ITO, OOTY vs. THE BIKATTY INDUSTRIAL CO-OPERATIVE TEA FACTORY LTD., THE NILGIRIS

आदेश / O R D E R

PER G. PAVAN KUMAR, JUDICIAL MEMBER:

ITA No.709/Mds/2016. :- 2 -:

2013 passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

The Revenue has raised the following grounds of appeal:- 2.

‘’2. The learned Commissioner of Income Tax (Appeals) erred in deleting the disallowance of deduction u/s.80P(2)(a) (ii) amounting to �36,66,680/-.

3. The learned Commissioner of Income Tax (Appeals) erred in considering that the process of conversion of green tea leaves into black powder would come under ‘’marketing’’ referred to in section 80P(2)(a)(iii).

tea out of raw leaves supplied by its members and trading and eligible for Exemption u/s.80P of the Act. The ld. Assessing Officer alleged that the assessee society nature of activities shall not fall within purview for claim of exemption u/s. 80P(2) of the Act. The ld. Authorised Representative filed detailed note on the operational activities of the society and reasons for claim of deduction u/s.80P(2) of the Act. The ld. Assessing Officer considered the Authorised Representative’s note and perused the Audit report in form 3CB were the activities of the society specified as manufacturing of Black tea.

The assessee society procures green tea leaves and make it consumable and marketable and processing of green tea leaves to black tea is the nature of marketing of agricultural products to its members. The ld. Assessing Officer perused the provisions of Sec.80P(2)(a) of the Act and considered the submissions of the ld. Authorised Representative is of the opinion that the profits are made only through sale of tea and assessee is not eligible for deduction u/s.80P(2)(a) of the Act. But whereas the assessee purchase green tea leaves from its members and process the same into black tea due to which assessee made profits, and ld. Assessing Officer relied on the decisions considering the nature of product and the society is only selling manufactured tea by purchasing raw leaves from its members.

Since the product sold being manufactured tea, the assessee society

ITA No.709/Mds/2016. :- 4 -: claim that they are Marketing agricultural produce grown by its members cannot be accepted and therefore no deduction u/s.80P(2)

(a)(iii) can be claimed by the assessee. The process of manufacturing black tea from green leaves involves use of Heavy machineries powered by use of heavy load of electricity and disallowed the claim u/s.80P(2)(a) of the Act and passed assessment order u/s.143(3) of the Act dated 01.01.2015. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Authorised 4.

Representative argued the grounds, made submissions on manufacturing activities and the ld. Assessing Officer has erred in denying deduction u/s.80P(2)(a) (iii) of the Act. The assessee is using the heavy load of electricity and the purpose of making green tea into black tea in the nature of manufacturing activity to make it marketable. Further, the main purpose of society activities falls within parameters of eligibility of claim of deduction u/s.80P(2) of the Act.

The Commissioner of Income Tax (Appeals) considered the grounds of the assessee and the findings of the ld. Assessing Officer and relied on the Co-ordinate Bench decision in the case of Salisbury Industrial Co-op Tea Factory Ltd. Gudalur Nilgiris in to 243/Mds/2012 and other judicial decisions and deleted the addition.

ITA No.709/Mds/2016. :- 5 -:

Aggrieved by the Commissioner of Income Tax (Appeals) order, the Revenue assailed an appeal before Tribunal.

Before us, the ld. Departmental Representative argued that 5. the assessee is not eligible for deduction u/s.80P of the Act. The activity of converting of green leaves into black tea powder comes under the marketing and the ld.CIT(A) has erred in considering the submissions and deleted the addition. The Department has not accepted the decision relied by Commissioner of Income Tax (Appeals) and contested before higher forums and prayed for allowing the appeal.

Contra, the ld. Authorised Representative relied on the order 6. of the Commissioner of Income Tax (Appeals) and vehemently opposed to the grounds.

7. We heard the rival submissions, perused the material on record and judicial decisions cited. The crux of the issues being the assessee is a Co-operative Society and eligible for deduction u/s.80P (2) (a) of the Act. The ld. Departmental Representative contention that the purpose of conversion of green leaves to black tea powder does not satisfy the requisite conditions. On the other hand, the ld

ITA No.709/Mds/2016. :- 6 -:

Authorised Representative relied on the order of the Tribunals and judicial decision. We find the similar issue was considered by the Co-ordinate Bench of the Tribunal in the case of Salisbury Industrial Co-op Tea Factory Ltd. Gudalur Nilgiris (surpa) were it was held that as under:-

8. The Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Haryana State Co-operative Supply and Marketing Federation Ltd. reported in 182 ITR 53 [P & H] has held as under:

ITA No.709/Mds/2016. :- 7 -:

