Section 80P deduction limits clarified: milk federation treated as ineligible, and milk not regarded as agricultural produce.

Section 80P relief was held to be confined, under section 80P(2)(b), to a primary co-operative society supplying milk raised by its own members to a federal milk co-operative society; a federation of primary societies that purchases milk from member societies and resells it does not satisfy that condition. Milk was also held not to be agricultural produce for section 80P(2)(a)(iii), and the exemption could not be extended to produce of members of member societies. On both grounds, the deduction claim was rejected and the disallowance of exemption sustained.

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Issues: (i) Whether a federal co-operative society supplying milk through member societies was entitled to deduction under section 80P(2)(b) of the Income-tax Act, 1961. (ii) Whether milk could be treated as agricultural produce so as to bring the assessee within section 80P(2)(a)(iii) of the Income-tax Act, 1961.

Issue (i): Whether a federal co-operative society supplying milk through member societies was entitled to deduction under section 80P(2)(b) of the Income-tax Act, 1961.

Analysis: The provision grants exemption only to a co-operative society that is a primary society engaged in supplying milk raised by its members to a federal milk co-operative society. The assessee was found to be a federation of primary societies, not a primary society itself, and it purchased milk from member societies before reselling it. The statutory condition of being a primary society was therefore not met.

Conclusion: The claim under section 80P(2)(b) was not available to the assessee and was rightly rejected.

Issue (ii): Whether milk could be treated as agricultural produce so as to bring the assessee within section 80P(2)(a)(iii) of the Income-tax Act, 1961.

Analysis: The term agricultural produce was construed in the context of the Act and the concept of agricultural income under section 2(1) of the Income-tax Act, 1961. On that basis, milk was held not to fall within agricultural produce. The separate exemption for primary milk societies in section 80P(2)(b) also indicated that milk was not intended to be covered by section 80P(2)(a)(iii). In any event, the produce in question was that of the members of the primary societies, not the members of the assessee-federation itself.

Conclusion: Milk was not agricultural produce for the purpose of section 80P(2)(a)(iii), and the assessee was not entitled to deduction under that provision.

Final Conclusion: The assessee failed on both grounds, and the disallowance of exemption was sustained.

Ratio Decidendi: Deduction under section 80P(2)(b) is confined to a primary society supplying milk raised by its own members to a federal milk co-operative society, and section 80P(2)(a)(iii) does not extend to milk as agricultural produce or to produce of members of member societies.

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