1. This is a reference under Section 256(1) of the Income-tax Act, 1961, on the application of the Commissioner of Income-tax, Madhya Pradesh. The question of law referred by the Tribunal to this court for opinion is as below :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a portion of the assessee's income from sale of rice in so far as it relates to paddy purchased from the members of the society is exempt under Section 81(i)(c) of the Income-tax Act, 1961 ?'
2. The facts disclosed from the statement of case are as below :
It is not disputed that the assessee, M/s. Kisan Co-operative Rice Mills, Mahassmund, is a co-operative society registered under the M.P. Co-operative Societies Act. It is also not disputed that the members of the society sold paddy itself to the society and after purchasing the paddy, the society subjected the same to the process of milling and the rice, so milled, was sold by the society. Apart from purchasing paddy from the members, the society which runs a rice mill, purchases paddy from outsiders also. All the paddy purchased from the members or outsiders is milled and sold by the society. The society claimed exemption under Section 81(i)(c) of the Income-tax Act. The relevant provisions of the said section are reproduced below:
'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.....
(e) a society engaged in the processing without the aid of power ofthe agricultural produce of its members ; or.....'
3. The claim of the assessee was rejected by the Income-tax Officer on the ground that since the society purchased paddy itself from its members, it became the owner of the agricultural produce and by dealing in the business of selling rice after milling such paddy along with paddy purchas-ed from outsiders also income received from the said business could not be treated as profits and gains of business carried on by it as a society engaged in the marketing of the agricultural produce of its members. Such a claim was rejected for the assessment years 1962-63 to 1965-66, On appeal, the Appellate Assistant Commissioner confirmed the finding of the Income-tax Officer. The Appellate-Assistant Commissioner relied on the orders of his predecessor in this behalf for the earlier assessment year, i.e., 1960-61. Aggrieved by the order of the Appellate Assistant Commiesioner, the assessee filed an appeal before the Tribunal. The Tribunal, however, upheld the contention of the assessee. The Tribunal was of the opinion that even after milling of paddy, the rice so milled remains agricultural produce and that the conversion of paddy into rice by a mill, to make the produce marketable, did not change the situation. The Tribunal was also of the view that, in order to make the produce marketable, if the society has done the milling, which could have been done by the members also, the assessee does not lose entitlement to get exemption given under Section 81(i)(c) of the Income-tax Act.
4. The learned counsel appearing for the department, has urged the following grounds in support of the contention that the assessee was not entitled to exemption under Section 81(i)(c) of the Act:
(i) That rice obtained after milling paddy purchased by the Society was riot agricultural produce because, according to the department, the paddy which was the agricultural produce, was subjected to manufacturing process and was converted into a different commodity and lost its character as an agricultural produce;
(ii) That even if it is held that rice is covered by the term 'agricultural produce', the assessee could not claim exemption because after having purchased paddy itself from its members, the rice obtained after milling the same, does not remain the agricultural produce of the members of the Society and the Society became the owner on purchase of paddy and it was no more the 'agricultural produce' of the members who had sold the same to the Society ;
(iii) That the activity of milling paddy already purchased and dealing in the business of sale of rice does not amount to marketing the agricultural produce of the members of the Society. The business of marketing, according to the department, could cover only such cases where the ownership of paddy remains with the members of the Society and it simply recovers the milling charges and arranges for the sale of the rice, which remains the property of the members. If any profits or gain is made in the aforesaid activities of milling of rice, such income alone could be treated as income from the activity of marketing of the agricultural produce of the members of the Society.
5. We have heard the learned counsel appearing for the assessee. The fact that paddy itself was purchased is not disputed. No such case has been put up so as to show that milling was done by the assessee for and on behalf of the agriculturists, i.e., members of the Society, who brought the paddy. It was also not the case that the gain or loss due to fluctuation of prices on selling the rice was to be received or incurred by the agriculturist members. It was also not the case of recovering milling charges only or charges as commission for arranging proper marketing. The pure and simple course was of purchasing paddy itself from the members, and paying the price for the same to them. The Society became the owner of the paddy and the members parted with all interest in the stock of paddy sold by them to the Society. Apart from the paddy purchased from the members, paddy was also purchased from outsiders. The Society runs a rice mill where such paddy used to be milled and the Society disposed of the rice by selling in the market.
6. The learned counsel appearing for the assessee contended that even after conversion of paddy into rice by milling the same, rice remains agricultural produce. Mere dehusking does not alter the nature of the produce. It is true that rice and paddy may be treated as different marketable commodities. It is also correct that subjecting paddy to the process of milling may result in a changed commodity and after milling, paddy does not remain in existence and is converted into rice. But even after such conversion and change, rice remains in the class of agricultural produce. The term agricultural produce has not been defined in the Income-tax Act and, therefore, we have to adopt the meaning as commonly understood and incorporated in the dictionaries.' Wheat' and 'rice', etc., are such commodities which are commonly known as 'agricultural produce' and there is no doubt or scope for taking any other view. The Tribunal has also referred to the definition in the State enactment, i.e., M. P. Agricultural Produce Market Act. However, for the purposes of this case, we have to construe the words 'agricultural produce' as commonly known and understood in the absence of any specific definition in the Act. It may be true that for the purposes of other enactments like the levy of purchases tax or sales tax, rice and paddy could be treated as different marketable commodities, but still both of them will remain in the class of ''agricultural produce'. We accept this contention that even after milling of paddy and conversion of the same into rice, there is no material difference for the purposes of treating rice as an agricultural produce.
