Case Law Details

Case Name : Budhewal Co-op. Sugar Mills Ltd. Vs CIT (Punjab & Haryana High Court - Full Bench)
Appeal Number : ITA No. 232 of 2003
Date of Judgement/Order : 22/05/2009
Related Assessment Year :
Courts : All High Courts (4517) Punjab and Haryana HC (227)


According to plain reading of Section 80P(2)(a)(iii) , if a Cooperative Society earns income from marketing of the agricultural produce grown by its members, the deduction in respect of the profits and gains of business which are attributable to that marketing activity would be available under this provision. The main point that needs deliberation is the scope and ambit of the expression “marketing ” occurring in sub -clause (iii) of Section 80P(2)(a) of the 1961 Act.

The expression „marketing . has been used in its wide import and it generally means „the performance of all business activities involved in the flow of goods and services from the point of initial agricultural production until they are in the hands of the ultimate consumer. In order to make an agricultural produce fit for marketing it may have to be transported or processed, but all the activities involved are understood as amounting to a single activity, namely, marketing, and not independent activities, such as transporting, processing, selling etc. The marketing functions may involve exchange of functions such as buying

and selling etc. (on commission or otherwise), physical unction such as storage, transportation, processing and other commercial functions such as standardization, financing, market intelligence etc. If the legislative intent was to confine it to buying and selling then, in view of the well understood wider meaning of the expression „marketing .,the Parliament would have used the words “buying and selling: of commodities instead of the term “marketing”.

The field of operation of sub-clause (iii) of Section 80P(2)(a) of 1961 Act has been defined by various courts in different pronouncements.

The Karnatka High Court in Ryots Agricultural Produce Co-operative Marketing Society Ltd..s case (supra) was considering the case of an assessee who was engaged in the marketing of rice grown by its members after hulling it in its mill which was run by power. Similarly, the assessee had extracted the oil derived from the groundnut grown by its members after converting it into oil in its expeller run by power. The Division Bench held that “the goods in question having been marketed and the business of the assessee being marketing of the agricultural produce of its members, the same clearly fell under Section 81(i)(c) of the 1961 Act. The Division Bench further recorded that the goods, which are ultimately marketed, had been further processed with the aid of power would, therefore, be of no consequence so far as exemption granted under Section 81(i) (c) was concerned. The provisions of Section 81(i)(c) are akin to those of Section 80P(2)(a)(iii) .

The Gujarat High Court in Commissioner of Income-Tax, Gujarat-IV v. Karjan Co-operative Cotton Sale, Ginning and Pressing Society Ltd. (1981)129 ITR 821 17 (Gujarat) was seized of the matter relating to the sale of cotton which had been ginned and pressed. The Court had recorded that the concept of marketing in clause (iii)of Section 80P(2) (a) of the 1961 Act included all those activities which were connected with the process of taking over from the agricultural- producer- member and handing over marketable commodities to the purchasers and all the intermediate processes connected with the marketing of the agricultural produce of the members. It was further said that the term „marketing . could not be restricted only to the buying and selling activities.

In view of the above and plethora of judicial enunciations noticed hereinbefore, it is indeed held that Section 80P has been enacted with the object of promoting the cooperative movement. The provision is introduced with a view to encourage and promote growth of cooperative sector in the economic life of the country and in pursuance of the declared policy of the Government. It has to be liberally construed. “Marketing” is a comprehensive term. It does not means merely buy and selling. It includes “processing” which may be necessary for making the agricultural produce marketable. The correct way of reading the different heads of exemption enumerated in the Section would be to treat each as a separate and distinct head of exemption. Whenever a question arises, as to whether any particular category of an income of a Cooperative Society is exempt from tax, what has to be seen is, whether the case falls within any of the several heads of exemption. If it falls within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption. The case of the growers of agricultural produce is dealt with by Section 80P(2)(a)(iii) . Sub-clause (iii) has a wider scope. Under this sub-clause, the members have to be growers themselves. Meaning thereby, that for the society with members being growers, the deduction is available even if the agricultural produce is marketed without further processing or even if it is processed with the use of power. Sub-clause (v) of Section 80P (2)(a) is a restrictive clause and has to be understood as covering a case of members having agricultural produce not grown by them. Sub-clause (v) is applicable on fulfilment of following conditions:

(a) some processing is to be carried out on the agricultural produce; and

(b) the processing is without the aid of power.

Once the legal position having been crystalised, one must now inevitably advert to Karnal Cooperative Sugar Mills Ltd. Versus Commissioner of Income Tax, (2002) 253 ITR 659, the challenge to the ratio whereof had necessitated this reference to the Full Bench. It is manifest that the inherent fallacy therein seems to have crept in from a construction of sub-clause (v) of Section 80P(2)(a) of the Act. It deserves highlighting that the Division Bench though had noticed that if a case fell under any one of the heads, it was not necessary to resort to the second, yet, while applying the said principle to the facts, concluded otherwise. The case in hand being governed by sub-clause (iii), resort to sub-clause (v) was not warranted. The conclusion that the end product manufactured/ processed from sugar-cane i.e. the sugar, was not agricultural produce also runs contrary to the Apex Court decision in Kishan Lal v. State of Rajasthan and Om Parkash and others v. State of Rajasthan and others, (1990) 183 ITR 433, wherein it was observed as under:

“in Halsbury’s Laws of England, volume 1, the word “agricultural produce”, for purposes of agricultural marketing schemes, is understood as, “including any product of agriculture or horticulture and any article of food or drink, wholly or partly manufactured or derived from any such product, and fleeces (including all kinds of wool) and the skins of animals”.

In the same volume, products covered by the provisions of the EEC Treaty as to agriculture (classified according to the Brussels Nomenclature of 1965) are mentioned in paragraph 1845. Sugar is one of them.” Further, as noticed in the earlier part of the judgment, the field of operation of sub-clause (iii) and sub-clause (v) is different inasmuch as sub-clause (iii) applies where the members of the Cooperative Societies are the growers of the agricultural produce whereas sub-clause (v) applies in case where the agricultural produce need not be grown by its members but may belong to them. Additionally, a notice can be taken of a fact that there cannot be sufficient market for purchase of sugar-cane itself as grown by the members. The sugar-cane necessarily is to be converted into sugar etc. before it can be made marketable. In the light thereof, keeping in view the legislative intent for enacting Section 80P(2)(a)(iii) , the benefit thereunder could not be denied to the appellant.

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