BROACH DISTT. CO-OPERATIVE COTTON SALES GINNING & PRESSING SOCIETY LTD. v. COMMISSIONER OF INCOME TAX, AHMEDABAD

Citation: [1989] 2 S.C.R. 720

Court: Supreme Court of India

Bench: R.S. PATHAK, M.H. KANIA

Case summary

At the instance of the Revenue the Appellate Tribunal referred the ·question of law set out earlier to the High Court of Gujarat for its opinion. The Appellate Tribunal allowed the second appeal of the assessee holding that the ginning and pressing activities were to be...

Judgment text

BROACH DISTI. CO-OPERATIVE COTION SALES GINNING & PRESSING SOCIETY L'IJ). v. COMMISSIONER OF INCOME TAX, AHMEDABAD. APRIL 26, 1989 [R. S. PATHAK CJ. AND M. H. KANIA, J. ) ~ • Income Tax Act, 1961: Section 81(i)(c)-Assessee-Co-operative Society-Income from ginning and pressing-Whether exempt from .. tax. The assessee, a co-operative _society, was rendering the service of ginning and pressing raw cotton received from its members and marketing the finished product on their behalf. The assessee charged the members a certain amount6y way of ginning and pressing charges ana further charged commission for the sale of the finished product.

For the assessment years 1961-62 to 1963-64, the assessee claimed that the receipts from the ginning and pressing activities were exempt under section 81(i)(c) of the Income Tax Act, 1961 (as it stood then) which provided that income-tax shall not be payable by a co-operative society in respect of the profits and gains of business carried on by it, ifit was a society engaged in the marketing of the agricultural produce of its members. The Income Tax Officer declined to accept the claim on the ground that the assessee had been carrying out the process of ginning and pressing with the aid of power. The Appellate Assistant Commissioner confirmed the orders of the Income Tax OffiCilr. The Appellate Tribunal allowed the second appeal of the assessee holding that the ginning and pressing activities were to be regarded as an integral part of the marketing activity.

The High Court, while deciding the reference in favour of the Revenue, observed that the assessee carried on ginning and pressing of cotton with the aid of power, and even if those activities were regarded as ancillary or incident. ii to its market! ng:actjvIT1;·they would not'come Within the category of exempted activities in view of the proviso to the section. Allowing the appeals, this Court, HELD: (1) Ginning and pressing was part of the integral process of marketing. It was an activity incidental or ancillary to marketing, COITON SALES SOCIETY ·v. C. I. T. 721 which included the ginning and pressing of raw cotton and was not confined to selling activity alone. The members did not take back the cotton after it was ginned and pressed. All the raw cotton so treated was marketed by the assessee on behalf of its members to the outside world and not to its members. [723G-H; 724A] Addi. Commissioner of Income-Tax, Karnataka v. Ryots Agricultural Produce Co-operative Society Ltd.

, [1978] 115 ITR 709; Commissioner of Income-Tax, Gujarat IV v. Karjan Co-op. Cotton Sale, Ginning & Pressing Society Ltd. , [1981] 129 ITR 821, referred to. (2) The object of s. 8l(i) of the Income Tax Act, 1961 was to encourage and promote the growth of co-operative societies, and consequently a liberal construction must be given to the operation of that provision. [724A-B] (3) The proviso to s. 81(i)operates to exclude from the exemption those activities which can be regarded as separate and distinct from the activities enumerated in cla~es (a) to (I) of s. 8l(i). If the activity in question is incidental or ancillary to one of the activities mentioned in those clauses, the proviso will not apply. [724B] (4) The assessee is entitled to the exemption of the profits and gains derived from the activity of the entire business of ginning and pressing of cotton and marketing it by virtue of cl. (c) of s. 81(i) of the Incometax Act, and the High Court erred in holding to the contrary.

[724F-GI • CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 513- 515 (NT) of 1975. y From the Judgment and Order dated 24. 9. 1973 of the Gujarat High Court in Income Tax Reference·No. 31of1971. T. A. Ramachandran, Mrs. A. K. Verma and D. N. Mishra for the· Appellant. C. M. Lodha, K. C. Dua and Ms. A. Subhashini for the Respondent. lbe Judgment of the Court was delivered by PATHAK, --· selling activity alone. An attempt was made by learned counsel for the Revenue to raise the point that ginning and pressing into cotton bales changed the character of the cotton and therefore, what was marketed was not the agricultural produce of the members of the assessee. This point was not raised at any earlier stage by the Revenue and cannot be permitted to be taken now. We are of opinion that the assessee is entitled to the exemption -of the profits and gains derived from the activity of the entire business of ginning and pressing of cotton and marketing it by virtue of cl. (c) of s.

8l(i) of the Income-tax Act, and that the High Court erred in holding to the contrary. In the result the appeals are allowed and the question referred by the Income-tax Appellate Tribunal to the High Court must be answered in the affirmative, in favour of the assessee and against the Revenue. The assessee is entitled to its costs. R. S. S. Appeals allowed.