7. On the next point, the learned counsel for the assessee urged that, if two interpretations are possible on the language of the taxing statute, the interpretation in favour of the assessee should be upheld. There is no quarrel with this proposition. But, in the present case, the language ofSection 81(i)(c) of the Income-tax Act is quite clear and there is no scope for taking another view. The exemption granted under the said provision depends upon the following essential facts :
(a) That the subject-matter of transactions should be 'agriculturalproduce' ;
(b) That the Society should be engaged in the activity of marketing the same; and
(c) That the 'agricultural produce' shall be of its members. In the present case, as we have already opined earlier, the first essential condition has been fulfilled. Now, the question arises whether, under the aforesaid facts and circumstances, though the assessee-Society purchases paddy from its members and also from non-members, the paddy is milled by the Society, rice obtained on milling the same is sold by the Society as its own property, and the fluctuations in prices are to be suffered or gained by the Society and not by the members, who had already taken the price of the paddy by selling the same, can it be said that the Society was engaged in the activity of marketing the 'agricultural produce' of its members Will it be possible to say on the aforesaid facts that the profits or gains earned by the Society after milling the paddy of its own and selling the rice as its own stock, will amount to income from the activity of the business of marketing the 'agricultural produce' of members. The language in Sub-clause (c) to Section 81(i) clearly indicates that the exemp- tion was granted for such income which the Society may earn from the activities of marketing the 'agricultural produce', i.e., paddy in this case, and milling the same for and on behalf of its members and then selling the rice obtained on milling the paddy of the members in the market at the risk of the members and for which the Society may charge remuneration or commission. Such a case may be a case of income from the activity of marketing of the 'agricultural produce' of the members.
8. The learned counsel for the assessee urged that, in substance, the Society only carried on such activities which its members could have carried on for making their agricultural produce marketable and, therefore, even if the Society had purchased the, paddy, and dealt with the milled rice as its own property, there is no substantial difference. The Tribunal has also taken the same view by observing that the assessee-Society could do what the members themselves could have done for the sale of their produce. In our opinion, this is wrong.
9. While interpreting or construing taxing statutes, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax and similarly there is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. We can only look fairly at the language used in Sub-clause (c) to Section 81(i) of the Act.There is no question of applying the theory of inference of analogy, or to exempt or impose liability on supposition of the spirit of the law. It is purely a case of legal obligation arising out of certain transactions and, therefore, while deciding the case of exemption or liability, the question is not at what transaction the section is according to some alleged general purpose aimed, but what transaction its language according to its natural meaning fairly and squarely is. This is the one and the only proper test. It is, therefore, neither our function to give to the words strained meaning nor to cover up the loopholes through which the taxpayer may find escape or to tax transactions which, had the legislature thought of them, would have been covered by appropriate words. We cannot ignore the qualifications added after the words 'agricultural produce' in Sub-clause (c) to Section 81(i) of the Act, in so many words, i.e., 'agricultural produce' of its members. We also cannot overlook the clear language indication that income-tax shall not be payable by a co-operative society only in respect of profits and gains of business if it is engaged in the marketing of the agricultural produce of its members. This language clearly excludes the case of income arising out of the business of purchasing paddy from the agriculturist and milling the same by the purchaser for his own purposes and, thereafter, dealing in the business of sale of rice and appropriating to itself the loss or profit due to rise or fall in the price of the commodities sold.
10. Though Sub-clause (e) to Section 81(i) of the Act is not concerned with the assessments involved in this case, a perusal of the same will also indicate that income earned from the activity of processing, without the aid of power, of the agricultural produce of its members alone is exempt; if a society earn income by carrying on the business of milling the 'agricultural produce 'of its members without the aid of power, the same will be exempted. In that case, the income will comprise of the milling charges recovered by the Society from its members. What is necessary to claim exemption under Sub-clause (c) of Section 81(i) of the Act is that the business of the Society should be of marketing the agricultural produce of its members and not itself purchasing paddy and then selling rice on its own account. On the face of the clear words used in Sub-clause (c) of Section 81(i) of the Income-tax Act, the courts cannot extend the exemption to any other case by extending the theory of inference or analogy. Fiscal measures are not built upon any theory of taxation. The liability or exemption can be claimed only if the essential requirements of the words used in the section are fulfilled. If we are to accept the contention of the assessee, we will be ignoring the provisions of the taxing statutes and will be implying so many things which are not expressed. We will be required to import provisions in Sub-clause (c) which are not there. The legal effect of the transaction cannot be displaced by probing into the substance ofthe matter. Equitable considerations are entirely out of place. We cannot overlook the claim by considering as to what was the substance of the matter and cannot grant exemption on mere inference or analogy.
11. The terms 'marketing and processing' used in relation to co-operative societies in Sub-clauses (c) and (e) of Section 81(i) of the Income-tax Act clearly indicate that the exemption covers only such income which arises out of the activity of processing or marketing of the 'agricultural produce' of the members and not the income arising out of the business of purchase of paddy and sale of rice by the Society on its own account. This is clearly ruled out by the words 'agricultural produce of its members '.
12. Under these circumstances, we record the answer to the reference as below:
On the facts and in the circumstances of the case, the Tribunal was not right in holding that a portion of the assessee's income from the sale ofrice, in so far as it related to paddy purchased from the members of the Society, is exempt under Section 81(i)(c) of the Income-tax Act, 1961.