Commissioner of Income Tax vs Lakshadweep Co-operative Marketing Federation Ltd.

P.K. Balasubramanyan, J.—This appeal by the Commissioner of Income Tax questions the deduction of an item of income of the assessee-co-operative society, an apex society. The Income Tax Appellate Tribunal in its judgment, followed the decision of the Supreme Court in Kerala State Co-operative Marketing Federation Ltd. and Others Vs. Commissioner of Income Tax, , and held that even though the assessee-society is an apex society and its members are other co-operative societies, the deduction was permissible u/s 80P(2)(a)(iii) of the Act as it stood. The provision at that time read : "... the marketing of the agricultural produce of its members".

Subsequently, Section 80P(2)(a)(iii) was amended by the Income Tax (Second Amendment) Act, 1998, with effect from April 1, 1968. In this case, we are concerned with the assessment year 1990-91 and consequently the amendment to Section 80P(2)(a)(iii) of the Act affects the assessment in question. The substantial questions of law raised in the memorandum of appeal were the following :

"1. Whether, on the facts and in the circumstances and also in the light of the amendment to Section 80P(2)(a)(iii) with effect from April 1, 1968 (following sub-clause was substituted for Sub-clause (iii) with effect from April 1, 1968, ''the marketing of agricultural produce grown by its members, or''), the assessee is entitled to the deduction/benefit of Section 80P(2)(a)(iii) of the Income Tax Act ?

Whether, on the facts and in the circumstances of the case and also in the light of the amendment with retrospective effect the Tribunal is right in law in interfering with the revisional order of the Commissioner?"

This court issued notice on those substantial questions as formulated above.

The appeal has, therefore, to be heard on the above two substantial questions of law formulated. It is clear that the effect of the amendment to Section 80P(2)(a)(iii) of the Income Tax Act by the Income Tax (Second Amendment) Act, 1998, with effect from April 1, 1968, was to get over the ratio of the decision of the Supreme Court in Kerala State Co-operative Marketing Federation Ltd. and Others Vs. Commissioner of Income Tax, . Whereas under the section as it stood and governed by the decision of the Supreme Court, it was sufficient if the agricultural produce that is marketed belonged to its members, after the amendment it has been clarified that the agricultural produce must be grown by the members of the apex societies. Thus, the position is that merely because the produce is grown by the members of the member societies that would not enable the assessee to claim deduction u/s 80P(2)(a)(iii) of the Act.

In the light of the amendment brought to Section 80P(2)(a)(iii) of the Act with retrospective effect, the substantial questions of law formulated have to be answered in favour of the Revenue. It has to be held that since the member societies have not grown the agricultural produce, the apex society, namely, the assessee, cannot claim deduction in respect of the marketing of the agricultural produce in terms of Section 80P(2)(a)(iii) of the Act.

In view of the answer as above, this appeal has to be allowed, the order of the Income Tax Appellate Tribunal, Cochin Bench, in I. T. A, No. 145 of 1995 has to be set aside and that of the Commissioner of Income Tax, Cochin, restored. We do so.