KERALA STATE COOPERATIVE MARKETING FEDERATION LTD. AND ANOTHER vs. COMMISSIONER OF INCOME TAX

CIVIL APPEAL No. 506/1994Supreme Court[1998] 3 S.C.R. 44313 May 1998Bench: 3 JudgesAuthor: S.C. AGRAWAL, S.P. KURDUKAR, S. RAJENDRA BABU STATE COOPERATIVE MARKETING FEDERATION LTD. AND ANOTHER13 pages
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What did the Supreme Court hold?

The Supreme Court allowed the appeal, holding that the assessee, an apex cooperative society, is entitled to deduction under Section 80-P(2)(a)(iii) in respect of profits earned from marketing agricultural produce purchased from its member societies. The Court reasoned that Section 80-P was introduced to encourage the cooperative sector and that each head of exemption should be treated distinctly. The expression "marketing" is broad and can be undertaken by an apex society. The Court clarified that the exemption applies so long as the agricultural produce handled by the assessee belonged to its members, irrespective of whether the members acquired it through their own cultivation or by purchasing it from others. The condition is that the produce must belong to the members before being marketed by the assessee. The Court overruled its earlier decision in Assam Cooperative Apex Marketing Societies Ltd. v. C.I.T. and approved several High Court judgments supporting a wider interpretation. The High Court's order was reversed, and the question was answered in the affirmative in favour of the assessee.

What were the facts?

The assessee, Kerala State Cooperative Marketing Federation Ltd., an apex society, purchased cashew nuts from its member primary cooperative societies for the assessment year 1980-81. The assessee claimed exemption under Section 80-P(2)(a)(iii) of the Income Tax Act, 1961, on profits derived from marketing this agricultural produce of its members. The Income Tax Officer rejected the claim. The Commissioner of Income Tax (Appeals) allowed exemption for produce from member societies but not from non-member societies. The Revenue appealed to the Appellate Tribunal, which upheld the exemption for member societies. The assessee also appealed, seeking exemption for all business profits. The Tribunal dismissed both appeals. The High Court, relying on a Supreme Court decision, ruled against the assessee, holding that purchases from member societies did not qualify for deduction. This led to the present appeal.

What were the issues?

1. Whether the assessee, an apex cooperative society, is entitled to a deduction under Section 80-P(2)(a)(iii) of the Income Tax Act, 1961, in respect of profits earned from marketing agricultural produce purchased from its member cooperative societies? (Question of law) Assessee's Contentions: - The assessee argued that the term "marketing" is of wide import and includes activities like buying and selling, which an apex society can undertake. It contended that Section 80-P(2)(a)(iii) does not limit the scope of exemption to produce raised by individual members but extends to produce belonging to cooperative societies, even if purchased by them from cultivators. It relied on various High Court judgments, including Commissioner of Income Tax v. Kerala State Cooperative Marketing Federation Ltd. (193 ITR 624). Revenue's Contentions: - The Revenue contended, relying on the Supreme Court's decision in Assam Cooperative Apex Marketing Societies Ltd. v. C.I.T., that the deduction under Section 80-P(2)(a)(iii) was not applicable to purchases made from member societies, implying a narrower interpretation of "of its members."

Which sections of the Income-tax Act were involved?

Section 80-P(2)(a)(iii), Section 80-P(2)(a), Section 81(iv), Section 81(l)(a)

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KERALA STATE COOPERATIVE MARKETING FEDERATION LTD. AND ANOTHER v. COMMISSIONER OF INCOME TAX MAY 13, 1998 [S.C. AGARWAL, S.P. KURDUKAR ANDS. RAJENDRA BABU, JJ.)

Income Tax Act, 1961 : A B Section 80-P(2)(a)(iii)-Deduction claimed by a cooperative society C engaged in marketing agricultural produce of its members allowable under Section 80-P(2)(a)(iii)-Types of societies entitled to such deduction-Held, even an apex society is entitled to such deduction i11 respect ;if profits earned out of marketing of agricultural produce of its members-Section 80-P does not limit the scope of the exemption to agricultural produce raised by D members alone- It also extends to agricultural produce raised by others but belonging to cooperative societies-Cooperative Societies.

Section 80-P(2)(a) to (j)-lnterrelation of different heads of exemption under-Held, each of the heads should be treated as a separate and distinct head-Income of cooperative society falling under any one head, E although not satisfYing the· conditions of another head, nonetheless free from tax.

Words & Phrases-"Marketing" and "Of its members"- Meaning of -Jn the context of Section 80-P of the Income Tax A

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