Amend IT Act to define agro produce

Updated: Feb 20 2002, 05:30am hrs
The sugar cooperatives buy canes largely from its farmer members. These cooperatives are unable to get income tax exemption due to the existing flaw in Section 80 P (2) (a) (iii) of the Income Tax (IT) Act, which does not define the term agricultural produce. The Section should be amended to include the definition of agricultural produce of its member, as laid down in the Supreme Court verdict in the case of MP Cooperative Bank Ltd v/s Additional Commissioner of Income Tax, dated January 19, 1996.

Comparatively, Section 80 P (2) (a) (v) of IT Act exempts those cooperative societies from paying IT who are engaged in processing by procuring agricultural produce from non-members.

The erstwhile Section 35C of IT Act should be restored in its original form to treat 100 per cent actual expenditure incurred on agricultural development as deductible from taxable income. Section 2 (31) does not recognise cooperative societies for assessment. Societies under this Section are referred to as association of persons. Whereas section 2 (9) of IT Act and every Finance Act of the government has recognised cooperative societies as a separate identity and prescribed separate rate of taxation. Hence there is a need to recognise cooperative societies under Section 2 (31).

The national and state federations of various cooperative societies, which provide the same service to its members as primary societies, should be exempt from payment of income tax. Necessary amendments should also be made regarding payment of provident fund (PF) dues. PF contributions of both employers and employees should be allowed deduction in the year in which they are actually paid.

Sugar factories undertaking research and development work and producing new products with value addition, like fortified sugar, organic sugar, ethanol and co-generation of power should be exempt totally from direct and indirect taxes. At least five-year tax holiday should be given to the industry using a part of their budget on R&D as well as on modern biotechnology methods, process and equipment.

At present, excise duty on refined sugar of less than 45 Icumsa is higher than planting white sugar on account of value addition. The excise duty on refined sugar should be brought down to the level of plantation white sugar to make this commodity globally competitive. The excise duty on molasses is as high as Rs 500 per tonne and should be reduced. The production of ethanol will not be viable if the mills have to pay such high excise duty. Fiscal incentives being given to new and expansion projects in the sugar sector should be treated as capital receipts and not as revenue receipts. As sugar is a seasonal industry it is unable to avail the benefits under depreciation allowance for assets. At present, the depreciation is restricted to 50 per cent of the allowance on assets acquired and put into business for less than 180 days. This period should be reduced to 90 days.

(The writer is the managing director of National Federation of Cooperative Sugar Factories Ltd)