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Surat Vankar Sahakari Sangh Ltd. Vs. Commissioner of Income-tax, Gujarat Ii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 1 of 1969
Judge
Reported in[1971]79ITR722(Guj)
ActsIncome Tax Act, 1922 - Sections 14(3); Income Tax Act, 1961 - Sections 81 and 83
AppellantSurat Vankar Sahakari Sangh Ltd.
RespondentCommissioner of Income-tax, Gujarat Ii
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredBank Ltd. v. Commissioner of Income
Excerpt:
.....section 14 (3) - separate exemption not granted in respect of income from letting of godowns for storage, income from processing and income from facilitating marketing of commodities - exemption available only in respect of income derived from letting of godowns for storage, processing or facilitating marketing. - - the assessee is a co-operative society registered under the bombay co-operative societies act, 1925. the main activities of the assessee are :(1) processing, that is, dyeing, bleaching and finishing of grey cloth on 'labour basis' and (2) purchasing of grey cloth from the local market and after processing selling the same to the members a well as outsiders. the income-tax officer negative claim on the view that neither section 14(3) (iv) or section 81(iv) was income..........was income from letting out godowns or warehouses for any of the following three purposes, namely, storage, processing and facilitating the marketing of commodities and, since the claim for exemption was in respect of income not falling within this category, it was not sustainable under section 14(3) (iv) or section 81(iv). this view taken by the income-tax officer was assailed in appeal before the appellate assistant commissioner, but the appeal was unsuccessful and the tribunal in further appeal also took the same view. hence, the present reference at the instance of the assessee. 2. though apparently two questions of law are referred for our opinion, there is in effect and substance only one question and that relates to the true construction of section 14(3) (iv) and section 81(iv)......
Judgment:

Bhagwati, C.J.

1. The short question which arises for consideration in this reference turns on the true interpretation of section 14(3) (iv) of the Income-tax Act, 1922 and section 81(iv) of the Income-tax Act, 1961. The facts giving rise to the reference are few and undisputed and way be briefly stated as follows. The assessee is a co-operative society registered under the Bombay Co-operative Societies Act, 1925. The main activities of the assessee are : (1) processing, that is, dyeing, bleaching and finishing of grey cloth on 'labour basis' and (2) purchasing of grey cloth from the local market and after processing selling the same to the members a well as outsiders. During the previous years relevant to the assessment years 1961-62 and 1963-64, the assessee earned income from processing grey cloth on 'labour basis', and also from processing its own grey cloth. So also the assessee earned income from processing grey cloth on 'labour basis' during the previous years relevant to the assessment years 1962-63 and 1964-65. The assessee had also some income from facilitating the marketing of commodities of its members during the previous ears relevant to the last three assessment years, namely, 1962-63 to 1964-65. In the course of assessment of the assessee to Income-tax for the assessment years 1961-62 to 1964-65, the assessee claimed exemption from tax in respect of income from processing and facilitating the marketing of commodities under section 14(3) (iv) of the Income-tax Act, 1922, for the assessment year 1961-62 and under section 81(iv) of the Income-tax Act, 1961, for the remaining three assessment years. The Income-tax Officer negative claim on the view that neither section 14(3) (iv) or section 81(iv) was income from letting out godowns or warehouses for any of the following three purposes, namely, storage, processing and facilitating the marketing of commodities and, since the claim for exemption was in respect of income not falling within this category, it was not sustainable under section 14(3) (iv) or section 81(iv). This view taken by the Income-tax Officer was assailed in appeal before the Appellate Assistant Commissioner, but the appeal was unsuccessful and the Tribunal in further appeal also took the same view. Hence, the present reference at the instance of the assessee.

