National Agricultural Cooperative Marketing Federation Of India. v. Union Of India & Others

Arun Kumar, J.— By this writ petition under Article 226 of the Constitution of India petitioners have challenged the constitutional validity of the Income Tax (2nd Amendment) Act, 1998, Act No. 11 of 1999. By amendment of Section 80P (2)(a)(iii) the Legislature has introduced the words “agricultural produce grown by its members” in place of the words “agricultural produce of its members”. The effect of the amendment is that the exemption is now confined to societies marketing agricultural produce grown by their members.

2. Under the provision as it stood before the amendment benefit of exemption was being enjoyed by the Cooperative societies irrespective of the fact whether members were actual growers of the agricultural produce or they were trading in agricultural produce. This wide meaning was being given to the provision in view of interpretation by courts. In fact in its latest judgment in the Kerala State Cooperative Marketing Federation Ltd. v. CIT, 231 ITR 814, the Supreme Court confirmed the view that the benefit of the exemption should be available to societies which were engaged in marketing of agricultural produce whether grown by members or marketed by members.

3. In order to appreciate the controversy raised by the petitioners in this writ petition it is necessary to give a brief background. Petitioner No. 1 is a Cooperative society registered under the Multi State Cooperative Societies Act, 1984. As per averments contained in the petition, petitioner No. 1 is engaged in marketing of agricultural produce of its member Societies. The hierarchy of the Cooperative network is as under:—

4. At the lowest rung of the ladder are the village Cooperative societies having farmers, artisans, craftsman, weavers etc. as their members. These societies which are generally the village level societies become members of district level Cooperative societies, which is the second step in the ladder. The district level Cooperative societies become members of the State Cooperative Societies which are the apex societies so far as the states are concerned. These apex societies are in turn members of the Multi State Cooperative Societies like the petitioner No. 1.

5. The Cooperative societies have enjoyed exemption from payment of income tax since long. In the Indian Income Tax Act, 1922 the exemption was enjoyed by the Cooperative societies by virtue of a notification issued by the Governor General in Council as per power conferred on him under the Act itself. The Finance Act, 1955 amended the 1922 Act by way of insertion of sub-section (3) into Section 14. The provision read as under:—

“(3). The tax shall not be payable by a Cooperative society….

(i) in respect of profits and gains of business carried on by it….”

6. Thus the exemption was incorporated in the statute itself. The exemption was enjoyed by the Cooperative societies in respect of all profits and gains of business. The exemption provision was very wide. The Finance Bill 1960 made further amendments to Section 14(3) which read as under:—

“14 (3) The tax shall not be payable by a Cooperative society…..

(i) in respect of the entire amount of profits and gains of business carried on by it….

(a) ….

(b) ….

(c) a society engaged in the marketing of the agricultural produce of its members…”

7. This amendment curtailed the general exemption enjoyed by Cooperative societies so far. The exemption was now confined to societies engaged in marketing of agricultural produce of their members. The need for the amendment was expressed by the then Finance Minister in following words at the time of introduction of the Finance Bill:—

“My next proposal is with regard to the taxation of Cooperative societies. At present, the business income of such societies is exempt from tax. This exemption is justified having in view the objective of the Cooperative Societies Act of 1912, namely, to facilitate the formation of Cooperative societies for the promotion of thrift and self help among agriculturists, artisans and persons of limited means. However, as the House is aware, of late, Cooperative societies have widened their fields of activity and are carrying on substantial business involving transactions of a large scale with non-member. There is no justification for a complete tax exemption of business profits in their case. It is, therefore, proposed that while the business incomes of Cooperative societies connected with agriculture, rural credit and cottage industries should continue to be wholly exempt from tax, the business incomes of other societies should be exempt only upto a sum of Rs. 10,000.00. These proposals will not materially affect the revenue.”

8. The above provision contained under Section 14(3) of the Finance Bill, 1960 became Section 81 of the Income Tax Act, 1961.

9. The Finance (No. 2) Act, 1967 amended the 1961 Act with effect from 1st April 1967. It introduced Section 80P which provided for deduction with respect to income of Cooperative societies. Sub-sections (1) and (2)(a)(iii) read as under:—

“(1) Where, in the case of an assessee being a Cooperative society, the gross total income includes any income referred to in sub-section (2), they shall be deducted in accordance with and subject to the provisions of this section. The sums specified in sub-section (2), in computing the total income of the assessee.

(2) The sums referred to in sub-section (1) shall be the following, namely—

(a) in the case of a Cooperative society engaged in -

(i) …..

(ii) ……

(iii) marketing of the agricultural produce of its members,

(iv) ….

(v) ….

(vi) ….

(vii) ….

the whole of the amount of profits and gains of business attributable to any one of more of such activities.”

10. In Assam Cooperative Apex Marketing Society Ltd. v. CIT, 201 ITR 338, the Supreme Court held that the words “agricultural produce of its members” must be held to mean the agricultural produce produced by its members. The Supreme Court was of the view “that the idea and intention behind the provision was to encourage basic level societies engaged in cottage industries, in marketing the agricultural produce of their members and those engaged in purchasing and supplying agricultural implements, seeds etc. to their members and so on. The words “agricultural produce of its members” must be understood consistent with this object and if so understood, the words mean the agricultural produce produced by the members. If it is not so understood, even a Cooperative society comprising traders dealing in agricultural produce would also become entitled to exemption which could never have been the intention of Parliament. Agricultural produce produced by the agriculturist can legitimately be called agricultural produce in his hands but in the hands of traders, it would be appropriate to call it an agricultural commodity; it would not be his agricultural produce.”

11. These observations echo the intention behind the provision regarding exemption to Cooperative societies. On the basis of certain decisions of High Court and the Supreme Court, the learned counsel for the petitioners submitted that before this judgment of the Supreme Court in Assam Cooperative (supra), courts always took the view that the exemption is applied to all societies whether at the village level or at the higher level. Following the decision of the Supreme Court in Assam Cooperative (supra), the Kerala High Court held in CIT v. Kerala Cooperative Marketing Federation Ltd. & Ors., 207 ITR 319 that the exemption was not available to the State Cooperative Society. The said judgment was in appeal before the Supreme Court. The Supreme Court reversed the Kerala High Court decision in Kerala State Cooperative Marketing Federation Ltd. v. CIT, 231 ITR 814. The Supreme Court dwelled on the meaning of the words “of its members” at length. It was held that the word “of acquires the meaning as “belonging to”. To quote:

“We may notice that the provision is introduced with a view to encouraging and promoting the growth of the Cooperative sector in the economic life of the country and in pursuance of the declared policy of the Government, the correct way of reading the different heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemption. However a question arises as to whether any particular category of an 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. The expression “marketing” is an expression of wide import. It involves exchange functions such as buying and selling, physical functions such as storage, transportation, processing and other commercial activities such as standardisation, financing, marketing intelligence, etc. Such activities can be carried on by an apex society rather than a primary society.

So long as agricultural produce handled by the assessee belonged to its members, it was entitled to exemption in respect of the profits derived from the marketing to the same. Whether the members came by the produce because of their own agricultural activities or whether they acquired it by purchasing it from cultivators was of no consequence for the purpose of determining whether the assessee was entitled to the exemption. The only condition required for qualifying the assessee's income for exemption was that the assessee's business must be that of marketing, the marketing must be of agricultural produce and that agricultural produce must have belonged to the members of the assessee society before they came up for marketing by it, whether on its own account or on account of the members themselves. Thus, there is no scope to limit the exemption. The Cooperative societies are engaged in marketing of an agricultural produce both of its members as well as of non-members. In the later case, there is no difference between a Cooperative society or any other business organisation and so will not be entitled to exemption. The exemption is intended to cover all cases where a Cooperative society is engaged in marketing agricultural produce of its members. Section 80P does not in effect limit the scope of the exemption to agricultural produce raised by members alone but includes agricultural produce raised by others but belonging to cooperative societies. The contrast in the said provision is with reference to the marketing of agricultural produce of the members of the society or that purchased from non-members.”

12. The view expressed by the Supreme Court in the Assam Cooperative case (supra) was not followed and it was stated that the said view required reconsideration. The decision of the Kerala High Court which was based on the decision in the Assam Cooperative case (supra) of the Supreme Court was expressly over-ruled. It was held that the society engaged in the marketing of agricultural produce of its members would mean not only such societies which deal with the produce raised by the members who are individuals but also societies which are members thereof and who may have purchased such goods from the agriculturalist.

13. In December 1998 the Income tax (2nd Amendment) Bill, No. 169 of 1998 was introduced in the Parliament. By this Bill Section 80P (2)(a)(iii) of the Income Tax Act was sought to be substituted with effect from 1st April 1968 by the following:—

“(iii) the marketing of agricultural produce grown by its members, or ….”

The statement of Objects and Reasons is as under:—

“6. Clause 8 seeks to amend Section 80P of the income-tax Act. Under the existing provision, profits derived by a cooperative society engaged in the marketing of agricultural produce of its members are fully deductible in computing the taxable income under Section 80P (2)(a)(iii) of the Income-tax Act. The deduction was intended for primary cooperative societies marketing the agricultural produce of their framer members. In the case of Kerala State Cooperative Marketing Federation v. Commissioner of Income-tax, the Hon'ble Supreme court held that the use of words “of its members” in the relevant clause would mean the agricultural produce belonging to the members and not necessarily grown by them. The interpretation given to the use of the words in the provision is not in accordance with the legislative intent of the existing provision. In respect of income arising from transactions with non-members, the cooperative are not different from other assesses, and such cooperatives are required to be taxed in the same manner as companies or other assesses engaged in marketing of agricultural produce. If an amendment in Section 80P92)(a)(iii) is not made, it is likely to have serious impact on revenues. The proposed amendment, therefore, replaces the words “of its members” by the words “grown by its members”. The amendment seeks to restrict the deduction to the profits derived by a cooperative society engaged in the marketing of agricultural produce grown by its members.”

14. The aforesaid bill was passed by the Parliament in January 1999. The Bill became the Income Tax (Second Amendment) Act, 1998, Act No. 11 of 1999. This is the provision which is under challenge in the present writ petition.

15. The petitioners are aggrieved of the amendment of Section 80P in the year 1999 because the exemption from incomes tax is now confined to cooperative societies engaged in marketing of agricultural produce grown by their members i.e the commodities marketed by the societies should be agricultural produce actually grown by the members of the societies. The societies like the petitioner who are engaged in trading activities in commodities belonging to their members do not enjoy the benefit of the income-tax exemption in view of the amendment. The amendment is effective from 1st April 1968, i.e, it is retrospective in operation. The petitioners have challenged both aspects of the amendment, i.e the provision as well as its retrospective operation. It is submitted that the amendment seeks to nullify the judgment of the Supreme Court in Kerala State Cooperative Marketing Federation Ltd. (supra). Such a legislative exercise is not permissible. The judgment of the Supreme Court is the law of the land by virtue of Article 141 of the Constitution of India and by exercise of legislative power it cannot be rendered ineffective.

16. The learned counsel for the petitioners referred to the doctrine of separation of powers on which our Constitution is founded and submitted that the Legislature cannot interfere with the adjudication process which rests exclusively with the judiciary. It was argued that the Supreme Court in Kerala State Cooperative case (supra) interpreted the law. The Courts alone have the power to interpret the laws. Legislative on the other hand is entrusted with Legislature powers and is not concerned with the interpretation of the laws. According to the learned counsel in the instant case the Legislature has usurped the function of interpretation and adjudication inasmuch as it has attempted to over-rule the said judgment of the Supreme Court. It was conceded that the Legislature has power to legislate laws prospectively and retrospectively. While doing so the Legislature can remove the basis of a decision thereby rendering it ineffective. However, the submission was that in the present case the impugned legislation does not remove the basis which led to the judgment of the Supreme Court. According to the petitioners the impugned legislation has tried to over-rule the decision of the Supreme Court and, therefore, it is invalid and unconstitutional.

17. While conceding that the Parliament has power to pass legislation having retrospective effect if was argued that by making the amendment with retrospective effect an unreasonable and arbitrary restriction/burden has been placed on the asses-sees. The provision of Section 80P as it stood during the relevant period between the years 1968 to 1998 had received judicial interpretation which was heavily in favour of the assessees. These decisions had not been challenged by the revenue. The parties arranged their affairs on the basis of such interpretation for long period of over thirty years. During this period thousands of assessments were finalised. All these cannot be nullified by such a retrospective amendment which does not even have a validation clause.

18. In support of his contention learned counsel for the petitioners relied on some judgments taking the view that the words “agricultural produce of its members” mean produce belonging to members of a cooperative society, not necessarily confined to “growers” of the produce. These are:

(i) CIT v. Ryots Agricultural Produce Cooperative Marketing Society Ltd., 115 ITR 709 (Karnataka).

(ii) CIT v. Karjan Cooperative Cotton Sales Ginning & Pressing Society Ltd., 129 ITR 821 (Gujarat).

(iii) Unreported judgment of Delhi High Court in CIT v. National Agricultural Cooperative Marketing Federation Ltd., Delhi (the NAFED Case).

(iv) Broach District Cooperative Cotton Sales Ginning & Pressing Society Ltd. v. CIT, 177 ITR 418 (SC).

(v) Baghapurana Cooperative Marketing Society Ltd. v. CIT, 178 ITR 853 (SC).

(vi) CIT v. Haryana State Cooperative Marketing Society, 182 ITR 52 (Punjab & Haryana).

(vii) CIT v. Punjab Cooperative Marketing Federation Ltd., 182 ITR 58 (Punjab & Haryana).

(viii) CIT v. Kerala State Cooperative Marketing Federation, 193 ITR 624 (Kerala).

19. In our view it is not necessary to deal with these cases individually in view of the decision of the Supreme Court in the Kerala Coop. case (supra). The said judgment and the reasoning contained therein is final so far as interpretation of Section 80P as it stood before its amendment in the year 1999 is concerned. The main question for consideration in the present writ petition, therefore, is the competence of the Parliament to pass the legislation whereby Section 80P of the Income Tax Act was amended in the year 1999. The second question would be as to whether the amendment is ultra vires the Constitution of India.

20. The first question about the competence of the Parliament to pass laws need hot detain us because learned counsel for the petitioners concedes that the Parliament has the power to pass laws and it can pass laws having retrospective effect. The justification for the impugned legislation is not material although in this behalf we have already quoted excerpts from the speech of the Finance Minister while introducing the amendment. The exemption from payment of income tax was being allowed to cooperative societies to encourage the cooperative movement as it stood in its nascent stage. The benefit was intended for the actual growers of the agricultural produce. But in course of time it was found that the benefit was being enjoyed by those for whom it was never intended. In the counter affidavit filed on behalf of the Government it has been brought out how the exemption was being abused The affidavit says that in the course of assessment proceedings for the year 1996-1997 it was noticed that the petitioners are carrying on trading activity of sale and purchase of agricultural products like any other trader. It had enrolled various traders as “nominal members”. Such ‘nominal members’ export agricultural produce through petitioner No. 1. Many of the normal members procure and purchase the agricultural produce like any trade from the market and pocket profits. The nominal members pay service charges to petitioner No. 1 and the income from service charges apparently constituted a major source of income of petitioner No. 1. The list of nominal members enclosed with the counter affidavit makes an interesting reading. Some of the members are (1) Orion Traders, 395/97, Narshi Natha Street, Mumbai - 400004; (2) Bharat Eximport Co., 377, Ebrahim Robintulla Road, Mumbai-400 003; (3) Joyanti Lal Mangaldas & Sons, Mumbai; (4) ADJ Nadar & Bros., 4/4 Dehramji Mansion Homiji Street Sir PM Road, Mumbai- 400001; (5) International Trading Corporation, 109, Yusuf Mehraully Road, Mumbai - 400003. The list is long and the names, a few of which have been given to illustrate the point, show how purely commercial traders became nominal members of petitioner No. 1 to enjoy the benefit of the income tax exemption provision.

