TMI Blog1980 (10) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year under reference is 1970-71, the relevant previous year being the year ending 31st October, 1969. The assessee is a co-operative society constituted under the provisions of the Co-operative Societies Act. It derives income from ginning and pressing of cotton received from its members and others and it also carries on activities of marketing cotton. The question arose before the ITO whether the commission earned by the assessee-society for marketing the cotton of its members would be exempt under s. 80P of the I.T. Act, 1961, the income being commission charges received by it from its members. The ITO held that this exemption was not available to the assessee-society on the ground that the cotton marketed by the society ceased to be the agricultural produce on account of the process of ginning and pressing and, secondly, besides the members of the assessee-society, others also gave cotton to the assessee and, therefore, the cotton marketed by the assessee was not the cotton belonging to the members of the assessee-society. On appeal by the assessee, the AAC disagreed with the view of the ITO and held that the society was entitled to the exemption in respect of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the AAC. According to the Tribunal, these amounts were received either by way of interest or godown charges for the payments made by the members. These amounts, in its opinion, could not be divorced from the main source, namely, the sale proceeds received from the members. If any member were to make good the payment within the due date, he or it was required to pay the sale price. In the case of delayed payments, however, the society would recover interest as well as godown charges over and above the sale price. This is the normal commercial practice in cases where, according to the Tribunal, goods are sold on credit and the customers do not pay their outstanding by the due date. The Tribunal, therefore, agreed with the AAC that the impugned amounts were exempt under s. 80P(2)(a)(i) of the Act. The insurance bonus was nothing but recovery of insurance charges paid by the assessee which formed part of the expenditure incurred by the society in the course of its business which was found to be exempt from tax. The Tribunal, therefore, dismissed the revenue's appeal so far as this amount was concerned. Thereafter, at the instance of the revenue, the two questions hereinabove se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Broach District Co-operative Cotton Sales, Ginning and Pressing Society Ltd. [1974] 97 ITR 575, where this High Court was concerned with the identical provisions of s. 81(i) of the I.T. Act, as it stood prior to 1968, it was held that under s. 81(i) of the I.T. Act read with the proviso, exemption was granted to such profits and gains arising from the business activities of a co-operative society as might fall within cls. (a) to (f) of s. 81(i). If a society carried on certain activities which were exempted and certain activities which were non-exempted, the profits and gains attributable to such non-exempted activity must necessarily be taxed. Where a cooperative society which was engaged mainly in the marketing of cotton, carried on ginning and pressing of cotton with the aid of power as an ancillary to its marketing activities, it was held by this court in the case of Broach District Co-operative Society [1974] 97 ITR 575 (Guj) that the income of the assessee from ginning and pressing with the aid of power was not exempt under s. 81(i)(c) of the Act. In that particular case, it was held that the marketing of cotton after it was ginned and pressed was an activity of market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a result of the hulling process, it ceased to be agricultural produce and the income derived by the co-operative society from the sale of rice was not income attributable to the marketing of agricultural produce of the members. Similar view was also taken by a Division Bench of the Madhya Pradesh High Court in CIT v. Mahasamund Kissan Co-operative Rice Mill Marketing Society Ltd. [1976] 103 ITR 499. With great respect to the learned judges of the Madras High Court and of the Madhya Pradesh High Court, we are unable to agree with their conclusions as regards rice because when paddy is dehusked and hulled and turned into rice, it is with a view to make it a more easily saleable commodity, and it does not cease to be an agricultural commodity or agricultural produce. We are not concerned under s. 80P with the question of agricultural income. What we are concerned with is that the exemption granted to co-operative societies is with a view to encourage the co-operative sector and it is with a view to encourage the cooperative habit that special exemptions are granted under s. 80P(2) and it is in that concept that the question of agricultural produce has to be construed. Commonly unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds in the section are not " agricultural produce grown by its members " but " agricultural produce of its members ". So long as the commodity brought to the assessee-society is agricultural produce and so long as that agricultural produce belongs to its members, it would be enough to say that that is the agricultural produce of its members, be the member a co-operative society in itself or an individual member. The concept here is of the ownership of an agricultural produce and not of the person who grows the agricultural produce. Under these circumstances, this contention urged on behalf of the revenue must also fail. Question No. 1 postulates that the amount of Rs. 27,383 was received by way of commission by the assessee-society from its members for the sale of cotton ginned and pressed by it and hence it is clear that it was profits and gains of business carried on by the assessee-society from the activity of marketing the agricultural produce of its members and, therefore, the entire amount of Rs. 27,383 would be deductible under the provisions of s. 80P(2)(a)(iii). Coming now to the question of interest, godown charges, insurance charges and rebate on insurance charges set ..... X X X X Extracts X X X X X X X X Extracts X X X X
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