1991 (6) TMI 89 - AT - Income Tax

Co-op Society's Oil Sales Qualify for Tax Exemption

The Tribunal held that the extraction of oil and sale by the Co-operative Society constituted marketing of its members' agricultural produce, making it ... Agricultural Produce, Co-operative Society, Profits And Gains Issues:Interpretation of Section 80P(2)(a)(iii) of the Income-tax Act, 1961 regarding exemption for income derived from marketing of agricultural produce of members of a Co-operative Society.Analysis:The appeal before the Tribunal concerns the rejection of the claim for exemption under Section 80P(2)(a)(iii) of the Income-tax Act, 1961 by the Income Tax Officer (ITO). The Co-operative Society, the assessee, argued that the income derived from processing groundnuts into oil and de-oil cake, which were products of the agricultural produce of its members, should be exempt as it falls under the marketing of agricultural produce of the members. The CIT(A) disagreed, stating that the extraction of oil and subsequent sale did not constitute marketing of the agricultural produce. The Tribunal was tasked with determining the eligibility of the assessee for the exemption under Section 80P(2)(a)(iii).The counsel for the assessee contended that a liberal construction should be given to Section 80P to promote the growth of co-operative societies. They relied on Supreme Court decisions emphasizing the need for a broad interpretation of provisions benefiting co-operative societies. The argument was supported by examples where processing was necessary to obtain a fair price for agricultural products, citing cases from Gujarat and Karnataka High Courts.Conversely, the departmental representative argued for a strict interpretation of Section 80P, citing a Bombay High Court decision. They contended that the activity of extracting oil and selling it did not constitute marketing of the agricultural produce. Reference was made to a Madhya Pradesh High Court decision where a similar activity was not considered as marketing of members' agricultural produce.The Tribunal, after considering the arguments and relevant precedents, rejected the department's call for a strict interpretation of Section 80P. Instead, the Tribunal upheld the need for a liberal construction to encourage co-operative societies' growth. It defined 'marketing' broadly to include all activities related to preparing agricultural produce for sale, such as processing. The Tribunal concluded that the extraction of oil and sale by the assessee constituted marketing of the agricultural produce of its members, making it eligible for exemption under Section 80P(2)(a)(iii). The decision distinguished cases where the society purchased and processed goods for its own account, which would not qualify as marketing of members' agricultural produce.In light of the above analysis, the Tribunal set aside the CIT(A)'s order and directed the ITO to allow the deduction as per the exemption under Section 80P(2)(a)(iii). The appeal by the assessee was allowed.