1980 Supreme(P&H) 84

PUNJAB & HARYANA HIGH COURT
Bhopinder Singh Dhillon and S.P.Goyal JJ.
Punjab State Co-operative Supply, Marketing Federation Ltd.
Versus
Commissioner Of Income-tax
Income tax Reference No. 11 of 1975,
Decided On : FEBRUARY 29, 1980

A transaction between a co-operative society and a state government for the distribution of fertilizers is an agency agreement and not a sale agreement if the society does not purchase the fertilizers from the government but takes delivery of them on the advice of the Registrar, Co-operative Societies, and is required to sell the fertilizers at such places, for such crops, and subject to such conditions as may be specified by the Registrar.

Headnote:

INCOME TAX - Section 81(i)(d) - Exemption - Co-operative society - Purchase of fertilizers and supply to members - Agreement with State Government - Whether transaction was sale or agency - Held, transaction was agency and not sale - Exemption not available.

Fact of the Case:

The assessee, a co-operative society, entered into an agreement with the Punjab Government for the distribution of fertilizers. The agreement provided that the assessee would take delivery of the fertilizers on the advice of the Registrar, Co-operative Societies, and sell them at such places, for such crops, and subject to such conditions as may be specified by the Registrar. The assessee was also required to establish/maintain sale depots for the sale of fertilizers at such places situated within the Punjab as may be specified by the Registrar. The assessee was to store the fertilizers at such places and in such manner and quantity as may be determined by the Registrar. The assessee was not to charge a price exceeding the pool price plus the distribution margin as laid down in the agreement. The assessee was to open a suspense account with the Punjab State Co-operative Bank Ltd. to which the margin specified against the entry relating to the "suspense account" in the break-up of distribution margin, as well as the amount in excess of the pool price and the distribution margin, would be credited by the assessee. No expenditure was to be incurred by the assessee against this account without the prior approval in writing of the Registrar. The assessee was to meet the interest charges and the cost of the staff employed in the office of the Registrar, and other unforeseen expenses to run the scheme from the suspense account. The agreement could be terminated by either party on giving six months' notice in writing to the other.

Finding of the Court:

The Tribunal held that the transaction in fertilizers was a transaction of agency and not of purchase and sale and that the amount of Rs. 87,750 was not exempt under Section 81(i)(d) of the Income-tax Act, 1961.

Issues: Whether, on the facts and in the circumstances of the case, and keeping in view the agreement dated April 1, 1960, the Tribunal was right in law in holding that the transaction in fertilizers was a transaction of agency and not of purchase and sale and that the amount of Rs. 87,750 was not exempt under Section 81(i)(d) of the Income-tax Act, 1961?

Ratio Decidendi: The court held that the agreement between the assessee and the Punjab Government was an agreement between a principal and an agent and not between a seller and buyer. The court noted that the assessee did not purchase the fertilizers from the Punjab Government but took delivery of them on the advice of the Registrar, Co-operative Societies. The assessee was also required to sell the fertilizers at such places, for such crops, and subject to such conditions as may be specified by the Registrar. The assessee was not to charge a price exceeding the pool price plus the distribution margin as laid down in the agreement. The assessee was also required to open a suspense account with the Punjab State Co-operative Bank Ltd. to which the margin specified against the entry relating to the "suspense account" in the break-up of distribution margin, as well as the amount in excess of the pool price and the distribution margin, would be credited by the assessee. No expenditure was to be incurred by the assessee against this account without the prior approval in writing of the Registrar. The assessee was to meet the interest charges and the cost of the staff employed in the office of the Registrar, and other unforeseen expenses to run the scheme from the suspense account. The court also noted that the agreement could be terminated by either party on giving six months' notice in writing to the other.

Final Decision: The court answered the question in the affirmative, holding that the Tribunal was right in law in holding that the transaction in fertilizers was a transaction of agency and not of purchase and sale and that the amount of Rs. 87,750 was not exempt under Section 81(i)(d) of the Income-tax Act, 1961.