2. Though apparently two questions of law are referred for our opinion, there is in effect and substance only one question and that relates to the true construction of section 14(3) (iv) and section 81(iv). It may be noted at the outset that section 81(iv) is in identical terms as section 14(3) (iv) and so are the other clauses of sections 81 and 14(3) and, therefore, what we say in regard to the interpretation of section 81(iv) would apply equally in the interpretation of section 14(3) (iv). Section 81(iv) enacts a simple provision but in order to arrive at its proper meaning it is necessary to read it in the context of the other clauses of section 81. Section 81 grant exemption in respect of income of a co-operative society in the following terms :

'81. Income of co-operative societies. - Income-tax shall not be payable by a co-operative society -

(i) in respect of the profits and gains of business carried on but it, if it is -

(a) a society engaged in carrying on the business of banking or providing credit facilities to it members; or

(b) a society engaged in a cottage industry; or

(c) a society engaged in the marketing of the agricultural produce of its members; or

(d) a society engaged in the purchase of agricultural implements, seed, livestock, or other articles intended for agriculture of the purpose of supplying them to its members; or

(e) a society engaged in the processing without the aid of power of a the agricultural produce of its members; or

(f) a primary society engaged in supplying milk raised by its members to a federal mild co-operative society :

Provided that, in the case of a co-operative society which is also engaged in activities other than those mentioned in this clause, nothing contained therein shall apply to that part of its profits and gains as is attributable to such activities and as exceeds fifteen thousand rupees; (ii) in respect of so much of the profits and gains of business carried on by it as does not exceed fifteen thousand rupees, if it is a co-operative society referred to in clause (i);

(iii) in respect of any interest an dividends derived from its investments with any other co-operative society;

(iv) in respect of any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities;

(v) 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 consumer's society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power;

Provided that nothing contained in this section shall apply to a co-operative society carrying on insurance business in respect of the profits and gains of that business computed in accordance with section 44.....'

3. This section is obviously enacted with a view to encouraging and promoting growth of co-operative sector in the economic life of the country in pursuance of the declared policy of the Government. There are five different heads of exemption enumerated in the section. Each is a distinct and independent head of exemption. Whenever a question arises whether a particular category of income of a co-operative society is exempt from tax, it will have to be seen whether such income falls within any of the several heads of exemption : if it falls within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such incomes, therefore, not free from tax under that head of exemption : vide U. P. Co-operative Bank Ltd. v. Commissioner of Income-tax. The ambit and coverage of clause (iv) of section 81 must, therefore, depend on the true interpretation of the language used by the legislature in that clause assisted only by such external aids of construction as are permissible according to well-recognised principles of interpretation.

4. Turning first to the language of section 81(iv), it exempts a co-operative society from tax in respect of income derived from the letting of godowns or warehouses of storage, processing or facilitating the marketing of commodities. Two possible constructions of this provision were suggested before us in the course of the argument, one by the assessee and the other by the revenue. The construction put forward by the assessee and the other by the revenue. The construction put forward by the assessee was that the words 'letting of godowns and warehouses for storage', 'processing' and 'facilitating the marketing of commodities' constituted different alternatives and income derived from three different sources was, therefore, sought to be exempted under section 81(iv), namely, (1) income derived from the letting of godowns and warehouses for storage; (2) income derived from processing; and (3) income derived from facilitating the marketing of commodities. The revenue on the other hand urged that income which was sought to be exempted was only income derived from the letting of godowns or warehouses if they were let for any of the three purposes, namely, storage, processing or facilitating the marketing of commodities. The words 'storage, processing or facilitating the marketing of commodities', according to the revenue, were governed by the preposition 'for' and they denoted the purposes for which godowns or warehouses should be let in order that the income derived from such letting should be exempt from tax. Now, on the plain grammatical construction of the language used by the legislature, it appears that the construction of the language used by the legislature, it appears that the construction suggested on behalf of the revenue is more commendable than that canvassed on behalf of the assessee. As we read the words of the clause, it is apparent that there is no break in the continuity of idea after the word 'storage'; the idea flows on into the words 'processing or facilitating the marketing of commodities'. As a matter of fact, if we read the clause as a whole, there is no doubt that the words 'storage, processing or facilitating the marketing commodities' constitute one single composite clause governed by the preposition 'for' signifying that the letting of godowns or warehouses contemplated by the section is letting for any of the three purposes, namely, storage, processing or facilitating the marketing of commodities. If the intention of the legislature was that 'letting of godowns or warehouses for storage', 'processing' and 'facilitating the marketing of commodities' should be read distinctively as constituting different alternative sources of income, the legislature would have, according to the dictates of plain grammar, used the words 'income derived from letting of godowns or warehouses for storage or from processing or from facilitating the marketing of commodities.' The introduction of the words 'or from' before 'processing' and 'facilitating the marketing of commodities' would have brought about the disjunctive effect so as to relate the three alternatives to the words 'income derived from.' But the legislature instead used words which clearly go of to suggest that the words 'storage, processing or facilitating the marketing of commodities' are merely purposes for which godowns or warehouses should be let to attract the exemption under section 81(iv). The presence of the definite article 'the' before letting and its absence before the words 'processing' aid 'facilitating the marketing of commodities' considerably reinforces this conclusion. It is again difficult to see why the legislature should have indiscriminately mixed up in section 81(iv) widely different sources of income such as 'letting of godowns or warehouses for storage, processing and facilitating the marketing of commodities'. The conclusion appears to be clear on a plain natural construction of the language used in section 81(iv) that what is exempted under that section is income derived from the letting of godowns or warehouse provided the letting is for any of the three purposes, namely, 'storage', 'processing' or 'facilitating the marketing of commodities'.

