TMI Blog2009 (5) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... t - 232 of 2003 - - - Dated:- 22-5-2009 - M. M. KUMAR, AJAY KUMAR MITTAL and RAJESH BINDAL JJ. S. K. Mukhi and Rajesh Garg for the appellant. Rajesh Sethi and Sachin Gupta for the respondent. JUDGMENT The judgment of the court was delivered by AJAY KUMAR MITTAL J. - Expressing a plain divergence from the view held by a past Division Bench of this court in Karnal Co-operative Sugar Mills Ltd. v. CIT [2002] 253 ITR 659, a Division Bench of the epoch of 2004, advocated for the decision of the following issue by a larger Bench: "Whether a co-operative society engaged in the business of manufacture and sale of sugar out of the sugarcane grown by its members, can be denied deduction under section 80P(2)(a)(iii) of the Income-tax Act, 1961 on the ground that processing involves use of power ?" 2. While doing so, the Division Bench noticed in the referral order passed on May 24, 2004, that the assessee in this case was a co-operative society which was engaged in sale and manufacture of sugar from the sugarcane grown by its members. The claim made by the assessee had been disallowed by the Revenue in view of a Division Bench decision of this court in Karnal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. 5. Since, as noticed above, the Division Bench dealing with the matter, while expressing doubts over the correctness of the decision of a Division Bench of an earlier era recommended the issue to be resolved by a larger Bench, the appeal came to be listed before us constituting the Full Bench. 6. We have heard learned counsel appearing for the parties and have gone through the records with their assistance. 7. Shri Mukhi, the learned counsel for the assessee-appellant, emphatically asserted and maintained that the primary activity of the members of the appellant-co-operative society is agriculture, and any activity carried on by the appellant to convert agriculture produce grown by its members to make such produce marketable shall fall under sub-clause (iii) of section 80P(2)(a), and the restriction imposed in sub-clause (v) thereof would have no applicability thereto. The main thrust of his argument has been that the decision of the Division Bench in Karnal Co-operative Sugar Mills Ltd.'s case [2002] 253 ITR 659 had not appreciated the legal position in its right perspective and on reconsideration of the said pronouncement the same requires to be decided in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax shall not be payable by a co-operative society - (i) in respect of the profits and gains of business carried on by it, if it is - (a) a society engaged in carrying on the business of banking or providing credit facilities to its members ; or (b) a society engaged in a cottage industry ; or (c) a society engaged in the marketing of the agricultural produce of its members ; or (d) a society engaged in the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members ; or (e) a society engaged in the processing without the aid of power the agricultural produce of its members ; or (f) a primary society engaged in supplying milk raised by its members to a federal milk co-operative society: Provided that, in the case of a co-operative society which is also engaged in activities other than those mentioned in this clause, nothing contained herein shall apply to that part of its profits and gains as is attributable to such activities and as exceeds fifteen thousand rupees." 12. The Finance (No. 2) Act, 1967 amended the 1961 Act with effect from April 1, 1968 wherein section 80P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rketing of the agricultural produce of its members, or... (v) the processing, without the aid of power, of the agricultural produce of its members, or" 13. Sub-clause (iii) of section 80P(2)(a), after amendment by the Income-tax (Second Amendment) Act, 1998, retrospectively from April 1, 1968, reads thus: "(iii) the marketing of agricultural produce grown by its members, or" 14. The validity of the aforesaid amendment was upheld by the apex court in National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India [2003] 260 ITR 548. The Supreme Court, while considering the reasons for amendment, referred to clause 6 of the Statement of Objects and Reasons, which is to the following effect (page 554): "6. Clause 8 seeks to amend section 80P of the Income-tax Act. Under the existing provision, profits derived by a co-operative society engaged in the marketing of agricultural produce of its members are fully deductible in computing the taxable income under section 80P(2)(a)(iii) of the Income-tax Act. The deduction was intended for primary co-operative societies marketing the agricultural produce of their farmer members. In the case of Kerala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d selling is one of the activities in this field of marketing which does not exhaust its whole content. The passage from the Principle and Practice of Marketing in India, by Dr. C. B. Mamoria and B. L. Joshi is very important and instructive in this context. "Marketing" includes all activities involved in the creation of place, time and possession utilities. Place utility is created when goods and services are available at the places they are needed, time utility when they are needed, and possession utility when they are transferred to those who need them. The process of marketing makes goods and services much more valuable when they are wanted and transferred to the people and place who want them.' 17. These authors have made the following classification of the marketing functions: (1) Activities involving transfer of ownership; (a) buying; (b) selling; (2) Activities involving physical supply: (a) transportation; (b) Storage; (3) Activities facilitating the foregoing functions; (a) standardization and grading; (b) financing; (c) risk taking; (d) market research." 