Commissioner of Income Tax vs Punjab State Co-operative Supply and Marketing Federation Ltd.

Gokal Chand Mital, J.—The Punjab State Co-operative Supply and Marketing Federation Ltd., a co-operative society (hereinafter called "the assessee") carried on business in purchase and sale of wheat, paddy and other agricultural produce from its members. During the year relevant to the assessment year 1967-68, the assessee had income of Rs. 40,44,844. Since the aforesaid income was derived from the marketing of the agricultural produce of its members, it was claimed that u/s 81(i)c of the Income Tax Act, 1961 (for short "the Act"), which provision stands omitted with effect from April 1, 1968, and is incorporated in Section 80P(2)(a)(iii) with effect from the same date, the same had to be deducted in computing the income.

The Income Tax Officer did not allow the deduction on the ground that the agricultural produce was not raised by the members of the society.

On appeal, the Appellate Assistant Commissioner allowed the deduction in view of the majority decision of the Appellate Tribunal, Delhi Bench, in the case of National Agricultural Co-operative Marketing Federation Ltd., wherein it was held that the words "agricultural produce of" means agricultural produce belonging to the members and not agricultural produce raised by the members. The Tribunal confirmed the decision of the Appellate Assistant Commissioner.

Another point which cropped up for consideration was about the receipt of Rs. 40,000 by the assessee from the National Co-operative Development Corporation by way of subsidy to compensate the assessee by 2 per cent. of the purchases to meet the loss which the assessee may have incurred on account of price fluctations. According to the assessee, it was a capital receipt but the Income Tax Officer took the view that the receipt was incidental to carry on the business, and, therefore, formed part of its taxable income. However, on appeal, the Appellate Assistant Commissioner took the view that as he had held that the income from purchase and sale of agricultural produce was exempt from payment of Income Tax, the subsidy of Rs. 40,000 was also exempt However, he held that the amount be clubbed with income for rate purposes only. The Tribunal upheld this view of the Appellate Assistant Commissioner.

Some more points were agitated before the Tribunal but it has referred only the following question on the facts noticed above :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal erred in law in holding that the income from the purchase and sale of wheat, paddy, etc., amounting to Rs. 40,44,844 and the subsidy of Rs. 40,000 incidental to such business received from the National Co-operative Development Corporation was exempt from tax u/s 81(i)(c) of the Income Tax Act, 1961 ?"

So far as the first part of question relating to the income derived from the purchase and sale of foodgrains from members is concerned, we have held in I. T. Reference No. 95 of 1982 ( Commissioner of Income Tax Vs. Haryana State Co-operative Supply and Marketing Federation Ltd., ) decided on March 21, 1989, that even if a member is not a producer of agricultural produce, the income derived from purchase and sale of agricultural produce from a member is exempt from levy of Income Tax and such income is to be deducted in computing the total income of the asses-see. We follow that view.

As regards the second point regarding receipt of subsidy, in Ludhiana Central Co-operative Consumers Stores Ltd. Vs. Commissioner of Income Tax, and V.S.S.V. Meenakshi Achi and Another Vs. Commissioner of Income Tax, Madras, , it has been held that the character of the receipt is to be considered and if a subsidy was given towards the purchase price of food-grains, it will partake of the character of the purchase price being reduced by the amount of subsidy with the result that the income will go up by the amount of the subsidy. Even if the income of the assessee goes up by Rs. 40,000, since this relates to the sale, and purchase of agricultural produce from its members, this would also be deducted while computing the total income of the assessee.

For the reasons recorded above, we answer the question in favour of the assessee and in the affirmative. No costs.