Very Important Point
The assessee, a society engaged in the marketing of agricultural produce of its members, is entitled to exemption of income from such marketing u/section 80P(2)(a)(iii), Income-Tax Act, 1961 since a society engaged in marketing of agricultural produce of its members includes not only primary societies dealing with produce raised by the members who are individuals but also other non-member societies which are members thereof who may have purchased such goods from the agri­culturists.

Judgment

Rajendra Babu, J.-We have heard a batch of cases in which the ques­tion raised for our consideration is whether the assessee under the Income Tax Act which are Co-operative Societies are entitled to deduc­tion under Section 80P(2)(a)(iii) of the Income Tax Act, 1961 in respect of the purchases made from member societies?

2. For purposes of convenience we shall set out the facts and decide one of these cases, number, C.A. No. 506 of 1994, filed by the Kerala State Cooperative Marketing Federation Limited and apply the result thereto in other matters. The society in question is registered under the Kerala Co-operative Societies Act and is an assessee under the Income Tax Act. For the assessment year 1980-81, the assessee claimed exemption under Section 80P (2)(a)(iii) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) in respect of profits earned by it out of the purchases made from the member societies. The assessee which is an apex society purchased cashew from the primary cooperative societies who are its members. The total purchases made by it were to the extent of Rs. 33,23,71,339/- out of which the purchases from member societies was in a sum of Rs. 95,02/851/-. The claim for exemp­tion of this amount was made on the basis that it marketed agricultur­al produce of its members. The Income Tax Officer rejected the claim. On appeal, the Commissioner of Income Tax (Appeals) took the view that the assessee is entitled to exemption under the aforesaid provisions in respect of the income from procurement of cashew nuts from the member societies. However, he made it clear that the said exemption would not be applicable for purchases or supplies made by primary societies or service societies which were not members of the assessee society. The matter was carried further in second appeal by the Department to the Appellate Tribunal which took the view that the assessee would be entitled to exemption under the aforesaid provi­sions of the Act. The assessee also filed a second appeal claiming that the whole profit and gains of the business was entitled to deduc­tion under Section 80-P2(a)(iii) of the Act. The Tribunal dismissed both sets of appeals. The Department sought for a reference on the question referred to above to the High Court. The High Court held that in view of the decision rendered by it earlier, the assessee was entitled to succeed and question referred to them should be answered against the revenue. However, in view of the decision of this Court in Assam Co-operative Apex Marketing Society Ltd. v. Commissioner of Income Tax (Addl.)1, it held that the assessee would not be entitled to deduc­tion under the said provision in respect of purchases made from its member societies and thus answered the question referred to it in the negative against the assessee and in favour of the revenue. In Assam Co-operative Apex Marketing Society Ltd. v. Commissioner of Income Tax (Addl.) this Court was concerned with the scope of Section 81 of the Income Tax Act which after omitting the portions of the provisions with which we are not concerned, read as follows:-

“81. Income of co-operative socie­ties:-

Income-tax shall not be payable by a co-operative society-

(i) in respect of the profits and gains of business carried on by it, if it is-

(a) .....

(b) ......

(c) a society engaged in the marketing of the agricultural produce of its member; or............”

3. By Finance Act No. 2 of 1967. Section 81 was deleted with effect from 1.4.1968 and Section 80P was incorporated in the Act with effect from 1.4.1968. Section 80-P (2)(a)(iii) after omitting the portion with which we are not concerned, reads as follows :-

“80-P(1) Where, in the case of an assessee being a co-operative socie­ty, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the s