Section 80P(2)(a) deduction allowed for co-op apex society on members' produce despite non-member purchases, with income recomputation directed

HC held that the assessee co-operative apex society is entitled to deduction under section 80P(2)(a) in respect of profits attributable to marketing agricultural produce belonging to its member primary societies, notwithstanding purchases from non-members, as section 80P does not mandate exclusivity. The benefit is confined to produce of the 86 member societies, with income to be redetermined accordingly. HC upheld the Tribunal's view that an assessee may raise new or additional grounds for the first time before the Tribunal, and that the Tribunal rightly allowed an additional ground relating to statutory purchase tax liability and remitted that issue to the CIT(A). Questions were answered in favour of the assessee; one was declined as no final finding had been rendered.

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Issues Involved:
1. Entitlement to exemption u/s 80P(2)(a)(iii) of the Income-tax Act.
2. Consideration of an additional ground for deduction of Rs. 6,05,646.
3. Entitlement to claim deduction of Rs. 6,05,646 without material support.

Summary:

1. Entitlement to exemption u/s 80P(2)(a)(iii) of the Income-tax Act:

The primary issue was whether the assessee, an apex society, was entitled to exemption u/s 80P(2)(a)(iii). The Income-tax Officer denied the exemption, arguing that the agricultural produce did not belong to the members of the assessee-society. However, the Commissioner (Appeals) and the Tribunal held that the assessee was entitled to the exemption for the income derived from marketing the agricultural produce of its members. The court observed that the term "agricultural produce of its members" includes produce from primary societies that are members of the apex society. The court cited various judicial precedents, including CIT v. Karjan Co-operative Cotton Sale, Ginning and Pressing Society Ltd., and held that the produce marketed by the apex society from its member societies qualifies for exemption. The court concluded that the assessee is eligible for the deduction of profits and gains from marketing the agricultural produce of its members.

2. Consideration of an additional ground for deduction of Rs. 6,05,646:

The assessee raised an additional ground before the Tribunal for the deduction of Rs. 6,05,646 accrued under the Kerala General Sales Tax Act, which was not claimed in the original assessment proceedings. The Tribunal allowed this additional ground, stating that all questions of law or facts related to the assessment may be raised before the Tribunal. The Tribunal remitted the matter to the Commissioner of Income-tax (Appeals) for fresh consideration. The court upheld the Tribunal's decision, referencing the Supreme Court's ruling in Jute Corporation of India Ltd. v. CIT, which allows appellate authorities to entertain new grounds if they are bona fide and could not have been raised earlier for good reasons.

3. Entitlement to claim deduction of Rs. 6,05,646 without material support:

The third question was whether the Tribunal was right in finding that the assessee is entitled to claim the deduction of Rs. 6,05,646 in the absence of material support. The court noted that the Tribunal did not render a final finding on this claim but remitted the matter to the Commissioner of Income-tax (Appeals) for fresh examination. Therefore, the court declined to answer this question.

Conclusion:

- Question No. 1: Answered in the affirmative, in favor of the assessee and against the Revenue.
- Question No. 2: Answered in the affirmative, in favor of the assessee and against the Revenue.
- Question No. 3: Declined to answer as it did not arise out of the Tribunal's order.

A copy of this judgment shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.

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