Law: Income Tax Act, 1961

Section: 81(i)(c)

(a) Income-tax---Exemption--Co-operative society engaged in marketing agricultural produce of its members--Society griping raw cotton received from members and selling pressed cotton and charging for ginning and pressing and commission on sales from members--Ginning and pressing being an integral part of marketing activity, Society was exempt from tax on income from entire business. The proviso to section 81 (i) operated to exclude from the exemption those activities which could be regard 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 the raw cotton was never regarded as a distinct process. When 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 cotton after it was ginned and pressed. They paid only the cost of 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 the 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). (b) Interpretation of statutes- --- Provision for promoting growth of co-operative societies--Liberal construction. The object of section 81 (i) of Income-tax Act, 1969 was to encourage and promote the growth of co-operative societies and consequently a liberal construction had to be given to the operation of that provision. Addl. . C.I.T. v. Ryots Agricultural Produce Co-operative Marketing Society Ltd. [1978] 115 I.T.R. 709 (Kar) and C.I.T. v. Karjan Co-operative Cotton Sale, Ginning and Pressing Society Ltd.…

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