Skip to content


Mysore Co-operative Society Ltd. Vs. Commissioner of Income-tax Mysore - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Case Nos. 27 and 40 of 1967
Judge
Reported in[1970]75ITR445(KAR); [1970]75ITR445(Karn)
ActsIncome Tax Act, 1961 - Sections 81
AppellantMysore Co-operative Society Ltd.
RespondentCommissioner of Income-tax Mysore
Appellant AdvocateM.R. Narayanaswamy, Adv.
Respondent AdvocateS.R. Rajasekhara Murthy, Adv.
Excerpt:
.....only those co-operative societies which carry on no other activity than the activity of an urban consumers' society and that a co-operative society like the assessee, even if in one sphere is an urban consumers' society, but also carries on banking operation, does not fall outside the exemption. 5. in sustenance of his second submission, our attention was asked to the definition of a consumers' society occurring in the delhi co-operative societies act which defines a consumer society as a society formed with the object of obtaining and distributing goods to or of performing services for its members as well as the other consumers and of dividing among its members and customers in a proportion prescribed by the rules or by the bye-laws of such society, the profits accruing from..........under section 256(1) of the income-tax act, 1961, involves the interpretation of the expression 'urban consumers' co-operative society' occurring in the relevant law which was then operating. the assessee is a co-operative society called the mysore co-operative society ltd., which carried on the business in banking and trading operations and other activities. during the relevant previous years it derived interest on securities and income from its properties, in respect of which, it claimed an exemption under section 14(3)(iv) with respect to the assessment year 1961-62 and under section 81(v) in respect of the assessment year 1962-63. section 81(v) of the indian income-tax act, 1961, which will be referred to as the 'new act', corresponds to section 14(3) of the indian income-tax act,.....
Judgment:

Somnath Iyer, J.

1. These two references, one of which relates to the assessment year 1961-62, is made to this court under section 66(1) of the Indian Income-tax Act, 1922, and the other, which relates to the assessment year 1962-63, under section 256(1) of the Income-tax Act, 1961, involves the interpretation of the expression 'urban consumers' co-operative society' occurring in the relevant law which was then operating. The assessee is a co-operative society called the Mysore Co-operative Society Ltd., which carried on the business in banking and trading operations and other activities. During the relevant previous years it derived interest on securities and income from its properties, in respect of which, it claimed an exemption under section 14(3)(iv) with respect to the assessment year 1961-62 and under section 81(v) in respect of the assessment year 1962-63. Section 81(v) of the Indian Income-tax Act, 1961, which will be referred to as the 'new Act', corresponds to section 14(3) of the Indian Income-tax Act, 1922, which will be referred to as the 'old Act'. Both these statutory provisions exempt certain categories of income derived by a co-operative society, and section 14(3) (iv) of the old Act, on which dependence was placed by the assessee in support of its claim to exemption in respect of interest on security and income from properties reads :

'14. (3) The tax shall not be payable by a co-operative society, including a co-operative society carrying on the business of banking - .....

(iv) in respect of any interest on securities chargeable under section 2 or any income from property chargeable under section 9, where the total income of such society does not exceed twenty thousand rupees and the society is not a housing society or an urban consumers' society or a society carrying on transport business :...... Explanation. - For the purposes of this sub-section, an 'urban consumers' co-operative society' means a society for the benefit of consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.'

The corresponding statutory provision in the new Act is section 81(v), which reads :

'in respect of any interest on securities chargeable under section 18 or any income from property chargeable under section 22, where the total income of the co-operative society does not exceed twenty thousand rupees and the society is not a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power.'

2. It is seen from the relevant provisions of the old Act and those of the new Act that the exemption sought by the assessee could be claimed only if its total income did not exceed twenty thousand rupees and was not an urban consumers' society or a society falling within the other categories enumerated in section 14(3) (iv) of the old Act and section 81(v) of the new Act. The finding of the Income-tax Officer who refused the exemption sought by the assessee was that the total income of the assessee did exceed twenty thousand rupees. But that finding was reversed by the Appellate Assistant Commissioner, who recorded a finding that such total income did not exceed twenty thousand rupees, and that finding was also affirmed by the Appellate Tribunal. But the Income-tax Officer refused the exemption on the additional ground that the assessee was an urban consumers' society within the meaning of that expression occurring in both the Acts and that view taken by him was shared by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal.

