JUDGMENT
S.S. Sodhi, J.
1. The controversy here is with regard to the interpretation of the provisions of Section 80P(2)(a)(iii) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), which reads as under :
“80P. (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 ….
(iii) the marketing of the agricultural produce of its members, or …”
2. The point at issue is whether these provisions render non-taxable the profits earned by the assessee, Haryana State Co-operative Supply and Marketing Federation Limited, by the sale of wheat-gram and other agricultural produce.
3. Before proceeding further, it deserves mention that the members of the assessee-federation are district wholesale co-operative societies or other co-operative institutions which do not possess agricultural land of their own. The members of these district co-operative societies are, in turn, the primary co-operative societies with farmers being their members.
4. There are two interpretations canvassed with regard to the meaning of the term “the marketing of the agricultural produce of its members”, one that it covers only such agricultural commodities as are produced by the members of the co’-operative society seeking exemption, while the other is that such agricultural produce should be owned by its members whether supplied by them (that is, the members) or purchased from the market, or acquired from any other producer.
5. The Income-tax Officer preferred the former view, namely, that only agricultural commodities produced by the members themselves were entitled to exemption, and accordingly disallowed the exemption claimed by the assessee-federation. It was upheld in appeal by the Appellate Assistant Commissioner. The Tribunal, however, took the contrary view, viz., that what was important was ownership of the members of the agricultural commodities in question and not their production and, therefore, the agricultural produce need not be one actually produced by the members of the society. The profits earned by the assessee-federation, by sale of agricultural produce, were thus deleted from the total income of the assessee, It is in this context that the following question has been referred for the opinion of this court :
“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in exempting from income-tax the income of Rs. 9,35,108 from the purchase and sale of wheat, etc., under Section 80P(2)(a)(iii) of the Income-tax Act, 1961 ?”
6. The judicial precedents support both the views projected with regard to the interpretation of Section 80P(2)(a)(iii) of the Act. On behalf of the Revenue, reliance was placed upon the judgment of the High Court of Madhya Pradesh in CIT v. Kisan Co-operative Rice Mills Ltd. [1976] 103 ITR 264, where this question arose in the context of the co-operative societies purchasing paddy from its members and then milling it and selling it as rice. It was held that the income arising to the assessee from the business of purchase of paddy and sale of rice by it on its own account was
not entitled to exemption. It was said that the language used in the provision clearly indicated that the exemption covered only such income as arose out of the activity of processing or marketing of the agricultural produce of its members and not the income arising out of the purchase and sale of agricultural produce by a co-operative society on its own account. This view was followed by the same High Court in CIT v. Mahasamund Kissan Co-operative Rice Mill and Marketing Society Ltd. [1976] 103 ITR 499 and Keshkal Co-operative Marketing Society Ltd, v. CIT [1987] 165 ITR 437.
7. Next, there is the judgment of the High Court of Gauhati in Assam Co-operative Apex Marketing Society Ltd. v. Addl. CIT [1977] 110 ITR 33 where the matter concerned remuneration received by the co-operative society for procurement of paddy. It was held that the exemption was not available to the assessee as the assessee was not dealing with agricultural produce belonging to its members.
8. On the other side, the important decision to be noted is that of the High Court of Gujarat in CIT v. Karjan Co-operative Cotton Sale, Ginning and Pressing Society Ltd. [1981] 129 ITR 821. This concerned profits earned by the co-operative society from ginning and processing of cotton received by its members and the marketing of such cotton. It was held that the words used in Section 80P of the Act were not “agricultural produce grown by its members” and, therefore, so long as the commodity brought to the assessee-society was agricultural produce and the produce belonged to its members, it was the agricultural produce of its members. The concept was of ownership of the agricultural produce and, therefore, the commission received by the assessee from its members was exempt under Section 80P(2)(a)(iii) of the Act. It was also observed that the concept of “marketing” in Section 80P(2)(a)(iii) of the Act included all activities connected with the process of taking over the agricultural produce of the members and handing over marketable commodities to the purchasers and all the intermediate processes connected with the marketing of the agricultural produce of the members. The term “marketing”, it was said, could not be restricted only to the buying and selling activity. It may be mentioned here that the judgment of the High Court of Madhya Pradesh in CIT v. Kissan Co-operative Rice Mills Ltd. [1976] 103 ITR 264, was expressly dissented from.