5. This construction, which we are inclined to place on the language of section 81(iv), receives considerable support from the provision enacted in section 83. That section says that Income-tax shall not be payable by as assessee, which is an authority constituted under any law for the time being in force for the marketing of commodities, in respect of any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities. The income which is exempted under section 83 is described in the same terms as income exempted under section 81(iv). Whatever construction is, therefore, placed on the language of section 81(iv) must equally hold good so far as section 83 is concerned. Now, the exemption under section 83 is given to an assessee which is an authority constituted under any law for the time being in force for the marketing of commodities. Such an assessee would have obviously only one activity, namely, 'marketing of commodities', and it could not possibly be engaged in the activity, namely, 'marketing of commodities', and it could not possibly be engaged in the activity of processing. It could have no income derived from processing in any circumstances and on the construction contended for on behalf of the assessment, the word 'processing' in section 83 would be rendered devoid of meaning. Section 83 clearly supports the construction canvassed on behalf of the revenue and leaves no doubt that the words 'storage, processing or facilitating the marketing of commodities' go with 'letting of godowns or warehouse' and denote the purposes for which godowns or warehouse should be let in order that the income derived from such letting should be exempt from tax.

6. There is also one other circumstance which is, in out opinion, quite decisive of the question. Section 83(iv), as we have already pointed out above, is in identical terms as section 14(3) and section 14(3) was originally introduced in the Income-tax Act, 1922, by section 10 of the Finance Act, 1955. Section 14(3) when originally introduced was, however, in a different form and it read as follows :

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

(i) in respect of profits and gains of business carried on by it;...

(iii) in respect of any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities;...'

7. Clause (i) of this unamended section exempted from tax profits and gains of business carried on by a co-operative society. If, therefore, a co-operative society carried on the activity of processing, profits and gains arising from such activity would be exempt under clause (i). If that be so, why was it necessary to enact in clause (iii) that income derived from processing shall be exempt from tax If the construction contended for on behalf of the assessee were correct, the word 'processing' in clause (iii) would be rendered totally superfluous for income derived from processing would be covered by clause (i). The only way in which full meaning and effect can be given to the word 'processing' in clause (iii) is by reading that clause in the manner suggested on behalf of the revenue, namely, that the words 'storage', 'processing' and 'facilitating the marketing of commodities' denoted different alternative purposes of letting of godowns or warehouses. We are, therefore, of the view that on a proper interpretation of section 14(3) (iv) and section 81(iv), separate exemption is not granted in respect of income from the letting of godowns or warehouses for storage, income from processing and income from facilitating the marketing of commodities. But the exemption is available only in respect of income derived from letting of godowns or warehouses where the purpose of letting is storage, processing or facilitating the marketing of commodities. The questions as framed by the Tribunal refer only to section 14(3) (iv) and do not make any reference to section 81(iv). Both the questions will, therefore, have to be reframed so as to include the words 'clause (iv) of section 81 of the Income-tax Act, 1961' after the words 'clause (iv) of section 14(3) of the Indian Income-tax Act, 1922'. The questions as reframed are answered in the affirmative. The assessee will pay the costs of the reference to the Commissioner.


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