“Section 80P of the Income-tax Act, 1961 must be interpreted liberally having regard to the object of the provisions, that is, to encourage cooperative societies. The words used in section 80P are not agricultural produce grown by its members” and therefore, so long as the commodity brought to the assessee society was agricultural produce and the produce belonged to its members, it was agricultural produce. Under the provisions of section 80P(2)(a)(iii) of the Act a cooperative society would be entitled to exemption in respect of its activities of marketing agricultural produce received, purchased or acquired from its members. The term ‘marketing’ cannot be restricted to the buying and selling activity. It includes all activities connected with the process of taking over the agricultural produce of its members and handing over the marketable commodities to the purchasers and all the intermediate processes connected with the marketing of the agricultural produce of the members and held that the profits of the society were exempt u/s.809(2)(a)(iii) of the Act.

“The assessee a co-operative society, possessed a ginning a pressing factory to cater to the needs of its members. It got raw cotton from its members and ginned and pressed the cotton for marketing on behalf of its members. For rendering the services of ginning and pressing before selling the goods, the appellant charged the members a certain amount by way of ginning and pressing charges. It also charged commission for the sale of the finished products. The Tribunal held that having regard to the circumstance that the receipts were from members only, that there was a general market for ginned and pressed cotton only and no evidence appeared of any dealing in raw cotton, the ginning and pressing activities were to be regarded as an integral part of the marketing activity and that therefore the receipts from those activities were not liable to tax by virtue of section 81(i)(c) of the Act prior to its amendment in 1968]. The High Court on a reference held that sine the appellant carried on ginning and pressing of cotton with the ITA No.709/Mds/2016. :- 8 -: aid of power, even those activities were regarded as ancillary or incidental to its marketing activity, they would not come within the category of exempted activities in view of proviso to section 80(i) and therefore, they would have to be taxed. On appeal, the Hon'ble Supreme Court held as under: Reversing the decision of the High Court that the object of section 81(i) was to encourage and promote the growth of cooperative societies and consequently a liberal construction had to be given to the operation of that provision. The proviso to section 81(i) operated to exclude from the exemption those activities which could be regarded as separate and distinct from the activities enumerated in clauses (a) to (f) of section 81(i). If the activity in question was incidental or ancillary to one of the activities mentioned in those clauses, the proviso did not apply. The ginning and pressing was part of the integral process of marketing. It was an activity incidental or ancillary to the marketing of the produce of its members. The ginning and pressing of raw cotton was never regarded as a distinct process. Whey they delivered the raw cotton to the appellant for marketing, ginning and pressing was regarded as part of that process. The members did not take back the ginning and pressing. All the raw cotton so treated by the appellant was received from its members and it was only such cotton of its members which was marketed by the appellant. The sale of cotton was effected by the appellant to the outside world and not to its members. The appellant was 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 section 81(i)(c)”.

“The assessee a cooperative society, purchased raw latex from its members and processed the same by centrifugal method and sold the commodity. The assessee contended that eh income derived by sale of the latex of the members of the society after processing was exempt u/s 80P(2)(a)(iii) of the Act. The ITO rejected the claim for exemption on the ground that when the assessee purchased latex from its members and effected the sale after processing, what was sold by the assessee was its own commodity. The ld. Commissioner of Income-tax held that the assessee was engaged in the ITA No.709/Mds/2016. :- 9 -: marketing of agricultural produce of its members and was entitled to exemption. The Tribunal b\agreed with the order passed by the ITO and held that the assessee was not entitled to the exemption. On appeal, the Hon'ble Kerala High Court held that the term ‘marketing’’ included both buying and selling and hence the assessee was entitled to the exemption”.

Dismissing the application for reference that the order of the Tribunal made it clear that deduction was granted in regard to profits from the ginning and pressing operation only because the society was engaged in marketing of agricultural produce of its members. The Tribunal was justified ingranting special deduction u/s 80P(2)(a)(iii) of the Act and no question of law arose from its order.

ITA No.709/Mds/2016. :- 10 -: category of income of a cooperative society is exempt from tax what has to be seen is whether the income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption.”

and also the contention of the Department before the Tribunal that the Revenue has not accepted the order of the Tribunal and an appeal

ITA No.709/Mds/2016. :- 11 -: has already been filed in High Court and the same is pending before adjudication. This Tribunal is of the considered opinion that mere pendency of appeal before High Court cannot be a reason to take a different view. The order of the Tribunal is binding on all the authorities in the State of Tamil Nadu and Union Territory of Pondicherry. So, we, respectfully following the Co-ordinate Bench decision, upheld the order of Commissioner of Income Tax (Appeals) and dismiss the grounds of the Revenue.

Order pronounced on Tuesday, the 16th day of August, 2016, at Chennai.