18. It was further observed as under (page 291): "Encyclopedia Britannica, 1960 Edn. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee who was engaged in the marketing of rice grown by its members after hulling it in its mill which was run by power. Similarly, the assessee had extracted the oil derived from the groundnut grown by its members after converting it into oil in its expeller run by power. The Division Bench held that the goods in question having been marketed and the business of the assessee being marketing of the agricultural produce of its members, the same clearly fell under section 81(i)(c) of the 1961 Act. The Division Bench further recorded that the goods, which are ultimately marketed, had been further processed with the aid of power would, therefore, be of no consequence so far as exemption granted under section 81(i)(c) was concerned. The provisions of section 81(i)(c) are akin to those of section 80P(2)(a)(iii). 23. The Gujarat High Court in CIT v. Karjan Co-operative Cotton Sale Ginning and Pressing Society Ltd. [1981] 129 ITR 821 was seized of the matter relating to the sale of cotton which had been ginned and pressed. The court had recorded that the concept of "marketing" in clause (iii) of section 80P(2)(a) of the 1961 Act included all those activities which were connected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. It is apparent 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 pressing of the raw cotton was never regarded as a distinct process. When they delivered the raw cotton to the assessee for marketing, ginning and pressing was regarded as part of that process. The members did not take back the cotton after it was ginned and pressed. They paid only the costs of ginning and pressing. All the raw cotton so treated by the assessee was received from its members, and it was only such cotton of its members which was marketed by the assessee. The sale of the cotton was effected by the assessee to the outside world and not to its members. The object of section 81(i) was to encourage and promote the growth of co-operative societies, and consequently a liberal construction must be given to the operation of that provision. The proviso to section 81(i) operates to exclude from the exemption those activities which can be regarded as separate and distinct from the activities enumerated in clauses (a) to (f) of section 81(i). If the activity in question is incide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketing' is an expression of wide import. It involves exchange function such as buying and selling physical functions such as storage, transportation, processing and other commercial activities such as standardisation, financing, marketing intelligence etc." 27. Proceeding further, it would be essential to make reference to the expression "processing" occurring in sub-clause (v) of section 80P(2)(a) of the 1961 Act. The Supreme Court in Saraswati Sugar Mills v. Haryana State Board [1992] 1 SCC 418 ; AIR 1992 SC 224, while considering whether industries manufacturing sugar are covered by entry 15 of Schedule I to the Water (Prevention and Control of Pollution) Cess Act, 1977, that is "processing of vegetable product industry," answered the question in the negative and explained the difference between "manufacturing" and "processing" in para Nos. 15 and 16 of its judgment as under: "15. In CST v. Abdul Rehman Alladin [1963] 14 STC 803 (Guj) ; [1964] AIR 1964 Guj 27; [1963] 4 GLR 615 the expression 'who processes any goods' in the Bombay sales tax was held to refer to the subjecting of any goods to a treatment or process. In CIT v. Farrukhabad Cold Storage [1977] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is plain and unambiguous. A statute is the edict of the Legislature. The language employed in the statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the Legislature itself. The court only interprets the law and cannot legislate. If a provision of law is misused and subjected to the abuse of the process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary. Legislature casus omissus cannot be supplied by judicial interpretative process. A casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself. A casus omissus should not be readily inferred and for the purpose all the parts of the statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if a literal construction of a particular clause leads to man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the aid of power." 30. Once the legal position having been crystalised, one must now inevitably advert to Karnal Co-operative Sugar Mills Ltd. v. CIT [2002] 253 ITR 659 (P H), the challenge to the ratio whereof had necessitated this reference to the Full Bench. It is manifest that the inherent fallacy therein seems to have crept in from a construction of sub-clause (v) of section 80P(2)(a) of the Act. It deserves highlighting that the Division Bench though had noticed that if a case fell under any one of the heads, it was not necessary to resort to the second, yet, while applying the said principle to the facts, concluded otherwise. The case in hand being governed by sub-clause (iii), resort to sub-clause (v) was not warranted. The conclusion that the end product manufactured/processed from sugarcane, i.e., the sugar, was not agricultural produce also runs contrary to the apex court decision in Kishan Lal v. State of Rajasthan : Om Parkash v. State of Rajasthan [1990] 183 ITR 433 wherein it was observed as under : "... in Halsbury's Laws of England, volume 1, the word 'agricultural produce', for purposes of agricultural marketing schemes, is understood as, 'includ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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