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Nagpur Zilla Nutan Dughd Utpadak Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Nagpur
Decided On
Judge
Reported in(1985)13ITD680(Nag.)
AppellantNagpur Zilla Nutan Dughd Utpadak
Respondentincome-tax Officer
Excerpt:
.....the objects of the federation was to supply milk of the primary societies to the government milk society. he, therefore, did not agree that the federal society was an extension of the primary societies who were its members. he also noticed that the appellant was purchasing the milk of the various member societies and re-selling the same to the government milk scheme.he noticed that the member societies were making separate profits on the milk sold to the federation and the federation in turn was making a profit by re-selling the same to the government milk society. he, therefore, did not agree that the profit made by the federation at the second stage could be treated as the profit made by the member societies. he also noticed that the, deduction under section 80p(2)(b) was.....
Judgment:
1. This appeal by the assessee is against the order of the AAC in his appeal No. 14 Circle III(1) of 1982-83 dated 16-3-1983 relating to the assessment year 1981-82 confirming the disallowance of the claim for exemption under Section 80P(2)(a)(iii) of the Income-tax Act, 1961 ('the Act') or, in the alternative, under Section 80P(2)(b). The facts in this regard ate briefly as under.

2. The appellant is a federal society engaged in the business of supply of milk of its member societies to the Government Milk Scheme, Nagpur.

The appellant had claimed exemption in respect of the profits of the federal society under Section 80P(2)(b). It was submitted before the ITO that under this provision, exemption was available in respect of the profits and gains of a co-operative society, being a primary society engaged in the supply of milk raised by its members to a federal milk co-operative society and, since the words 'primary society' occurring in this provision were not defined in the Act, even a federal society consisting of various primary societies as its members would also be eligible for this exemption. In the alternative, it was submitted that the appellant would be eligible for deduction under Section 80P(2)(a)(iii) under which income arising from the marketing of the agricultural produce of the members of the society would be exempt. In this connection, the ITO's attention was invited to the fact, that, since the society was registered as an agricultural society under the Maharashtra Co-operative Societies Act, 1960, the commodity dealt in by the assessee, namely, 'milk', should be treated as agricultural produce of its members. The ITO negatived the claim for deduction under both the provisions As regards the claim for deduction under Section 80P(2)(b), the ITO noticed, that, though the words 'primary society' were not defined in the Act, all the commentaries on co-operative societies had defined a primary society as one functioning at the village level whereas, in the present case, the assessee was a federation of a number of primary societies. He also found, that, under Section 54 of the Maharashtra Cooperative Societies Act, a society with more than five primary societies as its members, was to be treated as a federal society. Since the appellant was a federal society consisting of various primary societies carrying on dairy business at village level, the requirements of Section 80P(2)(i) were not satisfied inasmuch as, the appellant was not a primary society which was an essential requirement for this section. With reference to the alternative contention, the ITO held, that the deduction provided thereunder, was admissible only in respect of profits arising on the marketing of the agricultural produce of the members of the society and by no stretch of imagination or under any conceivable circumstances, milk could be considered to be agricultural produce. He also drew support for his conclusion in this behalf on the ground, that, if milk was to be treated as agricultural produce, the exemption provided under Section 80P(2)(b) would become redundant.

3. Aggrieved with the same, an appeal was preferred to the AAC. The arguments before the AAC may be summarised as under : It was submitted before the AAC that the appellant society, no doubt a federal society, was formed with the object of marketing the products of its member societies which functioned at the village level. It was further submitted, that the appellant society should be looked upon as an extension of its member societies and, since the surplus income of the society was distributed to the member-societies as dividend, the requirements of Section 80P(2)(b) were satisfied and, therefore, the lower authority was not justified in denying the claim for deduction under this section.

Alternatively, it was also submitted that the words 'agricultural income' were not defined in the Act and, therefore, the classification of the appellant under the Maharashtra Co-operative Societies Act as an agricultural society would be of great relevance and, since the member-societies were engaged in the business of dairy produce, the requirements of Section 80P(2)(a)(iii) were also satisfied, inasmuch as, the appellant society was marketing the agricultural produce of its members.

