Kerala Co-Operative Consumers' Federation Ltd. v. Commissioner Of Income Tax

The Judgment of the Court was delivered by

Paripoornan, J.:— These three references are at the instance of the same assesses. The Revenue is the respondent in these three cases. I.T.R No. 97 of 1982 relates to the assessment year 1976-77. I.T.R 143 of 1984 relates to the year 1975-76 and 144 of 1984 relates to the year 1978-79, The question referred in all these three cases is substantially similar. We shall extract the question referred for our decision in I.T.R No. 97 of 1982.

“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the credit sales to the tone of Rs. 5,43,034/- to the members of the assesses society will not come under S. 80P (2)(a)(i) of the Income-tax Act and hence the exemption claimed by the asssessee is not sustainable in law?”

2. The credit sales for the year 1975-76 is to the tone of Rs. 4,55,885/- and for the year 1978-79 it amounts to Rs. 3,93,396/.

3. The assessee (applicant) in these cases is an apex Co-operative Society, registered under the Kerala Co-operative Societies Act. Various Primary Consumers’ Co-operative Societies are members of the assessee society.

4. In the course of its business, the assessee had effected credit sales to its members. The business is in the purchase aad sale of consumer goods. In the returns filed for the various assessment years, the credit sales were shown as receipt falling under S. 80P(2)(a)(i) of the Income Tax Act and hence liable to be exempted while commuting the assessable income. The Income Tax Officer rejected the claim. In appeal, the Commissioner of Income-rax (Appeals) held that the business of the assesses is just a business in the purchase and sale of consumer articles and these transactions do not amount to providing credit facilities to its members The assessee filed appeals before the Appellate Tribunal and contended that the two expressions used in the above sub-section, namely, “business of banking” and “providing credit facilities to its members”, contemplated two distinct and different activities and in that view, the expression providing credit facilities is something other than banking business. The Appellate Tribunal held that a Co-operative Society, like the assessee, selling goods to its members on credit, is not engaged in any business of engaging credit facilities. It took the view that the expression “providing credit facilities” takes its colour from the preceding expression ‘banking’, and thus the essessee is not entitled to the exemotion claimed since the activity carried on by the assessee is not one providing credit facility to its members. Thereafter an application was made before the Tribunal under S. 256(1) of the Income Tax Act to refer the question of law formulated herein-above, frr the decision of this Court. Accordingly for all the three years the Appellate Tribunal has referred the above question for the decision of this Court.

5. We heard counsel for the applicant-assessee, Mr. Sasidharan and also counsel for the Revenue Mr. P.K.R Menon. The arguments advanced before the Appellate Tribunal were repeated before us. Counsel laid stress on the language of S. 80P (2)(a)(i) of the Act and contended that the two expressions “carried on the business of banking” and “providing credit facility to its members” should be understood distinctly and differently, and so understood, the credit sales made by the applicant to its members will be entitled to be deducted in computing the total income of the assessee. It was argued that if substantially a similar meaning is given to the words ‘providing credit facilities’ as in the case of the preceding clause ‘business of banking’, there will be redundance and that should be avoided. Counsel for the Revenue submitted for cur acceptance the view that prevailed with the Appellate Tribunal to hold that the words ‘providing credit facilities to its members’ should be interpreted and understood as akin to the business of banking—the preceding clause.

6. On hearing the rival contentions of the parties, we are of the view that the plea of the assessee (applicant) should fail. It is settled law that every word in a statute should be construed in the context in which it occurs, in order to discover its appropriate meaning. A word is known by the company it keeps. When two or more words which are susceptible of analogous meaning are coupled together, they should be understood in their cogaate sense. These principles are well-settled. The matter has been dealt with after adverting to the relevant decisions on the subject in a Division Bench decision of this Court in Commissioner of Income tax v. Parukutty Moopilamma (1984 KLT 65) at pages 69 and 70. We are of the view that the words ‘providing credit facilities’, occurring in S. 80P(2)(a)(i) of the Income Tax Act, should be construed as similar to, or akin to the “carrying on the business of banking”, the preceding clause in the same sub-section.

7. It is conceded that the assessee effected credit sales to its members. We find it difficult to accept the arguments that the Co-operative society selling goods to its members on credit is engaged in the business of providing credit facilities to its members. Selling goods on credit may be one of the modes of carrying on business. It cannot be said to be one “providing credit facilities to its members” as envisaged by S. 80P(2)(a)(i) of the Income Tax Act. Considered in the context and collocation of words, we hold that the words ‘providing credit facilities to its members’ occurring in S. 80P(2)(a)(i) of the Act, means providing credit by way of loans and not selling goods on credit. As stated in Chaturvedi and Pithisaria's Income Tax Law, 3rd Edn., Vol. 2, page 2220, the expression “providing credit facilities”, in S. 80P(2)(a)(i), takes its colour from the activity of banking. In order that the same may constitute a business, it is necessary that these activities must be the chief source of income. A person who advances loans or supplies goods on credit in connection with and in the course of some other business of manufacture or purchase or sale of goods, etc., cannot be carrying on the business of providing credit facilities. To similar effect, are the observations in Sampath Iyengar—Law of Income-tax, Vol. 3, 7th Edn., page 2850. The Madias, Allahabad and Madhya Pradesh High Courts have taken the same view—vide Commissioner of Income-tax v. Coral Mills Workers Co-operative Stores Ltd., (106 ITR 868) at p. 871, Jamshedpur Co-Operative Stores Ltd. v. Commissioner Of Income-Tax (135 ITR 355), Additional Commissioner of Income-tax v. U.P Co-operative Cane Union (114 ITR 70) and Malwa Mills Karamchari Paraspar Sahakari Sansthe v. Commissioner of Income-tax (134 ITR 505). In the light of the above discussion, we hold that she Appellate Tribunal was justified in negativing the claim of the assessee, that it is entitled to deduction under S. 80P(1) read with S. 80P(2)(a)(i) of the Income Tax Act.

8. We answer the question referred to us in the affirmative, against the assessee and in favour of the Revenue for all the three years. The Revenue shall be entitled to its cost. Advocate's fee Rs. 500/- in each case.

9. A copy of this judgment under the seal of this Court and the signature of the Registar, shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.