TMI Blog2000 (6) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... the said provisions were examined and it was observed that even a co-operative society comprising of traders dealing in agricultural produce would become entitled to exemption, which was not intention of the Parliament, and that it would be agricultural produce in the hands of agriculturists but it will be an agricultural commodity in the hands of traders or second party. In the present case, Assessing Officer did verify that agricultural produce was produced by farmers who are members of the assessee-society. He examined the issue as to whether marketing produce implied marketing of direct produce or whether the process involved in making produce marketable would entitle the assessee to claim benefit under section 80P(2)(iv). He referred to the decision in CIT v. Karjan Co-operative Cotton Sale Ginning Pressing Society Ltd [1981] 129 ITR 821 (Guj.), wherein it was held that the concept of marketing in section 80P(2)(a)(iii) includes all activities connected with the process of taking over the agricultural produce from members and handing over marketable commodity to the purchaser and all immediate processes connected with marketing of agricultural produce of its members. He held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various other judgments mentioned in assessment order were placed before Assessing Officer. Assessing Officer has duly considered all the said judgments before coming to the conclusion that the assessee was entitled to exemption under section 80P(2)(a)(iii). He submitted that the said provisions allow deduction from income-tax to a co-operative society and not exemption. Since 100% income has to be allowed a deduction, it would amount to exemption. He stressed that the case is fully covered by the ratio of the aforesaid decision in 177 ITR 418, unless it is superseded by any other decision of the Ape Court. He also stressed that where cane grower whether by himself or through a co-op. society crushes the cane and produces gur, it cannot be said that the activity will not be covered by section 80P(2)(a)(iii). He referred to the decision in Assam Co-operative Apex Marketing Society Ltd.'s case, wherein it was settled that the kapas was ginned and converted into cotton with cottonseed as its bye product and then sold in the market. He pointed out. that in the present case, the said ratio fully apply where sugarcane of the members is crushed and converted into sugar with molasses as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has failed to take into account the aforesaid crucial observations. Separation of cotton seed from cotton and sale of cotton and cotton seed cannot be equated with production of sugar and its bye-products from sugarcane. The cotton as grown in field and its seeds as separated from cotton were sold in raw form by the society, whereas the assessee-society was engaged in elaborate industrial and production activities. He, therefore, held that the produce marketed by the assessee-society was not agricultural produce of the members of the society. CIT thus cancelled assessment order passed by Assessing Officer on 31-1-1996 to be made de novo and directed that income may be computed after allowing a reasonable opportunity of being heard to the assessee. 4. Ld. counsel Shri S.S. Rikhy submitted that income of the co-op. society from sale of sugar is exempt under section 80P(2)(a)(iii). He refer-red to assessment order and submitted that DCIT had decided the issue in favour of the assessee after consideration of decisions of the Apex Court. He submitted that the amendment made in section 80P(2)(a)(iii) retrospectively w.e.f. 1-4-1968 is to cover cases of non-members. On a query ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was agricultural produce and the produce belonged to its members, it was the agricultural produce. Under the provisions of section 80P(2)(a)(iii), a co-op. society would be entitled to exemption in respect of its activities of marketing of agricultural produce received, purchased or acquired from its members. The term 'marketing' cannot be restricted to the buying and selling activity. IL includes all activities connected with the process of taking over the agricultural produce of its members and handing over the marketable commodities to the purchasers and all the intermediate process connected with the marketing of the agricultural produce of its members; (iv) Kishan Lal v. State of Rajasthan [1990] 183 ITR 433 (SC). In the said case, Legislative powers of Parliament and of State Legislatures were examined in the context of entry-52 of fist-I of Schedule VII, entry-28 of list-II and entry-33 of list-III. The issue was power to levy market fee. The Apex Court observed that the definition of 'agricultural produce' in the Rajasthan Agricultural Produce Marketing Act, 1961, was not exhaustive but inclusive and neither excludes any item produced in mills or factories nor