1989 (4) TMI 3 - SC - Income Tax

Assessee is a co-operative society - objects of the society intend that it should press cotton and pack the bundles for its individual members as well as other customers to use its machinery for any useful work of its members and to sell raw cotton cotton seeds and other agricultural products - Whether the income of the society from ginning and pressing was exempt under section 81(i)(c) of the Income-tax Act 1961 as it stood prior to its amendment on Ist April 1968

Summary

Issues:
Interpretation of section 81(i)(c) of the Income-tax Act, 1961 regarding exemption of income from ginning and pressing activities for a co-operative society.

Analysis:
The case involved an appeal against the High Court's judgment regarding the exemption of income from ginning and pressing activities under section 81(i)(c) of the Income-tax Act, 1961. The assessee, a co-operative society engaged in ginning and pressing cotton for its members, claimed exemption for the income derived from these activities. The Income-tax Officer initially rejected the claim, stating that ginning and pressing were conducted with the aid of power. However, the Income-tax Appellate Tribunal considered these activities as integral to marketing and exempt under section 81(i)(c). The High Court disagreed, stating that non-exempted activities must be taxed, including ginning and pressing. The Supreme Court, however, found that these activities were part of the marketing process, incidental and ancillary to marketing, and therefore qualified for exemption under section 81(i)(c).

The High Court's interpretation that non-exempted activities like ginning and pressing must be taxed was rejected by the Supreme Court. The Court held that ginning and pressing were essential parts of the marketing process and should be considered exempt under section 81(i)(c). The Court emphasized that the proviso to section 81(i) excludes only activities separate from those mentioned in clauses (a) to (f) of section 81(i). Since ginning and pressing were integral to marketing, the proviso did not apply. The Court cited previous judgments highlighting the broad meaning of "marketing" and the inclusion of ginning and pressing within this concept. Additionally, the Court dismissed a new argument raised by the Revenue regarding the change in the character of cotton due to ginning and pressing, as it was not raised earlier.

In conclusion, the Supreme Court allowed the appeals, ruling in favor of the assessee. The Court held that the income derived from ginning and pressing activities for marketing cotton was exempt under section 81(i)(c) of the Income-tax Act, 1961. The High Court's decision was overturned, and the assessee was entitled to costs.