3. The question of law referred to in I. T. R. C. No. 27 of 1967 reads :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee was an urban consumers' society and was, therefore, not entitled to exemption from income-tax under section 14(3) (iv) of the Income-tax Act, 1922, in respect of its interest on securities and from property for the assessment year 1961-62 ?'

The question of law before us in I. T. R. C. No. 40 of 1967 reads :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee was an urban consumers' society and was, therefore, not entitled to exemption from income-tax under section 81(v) of the Income-tax Act, 1961, in respect of its income from interest on securities and from property for the assessment year 1962-63 ?'

4. The main question which was, therefore, argued before us was whether the assessee was an urban consumers' society as found by Appellate Tribunal, and Mr. Narayanaswamy, appearing on behalf of the assessee, placed before us a two-fold submission. The first argument presented was that section 14(3) (iv) of the old Act and section 81(v) of the new exclude from the exemption credited by those statutory provisions only those co-operative societies which carry on no other activity than the activity of an urban consumers' society and that a co-operative society like the assessee, even if in one sphere is an urban consumers' society, but also carries on banking operation, does not fall outside the exemption. The second submission was that in any view of the matter, the assessee was not an urban consumers' society for the reason that, although it sold and distributed goods both to its members and persons who were not its members, it did not divide its profits among the members and the other customers, and so did not conform to the description of a consumers' society as it is ordinarily understood.

5. In sustenance of his second submission, our attention was asked to the definition of a consumers' society occurring in the Delhi Co-operative Societies Act which defines a consumer society as a society formed with the object of obtaining and distributing goods to or of performing services for its members as well as the other consumers and of dividing among its members and customers in a proportion prescribed by the rules or by the bye-laws of such society, the profits accruing from such supply and distribution. Dependence was placed in this context on a similar definition occurring in the Maharashtra Co-operative Societies Act.

6. But it would not be right for us to understand the expression 'urban consumers' society' occurring in the new Act, and the old Act in the way in which the consumers' society has been defined by either the Delhi Co-operative Societies Act or by the Maharashtra Co-operative Societies Act. Those definitions are definitions for the purposes of those Acts only and we should not read those definitions into the old Income-tax Act or the new Income-tax Act, since those Acts themselves contain what may properly be regarded as an exhaustive definition of the expression 'urban consumers' co-operative society' in one case and 'urban consumers' society' in the other. The words 'urban consumers' co-operative society' occurring in section 14(3)(iv) of the old Act has been defined by the Explanation to that sub-section, which reads :

'Explanation. - For the purposes of this sub-section, an 'urban consumers' co-operative society' means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.'

We have a similar Explanation in the new Act which is to be found underneath clause (v) of section 81. Although that clause speaks only of 'an urban consumers' society', the Explanation to that clause defines 'an urban consumers' co-operative society'. But there can be very little doubt that the Explanation which speaks of an urban consumers' co-operative society really defines the expression 'urban consumers' society' of which clause (v) to section 81 speaks, and that Explanation reads :

'Explanation. - For the purpose of this section, 'an urban consumers' co-operative society' means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.'

The correctness of the finding of the Tribunal which in effect is that the assessee is a society which serves, in respect of its trading operations, consumers within the limits of the Mysore municipality is not disputed before us by Mr. Narayanaswamy, who, however, contends that so long as the assessee does not distribute its profits among the consumers so served including the customers who are not its members, the assessee could not be regarded as an urban consumer's co-operative society.

7. In our opinion the Explanation to the section 14(3) (iv) of the old Act and to section 81(v) of the new Act is a complete definition of an urban consumers' co-operative society, and if that definition does not insist on the distribution of profits in that way among its members and other customers, it is scarcely possible for the assessee to sustain its plea that the mere fact that it is a society for the benefit of the consumers within the limits of the Mysore municipality does not make it an urban consumers' co-operative society. In our opinion, there are no reasons to think that the view taken by the Tribunal that the assessee was an urban consumers co-operative society is for any reason unsustainable.

