TMI Blog2001 (2) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning was being given to the provision in view of interpretation by courts. In fact in its latest judgment in Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814, the Supreme Court confirmed the view that the benefit of the exemption should be available to societies which were engaged in the marketing of agricultural produce whether grown by members or marketed by members. In order to appreciate the controversy raised by the petitioners in this writ petition it is necessary to give a brief backgrounds Petitioner No. 1 is a cooperative society registered under the Multi State Co-operative Societies Act, 1984. As per averments contained in the petition, petitioner No. 1 is engaged in the marketing of agricultural produce of its member societies. The hierarchy of the co-operative network is as under : At the lowest rung of the ladder are the village cooperative societies having farmers, artisans, craftsmen, weavers, etc., as their members. These societies which are generally the village level societies become members of district level cooperative societies, which is the second step in the ladder. The district level cooperative societies become member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncomes of cooperative societies connected with agriculture, rural credit and cottage industries should continue to be wholly exempt from tax, the business incomes of other societies should be exempt only up to a sum of Rs. 10,000. These proposals will not materially affect the revenue." The above provision contained under section 14(3) of the Finance Bill, 1960, became section 81 of the Income-tax Act, 1961. The Finance (No. 2) Act, 1967, amended the 1961 Act with effect from 1st April, 1968. It introduced section BOP which provided for deduction with respect to income of cooperative societies. Sub-sections (1) and (2)(a)(iii) read as under : "(1) Where, in the case of an assessee being a cooperative 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 followings namely (a) in the case of a cooperative society engaged in- . (iii) the marketing of the agricultural produce of its members . . . the whole of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g "belonging to". To quote : "We may notice that the provision is introduced with a view to encouraging and promoting the growth of the Cooperative 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 heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemptions Whenever a question arises as to whether any particular category of an 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 exemptions If it fell within any one bead of exemptions 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 exemptions The expression 'marketing' is an expression of wide import. It involves exchange functions such as buying and selling, physical functions such as storage, transportation, processing and other commercial activities such as standardisation, financings marketing intelligence, etc. Such activities can be carried on by an apex society rather than a primary soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69 of 1998 was introduced in Parlitirnent. By this Bill section 8OP(2)(a)(iii) of the Income-tax Act was sought to be substituted with effect from 1st April, 1968, by the following: "(iii) the mark6ting of agricultural produce grown by its members or The Statement of Objects and Reasons is as under: "6. Clause 8 seeks to amend section 80P of the Income-tax Act. Under the existing provision, profits derived by a cooperative society engaged in the marketing of agricultural produce of its members are fully deductible in commuting the taxable income under section 80P(2)(a)(iii) of the Income-tax Act. The deduction was intended for primary cooperative societies marketing the agricultural produce of their farmer members. In the case of Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814, the Supreme Court held that the use of the words 'of its members' in the relevant clause would mean the agricultural produce belonging to the members and not necessarily grown by them. The interpretation given to the use of the words in the provision is not in accord once with the legislative, intent of the existing provision. In respect of income arising from transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to interpret the laws. The Legislature on the other band is entrusted with the legislative powers and is not concerned with the interpretation of the laws. According to learned counsel in the instant case the Legislature has usurped the function of the interpretation and adjudication inasmuch as it has attempted to overrule the said judgment of the Supreme Court. It was conceded that the Legislature has power to legislate laws prospectively and retrospectively. While doing so the Legislature can remove the basis of a decision thereby rendering it ineffective. However, the submission was that in the present case the impugned legislation does not remove the basis which led to the judgment of the Supreme Court. According to the petitioners the impugned legislation has tried to overrule the decision of the Supreme Court and, therefore, it is invalid and unconstitutional. While conceding that Parliament has power to pass legislation having retrospective effect it was argued that by making the amendment with retrospective effect an unreasonable and arbitrary restriction/burden has been placed on the assessees. The provision of section 80P as it stood during the relevant period betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners concedes that Parliament has the power to pass laws and it can pass laws having retrospective effect. The justification for the impugned legislation is not material although in this behalf we have already quoted excerpts from the speech of the Finance Minister while introducing the amendment. The exemption from payment of income-tax was being allowed to cooperative societies to encourage the cooperative movement as it stood in its nascent stage. The benefit was intended for the actual growers of the agricultural produce. But in the course of time it was found that the benefit was being enjoyed by those for whom it was never intended. In the counter-affidavit filed on behalf of the Government it has been brought out how the exemption was being abused. The affidavit says that in the course of assessment proceedings for the year 1996-97 it was noticed that the