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Judgment
Ramanujam, J.—The Revenue seeks a direction from this court to the Tribunal to make a reference on the following questions of law for the
assessment years 1974-75 and 1975-76, respectively :
Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the profit on sale of fertilisers
amounting to Rs. 42,34,291 for the assessment year 1974-75 is exempt u/s 80P(2)(a)(iv) of the Income Tax Act, 1961?
Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the profit on sale of fertilisers
amounting to Rs. 64,70,671 for the assessment year 1975-76, is exempt u/s 80P(2)(a)(iv) of the Income Tax Act, 1961?
The assessee in this case is the Tamil Nadu Co-operative Marketing Federation Ltd. and it was assessed under the provisions of the I. T. Act in
the status of an association of persons. For the assessment years 1974-75 and 1975-76, the assessee claimed exemption of the profits realised on
sale of fertilisers under s. 80P(2)(a)(iv) of the I. T. Act on the sums of Rs. 42,34,291 and Rs. 64,70,671 respectively. The ITO, however, rejected
the claim of the Assessee on the ground that the assessee had not sold the fertilisers to members who actually carried on agricultural operations and
hence the exemption was not available to the assessee. In the result, the ITO completed the assessments after adding the profits from sale of
fertilisers in respect of which exemption was claimed by the assessee. Aggrieved by the orders of the ITO refusing to grant exemption in relation to
the profits realised by the sale of fertilizers ,the assessee preferred appeals to the appellate authority. Before the appellate authority, the assessee
contended that the sales of fertilisers effect to the member societies came within the exemption provision contained in s. 80P(2)(a)(iv) of the Act
and as such, the ITO was not justified in bringing to tax the profits from the sales of fertilises to its members. The AAC accepted the contention of
the assessee and held that it was entitled to exemption under s. 80P(2)(a)(iv) of the Act. Aggrieved by the order of the AAC, the Revenue took
the matter on appeal to the Income Tax Appellate Tribunal contending that the sale of fertilisers was not confined to members, but it was extended
to outsiders also, and, further, the sale was not effected to the agriculturists directly and as such the assessee was not entitled to the exemption as
claimed. It was further submitted that the assessee processed the fertilisers before supplying it to the buyers and on that ground also the assessee
was not entitled to exemption. The Tribunal, however, rejected both the contentions urged for the Department and held that the sale of fertilisers to
member-societies resulting in profits would be covered by s. 80P and there was no need that it should be sold directly to the agriculturists. The
Tribunal held that the proportionate part of the profits referable to the sale of fertilisers to outsider could be excluded from exemption and, for
which purpose, the matter was restored to the ITO for enquiry. As regards the process said to have been carried on by the assessee, the Tribunal
found that the assessee was merely mixing up the ingredients which did not amount to processing and as such the assessee could not be denied
exemption on that ground. Aggrieved by the order of the Tribunal, the Revenue is seeking a reference to this court in relation to both the years
under s. 256(2) of the I. T. Act.
According to the Revenue, the Tribunal was in error in rejecting the reference application filed by the Revenue on the ground that there is no
question of law that arises out of the order of the Tribunal. According to the Revenue, the Tribunal erred in holding that the exemption under s.
80P(2) would be available to the assessee even though the assessee has not sold the fertiliser directly to the agriculturists and that, in any event, the
fertiliser had been sold by the assessee after subjecting the same to a process and, therefore, the assessee cannot claim exemption in relation to the
profits arising from the sale of the fertilisers as processed. The submission made by the Revenue is that the exemption under s. 80P(2) of the Act
could be claimed only by a primary co-operative society and not by a society which is a federation of primary societies, that, in any event, under s.
80P(2), exemption could be claimed only in respect of profits arising from the sale of fertilisers to actual agriculturists, and that such exemption
cannot be claimed in respect of profits earned by the sale of fertilisers to member-societies. Since the Tribunal has accepted the contention of the
Revenue that sale of fertilisers to out-siders cannot have the benefit of exemption and has directed a remand of the case to the ITO on that
question, it is unnecessary to consider the question whether the sales to either non-agriculturists or to third parties will have the benefit of the
exemption or not. Thus, we have now two questions for consideration, namely, (1) whether the benefit of exemption under s. 80P(2) will apply
only to primary co-operative societies as contended by the Revenue or even a federation of co-operative societies could claim the benefit of the
exemption, and (2) whether the exemption could be restricted to profits by sale of fertilisers to agriculturists alone.
To appreciate the contentions put forward by the learned counsel for the Revenue, it is necessary to deal with the scope and object of s. 80P.
