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Issues Involved:
1. Eligibility for exemption under Section 80P(2)(b) of the Income-tax Act, 1961. 2. Eligibility for exemption under Section 80P(2)(a)(iii) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Eligibility for Exemption under Section 80P(2)(b): The appellant, a federal society, claimed exemption under Section 80P(2)(b) of the Income-tax Act, 1961, which provides for exemption in respect of profits and gains of a co-operative society being a primary society engaged in the supply of milk raised by its members to a federal milk co-operative society. The Income Tax Officer (ITO) denied this claim, stating that the appellant is a federal society and not a primary society. The appellant argued that the term 'primary society' is not defined in the Act and that a federal society should also be eligible for the exemption. However, the AAC upheld the ITO's decision, noting that the appellant is a federation of primary societies and not a primary society itself. The AAC further observed that the profits in question were made by the federal society and not the primary societies, thus disqualifying the appellant from the exemption under Section 80P(2)(b). In the appeal before the ITAT, it was reiterated that the appellant is not a primary society but a federation of primary societies. The ITAT agreed with the lower authorities, stating that the essential requirement for exemption under Section 80P(2)(b) is that the society should be a primary society engaged in supplying milk raised by its members to a federal milk co-operative society. Since the appellant is a federal society and not a primary society, the claim for exemption under this section was dismissed. 2. Eligibility for Exemption under Section 80P(2)(a)(iii): The appellant alternatively claimed exemption under Section 80P(2)(a)(iii), which provides for exemption in respect of income arising from the marketing of agricultural produce of the members of the society. The appellant argued that since it is registered as an agricultural society under the Maharashtra Co-operative Societies Act and deals in milk, milk should be considered as agricultural produce. The ITO denied this claim, stating that milk cannot be considered agricultural produce as per the Income-tax Act. The AAC upheld this view, stating that the term 'agricultural produce' is not defined in the Act, but 'agricultural income' is defined under Section 2(1) as income arising from cultivation or other use of land. The AAC concluded that milk does not qualify as agricultural produce under this definition. In the appeal before the ITAT, the appellant cited the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963, which includes milk under the definition of agricultural produce. However, the ITAT held that this definition is not relevant for the purposes of the Income-tax Act. The ITAT emphasized that agricultural produce should be understood in the context of the Income-tax Act and with reference to the definition of agricultural income under Section 2(1). The ITAT concluded that milk cannot be considered agricultural produce under Section 80P(2)(a)(iii). Additionally, the ITAT noted that the produce in question is not of the members of the federation but of the members of the member societies, which does not satisfy the requirement of the section. Conclusion: The ITAT confirmed the AAC's order, denying the appellant's claims for exemption under both Section 80P(2)(b) and Section 80P(2)(a)(iii) of the Income-tax Act, 1961, and dismissed the appeal filed by the assessee.
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