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U.P. Co-operative Federation Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 452 of 1965
Judge
Reported in[1972]84ITR317(All)
ActsIncome Tax Act, 1922 - Sections 14(3)
AppellantU.P. Co-operative Federation Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateB.L. Gupta and ;Ashok Gupta, Advs.
Respondent AdvocateR.R. Misra, Adv.
Excerpt:
- - the assessment year is 1960-61 and the corresponding previous year is the year ending june 30, 1959, the assessee deals in various items like cloth, sugar, fertilizers, ghee, herbs, etc. 14. (3) the tax shall not be payable by a co-operative society- (i) in respect of its profits and gains of business carried on by it, if it is--(d) a society engaged in the purchase of agricultural implements, seeds, live-stock or other articles intended for agriculture, for the purpose of supplying them to its members .3. the income-tax officer found that after the members purchased coal from the assessee, they could use it for any purpose that they liked......(d) a society engaged in the purchase of agricultural implements, seeds, live-stock or other articles intended for agriculture, for the purpose of supplying them to its members ...' 3. the income-tax officer found that after the members purchased coal from the assessee, they could use it for any purpose that they liked. since coal was not connected with the process of tilling of soil, it could not be described as an item intended for agricultural use. he held that, in the circumstances, the assessee was not entitled to the exemption claimed by it. in appeal, the appellate assistant commissioner upheld the order of the income-tax officer and held that the assessee was not entitled to claim exemption unucr section 14(3)(i)(d) of the act. the assessee then went up in second appeal.....
Judgment:

H.N Seth, J.

1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922, made at the instance of the assessee. Messrs. U. P. Co-operative Federation, Lucknow. The Tribunal has referred the following question of law for the opinion of this court:

' Whether, on the facts and in the circumstances of the case, the 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 '

2. The assessee is a federation of co-operative societies in the State of U. P. The assessment year is 1960-61 and the corresponding previous year is the year ending June 30, 1959, The assessee deals in various items like cloth, sugar, fertilizers, ghee, herbs, etc. One of the items dealt in by the assessee is coal. During the year the assessee earned an income of Rs. 5,63,590 in various transactions of coal, and the said income was subjected to tax by the Income-tax Officer. The assessee claimed exemption under Section l4(3)(i)(d) of the Indian Income-tax Act, 1922, which runs as follows:

' 14. (3) The tax shall not be payable by a co-operative society-

(i) in respect of its profits and gains of business carried on by it, if it is--...

(d) a society engaged in the purchase of agricultural implements, seeds, live-stock or other articles intended for agriculture, for the purpose of supplying them to its members ...'

3. The Income-tax Officer found that after the members purchased coal from the assessee, they could use it for any purpose that they liked. Since coal was not connected with the process of tilling of soil, it could not be described as an item intended for agricultural use. He held that, in the circumstances, the assessee was not entitled to the exemption claimed by it. In appeal, the Appellate Assistant Commissioner upheld the order of the Income-tax Officer and held that the assessee was not entitled to claim exemption unucr Section 14(3)(i)(d) of the Act. The assessee then went up in second appeal before the Income-tax Appellate Tribunal. Before the Tribunal it was contended that the expression 'other articles intended for agriculture' as used in Section 14(3)(i)(d), covered not only those articles which are directly connected with the tilling of soil, but also those articles which are either connected with the agriculturists or meant for their use.

4. The assessee did not contend that 'coal' was in any way directly connected with agriculture. It was urged that, in the instant case, the assessee was purchasing coal for brick kilns owned by various co-operative societies in U. P. and that the bricks manufactured by those societies were utilized by the agriculturists mainly for purposes of making wells, constructing store houses where seeds and agricultural produce could be stored and for other similar purposes. In this way coal was being used for meeting the requirement of agriculturists. It was, therefore, an article intended for agriculture.

5. The Tribunal looked into the objects clause in the bye-laws of the assessee-federation and came to the conclusion that its objects could be divided into two distinct classes :

(1) Dealing in goods which a cultivator required for agriculture, viz., the goods which, a cultivator needed as a producer, i.e., fertilizers, agricultural implements, etc.; and

(2) Dealing in goods for meeting the standardised requirements of a cultivator as a consumer, viz., cloth, building material, sugar, salt, kerosene, etc.

6. It did not accept the wide interpretation sought to be placed on the expression 'other articles intended for agriculture' and came to the conclusion that it is only the goods which fell in the first of the two classes alone, viz., the goods which a cultivator required as a producer, that may be covered by the exemption contemplated by Section 14(3)(i)(d) of the Act. On the assessee's own case, coal was required by its members not as producers but as consumers and, therefore, no question of granting any exemption under Section 14(3)(i)(d) arose. The Tribunal also observed that storing of seeds, construction of wells or irrigation channel, and dwelling houses for agriculturists did not constitute agricultural operation. However wide a meaning may be given to the words 'agricultural purpose', it cannot be said that coal as such could be used or could be utilized for agriculture. Unless purchase and supply of coal was directly attributable to agricultural purpose the assessee could not claim exemption under Section 14(3)(i)(d) of the Act. In this connection reliance was placed on the case of Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy, [1957] 32 I.T.R. 466 (S.C.). In the result it upheld the order of the Income-tax Officer refusing to exempt the income earned by the assessee in connection with the purchase or supply of coal. The assessee then moved an application under Section 66(1) of the Indian Income-tax Act, 1922, for making the present reference and the Tribunal has referred the question mentioned above for the opinion of this court.

7. Learned counsel for the assessee urged that the expression ' other articles intended for agriculture 'as used in Section 14(3)(i)(d) should be interpreted liberally and in the manner urged on its behalf before the Appellate Tribunal. The assessee was supplying coal to its members for manufacturing bricks. These bricks in their own turn were to be used by the agriculturists in connection with the construction of irrigation channels, compost pits, seed stores and their dwelling houses. In these circumstances, it could be said that the coal which was supplied to members was intended for agricultural use as contemplated by Section 14(3)(i)(d) of the Act.

8. We find no justification for interpreting the words 'other articles intended for agriculture', as used in Section 14(3)(i)(d) of the Act, in the manner suggested on behalf of the assessee.

9. A perusal of this section shows that an exemption has been granted to a co-operative society which is engaged in the purchase of agricultural implements, seeds, live-stock or other articles intended for agriculture for purposes of supplying them to its members. Articles enumerated in this provision and in respect of which an exemption has been granted are those which are directly required in connection with agricultural operations, Applying the rule of ejusdem generis, ' the other articles intended for agriculture' should also be of the same class to which agricultural implements, seeds and live-stock belong. In other words, they should be such articles which are directly required in connection with agricultural operations. Even assuming that coal was supplied by the assessee to its members for the purposes mentioned by the learned counsel 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. In this view of the matter the assessee is not entitled to the exemption under Section 14(3)(i)(d) of the Act, as claimed by it.

10. In the result we answer the question referred to us in the affirmative and against the assessee. The Commissioner of Income-tax will be entitled to the costs of this reference which we assess at Rs. 200. Counsel's fee is also assessed accordingly.


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