confines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and selling and hence the assessee was entitled to exemption; (vii) CIT v. Kerala State Co-operative Marketing Federation Ltd. [1992] 193 ITR 624 (Ker.), in which the High Court held that in order to earn the exemption under section 80P(2)(a)(iii), it was sufficient if the agricultural produce belonged to the members of the society. The words used were not 'agricultural produce grown by its members' but 'agricultural produce of its members'; and (viii) Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814, wherein the Apex Court observed that the only condition required for qualifying the income for exemption under section 80P(2)(a)(iii) is that the assessee's business must be that of marketing, the marketing must be of agricultural produce and that agricultural produce must have belonged to the members of the assessee-society before they came up for marketing by it, whether on its own account or on account of the members themselves. Section 80P does not in effect limit the scope of the exemption to agricultural produce raised by members alone but includes agricultural produce raised by others but belonging to co-operative societies. The contrast in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Federation Ltd.'s case He stressed that marketing would include all steps which made a commodity marketable. The sugarcane has to be converted into sugar before the same can be marketed and, therefore, the assessee is entitled to exemption. The Apex Court has directly dealt with this issue in Kerala State Co-operative Marketing Federation Ltd.'s case. He referred to page 820 of report, where it is observed that 'the only condition required for qualifying the assessee's income for exemption was that the assessee's business must be that of marketing, the marketing must be of agricultural produce and that agricultural produce must have belonged to the members of the assessee-society before they came up for marketing by it, whether on its own account or on account of the members themselves'. The Apex Court also observed that the language adopted in section 80P(2)(a)(iii) with which we are concerned will admit of the interpretation that the society engaged in marketing of agricultural produce of its members, as agricultural produce 'belonging to' its members which is not necessarily raised by such member. Thus, when the provisions of section 80P of the Act admit of a wider exemption, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processing cannot include manufacture of sugar. In the present case, there is clear activity of manufacturing sugar and molasses - a bye-product which attracts Excise duty. He referred to the order dated 31-3-1997 of CIT(A) in the case of Budhewal Co-op Sugar Mills Ltd., wherein at page 5 the scheme of old section 81 and new section 80P has been examined and it has been observed that there is a subtle difference in the said provisions. He referred to paragraph 4, where CIT(A) observed that section 80P is somewhat more specific as it states 'where gross total income includes any income which is referred to in sub-section (2) then in accordance with the provision of the section the income specified in sub-section (2) would be allowed as a deduction and one of the sums specified in sub-section (2) was the profits and gains derived from marketing of agricultural produce of its members'. Ld. DR referred to page 2663 of Vol. 2, Income-tax Law, 5th Edn., by Chaturvedi and Pithisaria, where it is noted that term ,manufacturing' has been interpreted in several court decisions. It is observed that the said term generally refers to 'production of an article for use from raw, semi-raw or prep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has been rejected re 171 ITR 50 (statutes); (e) CIT v. Kerala State Co-op. Marketing Federation Ltd.'s case , in order to show distinction between agricultural produce and agricultural commodity - (this decision now stands reversed in Kerala State Co-operative Marketing Federation Ltd.'s case ; (f) Oudhganga Vedganga S.S.K. Ltd. v. Dy. CIT[1995] 54 ITD 97 (Pune), wherein it was held that the activity of marketing of agricultural produce, referred to in section 80P(2)(a)(iii), must be confined to the direct produce from agriculture and not to anything manufactured or processed out of it and since the assessee-society marketed sugar which was not agrl. produce of its members, the assessee's claim for deduction under that section was rightly rejected. Ld. DR further submitted that the case law relied upon by ld. counsels is distinguishable on facts. In Meenachil Rubber Marketing Processing Cooperative Society Ltd.'s case, the question was of extracting oil from oil seeds and there was no basic change in agrl. produce, as there was no chemical reaction. Similarly, he pointed out that the decision in Kishan Lal's case related Lo market fee and was not relevant. He submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case and may