8. But it was said that even so, so long as the assessee did not exclusively carry on an activity or an urban consumers' society and also carried on banking operations which were not carried on by an urban consumers' co-operative society, the exemption created under the two laws does not stand defeated.

9. The finding of the Appellate Tribunal is that the assessee carries on banking operations in addition to trading operations, and that the fact that trading operations are carried on in the role of an urban consumers' co-operative society, is what makes the exemption unavailable to the assessee, although it did carry on banking operations in addition. We were asked by Mr. Narayanaswamy to read the relevant statutory provision as creating an exemption in respect of all co-operative societies with respect to interest on securities and income from property except in a case where the co-operative society was an exclusively urban consumers' co-operative society.

10. We do not think we can place any such interpretation either on section 14 (3) (iv) of the old Act or on section 81(v) of the new. Section 14(3) (iv) of the old Act creates an exemption in respect of interest on security and income from property derived by a society other than a housing society or an urban consumers' society or a society carrying on transport business. Section 81(v) adds to this enumeration a society engaged in the performance of any manufacturing operations with the aid of power. The plain meaning of these two statutory provisions is that if a society fell within the enumeration of the old Act or in the catalogue of the new exemption could not be claimed.

11. These two statutory provisions do not say that the societies which fall in the enumeration of the two Acts are societies which carry on exclusively the operations to which those two statutory provisions refer. If a society was a housing society and was also a society carrying on transport business in addition to an urban consumers' co-operative society, it was as much disentitled to the exemption as society which carried on only one of those activities. Similarly, a society which is carrying on the activity of an urban consumers' co-operative society is nevertheless an urban consumers' co-operative society within the meaning of that expression occurring in the old and the new Acts even if in addition it is carrying on a banking operation.

12. If a society carried on the activity of an urban consumers' co-operative society, it is for that reason alone an urban consumers' co-operative society, and the mere fact that it carries on some other kind of business does not make available to it an argument that it is not an urban consumers' co-operative society. The refusal of the exemption under the one law or under the other is not restricted only to those societies which carry on exclusively the operations to which they refer.

13. The view that we take receives support from section 81(i) of the new Act which exempts profits and gains from business of co-operative societies falling within at least six classifications which are referred to in clause (a) to (f) of clause (i) of that section. The co-operative societies which fall within that catalogue are referred to as a co-operative society simpliciter, and clauses (a) to (f) makes a specification of the kind of activity carried on. There is a proviso to clause (i) of that section which says that a co-operative society falling within those six classifications would still be entitled to the exemption created by clause (i) even if it carries on an activity other than those enumerated in that clause provided the profits and gains from those activities do not exceed fifteen thousand rupees. This proviso, in our opinion, negatives the concept of the exclusiveness of the activity to which clauses (a) to (f) section 81(i) refers, and if we cannot therefore say that the co-operative societies referred to in section 81(i) are co-operative societies which carry on exclusively the activities such as those referred to in clauses (a) to (f), we should be slow to understand section 81(v) differently. We should not therefore say that the urban consumers' co-operative society to which section 81(v) refers is a society engaged exclusively in the activity of an urban consumers' co-operative society.

14. So, our answers to the questions referred to us are against the assessee, and in I. T. R. C. No. 27 of 1967 our answer to the question referred to us is that the Appellate Tribunal was right in law in holding that the assessee was an urban consumers society and therefore not entitled to exemption claimed under section 14(3) (iv) of the Income-tax Act, 1922, in respect of its income from interest on securities and from property for the assessment year 1961-62. Our answer to the question in I. T. R. C. No. 40 of the 1967 is that the Appellate Tribunal was right in law in holding that the assessee was an urban consumers' society and was therefore not entitled to the exemption from income-tax under section 81(v) of the Income-tax Act, 1961, in respect of its income from interest on securities and from the property for the assessment year 1962-63.

15. In the circumstances, we make no direction in regard to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //