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Assam Cooperative Ap... v. Addittional Commissi...
Factual and Procedural Background
The case concerns the assessment year 1962-63, the first year under the Income-tax Act, 1961. The appellant, Assam Cooperative Apex Marketing Society Ltd., a society registered under the Assam Cooperative Societies Act, 1949, was appointed by the State Government as the procuring agent for paddy under a governmental scheme dated 23 November 1962. Paddy was procured through a three-tier cooperative structure: Village Service Cooperative Societies collected produce from agriculturist members, transferred it to Primary Marketing Societies, which in turn delivered it to the appellant (the apex society). A commission of Re 1 per maund was paid and divided—19 paise each to the apex and village societies, and 62 paise to the primary society.
In its income-tax return the appellant claimed exemption of this commission income under Section 81(1)(c) of the Act. The Income Tax Officer disallowed the claim; the Appellate Assistant Commissioner allowed it; the Revenue succeeded before the Income-tax Appellate Tribunal; and the Gauhati High Court, on a reference, answered the question against the assessee. The present appeal challenges that High Court decision.
Legal Issues Presented
- Whether, on the admitted facts, the Assam Cooperative Apex Marketing Society Ltd. is entitled to exemption under Section 81(1)(c) of the Income-tax Act, 1961, in respect of income earned from procuring (marketing) paddy and other agricultural produce.
Arguments of the Parties
Assessee's Arguments
- The society “marketed the agricultural produce of its members,” namely the produce belonging to the affiliated Primary Marketing Societies; therefore the income falls squarely within Section 81(1)(c).
- The High Court’s requirement that the produce must be grown by the members adds words not found in the statute and is impermissible judicial legislation.
- Where Parliament intended to restrict exemption to produce raised by members it said so expressly, as in Section 81(1)(f) (“milk raised by its members”); the absence of similar language in clause (c) shows no such limitation was intended.
Revenue's Arguments
The opinion does not provide a detailed account of the Revenue's arguments.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court examined the text and purpose of Section 81(1). Clause (c) exempts income of “a society engaged in the marketing of the agricultural produce of its members.” The Court held that the legislative intent behind the cluster of sub-clauses in Section 81(1) is to benefit base-level cooperative societies directly connected with primary producers (e.g., cottage industries, societies supplying implements, and societies marketing members’ produce). Interpreting the phrase “agricultural produce of its members” consistently with that object, the words must refer to produce grown or produced by the members themselves. Otherwise, even societies composed of mere traders in agricultural commodities could claim exemption, defeating the statutory purpose.
Because none of the appellant’s members (Primary Marketing Societies) are cultivators—they in turn receive produce from Village Service Cooperative Societies whose members are the agriculturists—the agricultural produce marketed by the appellant is not produce grown by its own members. Therefore the essential condition of clause (c) is unmet.
Addressing counsel’s reliance on the wording difference in clause (f) (“milk raised by its members”), the Court found the distinction unpersuasive. Parliament used “raised” only to avoid awkward phrasing (“milk of its members”) and to fit the context of primary milk societies. The underlying intent—to restrict exemption to societies directly connected to production—remains the same.
Holding and Implications
Appeal dismissed. The appellant is not entitled to exemption under Section 81(1)(c).
Immediate Effect: The assessee’s commission income from the procurement scheme remains taxable for the assessment year 1962-63. The decision affirms the Gauhati High Court and the Income-tax Appellate Tribunal. No wider doctrinal innovation is announced, but the judgment clarifies that, for purposes of Section 81(1)(c), “agricultural produce of its members” means produce actually cultivated by those members, thereby limiting the scope of exemption to societies whose membership consists of primary producers.
Order
1. This appeal is preferred against the judgment of the Gauhati High Court answering the question referred to it against the assessee. The question referred is:
“Whether on the facts and in the circumstances of the case, the assessee i.e, Assam Cooperative Apex Marketing Society Ltd., is entitled to exemption under Section 81(1)(c) in respect of their income arising out of procurement of paddy and other agriculture produce?”
2. The assessment year concerned herein is 1962-63, the first assessment year under the Income Tax Act, 1961. During the accounting year relevant to the said assessment year, the appellant — The Assam Cooperative Apex Marketing Society Ltd., Assam was appointed as the procuring agent for paddy by the Government under a scheme evolved by the Government of Assam and contained in its proceeding dated November 23, 1962. The assessee is a Society registered under the Assam Cooperative Societies Act, 1949. The objects of the society are:
“(i) to arrange for the sale of produce of the members of affiliated societies and other members to the best advantage.