Section 80P deals with deduction in respect of income of co-operative societies. Sub-section (1) of s. 80P provides that if the assessee is a co-
operative society and if the gross total income includes any income referred to in sub-s. (2), it is entitled to deduction of the sums specified in sub-
s. (2) in computing its total income, Sub-section (2) details the various sums which could be claimed as deduction under sub-s. (1). Clause (a) (iv)
of sub-s. (2) provides that in the case of a co-operative society engaged in the purchase of agricultural implements, seeds, livestock or other
articles intended for agriculture for the purpose of supplying them to its members, then the whole of the amount of profits and gains of business
attributable to any one or more of such activities shall be deducted in computing the total income of the assessee. Clause (b) of sub-s. (2) of s. 80P
reads as follows :
Section 80P, (2) The sums referred to in sub-section (1) shall be the following, namely :-
(b) in the case of a co-operative society, being a primary society engaged in supplying milk raised by its members to a federal milk co-operative
society, the whole of the amount of profits and gains of such business...
The other sub-sections not being material for the discussion, they are not referred to. As already stated, the marginal heading of s. 80P is
Deduction in respect of income of co-operative societies"".
The attempt of the learned counsel for the Revenue is to restrict the operation of s. 80P only to primary co-operative societies. The language of
sub-s. (1) enable any co-operative society to claim the benefit of deduction if the conditions specified in sub-s. (2) are satisfied. No distinction is
made between a primary co-operative society and the federation of co-operative societies which is normally called the apex society. Having regard
to the language of s. 80P, it is not possible to agree with the learned counsel for the Revenue that the expression ""co-operative society"" occurring in
s. 80P should be read as referring only to a primary society engaged in the purchase of agricultural implements, etc., for the purpose of supplying
them to its members. Though an attempt was made before the Tribunal that fertilisers will not come within clause (iv) of sub-s. (2), the Tribunal has
found that fertilisers will come under the expression ""other articles"" occurring therein. In view of that finding of the Tribunal, we have to proceed
that c. (iv) of sub-s. (2) will apply when a co-operative society purchases fertilisers for the purpose of supplying them to its members. It is not
possible to construe the expression ""co-operative society"" occurring in s. 80P as referring only to a primary co-operative society. We have to
proceed on the basis that the benefit under s. 80P is available to all co-operative societies provided they satisfy the conditions set out in sub-s. (2).
That the operation of s. 80P is not limited to the activities of purchase of agricultural implements, etc., for the purpose of supplying them to its
members is clear from a perusal of clause (b) of sub-s. (2). That says that ""in the case of a co-operative society, being a primary society engaged
in supplying milk raised by its members to a federal milk co-operative society, the whole of the amount of profits and gains of such business"" shall
be deducted in computing the total income of the assessee. Thus, when the Legislature wanted to restrict the operation of a provision to a primary
society, it would have made a specific provision to that effect as in clause (b) of sub-s. (2). Therefore, we have to agree with the view taken by the
Tribunal that the benefit under s. 80P is not restricted to primary co-operative societies alone.
The further submission made by the learned counsel for the Revenue is that the expression ""members"" occurring in sub-s. (2) (iv) refers only to
members of the primary societies who are agriculturists. According to the learned counsel, s. 80P is intended to benefit the agriculturist so that they
may get the required agricultural implements, seeds, livestock or other articles at a concessional rate or cheaper rate and, therefore, clause (iv) of
sub-s. (2) can apply only when the sales of fertilisers are effected to actual agriculturists. Here again, we do not see how the expression ""members
can be restricted to either a member of a primary society or to an agriculturist alone. Sub-section (2) (iv), in our view, contemplates the purchase
of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members. Here, the
assessee, which is a federation of primary co-operative societies, is purchasing fertiliser which is intended for agriculture for the purpose of
supplying the same to its member-societies. Therefore, the sub-section is literally satisfied in this case. If the expression ""co-operative society,
whether it is primary society or apex society, then the reference to ""members"" in clause (iv) of sub-s. (2) can be taken to refer to members of a
primary society or members of an apex society, as the case may be. On this aspect of the matter, the Tribunal has taken the view that the object of
s. 80P is to exempt institutions engaged in helping agriculturists and the language and spirit of the section will clearly cover the operation of
purchase and sale of fertilisers by the assessee. The Tribunal also took the view that it could not have been the intention of the Legislature that apex
institutions should be denied the relief under s. 80P. We are inclined to agree with the view taken by the Tribunal in this case. Therefore, we do not
direct a reference on the question set out above the petitions are therefore, dismissed. No costs.