4. After a careful consideration of the above submissions, the AAC did not agree with the appellant on either count. He noticed that the preamble of the bye-laws of the society itself referred to the appellant-society as a federal society. He also noticed that according to sub-clause 20 of the objects clause, the objects of the federation was to supply milk of the primary societies to the Government milk society. He, therefore, did not agree that the federal society was an extension of the primary societies who were its members. He also noticed that the appellant was purchasing the milk of the various member societies and re-selling the same to the Government Milk Scheme.

He noticed that the member societies were making separate profits on the milk sold to the federation and the federation in turn was making a profit by re-selling the same to the Government Milk Society. He, therefore, did not agree that the profit made by the federation at the second stage could be treated as the profit made by the member societies. He also noticed that the, deduction under Section 80P(2)(b) was applicable to the profits made by a primary society engaged in supplying milk raised by its members to a federal society and, since in the present case, the profit was not in respect of the primary societies but the same was in respect of the sales effected by a federal society, the provisions of Section 80P(2)(b) would have absolutely no application to the case. Though the term 'primary society' was not defined in the Act, the appellant by the very nature of its framework as well as functions as also defined in bye-laws was only a federal society and not a primary society, according to the AAC.Taking up the alternative contention, the AAC held that though the words 'agricultural produce' were not defined in the Act, the words 'agricultural income' were however, defined in Section 2(7) of the Act, according to which it was defined as income arising from cultivation or other user of land or the sale of agricultural produce raised from the land. He, therefore, did not agree with the assessee that production of milk would constitute production of agricultural produce. He further held that the registration of the society as an agricultural society under the Maharashtra Co-operative Societies Act was irrelevant in the context of deciding whether the milk produced by the members could be considered to be agricultural produce. He, therefore, confirmed the denial of exemption on both grounds.

5. Aggrieved with the same, the assessee has come up in appeal before us. The submissions made on behalf of the appellant may be summarised as under: No specific submissions were made on the claim for deduction under Section 80P(2)(b) except by way of referring to the submissions made in this behalf before the lower authorities. The main ground of attack against the order was based on the claim for exemption under Section 80P(2)(a)(iii). It was submitted that the assessee was engaged in marketing the agricultural produce of its member societies. In this connection, our attention was invited to the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963, in which, under the definitions Clause 2(1)(a), agricultural produce meant all produce (whether processed or not) of agriculture, horticulture, animal husbandry, apiculture, pisciculture and forest specified in the schedule. Our attention was also invited to the schedule under item IX wherein animal husbandry products have been listed to include butter, ghee, milk among other things. On this basis, it was submitted that milk was an agricultural produce of the member societies and, since the assessee was marketing such agricultural produce of its members, the deduction under Section 80P(2)(a)(iii) was squarely available.

Our attention was invited to CIT v. Karjan Co-operative Cotton Sale, Ginning & Pressing Society Ltd. [1981] 129 1TR 821 (Guj.).

6. The learned departmental representative submitted that the deduction under Section 80P(2)(b) was definitely not available to the assessee inasmuch as, it was not a primary society engaged in supplying milk raised by its members to a federal milk co-operative society. As regards the alternative contention, he submitted, that the definition of agricultural produce under the Maharashtra Agricultural Produce Marketing Act had absolutely no application in the present context and at any rate, it had a limited application for the purposes of that enactment. According to him agricultural produce could only refer to produce derived from land by agriculture or by the performance of any of the processes referred to in Section 2(1)(b)(ii) which denned agricultural income. He also referred to the decision of CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC). He, therefore, vehemently submitted that milk could never be considered to be an agricultural produce. He also submitted that the assessee was a federal society consisting of various primary societies and it was engaged in collecting the milk not produced by the member societies but by the members of the member societies and, therefore, the primary requirement of this section was not satisfied. Elaborating this argument, he submitted, that the members of the primary societies collected milk from various sources and it was such milk that was in turn collected by the federal society of which the primary societies were members. In other words, his submission was that the primary societies themselves did not produce the milk which was supplied to the federal society.

