1989 (4) TMI 20 - HC - Income Tax

Summary

Issues:
1. Deduction of income derived from the marketing of agricultural produce under section 81(i)c of the Income-tax Act, 1961.
2. Taxability of subsidy received by the assessee from the National Co-operative Development Corporation.

Analysis:

The judgment dealt with two primary issues. Firstly, the court addressed the deduction of income derived from the marketing of agricultural produce under section 81(i)c of the Income-tax Act, 1961. The Punjab State Co-operative Supply and Marketing Federation Ltd., the assessee, claimed that the income of Rs. 40,44,844 from the marketing of agricultural produce should be exempt from tax as it was derived from the agricultural produce of its members. The Income-tax Officer initially disallowed the deduction, arguing that the agricultural produce was not raised by the members of the society. However, on appeal, the Appellate Assistant Commissioner allowed the deduction based on a precedent set by the Appellate Tribunal, Delhi Bench, which clarified that "agricultural-produce of" refers to agricultural produce belonging to the members, not necessarily raised by them. The High Court, following a previous decision, upheld the deduction, stating that income from the purchase and sale of agricultural produce from members is exempt from income tax.

Secondly, the court examined the taxability of a subsidy amounting to Rs. 40,000 received by the assessee from the National Co-operative Development Corporation. The Income-tax Officer contended that the subsidy was incidental to the business and thus should be included in the taxable income. Conversely, the Appellate Assistant Commissioner ruled that since the income from agricultural produce was exempt, the subsidy should also be exempt but clubbed with income for rate purposes. The Tribunal upheld this decision, emphasizing that the character of the receipt must be considered. Referring to previous cases, the court concluded that if a subsidy was given towards the purchase price of foodgrains, it would be treated as a reduction in the purchase price, resulting in an increase in income. However, since the subsidy was related to the sale and purchase of agricultural produce from members, it should be deducted while computing the total income of the assessee.

In conclusion, the High Court ruled in favor of the assessee on both issues, affirming the exemption of income derived from the marketing of agricultural produce and the tax treatment of the subsidy received from the National Co-operative Development Corporation.