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2009 (5) TMI 63 - HC - Income TaxCo-operative society user of power - Whether a co-operative society engaged in the business of manufacture and sale of sugar out of the sugarcane grown by its members can be denied deduction under section 80P(2)(a)(iii) of the Income-tax Act 1961 on the ground that processing involves use of power? held that - the field of operation of sub-clause (iii) and sub-clause (v) is different inasmuch as sub-clause (iii) applies where the members of the co-operative societies are the growers of the agricultural produce whereas sub-clause (v) applies in case where the agricultural produce need not be grown by its members but may belong to them. Additionally a notice can be taken of a fact that there cannot be sufficient market for purchase of sugarcane itself as grown by the members. The sugarcane necessarily is to be converted into sugar etc. before it can he made marketable. In the light thereof keeping in view the legislative intent for enacting section 80P(2)(a)(iii) the benefit thereunder could not be denied to the appellant
Issues Involved:
1. Eligibility of a co-operative society engaged in the manufacture and sale of sugar for deduction under section 80P(2)(a)(iii) of the Income-tax Act, 1961. 2. Interpretation of section 80P(2)(a)(iii) vis-a-vis section 80P(2)(a)(v) of the Income-tax Act, 1961. 3. Legislative history and judicial interpretation of the terms "marketing" and "processing" under section 80P. Issue-wise Detailed Analysis: 1. Eligibility of a Co-operative Society for Deduction under Section 80P(2)(a)(iii): The primary issue was whether a co-operative society engaged in the business of manufacturing and selling sugar from sugarcane grown by its members could be denied deduction under section 80P(2)(a)(iii) of the Income-tax Act, 1961, due to the use of power in processing. The court noted that the assessee, a co-operative society, was disallowed the deduction by the Revenue based on the decision in Karnal Co-operative Sugar Mills Ltd. v. CIT [2002] 253 ITR 659, which considered the restrictions in sub-clause (v) of section 80P(2)(a). The court held that sub-clause (v) was not applicable when deciding claims under sub-clause (iii). 2. Interpretation of Section 80P(2)(a)(iii) vis-a-vis Section 80P(2)(a)(v): The court examined the legislative history and judicial interpretations of sub-clauses (iii) and (v) of section 80P(2)(a). It was found that sub-clause (iii) provided for exemption to co-operative societies engaged in marketing agricultural produce grown by its members, while sub-clause (v) related to processing without the aid of power. The court emphasized that these sub-clauses should be treated as separate and distinct heads of exemption. The court clarified that sub-clause (iii) had a wider scope and included activities necessary for making the agricultural produce marketable, even if processed with the use of power. 3. Legislative History and Judicial Interpretation of "Marketing" and "Processing": The court referred to various judicial pronouncements to interpret the terms "marketing" and "processing." It was noted that "marketing" was a comprehensive term that included all activities involved in the flow of goods from production to the ultimate consumer, including processing. The court cited several cases, including Assam Co-operative Apex Marketing Society Ltd. v. Addl. CIT [1993] 201 ITR 338 (SC) and Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814, to support the view that marketing included activities like processing necessary to make the produce marketable. Additionally, the court distinguished between "manufacturing" and "processing," noting that processing involved changes to the form or appearance of goods without necessarily producing a commercially different article. Conclusion: The court concluded that section 80P was enacted to promote the co-operative movement and should be liberally construed. It held that the appellant, a co-operative society engaged in manufacturing and selling sugar from sugarcane grown by its members, was entitled to deduction under section 80P(2)(a)(iii). The court overruled the decision in Karnal Co-operative Sugar Mills Ltd. v. CIT [2002] 253 ITR 659 and allowed the appeal, answering the question of law in favor of the assessee and against the Revenue.
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