1. The following question is referred by the Tribunal under section 256(1) of the Income-tax Act, 1961, in this reference|
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee society was not entitled to exemption under section 80P(2)(a)(vi) of the Income-tax Act 1961 ?'
2. A few facts leading to the present reference are stated as under :
3. The assessee is a co-operative society. The assessment year 1973-74. The assessee is assessed in the status of an association of persons. The assessee claimed before the Income-tax Officer that its income was exempt under the provisions of section 80P(2)(a)(vi) of the Income-tax Act, 1961. The Income-tax Officer negatived the claim of the assessee. Copy of the assessment order is annexure A to the statement. The assessee carried the matter in appeal before the Appellate Assistant Commissioner. It was claimed that the aim of the society was to develop financial and social interest of the persons residing and working in the forest and helping them to avoid unemployment. The society was a labour society and only those persons who were members of the society were allowed to work as labourers in the forest. The membership was restricted to specified villages and on the condition of fulfilment of various requirements of the rules and regulations of the society. It was, therefore, claimed that the assessee's claim for exemption was fully covered by the aforesaid provisions and the disallowance of the assessee's claim for exemption was not justified. The said contention found favour with the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, therefore, held that the assessee society had fulfilled the conditions as required under the aforesaid provisions and, therefore, the Income-tax Officer was not justified in rejecting the claim for exemption. A copy of the order passed by the appellate authority is at annexure 'B' to the statement.
4. Being aggrieved by the order passed by the Appellate Assistant Commissioner, the Revenue went in appeal before the Tribunal. It was, contended before the Tribunal on behalf of the Revenue that according to clause 7A of the bye -laws, apart from the labourers residing in the villages, the membership was open to social workers and individuals interested in the uplift of adivasi labourers and such persons could be enrolled as members with the approval of the managing committee. Under clause 22 of the bye-laws, every member is vested with the right to vote and every member present in the general meeting was entitled to exercise single voting. On the basis of the aforesaid two bye - laws, it was contended that the voting rights were not confined to the labour members of the society only but they were extended also to social workers and individuals who could be enrolled as members of the society. It was further submitted that clause 7A extended the voting rights to individuals who were not labourers and who did not contribute the labour and, therefore, the conditions laid down in the proviso to the section were not fulfilled and, therefore, exemption was not available to the society.
5. However, it was submitted on behalf of the assessee that the society was a labour co-operative society formed with a view to give employment as well as proper remuneration to the adivasis who were earlier exploited by the forest contractors. It was, therefore, submitted that the formation of the society was a sort of welfare measure to help the adivasis. It was also contended that the society was formed as a result of the acceptance by the Government of Gujarat of the report of the committee appointed under the chairmanship of Shri D. J. Naik and as per the resolution of the said committee, the social workers with restricted membership were to be associated with the working of the society, so that the activities of the society could be regulated properly and at the same time the number of social workers was restricted so that they may not be in a position to control the working of the society. On the said premises, it was submitted that the intention of throwing open membership to social workers was to help the adivasis who were illiterates. It was also submitted that social workers were taken as members of the society so that the society can run efficiently. It was, therefore, submitted that the society should not be denied the benefit of exemption on a technical ground, otherwise, it would defeat the very purpose for which the provision is made, namely, for helping the labourer-oriented society.
6. However, the Tribunal held that the right to vote to persons other than the labourers will go against the conditions laid down for exemption, inasmuch as the proviso enjoins that if any co-operative society is engaged in collective disposal of labour of its members, the whole of the amount of profits and gains would be exempt if the rules and bye-laws restricted the voting rights to three classes of its members set out in the proviso. If the bye-laws do not fit in with the aforesaid provisions, the claim for exemption cannot be entertained. In that view of the matter, the Tribunal held that the assessee was not entitled to the exemption under section 80P(2)(a)(vi) of the Income-tax Act. Copy of the Tribunal's order is annexed as annexure 'C' to the statement.
7. Thereafter, at the instance of the assessee, the Tribunal has made the reference and the above-mentioned question is referred to this court for decision.
