (xvii) in sub-section (1) of section 36 of the Income-tax Act, 1961 (the Act) to provide for deduction on account of the amount of expenditure incurred by a co-operative society engaged in the business of manufacture of sugar -

"(xvii) the amount of expenditure incurred by a co-operative society engaged in the business of manufacture of sugar for purchase of sugarcane at a price which is equal to or less than the price fixed or approved by the Government;"

This clause took effect from 01.04.2016 and accordingly applied to assessment year 2016-17 and subsequent assessment years.

2. The issue of treatment of additional payment for sugarcane price by Cooperative sugar mills as an income distribution to farmer members and the resultant tax liabilities has been brought to the notice of the Central Board of Direct Taxes (the Board).

3. The matter has been examined by the Board and in this regard, it is clarified that the phrase "price fixed or approved by the Government" includes price fixation by State Governments through State-level Acts/Orders or other legal instruments that regulate the purchase price for sugarcane, including State Advised Price, which may be higher than the Statutory Minimum Price/Fair and Remunerative Price fixed by the Central Government.

(Sourabh Jain)
Under Secretary to the Government of India

Copy to:
1. PS to F.M./PS to MoS (F).
2. PS to Revenue Secretary.
3. Chairman (CBDT) & All Members of CBDT.
4. All Pr. CCsIT/CCsIT/Pr. DGs IT/DGs IT.
5. All Joint Secretaries/CsIT, CBDT.
6. Directors/Deputy Secretaries/Under Secretaries of CBDT.
7. Web Manager, with a request to place the order on official Income-tax website.
8. CIT (M&TP), Official Spokesperson of CBDT with a request to publicize widely.
9. JCIT, Data Base Cell for placing it on irsofficersonline.gov.in.
10. The Institute of Chartered Accountants of India, IP Estate, New Delhi.
11. All Chambers of Commerce.
12. The Guard File.

(Sourabh Jain)
Under Secretary to the Government of India

What to watch

The clause it construes took effect from 1 April 2016 and applies from assessment year 2016-17 onwards, so this clarification does not by itself reach earlier years.
The price must still be fixed or approved by a Government through a legal instrument; a price the mill itself resolves to pay is not covered.
The copy supplied is internally inconsistent, the header reading Circular No. 17/2021 dated 20 October 2021 against the catalogued number and date of Circular No. 18/2021 dated 25 October 2021, so verify the citation against the gazetted text before relying on it.
The circular decides the meaning of the phrase only; it does not deal with the machinery for reopening a completed assessment.

Where you meet it

In an assessment or appeal where the excess of State Advised Price over the Statutory Minimum Price has been disallowed as an appropriation of profit.

What it names

It mentions. Circular No. 17/2021

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 14/2023 — Standard operating procedure SOP for making application for recomputation of total income of a co operative society enga 27 July 2023
Notification No. 1 — Income-tax (First Amendment) Rules, 2009 - Insertion of rule 40E 5 January 2009
Notification No. 56 — For the purposes of the said clause notified under section 4 11 April 2008
Circular No. 3/2008 — Explanatory Notes to the Provisions of the Finance Act, 2007 12 March 2008
Notification No. 21 — For the purposes of the said clause notified under section 3 5 February 2008
Notification No. 208 — Amendment of the Income-tax Rules under section 14A of the Income-tax Act, 1961 10 August 2006

← Circular No. 19/2021 · Circular No. 17/2021 →

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.