1. This is a revenue's appeal against the order dated 14-1-1981 passed by the Commissioner (Appeals), Chandigarh, in Appeal No. 412 (Coys.
Trust, Rtk.) of 1980-81.
2. The only point which emanated from all the four grounds mentioned in the appeal is that the orders of the Commissioner (Appeals) granting a relief of Rs. 1,56,448 to the assessee's society under Section 80P(2)(a)(iv) of the Income-tax Act, 1961 ('the Act') after setting aside the assessment order of the ITO dated 19-9-1980 denying the said relief to the assessee's society is not correct under law.
3. The assessee is a co-operative society and for the assessment year 1977-78 for which the previous year ended on 30-6-1976, it had earned income from purchase and sale of foodgrains and commission from distribution of fertilisers. For the sake of brevity the assessee is called 'society' in the rest of this order. The society filed its income-tax return on 14-10-1977 declaring an income of Rs. 7,310. After verifying the accounts of the society wherein the ITO have found out some defects he proposed to make an addition of Rs. 1,61,537 to the returned income and therefore he forwarded the draft order to the society on 7-6-1980.
The ITO received the directions from the IAC, Rohtak Range, Rohtak, in his letter No. JB/144B/155/1979-80/3396 dated 1-9-1980. In pursuance of those directions and after giving one more opportunity to the society of being heard on 18-9-1980, the ITO computed the taxable income of the society at Rs. 1,65,800 under his assessment dated 19-9-1980 and completed the assessment under Section 144B/143(3) of the Act.
4. During the course of the assessment proceedings the society claimed that an income of Rs. 1,61,537 is exempt from tax under Section 80P(2)(a)(iv). The break-up of the figure claimed on exemption is arrived at as follows :relevant to the assessment year 1977-78 89,72,214Sale of fertilisers to the membersof the society 76,84,835Sale of fertilisers to the non-members 12,87,379 --------- The proportionate income on sale of fertilisers to the members of Rs. 76,84,835 was claimed as Rs. 1,61,537.
5. The ITO verified this claim and firstly found that the expenses incurred by the society for earning this income is liable to be deducted. He found the gross income from the sale of fertilisers as follows :(i) From sales to the non-members 97,940(ii) From sales to the members 1,61,537 --------- The total expenses incurred for earning the gross income was found out to be Rs. 77,388. The expenses relating to the gross income earned from the sale of fertilisers to the members only is arrived at as follows : The net income from the sales of fertilisers only to the members of the society is arrived at Rs. 1,61,537 minus Rs. 45,870 = Rs. 1,15,667.
Thus, the ITO identified the above figure of Rs. 1,15,667 as the amount falling for consideration of the claim under Section 80P(2)(a)(iv).
6. The ITO examined the schedule under which the society purported to have sold the fertilisers and recorded certain observations regarding the scheme and held ultimately that the society was only enjoying commission from the distribution of fertilisers in the form of fixed commission, besides fixed transport, loading and unloading charges and held the same does not fall for deduction under section 80P(2)(a)(iv).
Therefore, he denied the whole relief to the society.
7. Aggrieved by the assessment order dated 19-9-1980, the society preferred an appeal before the Commissioner (Appeals) in the appeal reference mentioned in the opening para of this order. The learned Commissioner (Appeals) in his impugned orders identified the correct figure of the claim of the society under section 80P(2)(a)(iv), at Rs. 1,56,448. In fact, the society claimed as per working filed before the learned Commissioner (Appeals), a relief of Rs. 1,62,056.
The learned Commissioner (Appeals) found that one Shri Devender Singh, salesman, was wholly and exclusively engaged in the sale of fertilisers. He further found that the said salesman was paid a sum of Rs. 5,608 by way of salary, bonus, TA, etc. Therefore, he arrived at the correct claim under Section 80P(2)(a)(iv) at Rs. 1,62,056 minus Rs. 5,608=Rs. 1,56,448. The learned Commissioner (Appeals) found in the impugned orders, that the scheme under which the fertilisers are being sold by the co-operative society underwent changes from time to time.
