TMI Blog1995 (2) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... industries and supplementary business among the members on the co-operative principles. The assessee-society buys sugarcane from its members and from non-members and produces sugar after crushing the sugarcane. However, the sugarcane of the members of the co-operative sugar factory is not outrightly purchased. According to the Minimum Sugarcane Price Act, the complete price of the sugarcane will have to be paid within 14 days from the date of purchase of sugarcane. But the same is not the case with co-operative sugar factories, advances are paid to the members as directed by the Board of Directors and the State Government from time to time. The advances are to be paid three to four times during the season. The final cane price is paid to the members after the season is over, the final payment is made 14 to 15 months from the date of start of the season. It is, therefore, obvious that the sugarcane for the co-operative sugar factory is not an outright purchase of the factory. The final price is paid to the members after taking into consideration the results of that particular season. 3. The learned counsel also draws distinction between the co-operative sugar factory and a private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome and the exemption under section 80P(2)(a)(iii) should not be confused. The claim of exemption under section 80P(2)(a)(iii) is quite different from agricultural income under section 2(1A) of the Income-tax Act. Section 80P(2)(a)(iii) of the Act is only for the exemption of income from marketing of agricultural produce of members. The learned counsel reiterates that the appellant factory is not producer of sugarcane, the sugarcane supplied by the members is processed and sold in the market to get a higher price and the entire proceeds after deducting the expenses are given to the members. The returns of sugarcane supplied are given to the members after completion of the season. This requires 14 to 15 months to get the price of the sugarcane. The gain or loss due to the fluctuation of prices is to be borne by the supplier members. Outright purchases are not made by the factory as the price of sugarcane is paid only after its marketing. Hence, the society is entitled to exemption under section 80P(2)(a)(iii) of the Income-tax Act. He also pointed out that the words used in section 80P are agricultural produce grown by its members and, therefore, so long as the commodity brought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee society charged the members a certain amount by way of ginning and pressing charges. It also charged commission for the sale of the finished product. On these facts, the Hon'ble Supreme Court held that the ginning and pressing was part of the integral process of marketing. It was an activity incidental or ancillary to the marketing of the produce of its members. The ginning and processing of raw cotton was never regarded as a distinct process. The appellant was, therefore, entitled to the exemption of the profits and gains derived from the activity of the entire business of ginning and pressing of cotton and marketing it. 9. In addition to above, the learned counsel has also placed reliance on the following decisions : (1) Shree Rajkot Lodhika Purchase Sales Union Ltd v. ITO [1991] 38 ITD 562 (Ahd.) (2) Addl. CIT v. Ryots Agricultural Produce Co-op. Marketing Society Ltd [1978] 115 ITR 709 (Kar.) (3) CIT v. Karjan Co-op. Cotton Sale, Ginning Pressing Society Ltd. [1981] 129 ITR 821 (Guj.), (4) CIT v. Haryana State Co-op. Supply Marketing Federation Ltd. [1990] 182 ITR 53 (Punj. Har.) (5) Keshkal Co-op. Marketing Society Ltd. v. CIT [1987] 165 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actory equipped with modern machinery. This process used by the appellant-society is not ordinarily employed by cultivators for the purpose of rendering the produce fit to be taken to market. He has also taken us through the commentary on Income-tax by Shuklendra who, on pages 117 118 has observed : " Gur--Where the sugarcane grown by a cultivator has no market as such, the conversion of sugarcane into jaggery or gur would be a process ordinarily employed by a cultivator. Where, however, there is a market for sugarcane as such on account of the existence of sugar factories which purchase sugarcane for running the factories conversion of sugarcane into gur or rab cannot be termed as a process ordinarily employed by a cultivator and income from sale of gur, in these circumstances, would not be agricultural income. Similarly, manufacture of sugar from sugarcane would not constitute a process ordinarily employed by a cultivator." In this regard, he draws our attention to the decision of the Bombay High Court in the case of Brihan Maharashtra Sugar Syndicate Ltd v. CIT [1946] 14 ITR 611. In the said decision, the Hon'ble High Court had observed : " that the conclusion of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, is entitled to the deduction under section 80P(2)(a)(iii) of the Income-tax Act. 13. We have heard the parties to the dispute and also have carefully gone through the facts of the case. The term " agricultural produce " has not been defined in the Act and, therefore, its meaning has to be understood in the ordinary sense of the term. After hearing the parties to the dispute, we find that there has been a difference of opinion among the High Courts on the question whether the agricultural produce should be marketed in the same form in which it has been obtained from the members. Thus, where the assessee-society purchases paddy from its members and sells the same as its own property and the fluctuations in prices are suffered or gained by it and not by the members, the society can be said to be engaged in the activity of marketing agricultural produce of its members. But where the society purchased paddy from its members and sells it in a new form of rice after milling the same for and on behalf of its members and appropriate to itself the loss or profit due to the rise or fall in the prices of the commodity, a view has been taken that the income earned by the sale w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereafter became the business transaction of the assessee-society. The profit arising on the sale of sugar, therefore, cannot be termed as marketing the agricultural produce so as to entitle the assessee for the deduction under section 80P(2)(a)(iii) of the Income-tax Act. 15. The process of manufacture of sugar done by the assessee was not such which is ordinarily employed by the cultivator. As already stated, the assessee had used modern machinery to manufacture the sugar of which the cultivator, whether member or non-member, is not the owner. 16. If the sale of sugar can be termed as marketing agricultural produce by the cultivator, then the said cultivator should share the loss and profit in the proportion in which the sugarcane has been supplied by him. It is trite to mention that most of the co-operative sugar factories are in constant loss and the said loss is never passed on to the members of the society. The members or non-members of the society collect the price of the sugarcane supplied by them and thereafter they are not concerned whether the sugar factory sustains a loss or makes a profit. In such circumstances, it cannot be said that the manufacture of sugar is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee. We find that the decisions are distinguishable. Let us take the case of Bombay High Court in the case of H.G. Date. In the said case, the Tribunal found that the quality of sugarcane cultivated by the assessee was such that it could not be used for chewing. Sugarcane cannot be stored as a crop as it starts losing its sugar content within 48 hours of being cut. The Income-tax department contended that there was a sugar mill near the lands belonging to the assessee which bought sugarcane in its natural condition. But the Tribunal found on evidence that the mill bought sugarcane mainly from cultivators from the factory area and from Government farms and had refused in the past to buy from the assessee and concluded from this that the existence of single mill would not constitute a market for the assessee's sugarcane in its natural condition. On these facts, conversion of sugarcane into jaggery was held to be income from agriculture. 21. In this connection, we can take the case of standing crops of wheat, jawar, bajra, etc. If the crop is harvested by the farmer and after thrashing wheat, jawar, bajra, etc., are obtained and sold by the said farmer in the market, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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