8. Mr. J. P. Shall, the learned advocate appearing for the assessee, submits that the proviso to section 80P(2) of the Act should not be construed literally without keeping in mind the aim and object of its introduction. In a nutshell, Mr. Shah's submission is that the very purpose of introducing the proviso is to see that the right of voting in such societies should be restricted to the individuals who contribute their labour, co-operative credit societies and the State Government and, therefore, if, in fact, no such persons, namely, social workers or individuals interested in the uplift of the adivasis are enrolled as members of the society, it should not be deprived of the benefit of exemption given under section 80P(2)(a)(vi) of the Income-tax Act. Mr. Shah, therefore, submitted that the proviso should be so interpreted that in spite of the rule and bye-law of the society permitting others to become members with a right to vote, the benefit of the exemption should be given to such societies except where outsiders are already taken and/or enrolled as members of the society in pursuance of the said bye-law or rule with a right to vote.
9. On the other hand, M. B. R. Shah, the learned advocate appearing for the Revenue with Mr. G. N. Shah, learned advocate, submits that the language of the said proviso is very clear and the aim and object of the proviso is also very clear that the membership with the right of voting should be restricted to the individuals who contribute labour and also to the co-operative credit societies and the State Government and not to any other persons. Therefore, in his submission, it is very clear from the said proviso itself that the rules and the bye-laws should restrict the voting rights only to the members of the society as specified in the proviso. He, therefore, submits that there is no scope for any other interpretation except the one put by the Tribunal on the said proviso.
10. With a view to properly appreciate the rival contentions raised by the learned advocates, it would be necessary to reproduce hereinbelow, the relevant portion of section 80P of the Income-tax Act :
'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 - ... (vi) the collective disposal of the labour of its members......
the whole of the amount of profits and gains of business attributable to any one or more of such activities :
Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely :-
(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities;
(2) the co-operative credit societies which provide financial assistance to the society; (3) State Government;..'
11. The relevant bye-laws for membership are bye-laws Nos. 7, 7A and 22. Bye-law No. 7, translated into English, is as under :
'Any individual, residing in any of the villages falling within the range of Gora Dedia Para and in any of the villages within the falling series 11, 12 and 8 and who belongs to the labour class and whose application to enroll as a member has been accepted by the managing committee by a majority and who is of minimum 18 years of age and who has contributed the entrance fee of Re. 1 and who has complied with the requirements of the bye-law No. 6 can become a member of the society.'
12. Bye-law No. 7A can be translated into English as :
'Notwithstanding any provision contained in Bye-law No. 7, any social worker and individual interested in the uplift of adivasi labourers may be enrolled as members with the approval of the Managing Committee, but the number of such members should not exceed 20. Such members shall have to remit the entrance fee and value of one share. Besides, their written application should be passed by the majority of the managing committee.'
'Bye-law No. 22 of the society reads as under :
'Every member is vested with the right to vote. Every member present in the general meeting shall exercise single voting. But, the president, in case of a tie on both sides. is empowered to exercise casting vote in addition to his ordinary vote.'
13. It is clear from the above bye-laws of the society that the right of voting is not only confined to the members of the society coming under bye-law No. 7, but that right is extended to the members of the society coming under the bye-law No. 7A also. Reading the aforesaid three bye-laws of the society, it is clear that the bye-laws of the society do not restrict the voting rights to the members who contribute their labour or to the credit societies which provide financial assistance to the society and to the State Government, but it extends to other members who can been enrolled under the bye-law No. 7A. Mr. J. P. Shah, the learned advocate appearing for the assessee, also does not dispute this position. However, Mr. J. P. Shah submits that the vice is not in the bye-law if we look at the substance, namely, the aim and object of introducing the proviso. For the purpose of putting the interpretation as he submitted earlier, he has relied on certain observations made in CIT v. Satellite Engineering Ltd. : 113ITR208(Guj) , where the question was with regard to the interpretation of section 84 (now section 80J) with regard to an undertaking not fulfilling the condition for relief in the first year after commencement of production but fulfilling the condition in the subsequent years and the question was whether the industrial undertaking was entitled to relief in the subsequent years. Mr. Shah has invited our attention to the following observations made on page 223 in the said case :
'It is well settled that even if the language of a statute in its ordinary meaning and grammatical construction leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, presumably not intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentences (See Tirath Singh v. Bachittar Singh, : 2SCR457 ).'
