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Issues involved:
Interpretation of provisions of section 80P (2)(a)(iii) of the Income-tax Act, 1961 regarding non-taxability of profits earned by a cooperative society from the sale of agricultural produce of its members. Judgment Summary: The controversy in this case revolves around the interpretation of section 80P (2)(a)(iii) of the Income-tax Act, 1961, specifically regarding the non-taxability of profits earned by the Haryana State Co-operative Supply and Marketing Federation Limited from the sale of wheat-gram and other agricultural produce. The key issue is whether the exemption covers only agricultural commodities produced by the members themselves or whether it extends to agricultural produce owned by the members, regardless of the source. The Income-tax Officer and the Appellate Assistant Commissioner held that only commodities produced by members were eligible for exemption, while the Tribunal took the view that ownership of the agricultural produce by members was crucial, irrespective of production source. The Tribunal deleted the profits earned by the federation from the total income, leading to the reference question on the correctness of this action under section 80P (2)(a)(iii) of the Income-tax Act, 1961. The judicial precedents present conflicting views on the interpretation of section 80P (2)(a)(iii) of the Act. The Revenue relied on judgments from the High Court of Madhya Pradesh and Gauhati, emphasizing that the exemption applies only to income arising from processing or marketing of agricultural produce belonging to members. In contrast, the High Court of Gujarat held that as long as the agricultural produce belonged to members, profits earned by the cooperative society were exempt under section 80P(2)(a)(iii). The concept of "marketing" was crucial in determining the scope of exemption, with different High Courts offering varying interpretations. The High Court, in this case, emphasized the importance of a liberal construction to encourage co-operative societies, citing relevant judgments. It diverged from previous decisions that did not adequately address the concept and scope of "marketing." Instead, it favored judgments that considered a broader interpretation of the term. Ultimately, the Court ruled in favor of the assessee, holding that the profits from the sale of agricultural produce were exempt under section 80P(2)(a)(iii) of the Income-tax Act, 1961.
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