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Issues involved: Interpretation of the term "agricultural produce" under section 14(3)(i)(c) of the Indian Income-tax Act, 1922 for exemption of income from the sale of rice milled from paddy supplied by members of a cooperative society.
The judgment pertains to a reference by the Income-tax Appellate Tribunal, Indore Bench, u/s 256(1) of the Income-tax Act, 1961, regarding the exemption of income from the sale of rice by a cooperative society. The society purchased paddy from its members, milled it into rice, and claimed exemption under section 14(3)(i)(c) of the Income-tax Act, 1922. The Tribunal accepted the contention that the conversion of paddy into rice did not change its classification as agricultural produce, thus allowing the exemption. However, the court disagreed with this interpretation, stating that once the agricultural crop passes to a trader, it loses its agricultural income status, and any profit made thereafter is considered business profit. The court cited precedents and principles to support this view, ultimately ruling against the exemption claim. In a separate judgment, a Division Bench of the court had previously held a similar stance in Commissioner of Income-tax v. Kisan Co-operative Rice Mills, where income from the sale of rice milled from paddy purchased from members was deemed not exempt under the Income-tax Act, 1961. The judges rejected the argument that rice retains its agricultural produce status even after milling, emphasizing that once the produce is sold commercially, it loses its agricultural income classification. This decision was cited to support the ruling in the present case, reinforcing the interpretation of the term "agricultural produce" in the context of income tax exemptions.
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