1982 (8) TMI 137 - AT - Income Tax

Summary

Issues Involved:
1. Exemption under section 80P(2)(a)(iii) of the Income-tax Act, 1961.
2. Exemption under section 80P(2)(a)(iv) of the Income-tax Act, 1961.
3. Definition and scope of the term 'member' under the Income-tax Act and Maharashtra Co-operative Societies Act, 1960.

Issue-wise Detailed Analysis:

1. Exemption under Section 80P(2)(a)(iii):
The main controversy revolves around the exemption claimed by the assessee under section 80P(2)(a)(iii) for the commission earned from marketing the cotton of its cultivator members. The assessee, a co-operative society, argued that the commission received from the Maharashtra State Co-operative Marketing Federation Ltd. for marketing the cotton of its 10,572 cotton cultivator nominal members and other members should be exempt. The ITO denied this exemption, leading to an appeal.

The Commissioner (Appeals) upheld the ITO's decision, noting that nominal members and sympathiser members do not have the same rights as regular members under sections 24(2), 24(8), and 27(8) of the Maharashtra Co-operative Societies Act. Therefore, they are not entitled to the exemption under section 80P(2)(a)(iii).

Upon further appeal, the Tribunal found merit in the assessee's argument, noting that the term 'member' is not defined in the Income-tax Act. Referring to the inclusive definition of 'member' in section 2(19) of the Maharashtra Co-operative Societies Act, which includes nominal, associate, and sympathiser members, the Tribunal concluded that the term 'member' should be given its natural and liberal meaning. Consequently, the commission received for marketing the produce of nominal and sympathiser members qualifies for exemption under section 80P(2)(a)(iii).

2. Exemption under Section 80P(2)(a)(iv):
The second issue pertains to the exemption claimed under section 80P(2)(a)(iv) for the profit earned from the sale and supply of agricultural implements, seeds, and other articles to the primary societies. The ITO and Commissioner (Appeals) denied this exemption, arguing that the supplies were ultimately intended for the cultivators who are not members of the assessee-society.

The Tribunal examined the modus operandi of the transactions, noting that the primary societies issue permits to their members, directing the assessee-society to deliver the goods. The assessee-society delivers the goods to the individuals named in the permits but recovers the price from the bankers of the primary societies. The Tribunal concluded that the sale is between the assessee-society and the primary societies, not the individual members of the primary societies. Therefore, the profit from these transactions is exempt under section 80P(2)(a)(iv).

3. Definition and Scope of the Term 'Member':
A significant part of the judgment involved interpreting the term 'member' as used in section 80P of the Income-tax Act. The Tribunal noted that the term is not defined in the Income-tax Act, and thus, its natural and liberal meaning should be considered. Referring to the Maharashtra Co-operative Societies Act, the Tribunal highlighted that 'member' includes nominal, associate, and sympathiser members. Despite nominal and sympathiser members not having voting rights, they still qualify as members for the purposes of section 80P.

Conclusion:
The Tribunal allowed the appeals in part, granting the exemptions under sections 80P(2)(a)(iii) and 80P(2)(a)(iv) as claimed by the assessee. The judgment emphasized a liberal interpretation of the term 'member' to include all categories defined under the Maharashtra Co-operative Societies Act, thereby allowing the co-operative society to benefit from the exemptions provided under the Income-tax Act.