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Issues Involved:
1. Entitlement to exemption of income under section 80P(2)(a)(iii) of the Income-tax Act for the assessee, a co-operative society involved in manufacturing sugar from sugarcane. Detailed Analysis: 1. Entitlement to Exemption under Section 80P(2)(a)(iii): 1.1 Background and Claims: The assessee, a co-operative society, claimed deduction under section 80P(2)(a)(iii) for income derived from manufacturing sugar from sugarcane purchased from its members. The Assessing Officer rejected this claim, arguing that the end product, sugar, is not an agricultural produce but a result of a complex manufacturing process, thereby changing its character. 1.2 CIT(Appeals) Decisions: - For the assessment year 1992-93, the CIT(A) allowed the exemption, relying on the decision of the Hon'ble Karnataka High Court in Addl. CIT v. Ryots Agricultural Produce Co-operative Marketing Society Ltd and the Supreme Court's decision in Broach Distt. Co-operative Cotton Sales, Ginning & Pressing Society Ltd. The CIT(A) concluded that the entire business income from manufacturing and selling sugar was exempt under section 80P(2)(a)(iii). - For the assessment years 1993-94, 1994-95, and 1995-96, the CIT(A) denied the exemption, supporting the Assessing Officer's view that the society was not eligible for the deduction under section 80P(2)(a)(iii). 1.3 Assessee's Arguments: The assessee argued that marketing functions include buying, selling, storage, transportation, processing, standardization, etc., and thus, the income derived from these activities should be exempt under section 80P(2)(a)(iii). The assessee also admitted that exemption should only apply to the marketing of agricultural produce of its members, not non-members. 1.4 Tribunal's Analysis: - The Tribunal referenced several cases, including Ryots Agricultural Produce Co-operative Marketing Society Ltd., Broach Distt. Co-operative Cotton Sales, Ginning & Pressing Society Ltd., and others, to determine the scope of "marketing" under section 80P(2)(a)(iii). - The Tribunal noted that in the cited cases, the societies processed agricultural produce belonging to their members and sold it on their behalf, charging only processing costs, which was not the case here. - The assessee society purchased sugarcane from both members and non-members, manufactured sugar, and sold it on its own account, thereby appropriating the profit instead of passing the benefit to its members. 1.5 Distinguishing Factors: The Tribunal distinguished the present case from others by highlighting that the assessee society did not merely process the agricultural produce of its members but engaged in a full manufacturing process and sold the end product on its own account. 1.6 Relevant Case Law: - CIT v. Kisan Co-operative Rice Mills Ltd: The society purchased paddy, milled it into rice, and sold it on its own account. The income was not exempt under section 81(1)(c) [now section 80P(2)(a)(iii)]. - Dudhganga Vedganga S.S.K. Ltd: The society produced sugar from sugarcane purchased from members and non-members. The activity was not considered "marketing of agricultural produce of its members," thus not eligible for exemption. - CIT v. Mahasamund Kissan Cooperative Rice Mill & Marketing Society Ltd: Similar to the present case, the society's income from converting paddy to rice and selling it was not exempt. 1.7 Conclusion: The Tribunal concluded that the income earned by the assessee society from manufacturing sugar on its own account was not entitled to exemption under section 80P(2)(a)(iii). The order of the CIT(A) for the assessment year 1992-93 was vacated, and the Assessing Officer's decision was restored. The orders of the CIT(A) for the assessment years 1993-94, 1994-95, and 1995-96 were upheld. The detailed analysis provided covers all relevant issues comprehensively, preserving the legal terminology and significant phrases from the original text.
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