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Facts
The assessee, a cooperative sugar mill, claimed exemption under Section 80P(2)(a)(iii) of the Income Tax Act for the marketing of agricultural produce of its members. The Assessing Officer denied the deduction, considering the production of sugar as manufacturing and not marketing. The CIT(A) confirmed this view.
Held
The Tribunal held that the assessee, being a cooperative society engaged in the manufacturing and sale of sugar from sugarcane supplied by its members, is entitled to deduction under Section 80P(2)(a)(iii) of the Act. The Tribunal relied on the decision of the Punjab & Haryana High Court in Budhewal Co-op. Sugar Mills Ltd.
Key Issues
Whether the activity of manufacturing sugar from sugarcane by a cooperative society constitutes 'marketing of agricultural produce' eligible for deduction under Section 80P(2)(a)(iii) of the Income Tax Act.
Sections Cited
80P(2)(a)(iii)
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Before: Shri S.S. Viswanethra Ravi & Shri S.R. Raghunatha
O R D E R
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order dated 24.05.2024 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi for the assessment year 2013-14.
We find that this appeal is filed with a delay of 191 days. The assessee filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the assessee are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.
The assessee raised 10 grounds of appeal amongst which the only issue emanates for our consideration as to whether the ld. CIT(A) is justified in confirming the order of the Assessing Officer in denying deduction under section 80P(2)(a)(iii) of the Income Tax Act, 1961 [“Act” in short].
Brief facts relating to the issue are that the assessee is a cooperative society engaged in manufacturing of white sugar and sale of sugar so manufactured along with by-products to the members. The assessee filed return of income declaring total income at NIL. According to the Assessing Officer, the assessee claimed exemption under section 80P(2)(a)(iii) of the Act as marketing of agricultural produces of its members in the revised computation. The Assessing Officer was of the opinion that the reserves and provisions being contingent liability is not eligible for deduction, accordingly, held the assessee is not eligible to claim deduction under section 80P(2)(a)(iii) of the Act. The ld. CIT(A) confirmed the same vide his findings in page 11 of the impugned order. Aggrieved by the said order, the assessee is in appeal before us.
The ld. AR Shri S. Sridhar, Advocate submits that the issue is whether the sugarcane products resultant after crushing is involved, manufacturing activity or not. He placed reliance on the decision of the Hon’ble High Court of Punjab & Haryana in the case of Budhewal Co- op. Sugar Mills Ltd. V. DCIT [2012] 21 taxmann.com 111 (Punjab & Haryana) and drew our attention to para 6 and 7 of the said decision. He argued that the Hon’ble High Court held that the assessee, therein, is entitled to exemption under section 80P(2)(a)(iii) of the Act in respect of manufacturing of sugar products from sugarcane supplied by its members. Further, he submits that the Hon’ble High Court taken support from the decision of Hon’ble High Court of Punjab & Haryana (Full Bench) in the case of Budhewal Co-op. Sugar Mills Ltd. V. CIT reported in 315 ITR 351 (P&H), which held co-operative society engaged in manufacturing of sugar out of sugarcane is entitled for deduction under section 80P(2)(a)(iii) of the Act. Further, he drew our attention the decision of the Hon’ble Supreme Court in the case of Morinda Co-operative Sugar Mills Ltd. V. CIT [2013] 354 ITR 230 (SC). He drew our attention to para 5 of the said decision and argued that 4 the Hon’ble Supreme Court accepting assessee’s contention therein that whether the operation under taken by the assessee constitute manufacturing or not. According to the assessee therein, the process undertaken does not constitute manufacturing. Sugar is synthesized by the sugarcane plant from water and atmospheric carbon dioxide by the method of photosynthesis. Sugarcane, according to the assessee, is produced in the agricultural fields. In the sugar factory, after juice is extracted from the sugarcane, it is boiled. Microscopic crystals coalesce together to from macroscopic crystals and molasses. The said operation does not constitute manufacturing. The ld. AR vehemently argued that the Hon’ble Supreme Court held the above test has not been examined by the courts below and remanded the matter to the file of the ld. CIT(A). He also submits that similar issue was not there in earlier years.