7. In reply, the learned representative for the assessee contended that it was not necessary that the member societies should produce the milk.

He submitted that the word used in this connection was not 'by' but 'of and, therefore, there was no statutory requirement that the agricultural produce should have been produced by the members themselves.

8. After a careful consideration of the submissions on either side, we are of the opinion that the appellant is not entitled to deduction either under Section 80P(2)(a)(iii) or under Section 80P(2)(b). Taking the claim under Section 80P(2)(b) first we find that the essential ingredients for allowing the deduction under this section are absent in this case. Section 80P(2)(b) is in the following terms : (b) in the case of a co-operative society, being a primary society engaged in supplying milk raised by its members to a federal milk co-operative society, the whole of the amount of profits and gains of such business; The primary requirement as seen from this section is that it should be a primary society engaged in supplying milk raised by its members to a federal milk co-operative society. In the present case, the assessee is not a primary society. It is a federation of a number of primary societies which purchases the milk of the primary societies and in turn sells the same to the Nagpur Milk Scheme. The deduction under this clause is applicable only to primary societies engaged in the supply of milk to federal milk co-operative societies. It is, therefore, quite obvious that the claim for deduction under this clause has absolutely no legs to stand upon.

9. There can be no extension of a primary society so as to include within its fold a federal milk society. The very clause rules out such a possibility inasmuch as, the stipulation is that, the income should be that of a primary society arising on the sale of milk of its members to the federal society.

We, therefore, need not labour this point any further apart from mentioning that this clause has no application to the facts of this case.

10. Turning our attention to the alternative contention, we are unable to agree that agricultural produce would include milk within its ambit.

Though the words 'agricultural produce' have not been defined in the Act, we have to understand it in the context of the use of the term as also with reference to the definition of agricultural income under Section 2(1). Agricultural income has been defined under Section 2(1) to mean rental revenue derived from land used for agricultural purposes in India and any income derived from such land by agriculture or the performance by a cultivator of any process referred to in Section 2(1)(b)(ii) and also Section 2(1)(b)(iii). On this analogy, agricultural produce could under no circumstances, include milk and milk products. The reference to Maharashtra Agricultural Produce Marketing Act is of little relevance in this context. At any rate, it has only a limited signification with reference to a particular enactment. Even otherwise, we find that since a separate provision has been made in the shape of Section 80P(2)(b) to exempt the income of primary societies engaged in the supply of milk raised by its members, it is inconceivable to hold that the ambit of the words 'agricultural produce' under Section 80P(2)(a)(iii) should be extended to include milk as well. If that was the intention of the framers, we fail to see why there should be a separate provision in the shape of Section 80P(2)(b) exempting the income of primary dairy societies. After a comparison of these two provisions, we are definitely of the opinion that the words 'agricultural produce' used in this provision do not include milk and it refers only to agricultural produce as normally understood by that term or as connoted by Section 2(1).

11. This apart, we also agree with the learned departmental representative that even in the event of extending the meaning of agricultural produce so as to include milk therein, one of the requirements of this section is not satisfied, namely, that it should be the produce of its members.

12. In the present case, the produce is not of the members of the federation but of the members of the societies. The exemption extends to the marketing of agricultural produce of the members only, not that of the members, of the member societies of the society itself. For this, a separate provision is there in the shape of Section 80P(2)(b)--Assam Cooperative Apex Marketing Society Ltd. v. Addl. CIT [1977] 110 ITR 33 Gauhati and CIT v. U.P. Co-operative Cane Union Federation Ltd. [1980] 122 ITR 913 (All.).

13. We are, therefore, satisfied, that the A AC was justified in declining to interfere with the ITO's order. Accordingly, we confirm the order of the AAC and dismiss the appeal filed by the assessee.


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