Co-operative society rice sales from purchased paddy treated as taxable business income, not exempt marketing of members' produce.

A co-operative society that buys paddy from its members, mills it into rice, and resells the rice is not engaged in marketing the agricultural produce of its members for the purpose of the exemption under section 14(3)(i)(c) of the Indian Income-tax Act, 1922. The exemption was confined to marketing members' agricultural produce as such; once the society purchased the paddy as a trader and converted it into a different commercial commodity, the resulting profit was business income and not exempt agricultural income. The broader construction of "agricultural produce" was rejected as inconsistent with the statutory scheme.

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Issues: Whether the assessee-society's profit from sale of rice, insofar as it related to paddy purchased from its members and milled into rice, was exempt under section 14(3)(i)(c) of the Indian Income-tax Act, 1922 as income from marketing of the agricultural produce of its members.

Analysis: The question was answered by examining the statutory exemption available to a co-operative society engaged in marketing agricultural produce. The decisive factor was that the assessee did not market paddy as such, but purchased paddy from its members, processed it by milling, and sold rice as a commercial commodity. The exemption under section 14(3)(i)(c) was confined to a society engaged in marketing the agricultural produce of its members, and the court held that once the members had parted with the produce and the society purchased it as a trader, the resulting profit from resale was business profit and not exempt agricultural income. The broader reading of "agricultural produce" adopted below was rejected as inconsistent with the scheme of the Income-tax Act.

Conclusion: The exemption was not available, and the assessee's share of profit from sale of rice attributable to paddy purchased from members was taxable.

Ratio Decidendi: A co-operative society that purchases agricultural produce from its members and converts it into another marketable commodity for resale does not, by that process alone, become a society engaged in the marketing of the agricultural produce of its members for purposes of the exemption.

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