The ld. DR Shri P. Krishna Kumar, JCIT relied on the order of the ld. CIT(A).
7. Heard both the parties and perused the material available on record. We note that the ld. CIT(A)/NFAC confirmed the addition of ₹.2,37,75,281/- by holding that the production of sugar from the 5 sugarcane amounts to manufacturing vide para 6.1.3 of the impugned order, wherein, it is noted that according to the ld. CIT(A) mere crushing sugarcane to extract the juice, but, it is a series of complex processes involving use of machinery and chemicals which produce sugar and the said process is to be considered as manufacturing. Further, he held that the assessee is not entitled to claim deduction under section 80P(2)(a)(iii) of the Act as the end result of which is a product (sugar) is not the original product (sugarcane) sold by farmer- members to the assessee. On careful reading of the decision of the Hon’ble High Court of Punjab and Haryana in the case of Budhewal Co-op. Sugar Mills Ltd. V. DCIT (supra), wherein, it is clearly held that sugar products from sugarcane supplied by the members of the assessee is entitled to exemption under section 80P(2)(a)(iii) of the Act, for better understanding relevant part in para 4 to 7 are reproduced herein below: 4. Learned Tribunal vide judgment dated 24.9.2002 has declined the request of the appellant to raise above-mentioned two additional grounds on the ground that entire material was not before the subordinate authorities and detailed investigation of facts for want of facts would not be possible. 5. We have heard Mr. S.K. Mukhi, learned counsel appearing for the assessee-appellant as well as Mr. Rajesh Katoch, learned counsel appearing for the revenue-respondent, and have perused the record. 6. Bye-laws of Co-operative Society running sugar mill is produced before us which is taken on record. As per bye-laws of the appellant-sugar mill, appellant-sugar mill was established to promote economic interests of its members and for this purpose to carry on the manufacture of sugar, sugar products and other ancillary products from the sugarcane obtained from its members. We further find that as per bye-law No. 8 members of the Co- operative Sugar Mill can only be those, who are the owners or tenants and are sugarcane or beet growers and are ordinary residents of the area. Therefore, we have no hesitation to hold that appellant-sugar mill is engaged in the manufacturing of sugar products from the sugarcane supplied by its members, who are admittedly sugarcane growers. Since appellant-sugar mill is engaged in marketing of agricultural produce of its members, it is entitled for the exemption as provided under Section 80-P (2) (a) (iii) of the Act.
We find support from the Full Bench judgment of this Court in the case of Budhewal Co-operative Sugar Mills Ltd. v. CIT [2009] 315 ITR 351/84 Taxman 165, wherein it was held that co-operative society engaged in the manufacturing and sale of sugar out of the sugarcane grown by its members is entitled for deduction under Section 80-P(2)(a)(iii) of the Act. Therefore, we hold that Income Tax Appellate Tribunal was not justified in not allowing additional ground No.1. Accordingly, question No. 1 is answered in favour of the assessee and against the revenue.
On perusal of the above, we note that the facts and circumstances of the present case is with that of Budhewal Co-op. Sugar Mills Ltd. V. DCIT (supra) and are similar, which clearly establishes from para 1 of the order. In the present case also, the Assessing Officer and the ld. CIT(A) held that sugar products derived from sugarcane involves use of machinery and chemicals which produce sugar and the process is to be considered as manufacturing. The Hon’ble High Court of P & H in the above case held that the sale of sugar out of sugarcane is entitled for deduction under section 80P(2)(a)(iii) of the Act. Thus, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to allow the claim of deduction under 7 section 80P(2)(a)(iii) of the Act. Thus, the grounds raised by the assessee are allowed.
In the result, the appeal filed by the assessee is allowed.