Agricultural product exemption denied where factory-made butter from purchased cream was treated as a separate manufacturing product.

Butter manufactured by co-operative societies from cream purchased from farmers was not treated as an agricultural product of the members for income-tax exemption purposes. The relevant exemption turned on whether the butter, as against the applicant society, was a product of the members' agricultural activity and use of land. Butter produced through factory operations from cream sourced from multiple farmers was held to be the result of a separate butter-making industry, not a direct product of farming activity. The claimed exemption therefore failed because the finished product was not, in any real sense, an agricultural product of the members.

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Issues: Whether butter manufactured by co-operative societies from cream purchased from farmers could be treated as an agricultural product of the members so as to qualify the appellant rural society for exemption from income tax under the relevant statutory provision.

Analysis: The exemption depended on whether the relevant butter was, vis-a-vis the appellant, an agricultural product of its members. Butter produced in factory operations from cream obtained from many sources was not a product of the use of the factory land. The incorporated definition had to be read in its own statutory setting, but the relevant provisions of the co-operation legislation showed a distinction between agricultural products and products manufactured out of agricultural products. The finished product here resulted from a distinct butter-making industry, separate from the farming activity that produced milk and cream. Although butter might in some settings be an agricultural product, butter made by manufacturing societies from cream after the raw material had left the farm was not in any real sense the product of the use of the farmers' land.

Conclusion: The claimed exemption failed and the butter was not an agricultural product of the members for purposes of the income-tax exemption.

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