Section 80P deduction limited to marketing members' direct produce, not sale of manufactured sugar by a co-operative society.

Section 80P(2)(a)(iii) applies only where a co-operative society markets the direct agricultural produce of its members. A sugar factory that purchases sugarcane, processes it into sugar with modern machinery, and sells the manufactured product is not marketing the members' agricultural produce in its original form. The activity is treated as the society's own trading business rather than an integral or ancillary part of marketing members' produce. Purchase of sugarcane from non-members and the absence of mutuality further support the conclusion that the society is not acting merely as an agent for members. Deduction under section 80P(2)(a)(iii) was therefore denied.

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Issues: Whether the assessee-co-operative sugar factory was entitled to deduction under section 80P(2)(a)(iii) of the Income-tax Act, 1961 on the footing that sale of sugar manufactured from sugarcane supplied by members amounted to marketing of agricultural produce of its members.

Analysis: The relevant provision was construed as applying to the marketing of agricultural produce in its direct form and not to a manufactured or processed product. The agricultural produce contemplated by the section had to remain the produce of the members; once sugarcane was purchased and converted into sugar by the assessee with modern machinery, the produce marketed was no longer the members' agricultural produce. The activity was held to be a business operation of the assessee as trader, not an integral or ancillary part of marketing agricultural produce of members. The fact that sugarcane was also bought from non-members and that losses were not passed on to members reinforced the absence of mutuality and the conclusion that the factory was not acting merely as an agent for marketing members' produce.

Conclusion: The assessee was not entitled to deduction under section 80P(2)(a)(iii) of the Income-tax Act, 1961; the claim failed.

Ratio Decidendi: Deduction under section 80P(2)(a)(iii) is confined to income from marketing the direct agricultural produce of members and does not extend to income from sale of a manufactured or processed product made by the society after purchasing the produce.

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