1993 (2) TMI 8 - SC - Income Tax

Whether, on the facts and in the circumstances of the case, the assessee i.e., Assam Co-operative Apex Marketing Society Ltd., is entitled to exemption under section 81(i)(c) in respect of their income arising out of procurement of paddy and other agricultural produce - Held, no

Summary

Issues:
1. Interpretation of section 81(i)(c) of the Income-tax Act, 1961 regarding exemption for co-operative societies engaged in marketing agricultural produce.
2. Whether the agricultural produce marketed by the appellant qualifies as produce of its members for exemption under section 81(i)(c).

Analysis:
The case involved an appeal against the Gauhati High Court's judgment regarding the entitlement of exemption under section 81(i)(c) of the Income-tax Act, 1961 for the Assam Co-operative Apex Marketing Society Ltd. The society was appointed as a procuring agent for paddy by the Government under a scheme. The main contention was whether the agricultural produce marketed by the society qualified as produce of its members for exemption. The society's membership consisted of co-operative institutions, individual cultivators, traders, and commission agents, but not agriculturists directly. The procurement system involved various co-operative societies at different levels, with the apex society receiving remuneration for its role.

The society claimed exemption under section 81(i)(c) for its income from the procurement activity. Section 81(i) provided exemptions for co-operative societies engaged in specific activities, including marketing agricultural produce of its members. The society argued that since it marketed produce belonging to primary marketing societies, it should qualify for the exemption. However, the court disagreed, emphasizing that the exemption was intended for societies involved in marketing produce produced by their members. The court noted that interpreting the clause otherwise would lead to unintended consequences, allowing even trader-based societies to claim the exemption.

The appellant's counsel pointed out the wording differences in sub-clause (c) compared to sub-clause (f) of section 81(i). The court clarified that the specific mention of "milk raised by its members" in sub-clause (f) was deliberate to highlight the exemption's scope for base-level societies. The absence of similar wording in sub-clause (c) did not change the interpretation that the exemption was meant for societies marketing produce raised by their members. Therefore, the court upheld the High Court's decision, denying the appellant the benefit of the exemption under section 81(i)(c).

Ultimately, the appeal was dismissed, and no costs were awarded. The judgment highlighted the importance of interpreting tax exemptions in line with the legislative intent to prevent unintended advantages for entities not falling within the intended scope of the provisions.