TMI Blog2001 (9) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... was accepted by the Commissioner of Income-tax (Appeals), Rohtak, vide order dated July 25, 1995. It was held that "marketing" included taking over the agricultural produce from the producer and handing over the marketable commodity to the consumer. The appeals relating to the assessment years 1993-94 to 1995-96, were dismissed by the Commissioner of Income-tax (Appeals), Shimla, vide orders dated April 25, 1996 and April 2, 1997. It was, inter alia, held that sugar is not an "agricultural produce". Aggrieved by the order in respect of the assessment year 1992-93, the Revenue filed an appeal. The assessee challenged the orders for the assessment years 1993-94 to 1995-96. Ultimately, the Tribunal accepted the contention of the Revenue and restored the order passed by the Assessing Officer. The assessee sought rectification under section 254(2). The application was dismissed by the Tribunal vide its order dated December 21, 1998. The assessee filed application under section 256(1) of the Income-tax Act, 1961. The Tribunal on consideration of the matter has referred the following question for the opinion of this court: "Whether, on the facts and circumstances of the case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... help the rural economy. To achieve this object, Parliament has provided for the grant of exemption from the levy of income-tax. However, to qualify for exemption, the activity of the co-operative society must fall within one of the sub-clauses of sub-section (2). The assessee in the present case claims to be marketing an 'agricultural produce". Firstly, what is "marketing"? According to Webster's Third New International Dictionary, "marketing" means 'an aggregate of functions involved in transferring title and in moving goods from producer to consumer including among others buying, selling, storing, transporting, standardizing, financing, risk bearing and supplying market information". Thus, "marketing" is a comprehensive term. It does not mean merely buying and selling. It encompasses much more. What is the petitioner doing? The petitioner buys sugarcane from its members and others. It pays them the price. Thereafter, it processes the sugarcane and produces sugar. The end-product is sold in the market. The profits are of the assessee. These are not shared with the members. Mr. Garg contended that the provision should be liberally construed. "Marketing" includes even 'pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 709 (Kar), the court had even upheld the assessee's claim in respect of oil extracted from groundnut. It is undoubtedly so. However, the question as to whether or not it is an agricultural produce does not appear to have been raised. Mr. Garg also referred to the decision of this court in CIT v. Haryana State Co-operative Supply and Marketing Federation Ltd. [1990] 182 ITR 53. This was a case where the assessee was engaged in the sale of wheat, gram and other agricultural produce. The issue was the interpretation of the term-"marketing of agricultural produce of its members". Counsel can derive no advantage from this decision. Since the produce being marketed was admittedly "agricultural produce", the decision is of no assistance in the present case. Counsel also referred to the decision of the Kerala High Court in Meenachil Rubber Marketing and Processing Co-operative Society Ltd. v. CIT [1992] 193 ITR 108. In this case, the assessee-society purchased raw latex from its members. It processed it by scientific method and sold the commodity. The assessing authority had rejected the claim for exemption on the ground that (head note) "when the assessee purchased raw latex from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven a purposive interpretation so that the intended objective is achieved. (ii) "Marketing" means the transfer of goods from the point of agricultural production to the hands of the consumer. So long as the end-product which reaches the consumer is an "agricultural produce", the assessee shall be entitled to exemption under section 80P(2)(a)(iii). The question that arises is-Is the petitioner entitled to the grant of exemption? Mr. Garg contended that the petitioner has a large number of members. They grow a substantial quantity of sugarcane. It cannot be marketed in its original form. It can only be processed to make sugar or brown-sugar and sold. Thus, the exemption as prayed -for deserves to be granted. It may be true that the petitioner has 35,000 members. It may also be true that the quantity of sugarcane would be substantial. Yet, the exemption can be granted only when the case falls within the parameters of the provision. The condition precedent for the grant of exemption is that the society must market agricultural produce. It appears to us that the petitioner is not really marketing "agricultural produce". According to the judicial opinion as expressed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in manufacturing. Not marketing. Since, it is the admitted position that the petitioner