Court denies tax exemption for fertiliser and insecticide profits, assessee to pay costs.

The court ruled against the assessee in both issues. Firstly, the assessee was denied tax exemption under section 81(i)(d) for profits from the fertiliser business as they did not qualify as engaged in the purchase of fertilisers. Secondly, the assessee was also denied exemption for profits from the sale of insecticides to non-members as a significant portion of sales were to non-members, not meeting the criteria of supplying articles to members as required by the law. The court ordered the assessee to pay the costs of the reference.

---

---

Issues Involved:
1. Exemption from tax under section 81(i)(d) of the Income-tax Act, 1961, in respect of profits from the fertiliser business.
2. Exemption from tax under section 81(i)(d) of the Income-tax Act, 1961, in respect of profits from the sale of insecticides to non-members.

Detailed Analysis:

Issue 1: Exemption from Tax on Fertiliser Business Profits
The assessee, a co-operative society, claimed exemption from taxation under section 81(i)(d) of the Income-tax Act, 1961, for the commission received from the Government of Maharashtra on the sale of fertilisers. The agreement between the assessee and the Government stipulated that the property in the fertilisers remained with the Government while in the custody of the distributor (the assessee). The Tribunal concluded that the assessee was not engaged in the purchase of fertilisers within the meaning of section 81(i)(d) and thus was not entitled to the exemption.

The court examined the legal effect of the agreement, noting that the property in the fertilisers never transferred to the assessee. The assessee was merely a distributing agent, receiving remuneration described as commission for its services. The court rejected the argument that the word "purchase" in section 81(i)(d) should be interpreted as "procure," emphasizing that the term "purchase" implies acquisition of property, which did not occur in this case. Consequently, the court held that the assessee did not qualify for the exemption under section 81(i)(d) for its fertiliser business profits.

Issue 2: Exemption from Tax on Profits from Sale of Insecticides to Non-Members
The assessee also sought exemption for profits derived from the sale of insecticides to non-members. The Tribunal found that sales to members constituted a minimal percentage (5%) of the total sales of insecticides. The court reiterated that section 81(i)(d) provides exemption only for articles purchased for the purpose of supplying them to members. Since a significant portion of the insecticide sales were to non-members, the court held that the assessee could not claim exemption for profits from these sales.

The court further rejected the argument that the assessee's activities should be viewed as an integrated whole, where the satisfaction of section 81(i)(d) requirements for some sales would extend the exemption to all activities. The court clarified that exemption under section 81(i)(d) is specific to articles intended for members, and sales to non-members do not qualify for this benefit.

Conclusion:
1. The court answered the first question in the negative, ruling that the assessee is not entitled to exemption from tax under section 81(i)(d) for profits from the fertiliser business.
2. The court also answered the second question in the negative, ruling that the assessee is not entitled to exemption from tax under section 81(i)(d) for profits from the sale of insecticides to non-members.

The assessee was ordered to pay the costs of the reference.

---