Law:

Section:

Section 81 of the Income-tax Act, 1961 [omitted and incorporated in section 80P with effect from 1-4-1968] - Deductions - Income of co-operative societies - Assessment year 1967-68 - Whether income derived by assessee, a co-operative society, engaged in marketing of agricultural produce of its members, was an allowable deduction under section 81(1)(c) - Held, yes - Whether amount of subsidy received by assessee from national co-operative development corpn, towards loss incurred on account of price fluctuation, was an allowable deduction under section 81(1)(c) - Held, yes FACTS The assessee, a co-operative society, was carrying on the business of purchase and sale of wheat, paddy and other agricultural produce from its members. For the assessment year 1967-68, it claimed deduction under section 81(1)(c) in respect of the income derived from the marketing of the agricultural produce of its members. The assessee also claimed deduction in respect of amount of subsidy received from the National Co-operative Development Corpn. towards the loss incurred on account of price fluctuation. The ITO disallowed both the deductions. On appeal, the AAC allowed the assessee's claims. On appeal by the revenue, the Tribunal upheld the order of the AAC. On reference: HELD It is now well decided that even if member is not a producer of agricultural produce, the income derived from purchase and sale of agricultural produce from a member is exempt from levy of income-tax and as such income is to be deducted in computing the total income of the assessee. Therefore, in the instant case, the Tribunal was justified in allowing the assessee's claim. As regards the question of receipt of subsidy, in Ludhiana Central Co-operative Consumers' Stores Ltd. v. CIT [1980] 122 ITR 942 (Punj. & Har.) and V.S.S.V. Meenakshi Achi v. CIT [1966] 60 ITR 253 at 260 (SC), it has been held that the character of the receipt is to be considered and if subsidy was given towards the purchase price of foodgrain, it will partake the character of reducing purchase price by the amount of subsidy with the result that the income will go up by the amount of subsidy. Even if the income of the assessee goes up by…

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