1973 (9) TMI 18 - HC - Income Tax

Whether, the Income of the society from ginning and pressing with the aid of power of a co-operative society engaged in marketing cotton, was exempt under section 81(i)(c) of the Income-tax Act, 1961, as it stood prior to its amendment on 1st April, 1968 ? The result is that we answer the question referred to us in favour of the revenue and against the assessee-society. Our answer is that, on the facts and in the circumstances of the case, the income of the assessee from ginning and pressing with the aid of power was not exempt under section 81(i)(c) of the Income-tax Act as it stood prior to its amendment on 1st April, 1965

Issues Involved:
1. Whether the income from ginning and pressing activities of the co-operative society is exempt under section 81(i)(c) of the Income-tax Act, 1961, as it stood prior to its amendment on 1st April 1968.

Issue-wise Detailed Analysis:

1. Exemption under Section 81(i)(c):
The core issue revolves around whether the income derived from the ginning and pressing activities of the co-operative society qualifies for exemption under section 81(i)(c) of the Income-tax Act, 1961, prior to its amendment on April 1, 1968. The society argued that these activities were part of its marketing operations and thus should be exempt. However, the Income-tax Officer and the Appellate Assistant Commissioner disagreed, stating that since these activities were carried out with the aid of power, they did not fall under the exemption clauses of section 81(i)(c).

2. Tribunal's Findings:
The Tribunal held that the receipts from ginning and pressing activities were an integral part of the marketing activities of the society and thus were not liable to tax under section 81(i)(c). The Tribunal based its decision on three facts: the receipts were from members only, the activities were related to the general market for ginning and pressing cotton, and there was no evidence of dealing in raw cotton.

3. Revenue's Argument:
The revenue contended that the Tribunal failed to consider the proviso to section 81(i). According to the revenue, activities involving the use of power for ginning and pressing, even if integral to marketing, did not fall under any of the clauses (a) to (f) of section 81(i). Therefore, the profits and gains exceeding Rs. 15,000 from such activities should be taxable.

4. Assessee's Argument:
The assessee argued that if their activities fell within any of the clauses (a) to (f) of section 81(i), the taxing authorities could not levy tax on the profits and gains. They emphasized that the ginning and pressing activities were part of the marketing activities and thus should be exempt.

5. Court's Analysis:
The court examined whether the ginning and pressing activities with the aid of power fell within any of the clauses (a) to (f) of section 81(i). The court noted that clause (e) specifically mentioned processing without the aid of power, indicating that activities involving power were excluded from the exemption. The court concluded that the activities of ginning and pressing with the aid of power did not fall within the exempted activities under section 81(i).

6. Interpretation of Proviso to Section 81(i):
The court emphasized that the proviso to section 81(i) clearly stated that if a co-operative society engaged in activities not mentioned in clauses (a) to (f), the profits and gains exceeding Rs. 15,000 from such activities would be taxable. The court rejected the assessee's argument that the entire profits and gains should be exempt if any part of their activities fell within the exempted clauses.

7. Case Law References:
The assessee cited the Allahabad High Court decision in U.P. Co-operative Bank Ltd. v. Commissioner of Income-tax, arguing that if any income fell under one of the exempted clauses, it should be exempt even if it did not fall under another clause. The court found this case irrelevant as it did not address the proviso similar to the one in section 81(i). The court also referenced its own decision in Surat Vankar Sahakari Sangh Ltd. v. Commissioner of Income-tax, which stated that each head of exemption in section 81 was distinct and independent.

8. Conclusion:
The court concluded that the ginning and pressing activities with the aid of power did not fall within the exempted activities under section 81(i). Therefore, the profits and gains from these activities exceeding Rs. 15,000 were taxable. The court answered the question in favor of the revenue and against the assessee-society, stating that the income from ginning and pressing with the aid of power was not exempt under section 81(i)(c) of the Income-tax Act as it stood prior to its amendment on April 1, 1968.

Order:
Given that the society is a co-operative society, the court decided that there should be no order as to costs of this reference.

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