1971 (2) TMI 18 - HC - Income Tax

Assessee is a federation of co-operative societies in the State of U. P - Whether Tribunal was right in holding that the income derived by the assessee-federation from the supply of coal to the nominees of the, Development Commissioner was not exempt under section 14(3)(i)(d) of the Act - it cannot be said that it was directly required in connection with any process of agriculture. Coal, therefore, is not an article which can be described as an article intended for agriculture - question referred is answered in the affirmative and against the assessee

Summary

Issues: Interpretation of section 14(3)(i)(d) of the Indian Income-tax Act, 1922 regarding exemption for income derived from the supply of coal to nominees of the Development Commissioner.

Analysis:
The case involved a reference under section 66(1) of the Indian Income-tax Act, 1922, regarding the exemption claimed by a cooperative federation for income derived from supplying coal. The main question was whether the income from coal supply was exempt under section 14(3)(i)(d) of the Act. The assessee argued that coal was intended for agricultural use as it was supplied for manufacturing bricks used in agricultural activities like constructing irrigation channels and seed stores.

The Income-tax Officer and the Appellate Assistant Commissioner held that the assessee was not entitled to the claimed exemption as coal was not directly connected to agricultural processes. The Tribunal analyzed the objects of the assessee-federation and concluded that only goods directly required for agricultural production could be covered by the exemption. Since coal was used by members as consumers and not producers, it did not qualify for the exemption.

The Tribunal further stated that even if coal was used for activities indirectly related to agriculture, it did not constitute an agricultural operation. The Tribunal relied on the case law and upheld the decision of the Income-tax Officer. The court agreed with the Tribunal's interpretation, emphasizing that items intended for agriculture under section 14(3)(i)(d) should be directly required for agricultural operations. Coal, not being directly connected to agricultural processes, was not eligible for the exemption.

In conclusion, the court ruled against the assessee, denying the exemption claimed under section 14(3)(i)(d) of the Act. The court rejected the liberal interpretation of "other articles intended for agriculture" and applied the rule of ejusdem generis to determine that items qualifying for exemption should be directly related to agricultural operations. The Commissioner of Income-tax was awarded costs for the reference.