Deduction in respect of certain income of Producer Companies.
There is 100% tax free income benefit to the producer companies. Income Tax Act provides that where the gross total income of an assessee, being a Producer Company having a total turnover of less than one hundred crore rupees in any previous year, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100% of the profits and gains attributable to such business for the previous year relevant to an assessment year commencing on or after the 1st day of April, 2019, but before the 1st day of April, 2025.
Section 80PA of the Income Tax Act- 1961 reads as under:
80PA. (1) Where the gross total income of an assessee, being a Producer Company having a total turnover of less than one hundred crore rupees in any previous year, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains attributable to such business for the previous year relevant to an assessment year commencing on or after the 1st day of April, 2019, but before the 1st day of April, 2025.
(2) In a case where the assessee is entitled also to deduction under any other provision of this Chapter, the deduction under this section shall be allowed with reference to the income, if any, as referred to in this section included in the gross total income as reduced by the deductions under such other provision of this Chapter.
Explanation.—For the purposes of this section,—
(i) “eligible business” means—
(a) the marketing of agricultural produce grown by the members; or
(b) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to the members; or
(c) the processing of the agricultural produce of the members;
(ii) “member” shall have the meaning assigned to it in clause (d) of section 581A of the Companies Act, 1956 (1 of 1956)72;
(iii) “Producer Company” shall have the meaning assigned to it in clause (l) of section 581A of the Companies Act, 1956 (1 of 1956)
It May be noted that the “producer company” has been defined u/s 581A read with section 581B of the Income Tax Act as under:
PRODUCER COMPANIES
In this Part, unless the context otherwise requires,-
(a) “Active Member” means a member who fulfils the quantum and period of patronage of the Producer Company as may be required by the articles;
(b) “Chief Executive” means an individual appointed as such under sub-section (1) of section 581W;
(c) “limited return” means the maximum dividend as may be specified by the articles;
(d) “Member” means a person or Product institution (whether incorporated or not) admitted as a Member of a Producer Company and who retains the qualifications necessary for continuance as such;
(e) “inter-State co-operative society” means a multi-State co-operative society as defined in clause (k) of section 3 of the Multi-State Co-operative Societies Act, 1984 (51 of 1984) and includes any co-operative society registered under any other law for the time being in force, which has, subsequent to its formation, extended any of its objects to more than one State by enlisting the participation of persons or by extending any of its activities outside the State whether directly or indirectly or through an institution of which it is a constituent;
(f) “mutual assistance principles” means the principles set out in sub-section (2) of section 581G;
(g) “officer” includes any director or Chief Executive or Secretary or any person in accordance with whose directions or instructions part or whole of the business of the Producer Company is carried on;
(h) “patronage” means the use of services offered by the Producer Company to its Members by participation in its business activities;
(i) “patronage bonus” means payments made by a Producer Company out of its surplus income to the Members in proportion to their respective patronage;
(j) “primary produce” means-
(i) produce of farmers, arising from agriculture (including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising and farming plantation products), or from any other primary activity or service which promotes the interest of the farmers or consumers; or
(ii) produce of persons engaged in handloom, handicraft and other cottage industries;
(iii) any product resulting from any of the above activities, including by-products of such products;
(iv) any product resulting from an ancillary activity that would assist or promote any of the aforesaid activities or anything ancillary thereto;
(v) any Activity which is intended to increase the production of anything referred to in sub-clauses (i) to (iv) or improve the quality thereof; (k) “producer” means any person engaged in any activity connected with or relatable to any primary produce;
(l) “Producer Company” means a body corporate having objects or activities specified in section 58IB and registered as Producer Company under this Act;
(m) “Producer institution” means a Producer Company or any other institution having only producer or producers or Producer Company or Producer Companies as its member whether incorporated or not having any of the objects referred to in section 58 IB and which agrees to make use of the services of the Producer Company or Producer Companies as provided in its articles.