(ii) to purchase and sell agricultural produce and farm and farmers' requisites including seeds, manures, fertilizers and machinery etc.
(iii) to act as agent of members for the disposal of their produce; and
(iv) to act as a central purchasing agency for agricultural as well as Consumers Society and for other members. The membership of the assessee society is divided into three classes as follows:
(a) A-Class consisting of cooperative institutions;
(b) B-Class consisting of individual cultivators and sympathisers;
(c) C-Class consisting of traders, commission agents etc.
(d) The State Government.”
3. There are various categories of societies in the State of Assam. We are concerned with two such categories i.e Village Service Cooperative Societies and Primary Marketing Societies. The assessee, of course, is at the apex. The Village Service Cooperative Societies are at the base of the pyramid. Their membership consists of agriculturists. These village societies are the members of the Primary Marketing Societies. The Primary Marketing Societies in turn are members of the assessee Society. It does not appear that any agriculturists as such are members of the assessee society.
4. The system of procurement was that the Village Service Cooperative Societies procured agricultural produce from their respective members at the prescribed price and made it over to the Primary Marketing Society. The Primary Marketing Society in turn made over to the same to the assessee society. In lieu of this procuring activity, the assessee society was being paid remuneration at the rate of Re 1 per maund. This one rupee commission was divided between the three cooperative societies. The Apex Society took 19 paise, the Village Service Cooperative Society was entitled to 19 paise and the remaining 62 paise went to the Primary Marketing Society.
5. In the assessment proceedings, the assessee claimed exemption of its income from the said activity under Section 81(i)(c), as it then stood. This plea was negatived by the Income Tax Officer but on appeal, the Appellate Assistant Commissioner agreed with the assessee. The Revenue went up in appeal to the Tribunal. The appeal was allowed, whereupon the assessee obtained the reference aforesaid.
6. Section 81(i) read thus:
“81. Income of cooperative societies.— Income tax shall not be payable by a cooperative society —
(i) in respect of the profits and gains of business carried on by it, if it is —
(a) a society engaged in carrying on the business of banking or providing credit facilities to its members; or
(b) a society engaged in a cottage industry; or
(c) a society engaged in the marketing of the agricultural produce of its members; or
(d) a society engaged in the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members; or
(e) a society engaged in the processing without the aid of power of the agricultural produce of its members; or
(f) a primary society engaged in supplying milk raised by its members to a federal milk cooperative society:
Provided that, in the case of a cooperative society which is also engaged in activities other than those mentioned in this clause, nothing contained herein shall apply to that part of its profits and gains as is attributable to such activities and as exceeds fifteen thousand rupees;”
7. Sub-clause (c) of clause (1) exempts the income of a cooperative society ‘engaged in the marketing of the agricultural produce of its members’. The contention of Shri Parekh, learned counsel for the assessee-appellant is that inasmuch as the assessee has marketed the agricultural produce of its members, namely, the agricultural produce belonging to Primary Marketing Societies, the assessee is entitled to the benefit of the said sub-clause. Learned counsel submits that the High Court was not right in holding that for obtaining the benefit of the said sub-clause, the agricultural produce by such members (sic). Such an interpretation, according to the learned counsel, amounts to adding words to the said clause which are not there. We find it difficult to agree with the learned counsel. A reading of clause (i) of Section 81 shows that the idea and intention behind the said clause was to encourage basic-level societies engaged in cottage industries, marketing agricultural produce of its 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 comprised of traders dealing in agricultural produce would also become entitled to exemption which could never have been the intention of Parliament. The 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 agricultural commodities; it would not be his agricultural produce. Accordingly, it must be held in this case that since the agricultural produce marketed by the assessee was not the agricultural produce produced by its members namely, the Primary Cooperative Society, the assessee cannot claim the benefit of the said exemption. The High Court was right in holding that the benefit of the said sub-clause is not available to the assessee herein.
8. Mr Parekh then contended that wherever the Act wanted to provide that it should be the produce raised by the members of such society, it has provided so expressly, as in sub-clause (f), which speaks of “milk raised by its members”. Counsel says that no such words are found in sub-clause (c), which is an indication of the intention of Parliament. It is not possible to agree. Sub-clause (f) speaks of a Primary Cooperative Society engaged in supplying milk to a Federal Milk Cooperative Society. Evidently, Parliament did not want to use the words “milk of its members” which would have been inappropriate and awkward, and that is why it used the words “milk raised by its members”. The idea again was to provide an exemption only in favour of the base-level society.
9. For the reasons stated above, the appeal fails and is dismissed. No order as to costs.
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