21. This brings us to the question of constitutional validity of the impugned legislation. The first question in this connection is “Has the Parliament tried to usurp the power of the judiciary by interpreting the law? According to the learned counsel for the petitioners the Parliament disagreeing with the interpretation of the Supreme Court in the Kerala Coop. case (supra) has tried to interpret the law and in order to render the interpretation of the Supreme Court ineffective, it has introduced the present legislation. In our view this contention is not correct nor it is legally tenable. It is not a case of interpretation of a legislation by Parliament. It is a simple case of new legislation. The Parliament felt that the exemption from income tax was meant for a particular section of society. It has legislated to confine it to that particular section of society. The Parliament enjoys legislative power under Article 246 of the Constitution of India, a fact which needs no elaboration. It has passed a legislation in pursuance of that power. The power of the Legislature to pass a law postulates the power to pass it prospectively as well as retrospectively. Subject to other constitutional limitations the power of the Legislature to enact laws is plenary.

22. In similar vein is the argument advanced by the learned counsel for the petitioners that the Parliament has usurped the function of the courts by the enacting the impugned legislation thereby over-ruling a decision of the Supreme Court in Kerala Cooperative case (supra). In support of this argument first the learned counsel tried to highlight the demarcation between the legislature and judicial functions based on the theory of separation of powers on which the Constitution is founded. The question for consideration is: whether there is any usurpation of powers of judiciary by the legislator? To make good his contention the learned counsel for the petitioner relied on Madan Mohan Pathak v. UOI, (1998) 2 SCC 50; A.N Nachana v. UOI, (1982) 1 SCC 205; The Municipal Corporation of City of Alunedabad v. The New Shrok Sppg. & Wvg. Co. Ltd., (1970) 2 SCC 280; State of Gujarat and Anr v. Ramanlal Keshavlal Soni & Ors., (1983) 2 SCC 33; D. Cawasjee & Co, Mysore v. State of Mysore & Anr., (1984) Supp. SCC 490; S.R Bhagwat & Ors. v. State of Mysore, (1995) 6 SCC 16;

23. In our view none of these eases help the petitioners. In these cases the amendments were held to be intended to nullify the effect of decision of the court in an earlier litigation. There is no need to discuss all these cases. In Nachane's case on which great reliance was placed, the LIC Rules regarding bonus to class III and class IV employees were amended so as to nullify a writ issued in an earlier decision of the Supreme Court directing LIC to give effect to the terms of settlement relating to bonus. It was held that if by reason of retrospective alteration of the factual or the legal situation, the judgment is rendered erroneous, the remedy may be by way of appeal or review, but so long as the judgment stands, it cannot be disregarded or ignored and it must be obeyed by the LIC.

24. The situation in M.M Pathak's case was almost similar. A judgment of the Calcutta High Court gave rights to the petitioner to annual cash bonus under the Settlement by issuing a writ of mandamus directing the Life Corporation to pay the amount of such bonus. This was sought to be undone by way of legislation. The Supreme Court observed:

“If by reason of retrospective alteration of the factual or legal situation, the judgment is rendered erroneous, the remedy may be by way of appeal or review, but so long as the judgment stands it cannot be disregarded or ignored and it must be obeyed by the LIC.”