(n) “withheld price” means part of the price due and payable for goods supplied by any Member to the Producer Company; and as withheld by the Producer Company for payment on a subsequent date.
CHAPTER II
INCORPORATION OF PRODUCER COMPANIES AND OTHER MATTERS
Objects of Producer Company.
581B. (1) The objects of the Producer Company shall relate to all or any of the following matters, namely :
(a) |
production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit : |
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Provided that the Producer Company may carry on any of the activities specified in this clause either by itself or through other institution; |
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(b) |
processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members; |
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(c) |
manufacture, sale or supply of machinery, equipment or consumables mainly to its Members; |
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(d) |
providing education on the mutual assistance principles to its Members and others; |
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(e) |
rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members; |
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(f) |
generation, transmission and distribution of power, revitalisation of land and water resources, their use, conservation and communications relatable to primary produce; |
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(g) |
insurance of producers or their primary produce; |
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(h) |
promoting techniques of mutuality and mutual assistance; |
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(i) |
welfare measures or facilities for the benefit of Members as may be decided by the Board; |
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(j) |
any other activity, ancillary or incidental to any of the activities referred to in clauses (a) to (i) or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner; |
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(k) |
financing of procurement, processing, marketing or other activities specified in clauses (a) to (j) which include extending of credit facilities or any other financial services to its Members. |
(2) Every Producer Company shall deal primarily with the produce of its active Members for carrying out any of its objects specified in this section.
Formation of Producer Company and its registration.
581C. (1) Any ten or more individuals, each of them being a producer or any two or more producer institutions, or a combination of ten or more individuals and producer institutions, desirous of forming a Producer Company having its objects specified in section 581B and otherwise complying with the requirements of this Part and the provisions of this Act in respect of registration, may form an incorporated Company as a Producer Company under this Act.
(2) If the Registrar is satisfied that all the requirements of this Act have been complied with in respect of registration and matters precedent and incidental thereto, he shall, within thirty days of the receipt of the documents required for registration, register the memorandum, the articles and other documents, if any, and issue a certificate of incorporation under this Act.
(3) A Producer Company so formed shall have the liability of its Members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them and be termed a company limited by shares.
(4) The Producer Company may reimburse to its promoters all other direct costs associated with the promotion and registration of the company including registration, legal fees, printing of a memorandum and articles and the payment thereof shall be subject to the approval at its first general meeting of the Members.
(5) On registration under sub-section (1), the Producer Company shall become a body corporate as if it is a private limited company to which the provisions contained in this Part apply, without, however, any limit to the number of Members thereof, and the Producer Company shall not, under any circumstance, whatsoever, become or be deemed to become a public limited company under this Act.
Membership and voting rights of Members of Producer Company.
581D. (1)(a) In a case where the membership consists solely of individual members, the voting rights shall be based on a single vote for every Member, irrespective of his shareholding or patronage of the Producer Company.
(b) In a case where the membership consists of Producer institutions only, the voting rights of such Producer institutions shall be determined on the basis of their participation in the business of the Producer Company in the previous year, as may be specified by articles :
Provided that during the first year of registration of a Producer Company, the voting rights shall be determined on the basis of the shareholding by such Producer institutions.
(c) In a case where the membership consists of individuals and Producer institutions, the voting rights shall be computed on the basis of a single vote for every Member.
(2) The articles of any Producer Company may provide for the conditions, subject to which a Member may continue to retain his membership, and the manner in which voting rights shall be exercised by the Members.
(3) Notwithstanding anything contained in sub-section (1) or sub-section (2), any Producer Company may, if so authorised by its articles, restrict the voting rights to active Members, in any special or general meeting.
(4) No person, who has any business interest which is in conflict with business of the Producer Company, shall become a Member of that Company.
(5) A Member, who acquires any business interest which is in conflict with the business of the Producer Company, shall cease to be a Member of that Company and be removed as a Member in accordance with articles.
Benefits to Members.
