Law:

Section:

Section 81(i) (now section 80P) of the Income-tax Act, 1961 – Deduction – Income of co-operative societies – Assessment years 1965-66 and 1967-68 – Assessee society derived income from marketing of rice and oil which were derived from paddy and groundnuts belonging to its members – Exemption claimed by it under section 81(i)(c) was disallowed by ITO on ground that assessee did processing of groundnut and paddy with aid of power – Whether marketing functions involve exchange functions such as buying and selling, physical functions such as storage, transportation, processing and other commercial functions such as standardization, financing, market intelligence, etc. – Held, yes – Whether fact that goods which were ultimately marketed had been earlier processed with aid of power would, therefore, be of no consequence in so far as exemption granted under section 81(i)(c) was concerned - Held, yes Words & Phrases : Word "marketing" as occurring in clause (c) of section 81(i) of the Income-tax Act, 1961 FACTS The assessee was a co-operative society engaged in the marketing of the agricultural produce of its members, among other activities. The assessee claimed that the whole of the income derived by it by the marketing of rice and oil derived from the paddy and groundnut belonging to its members was not liable to tax in view of the provisions of section 81(i)( c) of the Act as it stood then. The ITO rejected the said claim on the ground that the processing of paddy and groundnut had been done by the assessee with the aid of power and under clause (e) of section 81(i) it could not claim the relief notwithstanding the fact that the rice and oil had been actually marketed. The AAC allowed the claim of the assessee. The Tribunal confirmed the order of the AAC. On reference: HELD The expression 'marketing' appearing in clause (c ) of section 81(i) is an expression of wide import. In order to make agricultural produce fit for marketing, it may have to be transported or processed, but still if ultimately the goods in question are sold, all the activities involved are understood as amounting to a single activity, namely, marketing and not independent activities such as…

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