Judgment:
Y.V. Anjaneyulu, J.
1. This reference made by the Income-tax appellate Tribunal, at the instance of the Commissioner of Income-tax Relates to the assessment years 1977-78, 1978-79 and 1979-80. The following question is referred for the consideration of this court :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that eggs constituted 'agricultural produce', so as to entitle the assessee to exemption in respect of the income from marketing eggs under section 80P(2)(iii)? '
2. From the statement of the case and other documents on record, we have been able to ascertain that the assessee, which is a co-operative society, carries on business in the distribution of consumable goods apart from rural banking business. One of the items of consumer goods dealt in by the assessee was eggs. In the previous years relevant to the income-tax assessment years 1977-78, 1978-79 and 1979-80, the sales of eggs were of Rs. 9,85,133; Rs. 6,95,355 and Rs. 6,48,937, respectively. It appears, the assessee's account did not indicate the extent of profit realised on the sale of eggs. The Income-tax Officer, therefore, estimated the profits at 1.5% on the sale of eggs. In appeals, the rate of profit estimated by the Income-tax Officer was upheld for the assessment years 1977-78 and 1979-80, and for the assessment year 1978-79, it was reduced to 1% from 1.5%. The assessee claimed exemption of the profit under section 80P(2)(iii) of the Income-tax Act contending that the profit in question was derived by marketing of the agricultural produce of its members. The controversy before the authorities centered round the expression 'agricultural produce' occurring in clause (iii) of section 80P(2) of the Act. The Tribunal held that poultry farming constitutes agriculture, and upheld the assessee's claim for exemption under section 80P(2)(iii) of the Act. The Commissioner of Income-tax sought a reference under section 256(1) of the Act, and the question indicated by us already had been referred to us for consideration.
3. We may basically point out that section 80P(2)(iii) of the Act exempts income derived by a co-operative society from the marketing of the agricultural produce of its members. The facts, to the extent that we could gather from the record, indicate that the assessee-society advances loans to farmers and agriculturists, and agriculturists, especially those engaged in poultry farming sell eggs to the society. In other words, the society purchases eggs from agriculturists and engages in the operation of selling the same to outside consumers. That is how the society derived profit on the sale of eggs. It does not appear to be a case that the society receives eggs from agriculturists for the purpose of marketing and receives commission in respect of sale proceeds. It is nnnclear from clause (iii) of section 80P(2) that only income derived by a co-operative society on marketing of the agricultural produce of its members earns exemption. That is to say, the agricultural produce marketed by the society should belong, at all points of time, to the agriculturists. All that the co-operative society does is to market the produce and make over the collections to the agriculturists-members, earning a commission for effecting sales. If, in the instant case, the facts are that eggs continued to be the property of the agriculturists and all that the society did was to market them for a small remuneration, then undoubtedly, the commission or remuneration received would be exempt under section 80P(2)(iii) of the Act. If, however, there was outright sale of eggs to the co-operative society by the members and the society, in its turn, sold the eggs to the consumers and made a little profit, then it cannot be said that what was sold by the assessee was the 'agricultural produce of its members', as the produce belonged to the society itself, and the question of claiming any exemption under clause (iii) of section 80P(2) of the Act, does not arise.
4. Swamy, learned counsel for the assessee, contests that the assessee-society in this case does not purchase outright the goods from the agriculturist-members. According to Swamy, the society markets eggs which always belonged to the members. If this is correct, we do not see how the tax authorities could estimate profits at either 1% or 1.5% on the sale of eggs by the society. The question of estimating profits does not arise unless the society sold the eggs as its own property and not as the property of its agriculturist-members.
5. We have asked learned standing counsel for the Revenue to indicate to us if this aspect of the matter had been examined carefully and any finding recorded by the Tribunal. Our attention has not been invited to any definite finding as, it appears, the main controversy was whether eggs could be considered to be 'agricultural produce' or not. Apparently, the more crucial fact regarding the ownership of eggs was not gone into by the authorities below including the Tribunal. Unless the facts were investigated and a finding recorded that the assessee-society sold the goods belonging to its members and not belonging to itself, the question of exemption does not arise. It is possible that the entire sale proceeds realised by sale of eggs was adjusted against the loan amounts due from the members to the society in which case it cannot be said that the sale was by the society on its own. The fact that the sale proceeds were adjusted against the loans outstanding and due from the members would indicate that the eggs were marketed by the society on behalf of its members. As regards the controversy whether the eggs constitute 'agricultural produce' or not, we have not the slightest doubt that, poultry farming, being an extended form of agriculture, certainly qualifies eggs to be treated as 'agricultural produce' for the purpose of section 80P(2)(iii) of the Act.
6. In the absence of any finding regarding the crucial question concerning the ownership of eggs, we are unable to answer the question referred to us, and we accordingly return the reference to the Tribunal to examine and investigate the facts, determine the ownership of the eggs at the time of marketing by the assessee-society, and determine the question of exemption in the light of the principles set out by us.
7. The reference is accordingly returned. No costs.