581E. (1) Subject to provisions made in articles, every Member shall initially receive only such value for the produce or products pooled and supplied as the Board of Producer Company may determine, and the withheld price may be disbursed later in cash or in kind or by allotment of equity shares, in proportion to the produce supplied to the Producer Company during the financial year to such extent and in such manner and subject to such conditions as may be decided by the Board.
(2) Every Member shall, on the share capital contributed, receive only a limited return:
Provided that every such Member may be allotted bonus shares in accordance with the provisions contained in section 581ZJ.
(3) The surplus if any, remaining after making provision for payment of limited return and reserves referred to in section 581ZI, may be disbursed as patronage bonus, amongst the Members, in proportion to their participation in the business of the Producer Company, either in cash or by way of allotment of equity shares, or both, as may be decided by the Members at the general meeting.
Memorandum of Producer Company.
581F. The memorandum of association of every Producer Company shall state
(a) |
the name of the company with “Producer Company Limited” as the last words of the name of such Company; |
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(b) |
the State in which the registered office of the Producer Company is to situate; |
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(c) |
the main objects of the Producer Company shall be one or more of the objects specified in section 581B; |
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(d) |
the names and addresses of the persons who have subscribed to the memorandum; |
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(e) |
the amount of share capital with which the Producer Company is to be registered and division thereof into shares of a fixed amount; |
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(f) |
the names, addresses and occupations of the subscribers being producers, who shall act as the first directors in accordance with sub-section (2) of section 581J; |
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(g) |
that the liability of its members is limited; |
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(h) |
opposite to the subscriber’s name the number of shares each subscriber takes : |
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Provided that no subscriber shall take less than one share; |
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(i) |
in case the objects of the Producer Company are not confined to one State, the States to whose territories the objects extend. |
Articles of association.
581G. (1) There shall be presented, for registration to the Registrar of the State to which the registered office of the Producer Company is, stated by the memorandum of association, to be situate
(a) |
memorandum of the Producer Company; |
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(b) |
its articles duly signed by the subscribers to the Memorandum. |
(2) The articles shall contain the following mutual assistance principles, namely:
(a) |
the membership shall be voluntary and available, to all eligible persons who, can participate or avail of the facilities or services of the Producer Company, and are willing to accept the duties of membership; |
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(b) |
each Member shall, save as otherwise provided in this Part, have only a single vote irrespective of the shareholding; |
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(c) |
the Producer Company shall be administered by a Board consisting of persons elected or appointed as directors in the manner consistent with the provisions of this Part and the Board shall be accountable to the Members; |
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(d) |
save as provided in this Part, there shall be limited return on share capital; |
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(e) |
the surplus arising out of the operations of the Producer Company shall be distributed in an equitable manner by |
(i) |
providing for the development of the business of the Producer Company; |
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(ii) |
providing for common facilities; and |
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(iii) |
distributing amongst the Members, as may be admissible in proportion to their respective participation in the business; |
(f) |
provision shall be made for the education of Members, employees and others, on the principles of mutuality and techniques of mutual assistance; |
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(g) |
the Producer Company shall actively co-operate with other Producer Companies (and other organisations following similar principles) at local, national or international level so as to best serve the interest of their Members and the communities it purports to serve. |
(3) Without prejudice to the generality of the foregoing provisions of sub-sections (1) and (2), the articles shall contain the following provisions, namely:
(a) |
the qualifications for membership, the conditions for continuance or cancellation of membership and the terms, conditions and procedure for transfer of shares; |
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(b) |
the manner of ascertaining the patronage and voting right based on patronage; |
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(c) |
subject to the provisions contained in sub-section (1) of section 581N, the manner of constitution of the Board, its powers and duties, the minimum and maximum number of directors, manner of election and appointment of directors and retirement by rotation, qualifications for being elected or continuance as such and the terms of office of the said directors, their powers and duties, conditions for election or co-option of directors, method of removal of directors and the filling up of vacancies on the Board, and the manner and the terms of appointment of the Chief Executive; |