The scheme which was in vogue was modified first from 1-7-1970 and latest from 1-7-1974. It was observed that even under the scheme which came into effect from 1-7-1970, the society started purchasing fertilisers from HAFED and selling it on its own and not on consignment basis. At least this was what he had held in his orders dated 2-8-1979 in the case of Kaithal Co-operative Marketing-cum-Processing Society Ltd. for the assessment year 1972-73 [Appeal No. 39A of 1978-79]. The learned Commissioner (Appeals) further found that the scheme underwent further amendment with effect from 1-7-1974 and he took into consideration the provisions of paragraph No. 6 of the new scheme introducted from 1-7-1974 and held that from the wording of the said paragraph it is unequivocally clear that HAFED was selling fertilisers to the co-operative society. Therefore, he accepted the contention advanced on behalf of the society and held that the income attributable to the sale of fertilisers to its members is exempt under Section 80P(2)(a)(iv). He gave a relief of Rs. 1,56,448.
8. Aggrieved by the orders of the learned Commissioner (Appeals), the present second appeal is brought to this Tribunal by the revenue and thus the matter stands for our consideration. We have heard Shri S.C.Tewari, the learned departmental representative and Shri M.L. Garg, the learned counsel of the society. On behalf of the society a paper compilation consisting of the scheme introduced from 1-7-1974 and the order of the Commissioner (Appeals), Chandigarh dated 2-8-1979 passed in the case of the Kaithal Co-operative Marketing-cum- Processing Society Ltd. (supra) were filed before us. Before appreciating the arguments advanced, let us set out the provisions in respect of which the arguments are to be appreciated : 80F. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in Sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in Sub-section (2) in computing the total income of the assessee.
(2) The sums referred to in Sub-section (1) shall be the following, namely :- (a) in the case of a co-operative society engaged in-** ** ** (iv) the purchase of agicultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, The revenue contends, firstly, that the society is not selling fertilisers to its members on its own. It was not purchasing the fertilisers from HAFED but it was merely acting as an agent of HAFED for the purpose of distribution of the fertilisers among agriculturists for which it was earning commission. It had at no time, got title to the property in the fertilisers stock which was transferred from HAFED to the society. The ownership of the property (stock of fertilisers) always remained with HAFED. Secondly, it is contended that assuming without admitting that the society was selling fertilisers on its own, the income derived by the society on the sale of fertilisers to its members is not exempt from tax under the provision of Section 80P(2)(a)(iv), the learned departmental representative contended that the word fertilisers was not specifically used in the section extracted above. He also contends that the word 'fertilisers' does not fall within the category of the words 'agricultural implements, seeds, livestock' which preceded the general words 'other articles intended for agricultural' occurring in Section 80P(2)(a)(iv). Ejusdem generis rule of interpretation is to be applied for deriving the correct meaning of the section. The learned departmental representative also cited U.P. Co-operative Federation Ltd. v. CIT [1972] 84 ITR 317 (All.) at page 320 in support of his contention.
9. On the other hand, the learned counsel for the society, contends that the learned IAC while giving directions to the ITO did not consider the scheme in vogue from 1-7-1970 and 1-7-1974 and did not correctly appreciate the provisions of the scheme and, therefore, he came to the erroneous conclusion that the society was not carrying on business in fertilisers on its own. The learned Commissioner (Appeals) correctly appreciated the scheme and gave the necessary relief to the society for which it was rightly due. He further contended that he had no dispute with the suggested rule of construction sought to be placed on the wording of Section 80P(2)(a)(iv) but he argued that the word 'fertilisers' does belong to the category of the words 'agricultural implements, seeds, livestock' and, therefore, it should be taken to have been comprehended by the words 'other articles intended for agriculture' used in the section.
He ultimately argued that the argument advanced on behalf of the revenue that the sale of fertilisers by a co-operative society to its members and the income derived thereon is not exempt under Section 80P(2)(a)(iv), is not sustainable and it is worthy to be rejected.