25. The legal position has been succinctly stated by the Supreme court in Utkal Contractors v. State of Orissa, (1987) Suppl. SCC 751.

“15. The next question to be considered is whether the State while purporting to amend the Act has encroached upon the judicial power and set aside the binding judgment of this Court. We do not think that Mr. Nariman was justified in contending so. The principles have been well established in a string of decisions of this Court, and we may briefly summarise as follows:

“The Legislature may, at any time, in exercise of the plenary power conferred on it by Articles 245 and 246 of the Constitution render a judicial decision ineffective by enacting a valid law. There is no prohibition against retrospective legislation. The power of the Legislature to pass a law postulates the power to pass it prospectively as well as retrospectively. That of course, is subject to the legislative competence and subject to other constitutional limitations. The rendering ineffective of judgments or orders of competent courts by changing their basis by legislative enactment is a well known pattern of all validating acts. Such validating legislation which removes the causes of ineffectiveness or invalidity of action or proceedings cannot be considered as encroachment on judicial power. The Legislature, however, cannot by a bare declaration, without more, directly overrule, reverse or set aside any judicial decision. Han´ Singh v. Military Estate Officer, Government of A.P v. Hindustan Machine Tools Ltd., I.N Saksena v. State of M.P and Misrilal Jain v. State of Orissa.”

26. In the present case the Parliament is not laying down through the impugned legislation that a decree of a court will not be executed. Nor it is rendering the decision of the court erroneous or a nullity. It is changing the legislation by introducing a new legislation. The Parliament in this respect is supreme. In a somewhat similar situation as in the present case the Supreme Court upheld the amending legislation in Govt. of Andhara Pradesh & Anr. v. Hindustan Machine Tools Ltd., (1975) 2 SCC 247. The context was levy of house tax by the Gram Panchayat. The controversy turned on the interpretated the meaning of the word “house”. The High Court interpretation of the word ‘house’ which led to the finding that the demand of house tax was illegal. By the Andhra Pradesh Gram Panchayat (Amendment) Act, 1974, the State Legislature amended the definition of ‘house’ with retrospective effect. The new definition of house met effectively both the objections by reason of which the High Court held that the building constructed by the respondent were not a ‘house’. The amendment was challenged and the argument was same as in the present case, i.e Legislature trying to encroach upon judicial functions. It was held “the State Legislature, it is significant, has not over-ruled or set aside the judgment of the High Court. It has amended the definition of ‘house’ by the substitution of a new Section 2(15) for the old section and it has provided that the new definition shall have retrospective effect, notwithstanding anything contained in any judgment, decree or order of any court or other authority.” The amendment was upheld. Again in Comorin Match Industries Pvt. Ltd. v. State of Tamil Nadu, AIR 1996 SC 1916, the Supreme Court turned down a challenge to the amending Act based on more or less similar grounds. It was observed that the effect of the amending Act was not to over-rule a judgment passed by a court of law. What legislature had done was to change the law on the basis of which the judgment was pronounced retrospectively.

27. This has been the view of the Supreme Court consistently. As early as in the year 1970 it was held in Municipal Corporation of City of Ahmedabad v. New Sharrock Spinning & Weaving Co. Ltd., (1970) 2 SCC 280; the Legislatures under the Constitution have within prescribed limits powers to make laws prospectivcly as well as retrospectively. By exercise of these powers the Legislatures can remove the basis of a decision rendered by a competent court thereby rendering the decision ineffective.

28. In Shri Prithvi Cotton Mills v. Broach Borough Municipality & Ors., (1970) 1 SCR 388, it was laid down:

“If the Legislature has the power over the subject-matter and competence to make a valid law, it can at any time make such a valid law and make it retrospectively so as to bind even past transaction. The validity of a Validating law, therefore, depends upon whether the Legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the courts had found in the existing law and makes adequate provisions in Validating law for a valid imposition of the tax.”

