1984 (7) TMI 45 - HC - Income Tax

Summary

Issues Involved:
1. Eligibility for exemption under section 80P(2)(a)(iv) of the Income-tax Act, 1961.
2. Interpretation of the relationship between the Government and the District Co-operative Marketing Societies.
3. Applicability of section 80P(2)(a)(iv) when supplies are made to non-members.
4. Entitlement to further deduction under section 80P(2)(c).

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Section 80P(2)(a)(iv) of the Income-tax Act, 1961:
The primary issue was whether the assessee, a District Co-operative Marketing Society, is eligible for exemption under section 80P(2)(a)(iv) of the Income-tax Act, 1961. The assessee supplied fertilizers to both members and non-members under a government scheme. The Income Tax Officer (ITO) initially rejected the claim for deduction, asserting that the assessee acted merely as an agent of the Government and derived only commission, not profit from the purchase and sale of fertilizers. The Tribunal, however, reversed this decision, referencing previous orders and holding that the assessee was entitled to such deduction.

2. Interpretation of the Relationship between the Government and the District Co-operative Marketing Societies:
The court examined the provisions of the Government Order (G.O. Ms. No. 541) to determine the nature of the relationship. The Revenue argued that the societies acted as agents for the Government, not purchasers. However, the court found that the societies were supplied fertilizers on a consignment-cum-credit basis and were treated as debtors, responsible for payment irrespective of realization. The court concluded that the societies were, in substance, purchasing fertilizers from the Government and not merely acting as agents. The court referenced the Supreme Court judgment in Bhopal Sugar Industries Ltd. v. Sales Tax Officer, emphasizing the need to look at the substance over form in determining the nature of the relationship.

3. Applicability of Section 80P(2)(a)(iv) When Supplies are Made to Non-Members:
The Revenue contended that section 80P(2)(a)(iv) should only apply if supplies were made exclusively to members. The court rejected this argument, stating that the provision does not restrict supplies solely to members. The court noted that a substantial quantity of fertilizers was supplied to members, and the supply to non-members did not negate the society's engagement in supplying fertilizers to its members. Thus, the court held that the provision applies even if supplies are made to non-members.

4. Entitlement to Further Deduction under Section 80P(2)(c):
The court addressed the alternative plea by the assessee for additional deduction under section 80P(2)(c) for profits attributable to transactions with non-members. The court agreed, stating that while section 80P(2)(a)(iv) allows deduction for profits from supplies to members, section 80P(2)(c) permits additional deduction for profits from activities with non-members, up to a maximum of Rs. 20,000. The court directed the Tribunal to determine the amount of deductions accordingly.

Conclusion:
The court concluded that the assessee is entitled to claim deduction under section 80P(2)(a)(iv) for profits attributable to the supply of fertilizers to its members. Additionally, the assessee is entitled to further deduction under section 80P(2)(c) for profits from supplies to non-members, subject to a maximum of Rs. 20,000. The Tribunal was directed to determine the specific amounts of these deductions. The court also rejected the oral application for leave to appeal to the Supreme Court, finding no substantial question of law warranting such an appeal.