1. The following question of law has been referred by the Income-tax Appellate Tribunal, Gauhati Bench, hereinafter referred to as 'this Tribunal', under Section 256(1) of the Income-tax Act, 1961, hereinafter referred to as 'the Act' :
'Whether, on the facts and in the circumstances of the case, the assessee, i.e., Assam Co-operative Apex Marketing Society Ltd., is entitled to exemption under Section 81(i)(c) in respect of their income arising out of procurement of paddy and other agricultural produce ?'
2. The facts of the case may be briefly stated as follows :
The assessee is a co-operative society registered under the Assam Co-operative Societies Act, 1949 (Assam Act 1 of 1950). The relevant assessment year is 1962-63. The objects of the assessee-society are briefly as follows:
(i) to arrange for the sale of produce of the members of affiliated societies and other members to the best advantage ;
(ii) to purchase and sell agricultural produce and farm and farmers requisites including seeds, manures, fertilizers and machinery, etc.;
(iii) to act as agent of members for the disposal of their produce ; and
(iv) to act as a central purchasing agency for agricultural as well as consumers' society and for other members.
3. The membership of the assessee-society is divided into three classes as follows:
(a) A class consisting of co-operative institutions.
(b) B class consisting of individual cultivators and sympathisers.
(c) C class consisting of traders, commission agents, etc.,
(d) The State Government.
4. There are co-operative societies at various levels. The cultivators in the village are the members of the village service co-operative societies. The village service co-operative societies are in their turn members of primary marketing societies. These primary marketing societies are the members of the assessee-society.
5. The Government of Assam, for facilitating proper procurement of paddy, entrusted the work to the assessee-society. The price of paddy and rice was fixed by the Government and the village service co-operative societies purchased paddy at fixed price and delivered it to the godowns of marketing societies at different places. The primary marketing societies passed on the paddy thus procured to the apex society, that is, the assessee, which despatched it according to the Government instructions to the rice mills and other allottees. The co-operative societies were being remunerated at the rate of Re. 1 per maund of paddy procured. This was divided amongst the co-operative societies. The assessee-society got 19 paise, the service-societies got 19 paise and the balance 62 paise went to the primary marketing societies.
6. During the accounting year for the assessment year 1962-63, the assessee-co-operative society received considerable amounts by way of remuneration for paddy procurement. Before the Income-tax Officer the assessee claimed that these amounts were exempt from taxation under Section 81 of the Act. The Income-tax Officer, however, did not accept the assessee's contention and the prayer for exemption was rejected. Against the order of the Income-tax Officer the assessee preferred an appeal
before the Appellate Assistant Commissioner who found that the assessee, was entitled to claim the exemption under Section 81 of the Act. Against the order of the Appellate Assistant Commissioner, the department preferred an appeal before the Tribunal which held that the assessee was not entitled to the exemption claimed. Thus, the Tribunal set aside the order of the Appellate Asssitant Commissioner and upheld the order of the Income-tax Officer.
7. On the above facts, the above-mentioned question of law has been referred.
8. The assessee has claimed exemption under Section 81(i)(c) of the Act, which reads as follows :
'81. Income of co-operative societies.--Income-tax shall not be payable by a co-operative society-
(i) in respect of the profits and gains of business carried on by it, if it is............
(c) a society engaged in the marketing of the agricultural produce of its members ; or............'
9. So, the point that arises for consideration is whether the assessee is entitled to the exemption claimed under Section 81(i)(c) of the Act. To claim exemption the assessee must prove to have been engaged in the marketing of the agricultural produce of its members. The assessee is marketing the paddy grown by the cultivators, who are found to be the members of service-co-operative societies. It has been found that the members of the assessee-co-operative society are the primary marketing societies and the service-co-operative societies. The Tribunal after considering the materials on record has observed in its order as follows:
'It has not been disputed before us that in the present case the society has been dealing with the agricultural produce of the members of the affiliated societies and the cultivators to whom the agricultural produce belonged were not the members of the assessee's society though they could have become its members.'
10. The Tribunal after considering the materials on record has come to the categorical finding that the cultivators who grew the paddy were not the members of the assessee-society though they were members of the service-co-operative societies which in turn were the members of the assessee-society.
11. Mr. S. K. Sen, the learned counsel for the petitioner, submits that the service-co-operative societies are the affiliated societies and, therefore, the members of the service-co-operative societies are deemed to be the members of the assessee-society. The proposition sought to be raised by the learned counsel for the petitioner is not supported either by the facts of the case or by any provision of the Assam Co-operative Societies Act.
12. In order to get the exemption under Section 81(i)(c) of the Act the assessee must establish that it is a co-operative society and that it is engaged in the marketing of the agricultural produce of its members. If the assessee cannot establish that it is engaged in the marketing of the agricultural produce of its members, the exemption is not allowable. In the instant case the finding of fact arrived at by the Tribunal after considering the materials on record is that the assessee deals with agricultural produce not belonging to its members. That being so, the assessee is not entitled to the exemption under Section 81(i)(c) of the Act as claimed.
13. In the circumstances, we answer the question of law referred in the negative and against the assessee.
14. The reference is answered accordingly. There will be no order as to costs.
M. Sadanandaswamy, J.
15. I agree.