29. We have carefully considered the legal position. We find that the argument advanced by the learned counsel is not tenable in the facts of the present case. As already noticed it is conceded that the Parliament enjoys plenary power to legislate. In our view the present is a case of a new legislation introduced by the Parliament. The Parliament found that the existing legislation was no meeting the goal which the Parliament had intended to achieve. Therefore, the parliament introduced a fresh piece of legislation to achieve its object. The present cannot be said to be a case of Parliament interpreting a judgment of the Court. The Parliament has only shown its awareness of the interpretation of the statue by the Apex Court. It felt that with the existing statutory provision it was not able to achieve the desired object and, therefore, it was felt necessary to introduce fresh legislation. In such circumstances it can neither be said to be a case of Parliament trying to interpret a statute nor it can be said to a case of usurpation of judicial powers or encroachment of power of the judiciary by the Parliament. The manner in which the argument was advanced by the learned counsel for the petitioner contains a hidden suggestion that the Parliament felt that the interpretation of the relevant provision by the Supreme Court in Kerala Coop case (supra) was not correct. In our view there is no warrant for such a feeling. If at all three is a flaw, the flaw is in the legislation. There is no suggestion of the Parliament that there is a flaw in the interpretation of the law by the Apex Court. The flaw in legislation can be rectified only through amendment of the legislation which has been done in the present case. The has been done to bring the statute in accord with the legislative intention. We find no merit in the argument that the Parliament has in the present case encroached upon or usurped the power of judiciary by indulging in interpretation of a statutory provision. We would like to add here that the present case cannot be said to be a case of Parliament trying to nullifying the decision of the Apex Court. The present is simply a case of introduction of a fresh legislation, a power which the Parliament enjoys.

30. Coming to the challenge to the new legislation on the ground of its retrospectively we not that the challenge is mainly on the ground that it is violative of Article 14 of the Constitution of India as it is wholly arbitrary and unjustified. It is submitted that transactions assessments closed long ago may be reopened. The parties had settled their affairs over a long period of time on a particular basis. Reopening of the issue at this stage may lead to various difficulties to the assessees.

31. Mr. Harish Salve, the learned Solicitor General allayed the fears of the petitioners on this account by submitting that there is no provision in the statute which seeks to reopen settled cases. According to him the only consequence of the retrospective operation of the legislation could be that whatever assessments are open and yet to be finalised, will have to be finalised on the basis of the new legislation. Thus nothing survives in the argument based on allegation of arbitrariness in making the legislation retrospective. Only the pending assessments i.e assessments which have yet to be finalised will be affected. The cases already concluded or finalised are not to be reopened.

32. Another argument raised by the learned counsel for the petitioners for challenge the validity of the new legislation was by describing it as a colourable exercise of power by the Parliament. In the background of facts already noticed in this judgment we fail to appreciate how the present legislation could be said to be by way of colourable exercise of power by the Parliament. One reason possibly for which the legislation is being dubbed as colourable exercise of power by the Parliament is because it has the effect of withdrawing a tax exemption enjoyed by the assessee over a long period of time. Another reason for which it could be dubbed as colourable exercise of Parliamentary power is because by the legislation the interpretation of the erstwhile provision by the Supreme Court will no longer remain operative because of change of law. When the power of the Parliament to legislate is conceded, we fail to appreciate how such an argument can be raised in the facts of the present case. Can an argument that since a benefit was enjoyed by the assessee over a long period of time it cannot be withdrawn by the Parliament through legislation, be raised? The Legislature can decide to take away a benefit by changing the legal provision at any time. This is the prerogative of the Legislature and it cannot be questioned subject of course to other Constitutional limitations. It is always open to the Parliament to enact laws which it considers necessary in its wisdom. The justification for the new legislation in the present case is not far to seek. As already noticed the Finance Minister felt that the benefit of tax exemption was intended for small farmers, artisans and craftsmen who would join hands under the aegis of cooperative societies in order to enjoy a strong bargaining power and get a better price for their products in the market. The benefit was not intended for big commercial operators who had found a way to take advantage of the law by enrolling themselves as members of cooperative societies even though they were purely commercial traders. Even the speech of the Finance Minister while introducing the 1960 Finance Bill to which reference was invited by the counsel for the petitioner shows that the process of curtailing the omnibus exemption to the cooperative sector had started. It was being realised that the exemption which was meant to encourage cooperative societies at the primary level having members with limited means was being abused. The cooperative societies had over a period of time widened their base and fields of activity and were carrying on substantial business involving transactions of large scale.