9. The main point to be noted here is the scope and ambit of the term “marketing”. This was explained by the High Court of Allahabad in U. P. State Warehousing Corporation v. ITO [1974] 94 ITR 129, 137, as under :
“In Corpus Juris Secundum, volume 55, page 785, the term ‘marketing’ has been defined as follows :
‘Marketing’ signifies a bringing or sending to market, and includes buying as well as selling.”
10. This would show that buying and selling is an activity which is included in the term ‘marketing’. Obviously, it cannot be its whole content.
11. In Principle and Practice of Marketing in India by Dr. C.B. Mamoria and B.L. Joshi, it has been stated :
‘Marketing includes all activities involved in the creation of place, time and possession utilities. Place utility is created when goods and services are available at the places they are needed, time utility when they are needed, and possession utility when they are transferred to those who need ‘them. The process of marketing makes goods ana services much more valuable when they are wanted and transferred to the people and place who want them.’
12. These authors have made the following classification of the marketing functions :
(1) Activities involving transfer of ownership :
(a) buying ;
(b) selling.
(2) Activities involving physical supply :
(a) transportation ;
(b) storage.
(3) Activities facilitating the foregoing functions :
(a) standardisation and grading ;
(b) financing ;
(c) risk taking ;
(d) market research.”
13. A similar view with regard to “marketing” is to be found in CIT v. Gujarat State Warehousing Corporation [1980] 124 ITR 282 (Guj) and Addl. CIT v. Ryots Agricultural Produce Co-operative Marketing Society Ltd. [1978] 115 ITR 709 (Kar).
14. The assessee further supports its stand by referring to the judgment of the High Court of Delhi in ITR No. 241 of 1975 (CIT v. National Agricultural Co-operative Marketing Federation Ltd., Delhi), decided on April 15, 1981, where, in dealing with a similar claim for exemption by the co-operative federation, it was held that the assessee was entitled to exemption in respect of its activities of marketing of the agricultural produce received, purchased or acquired from its members.
15. The other point to bear in mind, while dealing with this matter is that having regard to the object of the provision for exemption, namely, to encourage co-operative societies, a liberal construction is called for. Counsel for the assessee, in this behalf, referred to such view being expressed by the Supreme Court in CIT v. South Arcot District Co-operative Marketing Society Ltd. [1989] 176 ITR 117, while dealing with the exemption from income-tax of profits derived from letting of godowns or warehouses for storage.
16. It will be seen that in the judicial precedents cited and sought to be relied upon by the Revenue, namely, the three judgments of the High Court of Madhya Pradesh in Kissan Co-operative Rice Mills Ltd. [1976] 103 ITR 264 (MP) ; Mahasamund Kissan Co-operative Rice Mill and Marketing Society Ltd. [1976] 103 ITR 499 (MP) and Keshkal Co-operative Marketing Society Ltd. [ 1987] 165 ITR 437 (MP), as also that of the High Court of Gauhati in Assam Co-operative Apex Marketing Society Ltd. [1977] 110 ITR 33, the concept and scope of the term “marketing” was not at all adverted to, which, in our view, was fundamental to the determination of the issue raised. It is keeping this aspect in view that we are, with respect, constrained to differ from the view expressed therein and to prefer instead to follow the judgment of the High Court of Delhi in National Agricultural Co-operative Marketing Federation Ltd, (ITR No, 241 of 1975–15-4-1981) and that of the High Court of Gujarat in Karjan Cooperative Cotton Sale, Ginning and Pressing Society Ltd. [1981] 129 ITR 821 and consequently answer the reference in the affirmative, in favour of the assessee and against the Revenue. There will, however, be no order as to costs.