1982 (5) TMI 101 - AT - Income Tax

Summary

Issues Involved:
1. Whether the society's income from the sale of fertilizers to its members is exempt under section 80P(2)(a)(iv) of the Income-tax Act, 1961.
2. Whether the society was acting as an agent of HAFED or conducting business in fertilizers on its own.

Issue-wise Detailed Analysis:

1. Exemption under Section 80P(2)(a)(iv):
The core issue in this appeal is whether the society's income from the sale of fertilizers to its members qualifies for exemption under section 80P(2)(a)(iv) of the Income-tax Act, 1961. The society claimed an exemption of Rs. 1,61,537, which was later adjusted to Rs. 1,56,448 by the Commissioner (Appeals). The Income Tax Officer (ITO) initially denied this exemption, arguing that the society was only earning commission from the distribution of fertilizers and not actually selling them. The Commissioner (Appeals), however, found that the society was indeed purchasing fertilizers from HAFED and selling them on its own, thus qualifying for the exemption.

2. Agency vs. Independent Business:
The revenue contended that the society was merely acting as an agent of HAFED and not purchasing fertilizers for resale. They argued that the society did not hold the title to the fertilizers, which remained with HAFED, and thus was not conducting business on its own. The Commissioner (Appeals) and subsequently the Tribunal found that the society was indeed purchasing fertilizers from HAFED and selling them independently. This conclusion was supported by the scheme in effect from 1-7-1974, which indicated that fertilizers were sold to Railhead Agents on a cash basis, and the society bore responsibility for any losses or damages post-purchase.

Detailed Analysis:

Exemption under Section 80P(2)(a)(iv):
The Tribunal examined the relevant provisions of section 80P(2)(a)(iv), which allows for the deduction of income from the purchase of agricultural implements, seeds, livestock, or other articles intended for agriculture when supplied to its members. The revenue argued that fertilizers were not explicitly mentioned in the section and should not be included under "other articles intended for agriculture" based on the ejusdem generis rule. However, the Tribunal found that fertilizers are indeed comprehended under "other articles intended for agriculture," citing Sundaram Golden Jubilee Edition of Law of Income-tax, Vol. II, which includes fertilizers in this category.

Agency vs. Independent Business:
The Tribunal reviewed the scheme modifications from 1-7-1970 and 1-7-1974, which clarified that the society was purchasing fertilizers from HAFED and selling them on its own. The Tribunal emphasized that the society bore the risk of loss or damage to the fertilizers post-purchase, indicating that it held the title to the goods. This was further supported by the model agreement clauses, which stipulated that fertilisers would be sold to Railhead Agents on a cash basis and that the agents were responsible for any losses or damages.

Conclusion:
The Tribunal concluded that the society was rightfully entitled to claim exemption under section 80P(2)(a)(iv) for the income earned from the sale of fertilizers to its members. The arguments advanced by the revenue were found to lack merit, and the Commissioner (Appeals)'s order granting relief to the society was upheld. The revenue's appeal was dismissed, affirming that fertilizers fall under the category of "other articles intended for agriculture" and that the society conducted business in fertilizers independently, not merely as an agent of HAFED.