14. Relying on these observations, Mr. J. P. Shah submitted that the proviso to sub-section (2) of section 80P of the Act should be construed in such a way that though there might be provisions in the bye-laws of the society providing right to vote to the members other than the three categories mentioned in the proviso, the benefit of exemption can be taken away if, in fact, the rules and bye-laws of the society are implemented by enrolling members other than the three categories mentioned therein.
15. Before we proceed to see the object and purpose of the said proviso and its interpretation, it is necessary to point out that in the aforesaid case in CIT v. Satellite Engineering Ltd. : 113ITR208(Guj) immediately after the quotation of the Supreme Court judgment, there are observations to the following effect (at p. 223) :
'This is not a case where the meaning of the word is to be modified or the structure of the sentence is to be changed to achieve the legislative object. At the highest, this is a case where the language employed by the Legislature might be capable of bearing more than one construction and, in such a case, in arriving at the true meaning, regard must be had to the fact that such construction is not adopted which defeats the very purpose for which the enactment was made.'
16. On a perusal of section 80P of the Act, it is clear that sub-clause (vi) of section 80P(2)(a) was introduced by the Finance (No. 2) Act of 1971, with effect from April 1, 1972. By introducing the said sub-clause (vi) along with the proviso, it is clear that the Legislature intended to give additional benefit of exemption for the sums specified in sub-section (2), i.e., whole of the amount of profits and gains of business attributable to any one or more of such activities on the conditions mentioned in the proviso being complied with. If the co-operative society would not get additional benefit of exemption under sub-clause (vi) of sub-section (2)(a) of section 80P, the society is to get the general benefit as provided in sub-clause (ii) of subsection 2(c) of section 80P of the Act, namely, Rs. 20,000, as exemption. It is, therefore, clear that the benefit under clause (vi) is an additional benefit given to the co-operative society engaged in the collective disposal of the labour of its members on the fulfilment of the conditions embodied in the proviso. The language of the proviso clearly lays down that the rules and bye-laws of the society falling under sub-clause (vi) must restrict the voting right to the following classes :
(i) individuals who contribute their labour;
(ii) co-operative credit societies which provide financial assistance to the society; and
(iii) State Government.
17. It is undoubtedly clear that this condition is with regard to the provision to be made in the rules and bye-laws of the society itself for restricting the voting rights to the members specified therein and not to others. If the rules and bye-laws restrict the voting right to the three categories of members specified therein, outsiders would not be eligible to become members of the society with a right to vote. It is important to note that this provision is made for the benefit of the societies engaged in collective disposal of the labour of its members and, therefore, in order that any person other than the persons mentioned in the aforesaid three categories cannot have any voice in the working of the society, such members should not have the right to vote.
18. It is also clear from the 'note' with regard to bye-law no. 22 in the Finance (No. 2) Bill of 1971, that the object of amending section 80P of the Income-tax Act is to ensure that the labour co-operative societies and the fisheries co-operative societies engaged in catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipments in connection therewith for the purpose of supplying them to its members will be eligible for exemption from income-tax in respect of the whole of the income. This exemption will be subject to the conditions of the rules and bye-laws of the society which restrict the voting rights to the members who contribute their labour or carry on the fishing or allied activities, the co-operative credit societies which provide financial assistance to the society and the State Government.
19. Mr. J. P. Shah pointed out that the above bye-law No. 7A in the bye-laws of the society was introduced as per the Government resolution adopting the recommendation made by the Naik's Committee in the year 1960 and, therefore, it is in the field from 1960 onwards. It may be stated that the amendment was made in section 80P(2) of the Income-tax Act by inserting sub-clause (vi) and the proviso by the Finance (No. 2) Act of 1971 which has come into operation from April, 1972, and, therefore, it can be assumed that Parliament had, before the amendment was made, sufficient experience of watching the working of such bye-laws like bye-law No. 7A in the present case.