lead to various practical difficulties which cannot be foreseen at this stage. Thus, we reject the request of Shri Garg to act as an intervenor in this case. 5.1 It is observed that the basic issue before us is as to whether- the agrl. produce retains the character of agricultural produce at the time of marketing thereof. Sub-clause (iii) of clause (a) of sub-section (2) of section 80P reads as under: '(iii) the marketing of the agricultural produce grown by its members, or' In the case before us, sugarcane is grown by members of the assessee-society and it purchases sugarcane and ultimately produces sugar. The crucial issue is whether at the time of marketing of sugar, the same could be treated to retain the character of agrl. produce grown by members of the society, or it represents a commercial commodity which no longer has the character of agrl. produce. Ld. counsel has stressed that the words 'marketing of agrl. produce', even in the amended provisions, remain the same. Ld. counsel has referred mainly to the decision in Ryots Agrl Produce Co-op. Marketing Society Ltd's case , wherein the expression 'marketing' has been interpreted to mean 'the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garcane is grown by members of the assessee-society. We are only required to examine whether at the time of marketing of sugar whether the said commodity can be still treated as agrl. produce grown by members of the society. Ld. counsel has also relied on the decision in Haryana State Co-op. Supply Marketing Federation Ltd.' scase, wherein it has been observed that the term, marketing' cannot be restricted to the buying and selling activity. It includes all activities connected with the process of taking over the agrl. produce of its members and handling over marketable commodities to the purchasers and all the intermediate processes connected with the marketing of the agrl. produce of the members. The jurisdictional High Court relied on the decision in Karjan Co-op. Cotton Sale, Ginning Pressing Society Ltd. case . It referred to the Principle and Practice of marketing in India by Dr. C.B. Mamoria and B.L. Joshi and observed that classification of marketing functions were (1) activities involving transfer of ownership ie- buying and selling; (2) activities involving physical supply, i.e. transportation and storage; and (3) activities facilitating the foregoing functions, ie. s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived from sale of sugar was not on account of marketing of sugarcane of its members but it was on account of manufacturing of sugar out of sugarcane purchased on its own account and accordingly the deduction claimed under section 80P(2)(a)(iii) was not available to the assessee-society. Ld. counsel has tried to take a plea that the said decision recognises the facts that sugarcane belonging to members if converted into sugar and marketed would be covered for the purpose of exemption under section 80P(2)(a)(iii). After going through the aforesaid decisions, we feel that marketing of agrl. produce contemplated by section 80P(2)(a)(iii), as amended retrospectively, must relate to agrl. produce as grown by members of the society. The main emphasis of the argument of Id. counsel is on expression 'marketing'. It is observed from the decision in Ryots Agrl. Produce Co-op. Marketing Society Ltd's case that in order to make agrl. produce fit for marketing, it may have to be transported or processed. They have held that activities of transporting, processing, selling constitute a single activity. They have observed that marketing functions may involve exchange functions such as buying and se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not and in case of doubt or ambiguity benefit of it must go to the State. We feel that if provisions of section 80P(2)(a)(iii) were to be interpreted in a way pleaded by Id. counsel, then the words 'marketing of agrl. produce' would not only cover processing of agrl. produce to make it fit for marketing but all manufacturing activities even if they result in manufacturing/production of entirely a new item, vis-a-vis agrl. produce originally grown by members of the society. We feel that such an interpretation would amount to importing of meaning into the provision, which was never intended by the Legislature. We have, therefore,, to strike a balance between adopting a liberal or strict interpretation keeping in view the object of the provisions, so that no violation is done to the meaning of the words used in the provision. We may observe that in the decision in Haryana State Co-op. Supply Marketing Federation Ltd.'s case , it has been observed at page 57 that certain functions are connected with marketing, for example, buying and selling, transportation and storage, standardisation and grading, financing, risk taking and marketing research. The said activities in no way indic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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