petitioners are carrying on trading activity of sale and purchase of agricultural products like any other trader. It had enrolled various traders as "nominal members". Such "nominal members". export agricultural produce through petitioner No. 1. Many of the nominal members procure and purchase agricultural produce lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verruling a decision of the Supreme Court in Kerala State Co-operative Marketing Federation Ltd.'s case [19981 231 ITR 814. In support of this argument first learned counsel tried to highlight the demarcation between the legislative and judicial functions based on the theory of separation of powers on which the Constitution is founded. The question for consideration is : whether there is any usurpation of powers of judiciary by the legislator ? To make good his contention learned counsel for the petitioner relied an Madan Mollali Patitak v. Unioii o India, AIR 1978 SC 803 ; [1978] 2 SCC 50 ; A. V. Nacliane v. Union of India, AIR 1982 SC 1126 ; [1982] 1 SCC 205 ; [1982] 60 FJR 99 ; Municipal Corporation of the City of Ahmedabad v. New Shrock Spinning and Weaving Co. Ltd., AIR 1970 SC 1292 ; [19701 2 SCC 280 , State of Gujarat v. Raman Lal, Keshav Lal Soni, AIR 1984 SC 161 ; [1983] 2 SCC 33 D. Cawasji and Co. v. State of Mysore [1985) 58 STC 1 ; AIR 1984 SC 1780 [1984] Supp. SCC 490 and S. R. Bhagwat v. State of Mysore, AIR 1996 SC 188 ; [1995] 6 SCC 16. In our view none of these cases help the petitioners. In these cases the amendments were held to be intended to nullify the effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutional limitations. The rendering ineffective of judgments or orders of competent courts by changing their basis by legislative enactment is a well known pattern of all validating acts. Such validating legislation which removes the causes of ineffectiveness or invalidity of action or proceedings cannot be considered as encroachment on judicial power. The Legislature, however, cannot by a bare declaration, without more, directly overrule,' reverse or set aside any judicial decision. Hari Singh v. Military Estate Officer, AIR 1972.,SC 2205 ; [1973] 1 SCR 515, Government of Andhra Pradesh v. Hindustan Machine Tools Ltd., AIR 1975 SC 2037; [1975] Supp. SCR 394, L N. Saksena v. State of M.P., AIR 1976 SC 2250 [19761 3 SCR 327 and Misri Lal Jain v. State of Orissa, AIR 1977 SC 1686 [19771 3 SCR 714." In the present case Parliament is not laying down through the impugned legislation that a decree of a court will not be executed. Nor it is rendering the decision of the court erroneous or a nullity. It is changing the legislation by introducing a new legislation. Parliament in this respect is supreme. In a somewhat similar situation as in the present case the Supreme Court upheld the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e power over the subject-matter and competence to make a valid law, it can at any time make such a valid law and make it retrospectively so as to bind even past transactions. The validity of a validating law, therefore, depends upon whether the Legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the courts had found in the existing law and makes adequate provisions in the validating law for a valid imposition of the tax." We have carefully considered the legal position. We find that the argument advanced by learned counsel is not tenable in the facts of the present case. As already noticed it is conceded that Parliament enjoys plenary power to legislate. In our view the present is a case of a new legislation introduced by Parliament. Parliament found that the existing legislation was not meeting the goal which Parliament had intended to achieve. Therefore, Parliament introduced a fresh piece of legislation to achieve its object. The present cannot be said to be a case of Parliament interpreting a judgment of the court. Parliament has only shown its awareness of the interpretation of the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and yet to be finalised, will have to be finalised on the basis of the new legislation. Thus nothing survives in the argument based on allegation of arbitrariness in making the legislation retrospective. Only the pending assessments,, i.e., assessments which have yet to be finalised will be affected. The cases already concluded or finalised are not to be reopened. Another argument raised by learned counsel for the petitioners for challenging the validity of the new legislation was by describing it as a colourable exercise of power by Parliament. In the background of facts already noticed in this judgment we fail to a appreciate how the present legislation could be said to be by way of colourable exercise of power by Parliament. One reason possibly for which the legislation is being dubbed as colourable exercise of power by Parliament is because it has the effect of withdrawing a tax exemption enjoyed by the assessee over a long period of time. Another reason for which it could be dubbed as colourable exercise of Parliamentary power is because by the legislation the interpretation of the erstwhile provision by the Supreme Court will no longer remain operative because of change o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was observed "As the State Legislature was competent to pass the Act and as the Government is authorised under section 4 to levy the tax, the question of the motive with which the tax was imposed is immaterial. To put it differently, there can be no plea of a colourable exercise of power to tax if the Government had power to impose the tax and the fact that the imposition of the tax was for the purpose of eliminating competition would not detract from its validity." The power to impose tax is the deciding factor. The Supreme Court went to the extent of saying that if the power to tax was there, the fact that a wrong reason for exercise of power was given will not derogate from the validity of the tax. Learned counsel for the petitioners also raised a ground of violation of article 19(1)(g) of the constitution in this behalf. It was argued that the fundamental right guaranteed to the petitioners under the said provision to carry on their trade or business was being restricted. Counsel argued that the legislation impinges on the right 6f'the petitioners to trade and the respondents have to justify the legislation. The onus lies en them in this behalf. For raising this irgurii6 ..... 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