33. We have already noticed the facts pointed out in this behalf by the respondents in their counter affidavit to which a list of large commercial establishments which became nominal members of petitioner No. 1, only to enjoy benefit of income tax exemption, has been annexed. In this background the impugned legislation cannot be labelled as colourable exercise of legislative power nor it can be questioned on the ground of arbitrariness, being violative of Article 14 of the Constitution of India. Here we would like to refer to the observations of the Supreme Court in G.K Krishanan v. State of Tamil Nadu, (1975) 1 SCC 375. wherein it was observed:

“As the State Legislature was competent to pass the Act and as the Government is authorised under Section 4 to levy the tax, the question of the motive with which the tax was imposed is immaterial. To put it differently, three can be no piece of a colourable exercise of power to tax if the Government had power to impose the tax and the fact that the imposition of the tax was for the purpose of eliminating competition would not detract from its validity.”

34. The power to impose tax is the deciding factor. The Supreme Court went to the extent of saying that if the power to tax was there, the fact that a wrong reason for exercise of power was given will not derogate from the validity of the tax.

35. The learned counsel for the petitioners also raised a ground of violation of Article 19(1)(g) of the Constitution in this behalf. It was argued that the fundamental right guaranteed to the petitioners under the said provision to carry on their trade or business was being restricted. The counsel argued that the legislation impinges on the right of the petitioners to trade and the respondents have to justify the legislation. The onus lies on them in this behalf. For raising this argument first the petitioners have to make out a case that by the impugned legislation their rights under Article 19(1)(g) are being affected. As rightly pointed out by the learned counsel for the respondent necessary pleadings in the writ petition on this aspect are totally missing. Without pleadings in support of the argument and without any material to sustain it how can such an argument be entertained? The learned Solicitor General submitted that it is simply a case of an exemption being scaled down. There is no fresh imposition of lax. Secondly there is no provision of reopening of cases already decided or finalised. Therefore, there is no question of unsettling settled rights. As a matter of fact till the decision of the Supreme Court in Kerala Coop. (supra) in the year 1998 the decision of the Supreme Court in the Assam Coop. (supra) rendered in the year 1993 held the field according to which the interpretation of the relevant provision of the statute was against the assssees. The learned Solicitor General submitted that the object behind the exemption was that when such a large number of producers/growers of agricultural produce join hands to market their produce they should be encouraged. But as the Cooperative movement developed, the provisions regarding exemption came to be abused. So many non-producers/non-growers of agricultural produce who were purely commercial organisations started becoming members of cooperative societies in order to take advantage of the income-tax exemption provision. The benefit was not intended for them and, therefore, the Parliament had to step in. The new legislation is intended to stop this abuse of the exemption provision.

36. In the absence of necessary pleadings on the question of violation of Article 19(1)(g) of the Constitution of India in the writ petition we are unable to entertain the argument.

37. The result of the above discussion is that we find no merit in any of the points raised by the learned counsel for the petitioners. The writ petition fails and is dismissed. However there will be no order as to costs.