1983 (12) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for relief under section 80P(2)(a)(iii) of the Income-tax Act, 1961 for profit on sale of eggs.
2. Taxability of profit on sale of consumer goods to members.
3. Estimation of profit rate on sale of consumer goods and eggs.

Issue-wise Detailed Analysis:

1. Eligibility for Relief under Section 80P(2)(a)(iii) for Profit on Sale of Eggs:
The primary issue was whether the profit from the sale of eggs by a co-operative society could be considered as "marketing of agricultural produce of its members" under section 80P(2)(a)(iii) of the Income-tax Act, 1961. The assessee argued that the eggs were produced by member-agriculturists and that poultry farming was an integral part of their agricultural operations. The ITO and the first appellate authorities rejected this claim, stating there was "nothing in the accounts to substantiate the claim" and that poultry farming was not considered part of agriculture for tax purposes.

The Tribunal analyzed whether eggs could be treated as agricultural produce. It considered various legal definitions and past judgments, including the Supreme Court's decision in CIT v. Raja Benoy Kumar Sahas Roy, which provided a narrower definition of agricultural income but did not explicitly rule out poultry farming as part of agricultural operations. The Tribunal noted that the bye-laws of the assessee-co-operative society included poultry farming as an activity eligible for financing. It also referenced other legislative definitions, such as the Agricultural Produce (Grading and Marking) Act and the Agricultural Refinance (and Development) Corporation Act, which included poultry farming under agriculture.

The Tribunal concluded that if the eggs were produced by member-agriculturists as part of their agricultural activities, the profit from their sale should qualify for exemption under section 80P(2)(a)(iii). However, the matter was remitted back to the ITO for verification to ensure that the eggs marketed were indeed from member-agriculturists engaged in agricultural operations.

2. Taxability of Profit on Sale of Consumer Goods to Members:
The ITO had also taxed the profit on the sale of consumer goods (sugar, kerosene, and cloth) to members, rejecting the assessee's claim that these activities were non-profit services. The first appellate authorities upheld this view, stating that there was no evidence to support the claim that no profit was earned from these activities.

The Tribunal did not provide a separate detailed analysis for this issue but implicitly included it in the remand instructions to the ITO for further examination.

3. Estimation of Profit Rate on Sale of Consumer Goods and Eggs:
For the assessment years 1977-78 and 1979-80, the ITO estimated the profit on the sale of consumer goods and eggs at 1.5%, while for the assessment year 1978-79, the Commissioner (Appeals) reduced it to 1%. The assessee contested these estimates, arguing that there was no profit from these activities.

The Tribunal noted that the AAC who confirmed the 1.5% estimate did not provide a clear basis for his observations. Given that the issue of exemption for egg sales was remitted back to the ITO, the Tribunal also remitted the question of the profit rate estimate for fresh consideration in accordance with the law.

Conclusion:
The appeals were allowed for statistical purposes, with the Tribunal remitting the matter back to the ITO for verification of the assessee's claims regarding the agricultural nature of the eggs and for fresh consideration of the profit rate estimation on the sale of consumer goods and eggs.