1985 (7) TMI 148 - AT - Income Tax

Summary

Issues:
Interpretation of section 80P(2)(a)(iii) of the Income-tax Act, 1961 regarding exemption for marketing of agricultural produce of members by a cooperative society.

Analysis:

1. The primary issue in this case is whether a cooperative society, engaged in processing and selling raw latex purchased from its members, is entitled to exemption under section 80P(2)(a)(iii) of the Income-tax Act, 1961. The Income Tax Officer (ITO) initially denied the claim, arguing that the society, by purchasing and processing the raw latex, became the absolute owner of the commodity, thereby not marketing any agricultural produce of its members.

2. Upon appeal, the Commissioner (Appeals) ruled in favor of the cooperative society, stating that the society is indeed engaged in the marketing of agricultural produce of its members and is entitled to the exemption under section 80P(2)(a)(iii) for the income derived from this activity.

3. The revenue challenged the Commissioner's decision, contending that the product sold by the cooperative society cannot be considered agricultural produce once it is purchased and processed. Additionally, the revenue argued that the marketing must be of the members' produce, which was not the case as the society became the owner of the raw latex upon purchase.

4. The Appellate Tribunal analyzed the facts and legal precedents, emphasizing that the processed raw latex remained agricultural produce even after processing, as seen in previous cases such as ITO v. Kannam Latex Industries and CIT v. Woodland Estates Ltd. The Tribunal concluded that the cooperative society, by selling the processed latex, was not marketing the agricultural produce of its members but its own produce, thereby not meeting the criteria for exemption under section 80P(2)(a)(iii).

5. The Tribunal further referenced legal precedents, such as Kisan Co-operative Rice Mills Ltd.'s case, to support its decision that the society must market the members' agricultural produce to qualify for the exemption. The Tribunal distinguished this case from Ryots Agricultural Produce Co-operative Marketing Society Ltd.'s case, where the society marketed the members' produce, unlike the situation at hand.

6. Ultimately, the Tribunal overturned the Commissioner's decision, ruling that the cooperative society was not entitled to the exemption under section 80P(2)(a)(iii) as it was not marketing the agricultural produce of its members. The Tribunal reinstated the ITO's order, denying the exemption to the society.

7. In conclusion, the judgment clarifies the interpretation of section 80P(2)(a)(iii) regarding the eligibility criteria for exemption for marketing agricultural produce of members by a cooperative society, emphasizing the ownership and marketing aspects in determining entitlement to the exemption.