20. It is also important to note that in the Gujarat Co-operative Societies Act, 1961, also, different kinds of members of co-operative societies are contemplated inasmuch as the definition of the word 'member' in section 2(13) of the said Act means a person joining in an application for the registration of a co-operative society which is subsequently registered or a person duly admitted to the membership of a society after registration and includes a nominal, associate or sympathiser member. Before the Gujarat Amendment Act No. 23 of 1982, the nominal, associate or sympathiser member of the society had the right to vote if such right is conferred on him by the bye-laws of the society, but by the aforesaid Amendment Act, such right of voting is taken away as it is clearly provided in section 25(7) of the Gujarat Co-operative Societies Act, that no nominal or sympathiser member shall have the right to vote and no such member shall be eligible to be a member of a committee or for appointment as a representative of the society or any other society. It is, therefore, clear that the Gujarat State, after experience, has also, by amending the provisions of the Act, taken away the right to vote by nominal or sympathiser member even if provided by the rules or bye-laws.
21. From the above discussion, it is clear that if the co-operative society as specified in sub-clause (vi) of section 80P(2) of the Income-tax Act wants to earn full exemption on the profits made by it, persons other than those three categories specified in the proviso to section 80P(2) of the Income-tax Act, can be members of the society, but they should not be given the right to vote and that fact should be clearly borne out from the rules and bye-laws restricting the right to vote only to members specified in the proviso. The laudable object behind this enactment is to see that the working of such societies is not in any way interfered with or controlled by such outsiders. We have carefully considered the provisions of section 80P of the Act along with its object and we are of the view that the language of the proviso has clearly expressed the intention of the Legislature to carry out the object of eradicating any evil from any outside member from its root by providing that the right to vote be restricted only to three categories of members mentioned in the proviso in the rules and bye-laws of the co-operative society. It does not have any ambiguity. By interpreting the said proviso in its literal meaning, it is not likely to create any contradiction with the apparent purpose of the enactment or any absurdity or to defeat the object of the statute. In that view of the matter, the observations which are made in the Supreme Court judgment, Tirath Singh v. Bachittar Singh, : 2SCR457 , are not applicable to the present case.
22. Mr. J. P. Shah, the learned advocate appearing for the assessee, has also relied on the judgment of the Supreme Court in the case of CIT v. National Taj Traders  121 ITR 535. In the said case, there was a question of interpretation with regard to section 33B(2)(b) and 33(4) of the Indian Income-tax Act, 1922, now section 263(3) of the Income-tax Act, 1961. In the said case, the Supreme Court has observed that the principle that a fiscal statute should be construed strictly is applicable only to taxing provisions such as charging provision or a provision imposing penalty and not to those parts of the statute which contain machinery provisions.
23. Further, it has been held that the casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found within the four corners of the statute itself but at the same time, a casus omissus should not be readily inferred and for that purpose, all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses there of so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if a literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the Legislature.
24. We have fully considered the provisions of section 80P of the Act and particularly sub-clause (vi) along with the proviso which was introduced by the Finance (No. 2) Act of 1971. We have also seen the object from the Notes of the Bill for introducing the said proviso. We are of the view that when a literal construction to the proviso is given, it does not lead to any absurdity or anomalous results. On the contrary, by giving that interpretation, we are implementing the real object behind the insertion of the said proviso. We are, therefore, of the opinion that the said decision of the Supreme Court also, does not help the assessee in the present case. We are, therefore, unable to accept any of the submissions made by Shri J. P. Shah.
25. In the above view of the matter, we are of the view that the Tribunal has rightly come to the right conclusion on a proper interpretation of the proviso to sub-clause (vi) of section 80P(2)(a) of the Income-tax Act. In view of the discussion, the assessee-society cannot have the benefit of exemption as provided in section 80P(2)(a)(vi) of the Income-tax Act. We, therefore, answer the question in the affirmative, that is, in favour of the Revenue and against the assessee. Accordingly, the reference is disposed of with no order as to costs.