TMI Blog1981 (5) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing exemption to the assessee under section 80P(2)(a)(iv) of the Income-tax Act, 1961. It is submitted that the Commissioner (Appeals) erred in confirming the order of the ITO by which the claim of the assessee was denied. At the time of hearing, it is stated by the learned counsel for the assessee that the assessee being a co-operative society and for the purpose of purchases and supplies to be made to its members had to engage transport contractors for carrying the fertilizers and pesticides. Accordingly, an agreement was arrived at between the assessee-co-operative society and the transport contractors. It is pointed out that one of the clauses stipulated in the agreement is that the transport contractors should be responsible for an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to the carrying on of the business of the co-operative society. Accordingly, it is submitted that the claim of the assessee was well within the said provisions of the Act and the authorities below erred in rejecting the claim. In this connection, on behalf of the assessee reliance is placed on the ratio of the decision of the Hon'ble Karnataka High Court in the case of Addl. CIT v. Ryots Agricultural Produce Co-operative Marketing Society Ltd. [1978] 115 ITR 709. It is submitted by the learned counsel for the assessee that reference may be made to pages 712 and 713 of the decision in which it was clear that the assessee in that case was also engaged in transporting and processing, etc., which was a part of the business of that assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to a single activity, namely, "marketing" and not independent activities such as transporting, processing, selling, etc. It is argued on behalf of the revenue that the facts of the case decided by the Hon'ble High Court are distinguishable on facts. It is pointed out that the present assessee before us is a co-operative society and one of its business activities is to purchase pesticides, fertilizer, etc., for the purpose of supplying the same to its members. It is stated that there is no question of processing of agricultural produce and there is also no question of transporting or processing of any agricultural produce by the present assessee. It is submitted by him that the ratio of the case law relied on by the learned counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sporting of the goods and in cases of failure to deliver the goods timely or of shortage, the transport contractors have to compensate the society accordingly. Thus, primarily it is not the business activity of the society to collect penalties. We have gone through the copy of the agreement referred to by the learned counsel for the assessee, at the time of hearing for our consideration. Before the question can be decided whether such income is entitled to exemption, it is necessary to ascertain the immediate sources of that income. Although under different circumstances, the Hon'ble Kerala High Court in the case of CIT v. Narayanan Tratan Namboodiripad [1967] 64 ITR 57 has, among other things, observed that in order to determine whether ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the source of the income was the arrangement arrived at in 1837 and the income was not derived from land and was, therefore, not agricultural income. 5. From the ratio of the decisions of different courts, one could see that the immediate source or the effective source of a particular income has to be ascertained. In the instant case, the immediate and the effective source of the amount of the penalty is not the carrying on the business activities of the co-operative society as such. The amount of the penalty was received by the assessee as the transport contractors failed to comply with certain terms of the agreement executed between the assessee and the contractors. In no way, the above penalty amount received can be linked up with t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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