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(d) |
the election of the Chairman, term of office of directors and the Chairman, manner of voting at the general or special meetings of Members, procedure for voting, by directors at meetings of the Board, powers of the Chairman and the circumstances under which the Chairman may exercise a casting vote; |
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(e) |
the circumstances under which, and the manner in which, the withheld price is to be determined and distributed; |
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(f) |
the manner of disbursement of patronage bonus in cash or by issue of equity shares, or both; |
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(g) |
the contribution to be shared and related matters referred to in sub-section (2) of section 581ZI; |
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(h) |
the matters relating to issue of bonus shares out of general reserves as set out in section 581ZJ; |
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(i) |
the basis and manner of allotment of equity shares of the Producer Company in lieu of the whole or part of the sale proceeds of produce or products supplied by the Members; |
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(j) |
the amount of reserves, sources from which funds may be raised, limitation on raising of funds, restriction on the use of such funds and the extent of debt that may be contracted and the conditions thereof; |
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(k) |
the credit, loans or advances which may be granted to a Member and the conditions for the grant of the same; |
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(l) |
the right of any Member to obtain information relating to general business of the company; |
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(m) |
the basis and manner of distribution and disposal of funds available after meeting liabilities in the event of dissolution or liquidation of the Producer Company; |
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(n) |
the authorisation for division, amalgamation, merger, creation of subsidiaries and the entering into joint ventures and other matters connected therewith; |
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(o) |
laying of the memorandum and articles of the Producer Company before a special general meeting to be held within ninety days of its registration; |
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(p) |
any other provision, which the Members may, by special resolution recommend to be included in articles. |
Amendment of memorandum.
581H. (1) A Producer Company shall not alter the conditions contained in its memorandum except in the cases, by the mode and to the extent for which express provision is made in this Act.
(2) A Producer Company may, by special resolution, not inconsistent with section 581B, alter its objects specified in its memorandum.
(3) A copy of the amended memorandum, together with a copy of the special resolution duly certified by two directors, shall be filed with the Registrar within thirty days from the date of adoption of any resolution referred to in sub-section (2) :
Provided that in the case of transfer of the registered office of a Producer Company from the jurisdiction of one Registrar to another, certified copies of the special resolution certified by two directors shall be filed with both the Registrars within thirty days, and each Registrar shall record the same, and thereupon the Registrar from whose jurisdiction the office is transferred, shall forthwith forward to the other Registrar all documents relating to the Producer Company.
(4) The alteration of the provisions of memorandum relating to the change of the place of its registered office from one State to another shall not take effect unless it is confirmed by the Company Law Board on petition.
Amendment of articles.
581-I. (1) Any amendment of the articles shall be proposed by not less than two-third of the elected directors or by not less than one-third of the Members of the Producer Company, and adopted by the Members by a special resolution.
(2) A copy of the amended articles together with the copy of the special resolution, both duly certified by two directors, shall be filed with the Registrar within thirty days from the date of its adoption.
Option to inter-State co-operative societies to become Producer Companies.
581J. (1) Notwithstanding anything contained in sub-section (1) of section 581C, any inter-State co-operative society with objects not confined to one State may make an application to the Registrar for registration as Producer Company under this Part.
(2) Every application under sub-section (1) shall be accompanied by
(a) |
a copy of the special resolution, of not less than two-third of total members of inter-State co-operative society, for its incorporation as a Producer Company under this Act; |
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(b) |
a statement showing |
(i) |
names and addresses or the occupation of the directors and Chief Executive, if any, by whatever name called, of such co-operative; and |
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(ii) |
list of members of such inter-State co-operative society; |
(c) |
a statement indicating that the inter-State co-operative society is engaged in any one or more of the objects specified in section 581B; |
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(d) |
a declaration by two or more directors of the inter-State co-operative society certifying that particulars given in clauses (a) to (c) are correct. |