10. Thus, we have considered the arguments advanced on both sides fully. We have also considered the whole record on file. We are of the view that there are no tenable grounds to dislodge the findings of the learned Commissioner (Appeals). Firstly, we are constrained to observe that neither the ITO nor the IAC cared to go through the scheme which was modified on 1-7-1970 and 1-7-1974, under which the fertilisers are being sold by all the co-operative societies appointed as Railhead agents of HAFED. They also did not determine whether the society is doing business in fertilisers on its own or not with reference to those schemes. On the other hand, we find that the appreciation of the learned Commissioner (Appeals) regarding the provisions of scheme led him to correctly appreciate the true position and grant the necessary relief to the society. As already stated above, a photostat copy of the scheme itself was filed before us in order to hold that the learned Commissioner (Appeals) is correct in his conclusion. We wish to extract the portion of the scheme which came into effect from 1-7-1974 : The system of distribution of Chemical Fertilisers on cash-cum-credit basis, was introduced in the State with effect from the 1st July, 1970, vide this office instructions issued with No. FRT/FAH/F-43/7084 dated 27th June, 1970. It has been found that the sub-depots and the marketing societies working as Railhead Agents have not responded fully to the above scheme.
The system was modified to the extent that all stocks of fertilisers at all levels should be sold on cash basis only vide this office Memo No. Hafed/ FT/FAI/14413 dated 19-10-1972.
All co-operative marketing societies would be eligible for being appointed as agents at Railhead and the Agricultural Service Credit Societies would be eligible for being appointed as sub-depots.
The Hafed would appoint the Railhead Agents on the written request sponsored through a resolution of the society concerned and duly recommended by Assistant Registrar.
III. Financial arrangements between the Federation and Railhead Agents.
6. The Federation will purchase fertilisers from the different sources. The fertilisers, so purchased would be sold to the Railhead Agents on cash (instead of the existing credit basis). The Railhead Agents would assess their financial requirements for the purchase of fertilisers.
We have also perused the form of the agreement given as annexure '3' to the scheme which came into effect from 1-7-1974. This form is to be entered into between a co-operative society which is a Railhead agent and HAFED. We have gone through the standard clauses which would be incorporated under the said agreement. Even under the first clause of the model agreement, it is stated that the fertilisers would be sold to Railhead agents on cash. Again clause No. 11 of the model agreement is as follows : Railhead Agent shall be responsible for any losses, damages caused to fertilisers, during storage, transport or any other operation which take place after the stocks are despatched for the Railhead Agent.
11. In Punjab State Co-op. Supply & Marketing Federation Ltd. v. CIT (supra), the Punjab and Harayna High Court held that with a view to find out whether the transactions are sale and purchase, it is fundamental to determine as to whether the title in the goods passed to the assessee or not. In view of the provisions of the scheme, as well as the standard stipulations contemplated under the model agreement extracted above, we have no hesitation to hold that the 'society' is a Railhead Agent of HAFED and that it was purchasing fertilisers from HAFED and it was doing business in fertilisers on its own and so, the 'society' is rightfully entitled to claim exemption of the income earned on its sale of fertilisers to its members. Coming to the next contention of the learned departmental representative, we hold that the fertilisers is one of the category of goods comprehended by the words 'Other articles intended for agriculture' occurring in Section 80P(2)(a)(iv). We take support from Sundaram Golden Jubilee Edition of Law of Income-tax, Vol. II, where the learned author opined as follows : Other articles' in Sub-clause (iv) may include implements and small machines, i.e., pumps, motors, etc. and also things like pesticides, fertilisers, etc." (p. 1981) In our view the decision of the Allahabad High Court in U.P.Co-operative Federation Ltd. (supra) does not apply to the facts of the case. In that case it was held that 'Coal' is not an article intended for agriculture. That decision does not advance the case of the revenue. Coal and fertilisers are not one and the same category of articles. Coal is certainly not an article used for agricultural operation but, fertiliser, under the present conditions, became a necessary concomitant of agricultural operation.
12. Therefore, we are unable to see any merit in both the principal arguments advanced on behalf of the revenue to this case, hence, we confirm the Commissioner (Appeals)'s order and dismiss the revenue's appeal.