TMI Blog2012 (5) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... rt by forming an industrial cooperative with small financial societies. Since the small tea growers were unable to market their grown leaves directly and also not able to process into black tea at their tea factory, in order to uplift the economically weaker condition of the poor and marginal tea growing members, this society extends its support for the processing and marketing of the agricultural produce. For the Assessment Years 2003-04 to 2008- 09 originally the society was given intimation u/s 143(1) by allowing tea exemption u/s 80P(2)(a)(iii) of the Income-tax Act, 1961. However, the Assessing Officer issued notice u/s 148 for reopening the assessment u/s 147(a) of the Act to withdraw the deduction already granted u/s 80P(2)(a)(iii) of the Act for the Assessment Years 2003-04 to 2008-09. The Assessing Officer has disallowed the claim of the assessee u/s 80P(2)(a)(iii) of the Act form the Assessment Years 2003-04 to 2008-09. 3. During the course of assessment proceedings the Assessing Officer has observed that the assessee society purchased green leaves from its members and manufacturers tea. It is directly sold by the assessee to the society. It is only trading and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to this case. The Assessing Officer further observed that the claim of the assessee is under sub-clause (iii) which deals with marketing of agricultural produce grown by its members. The assessee purchased green leaves from its members and manufactured tea and sold it. Since the assessee had manufactured tea and sold it, the claim that it had marketed the agricultural produce grown by its members cannot be considered as a correct one as tea leaf is only a raw material for the manufacturing of tea dust. The contention of the assessee was that the manufacturing activities were only to process the green leaves to make it marketable and the manufactured tea is nothing but agricultural produce only. According to the assessee, what it had done is only marketing and a deduction is allowable in respect of the income from marketing under sub clause (iii) of 80P(2)(a) of the Act. Marketing made by the assessee preceded by processing also that too with the aid of power. According to the Assessing Officer, a new product comes into existence which has a different shape, texture, appearance and use. Hence the assessee is not eligible for deduction even under section 80P(2)(a)(V) of the Act. Bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant, it was purchasing grown tea leaves from its members and, manufacturing tea which has got a different character altogether. The Assessing Officer felt that the case law relied on by the appellant is different on facts and circumstances and is not applicable to the case of the appellant. I have gone through the details from the books of the cooperative society. The society procures grown leaves from the members by sending lorries to the tea gardens of members. The members of the society are paid some advance amount, since the farmer member has very weaker background financially and also holding very few acreages of tea garden. 7.5 As seen from details, the cooperative society subsequently also pays some amount as additional leaf price depending on the profit realised by them. The procurement of green leaves from farmers by advancing them some lumpsum amount cannot be taken as purchases made from farmers. The society after allowing the production cost distributes the balance to the members towards the cost of the leaves procured. Indirectly, the production cost is collected from the members after apportionment of statutory reserves as per the Cooperative Societie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .7 In the case of Budhewal Co-operative Sugar Mills Ltd. Vs CIT Judgment dated 22.05.2009 - 184 Taxman 165 P H (FB)/315 ITR 351, it has been held that in respect of a cooperative society which manufactures and produces sugar from sugarcane grown by its members with the aid of power, the deduction u/s 80P (2)(a)(iii) was allowed. The Lordships have stated that Sub clause (Hi) of section 80P(2)(a) applies where the member of co-operative societies are the growers of the agricultural produce, whereas sub clause (v) applies to case where the agricultural produce need not be grown by members but may belong to them. The sugarcane necessarily is to be converted into sugar etc. before it can be made marketable. Held therefore the benefit under section 80P(2)(a)(iii) could not be denied to the Assessee . The Gujarat High Court in the case of CIT Vs Karjan Cooperative Cotton Sale Ginning Pressing Society Ltd., (129 ITR 821) recorded that the concept of marketing in clause (iii) of section 80P(2)(a) of the Income tax Act, 1961 included all those activities which were connected with the process of taking over from the agricultural producer members and handing over marketable commodities to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption. If it falls within anyone head of exemption it would be free from tax notwithstanding the conditions of any other head of exemption are not satisfied and such income is not free from tax under the head of exemption. Sub-clause (iii) has a wider scope. Here, the members of the cooperative society had to be growers themselves. The Hon'ble High court of Punjab and Haryana in the case of Budhewal Co-operative Sugar Mills Ltd. Vs CIT Judgment dated 22.05.2009- 184 Taxman 165 P H (FB)/315 ITR 351 (Full Bench) observed that the field of operation of sub-clause (v) of 80P12)(a) applies in a case where the agricultural produce need not be grown by its members but may belong to them. Keeping in view the legislative intention for enacting 80P (2)(a)(iii), the benefit therein could not be denied to the appellant in the case of sugarcane which has to be necessarily converted into sugar with the help of power before it can be made marketable. Respectfully following the decision of the Punjab Haryana High Court and other decisions referred in the earlier part of my discussion, I direct the Assessing Officer to allow the deduction u/s 80P (2)(a)(iii) of the Income tax Act, 1961 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring black tea power which they are selling in auction. The case of the Assessing Officer is that the assessee without converting the leaves into black tea can directly sell to others and the same may be used in medicines. The second main reason for rejection of the claim by the Assessing Officer is that the assessee is not covered by section 80P(2)(a)(iii) of the Act because the assessee carried on the activity of manufacturing black tea with the aid of power. A very important aspect to be considered in this case is section 80P(2)(a)(iii) of the Act i.e. the marketing of agricultural produce grown by its members . The clause marketing of agricultural produce is an expression of wide importance which various courts have considered. 8. The Hon'ble Punjab Haryana High Court in the case of CIT Vs. Haryana State Co-operative Supply and Marketing Federation Ltd. reported in 182 ITR 53 [P H] has held as under: Section 80P of the Income-tax Act, 1961 must be interpreted liberally having regard to the object of the provisions, that is, to encourage cooperative societies. The words used in section 80P are not agricultural produce grown by its members and therefore, so l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 81(i) was to encourage and promote the growth of cooperative societies and consequently a liberal construction had to be given to the operation of that provision. The proviso to section 81(i) operated to exclude from the exemption those activities which could be regarded as separate and distinct from the activities enumerated in clauses (a) to (f) of section 81(i). If the activity in question was incidental or ancillary to one of the activities mentioned in those clauses, the proviso did not apply. 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 pressing of raw cotton was never regarded as a distinct process. Whey they delivered the raw cotton to the appellant for marketing, ginning and pressing was regarded as part of that process. The members did not take back the ginning and pressing. All the raw cotton so treated by the appellant was received from its members and it was only such cotton of its members which was marketed by the appellant. The sale of cotton was effected by the appellant to the outside world and not to its members. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sportation, processing and other commercial activities such as standardization, financing, marketing intelligence, etc. Such activities can be carried on by an apex society rather than a primary society. Section 80P of the Act is introduced with a view to encouraging and promoting the growth of the co-operative sector in the economic life of the country and in pursuance of the declared policy of the Government. The correct way of reading the different head of exemption enumerated in the section would be to treat each as a separate and distinct had of exemption. Whenever a question arises as to whether any particular category of income of a cooperative society is exempt from tax what has to be seen is whether the income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption. 13. In the present case, the assessee society is a small tea grower. They are unable to market their produce themselves. All of them joined together to form a small society which collected le ..... 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