IMPORTANT POINT
Section 80P(2)(a)(iii) as amended by the Income Tax Act (2nd Amendment) Act, 1999, in so far as it seeks to retrospectively amend the provision is held constitutionally valid.

Headnote:Income Tax Act, 1961-Section 80P(2)(a)(iii) as amended by Income Tax Act (2nd Amendment) Bill No. 169 of 1998-Constitutional validity-Income of co-operative societies-Benefit of exemption-Availability to co-operative society engaged in marketing of agricultural produce-Amendment of 1998, effect of-Amendment could only apply to pending assessments.
       Held : By the impugned amendment, the legislature has substituted the word of which occurred in Section 80P (2)(a)(iii) and which had been construed by this Court in 1998 as "belonging to", with the phrase "grown by". The clear effect of the substitution, in keeping with general principles relating to amendments, would be that Section 80P(2)(a)(iii) must be read as if the substituted phrase were included from the date that the section was introduced in the statute viz. 1st April, 1968. In making this change, the Legislature does not "statutorily overrule" this Courts decision in Kerala Cooperative Marketing Federation Ltd. [231 ITR 814 : 1998 (5) SCC 48] as has been contended by the appellant. Overruling assumes that a contrary decision is given on the same facts or law. Where the law, as in this case, has been changed and is no longer the same, there is no question of the Legislature overruling this Court. (Paras 18 & 19)
       The test of the length of time covered by the retrospective operation cannot by itself, necessarily be a decisive test, [Rai Ramkrishna & Ors. v. The State of Bihar (1964) 1 SCR 897, 915]. Account must be taken of the surrounding facts and circumstances relating to the taxation and the legislative background of the provision [Jawaharmal v. State of Rajasthan & Ors. (1966) 1 SCR 890, 905]. To recapitulate the legislative background of the particular statutory provision in question before us - the first authoritative interpretation of Section 80P(2)(a)(iii) was made in 1994 in Assam Cooperatives [201 ITR 338 SC : 1994 (Supp) 2 SCC 96] when it held that the word "of " must be construed as "produced by". Therefore, the law as it stood from 1968 was, by this decision, required to be read in precisely this manner and presumably assessments of Apex Societies were commenced and concluded on this basis. The situation continued till 1998 till this Court reversed Assam Cooperatives in Kerala Cooperative Marketing Federation Ltd. (supra). Before the assessment year was over, by the 1998 Amendment the word "of" was substituted with "grown by". In real terms therefore there was hardly any retrospectivity, but a continuation of the status quo ante. The degree and extent of the unforeseen and unforeseeable financial burden was, in the circumstances, minimal and cannot be said to be unreasonable or unconstitutional. (Para 28)

JUDGMENT

Ruma Pal, J.-The appellant No. 1 is a co-operative society registered under the Multi State Co-operative Societies Act, 1984 with its registered office in Delhi. It is the apex society of a chain of Co-operative Societies which operate at different territorial levels. The chain starts with the farmers who become members of village co-operative societies, the village societies become members of primary marketing co-operative societies (District Societies) and District Societies become members of the State Co-operative Societies (Apex Societies).

2. The issue raised by the appellants relates to the construction and Constitutional validity of section 80P (2) (a) (iii) of the Income Tax Act, 1961 and grant of deduction of the profits made by societies by the marketing of agricultural produce.

3. Under the Income Tax Act, 1922 (hereinafter referred to as the 1922 Act) exemption was granted in respect of profits and gains of business of co-operative societies including societies engaged in the marketing of the agricultural produce of its members. The Income Tax Act, 1961 continued this exemption under Section 81(1)(c) which read:

81. Income of co-operative societies.

Income-tax shall not be payable by a cooperative society-

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

(a) xxx xxx xxx xxx

(b) xxx xxx xxx xxx

4. By the Finance Act (No. II) 1967, Section 81 was omitted and its provisions re-enacted as Section 80P of the 1961 Act. The relevant extract of Section 80P is :

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 sums specified in sub-section (2), in computing the total income of the assessee.

(2) The sums referred to in sub-section (i) shall be the following namely:-

(a) in the case of a co-operative society engaged in-

(i) xxx xxx xxx

(ii) xxx xxx xxx

(iii) the marketing of the agricultural produce of its members, or

(iv) xxx xxx xxx

(v) xxx xxx xxx

(vi) xxx xxx xxx

(vii) ............... the whole of the amount of profits and gains of business attributable to any one or more of such activities"

(emphasis supplied)

5. According to the appellant, prior to 1994 several High Courts as well as this Court had construed Section 81(1)(c) and Section 80 P (2)(a)(iii) and held that the benefit of exemption was available to all the co-operative societies from the village to the Apex Level. This was also the view taken by the Kerala High Court as expressed in CIT v. Kerala State Cooperative Marketing Federation1. The view was reversed by a Bench of this Court in Assam Cooperative Apex Marketing Society v. CIT (Additional)2 when it held that the object of Section 81 was to encourage basic level societies and that therefore, the phrase "produce of its members" must refer to agricultural produce actually "produced by its members". It was held that unless this interpretation were given, co-operative societies of traders would also become entitled to exemption which could not have been the intention of Parliament.

6. According to the appellant, as a result of the decision in the Assam Co-operatives case, the appellant No. 1, who had enjoyed the deduction under Section 80 P till then, was reassessed to tax on its profits and the assessments in respect of the assessment year from 1986-87 to 1994-95

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2003 Supreme(SC) 342

IMPORTANT POINTSection 80P(2)(a)(iii) as amended by the Income Tax Act (2nd Amendment) Act, 1999, in so far as it seeks to retrospectively amend the provision is held constitutionally valid.

Cases Referred (22)

IMPORTANT POINT
Section 80P(2)(a)(iii) as amended by the Income Tax Act (2nd Amendment) Act, 1999, in so far as it seeks to retrospectively amend the provision is held constitutionally valid.