is using power and even paying excise duty, we are of the opinion that the case does not fall within section 80P(2)(a)(iii). No other point was raised. In view of the above, we hold that: (i) Section 80P has been enacted with the object of promoting the co-operative movement. It has to be liberally construed. (ii) 'Marketing" is a comprehensive term. It does not mean merely buying and selling. It includes "processing" which may be necessary for making the agricultural produce marketable. However, the processing should conform to the provision in sub-clause (v). If the processing involves use of power, the exemption shall not be admissible. The question is accordingly answered against the assessee. Judge(s) : JAWAHAR LAL GUPTA., ASHUTOSH MOHUNTA. JUDGMENT The judgment of the court was delivered by JAWAHAR LAL GUPTA J. -Is the assessee entitled to exemption under section 80P(2)(a)(iii)? This is the short question that arises in these four income-tax references. The assessee is a co-operative society. It was incorporated for the manufacture of sugar from sugarcane. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the grant of exemption as claimed. On the other hand, Mr. R.P. Sawhney, learned counsel for the Revenue, submitted that the petitioner is manufacturing sugar. It is paying excise duty. It is not marketing or selling an "agricultural produce". Thus, it is not entitled to the grant of exemption as contemplated under section 80P(2)(a)(iii). The short question that arises for consideration is- Does the petitioner's case fall within section 80P(2)(a)(iii)? The provision reads as under: "80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:- (a)in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held by their Lordships that "the goods in question having been marketed and the business of the assessee being marketing of the agricultural produce of its members, the case clearly falls under section 81(i)(c) even though it may not fall under clause (e) thereof. The fact that the goods which are ultimately marketed had been earlier processed with the aid of power would, therefore, be of no consequence in so far as exemption granted under section 81(i)(c) is concerned". The provisions of section 81(i)(c) are akin to those of section 80P(2)(a)(iii). Learned counsel also placed reliance on the decision of the Gujarat High Court in CIT v. Karjan Co-operative Cotton Sale, Ginning and Pressing Society Ltd. [1981] 129 ITR 821. In this case, the dispute related to the sale of cotton which had been ginned and pressed. While considering the matter, it was held that the assessee was entitled to the exemption. Relying upon these decisions, counsel contended that the processing of goods is a part of the marketing activity. Is it so? In both these cases, the end-product which reached the consumer was agricultural produce. It is true that rice becomes available on dehusking of paddy. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting of the said agricultural produce is liable to be exempted". In Broach District Co-operative Cotton Sales, Ginning and Pressing Society Ltd. v. CIT [1989] 177 ITR 418 (SC), it was, inter alia, contended before their Lordships of the Supreme Court that "ginning and pressing into cotton bales changed the character of the cotton and therefore, what was marketed was not the agricultural produce of the members of the assessee". Their Lordships did not consider this question as 'this point was not raised at any earlier stage by the Revenue...". Lastly, reliance was placed on the decision of their Lordships of the Supreme Court in Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814. In this case, the society was engaged in the business of marketing cotton. It was, inter alia, held 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tex and making tyres, could it be said that it was marketing an agricultural produce? We think not. Even on a liberal construction, we find that a case shall fall within the parameters of the provision only when the processing is limited to making the commodity marketable. Otherwise not. Mr. Garg contended that sugarcane cannot be marketed in its original form. It is only by making sugar that the sugarcane can be marketed. Is it so? A reference to sub-clause (v) of section 80P(2)(a) shows that the processing of agricultural produce qualifies for the grant of exemption from payment of tax. However, it is only when processing is done without the aid of power. The obvious intention is to promote the small scale sector which may form a part of the co-operative movement. It is true that if a case falls under one of the heads, it is not necessary to resort to the second. However, the provision is indicative of the legislative intent. In the case of societies which are engaged in processing of agricultural produce, the exemption is admissible only when the processing is done without the aid of power. Not otherwise. Thus, even if it is assumed that "marketing" includes "processing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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