TMI Blog1998 (2) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee society buys sugarcane from its members, manufactures sugar out of such sugarcane purchased on its own account and sells sugar in the market. The end product which is the result of complicated manufacturing process is no more an agricultural produce. Sugar product did not belong to the members. Character of agricultural produce has undergone a complete change and accordingly the activity carried on cannot be termed as "marketing of agricultural produce of its members". He also noticed that in the case of Broach Distt. Co-operative Cotton Sales, Ginning Pressing Society Ltd , raw cotton produced by the members was processed by the society to make it marketable. Processing cost was paid by members and the society sold the produce belonging to its members.Salemade was not to the members. It was on these facts that the Hon'ble Supreme Court held that the activity was covered by section 80P(2)(a)(iii) being a society engaged in marketing of agricultural produce of its members. However, the facts being distinguishable, the ratio of the above decision was not held as applicable to the facts of the present case. The Assessing Officer, therefore, rejected the claim made under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 8OP(2)(a)(iii). 2.3 As regards the appeals for the assessment years 1993-94, 1994-95 and 1995-96, the CIT(Appeals) has taken a contrary view wherein the assessee society was not held eligible to deduction under section 80P(2)(a)(iii). In these appeals the assessee further placed reliance on decision in CIT v. Haryana State Co-operative Supply Marketing Federation Ltd. [1990] 182 ITR 53(Punj. Har.), wherein the marketing was defined as a business activity directed towards flow of goods and services from producer to consumer and in the present case since marketing involved, included purchase of sugarcane, manufacturing of sugar therefrom and sale of sugar in the market, the assessee was entitled to deduction under section 80P(2)(a)(iii). The Revenue at that stage also placed reliance on the Tribunal's decision in the case of Dudhganga Vedganga S.S.K Ltd v. Dy. CIT [1995] 54 ITD 97 (Pune), where on identical facts the claim made under section 8OP(2)(a)(iii) was not allowed. The CIT(Appeals) discussed elaborately the facts involved and certain decisions in paras 1.3, 1.4, 1.5 and 1.6 of her order for the assessment year 1993-94 and finally upheld the action of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years 1993-94 to 1995-96 which are claimed to be fully supported by various courts decisions. 5. We have carefully considered the facts and rival submissions. We have also gone through the orders of the lower authorities and also the various decisions cited for and against. Undisputed facts are that the assessee society was incorporated in October 1972 and as per its bye-laws the main object of the society is to establish a factory for the manufacture o sugar out of the sugarcane supplied to it primarily by its members and to sell the same to the best advantage of the members. The Society was constituted by the following four classes of members: (i) producer members; (ii) non-producer members; (iii) nominated members; and (iv) State Government. 5.1 During the relevant period there were 35810 members of the Society out of which 431 0 members were non-grower of agricultural produce. We also note that the assessee Society also purchased sugarcane from nonmembers during the year weighing 420202 qtls. for a consideration of Rs. 1,98,24,765. The assessee Society also purchased sugarcane being 6,59,995 qtls. for a consideration of Rs. 3,28,06,526 from Indri Cane Growers Co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketing, it may have to be transported or processed, but all the activities involved are understood as amounting to a single activity, namely, marketing and not independent activities such as transporting, processing, selling, etc. The Hon'ble Court further held that marketing functions may involve exchange functions such as buying and selling, physical functions such as storage, transportation, processing and other commercial functions such as standardisation, financing, market, intelligence, etc. 5.4 In the above cited case it was claimed that income derived by marketing of rice and oil derived from paddy and ground-nut belonging to its members was exempt from tax. The Court held that the goods were being marketed and the business of the assessee being marketing of agricultural produce of its members, its case fell under section 81(1)(c) and the fact that the goods which were ultimately marketed had been earlier processed with the aid of power would be of no consequence insofar as the exemption granted under section 81(1)(c) was concerned. The aforecited decision of the Hon'ble Karnataka High Court was approved by the Hon'ble Supreme Court in its judgment in the case of Broa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to the assessee Society and in the course of marketing of such produce the Society first converted the groundnut into oil and subsequently, the de-cake was converted into de-oil cake and oil was extracted by solvent extraction plant and these products were ultimately sold for the members. The Tribunal held that such activity was an activity of "marketing' of agricultural produce of its members and as such whole of profit or gain arising of such activity was exempt under section 8OP(2)(a)(iii). 5.7 In the present case, the Society purchased sugarcane from its members as well as non-members at a price fixed by the Government. The assessee Society manufactures sugar out of such sugarcane purchased in its factory and sells it in the open market an d earns profit therefrom. The facts of the present case are therefore, distinguishable from those of the cases cited supra wherein the Society processed the paddy into rice; groundnut into oil; and raw cotton was ginned and pressed and the end product in the shape of rice, oil and pressed cotton was sold in the market on behalf of the members at remunerative price and the Society charged the members for the processing done. Whereas, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling and further it cannot be said that agricultural produce of the members was being sold as it is only the paddy that belonged to the members and rice did not belong to them but belonged to the society. Ratio of the abovecited decisions directly applies to the facts of the present case as in this case also the assessee-society purchased sugarcane from members and non-members growers at rate fixed by Government like any other trader or manufacturer in this field, the sugar manufactured out of it was sold on its own account, the profit derived from sale of sugar is 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 80(2)(a)(iii) is not available thereon to the assessee Society. 5.12 As mentioned above, the assessee society also purchased sugarcane from non-members producers and Indri Cane Growers Co-operative Society. The income attributable to the sugarcane purchased from this Society was otherwise not entitled to exemption under section-80P(2)(a)(iii) in view of the decision of the Hon'ble Supreme Court in the case of Assam Co-o ..... 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