1. The question of law which the Income-tax Appellate Tribunal referred to us in this case is as follow :
'Whether, on the facts and in the circumstances of the case, the income of the assessee-co-operative society was not exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961 ?'
2. The assessee, Rodier Mill Employees' Co-operative Stores Ltd., Pondicherry,. provides for its members consumption goods such as textiles, toilet articles and the like, on credit. the assessee claimed that the entire profits made in the co-operative stores were exempt under s. 80P(2)(a)(i) of the I.T. Act, 1961, on the ground that it was society which provided credit facilities to its members. The ITO disallowed the claim on the ground that merely selling goods on credit to its members will not render the society as one carrying on a business which provided 'credit facilities' to its members. This decision of the ITO was taken in appeal before the AAC. He differed from the ITO, and held that the assessee was entitled to the exemption under s. 80P(2)(a)(i) of the I.T. Act, 1961. The department appealed against this decision to the Income-tax Appellate Tribunal. The Tribunal reversed the decision of the AAC restoring the disallowance of the claim made by the ITO. In this reference, the assessee contends that the Tribunal went wrong in holding that s. 80P(2)(a)(i) of the I.T. Act, 1961, does not apply to the profits from the society.
3. Mr. S. V. Subramaniam, learned counsel for the assessee, submitted that when the assessee sold goods such as textiles, toilet articles and other provisions to its members on credit, it must be held that the society was extending credit facilities to its members. Since sales on credit must be regarded as providing credit facilities, the learned counsel submitted that the society itself must be regarded as one which has provided credit facilities to its members.
4. We do not accept this contention as well founded. Section 80P(2)(a)(i) of the Act refers to a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members. It is not suggested in this case that the assessee carries on the business of banking. All that is urged is that it provides credit facilities to its members. It may be that in a broad sense there is a provision of credit in every transaction of sale on credit. But, it cannot be said that a co-operative society which is engaged in selling or distribution consumer goods or other goods to its members for deferred consideration can be said to be extending credit facilities merely because it does not insist on cash payment but prefers to collect the consideration after a time. In the literature of law relating to co-operative societies there is a well-merited distinction between credit societies, on the one hand, and consumer societies, on the other, not to speak of societies engaged in various productive activities. When the section refers to a co-operative society engaged in providing credit facilities to its members it really refers to a credit society, whose primary object is the provision of loans or other credit facilities to its members. It does not include any society whose primary object is something other than the provision of loans or other credit facilities, such as a consumer co-operative society.
5. This construction of the section is not without authority. An earlier Bench decision of this court reported in CIT v. Coral Mills Workers Co-operative Stores Ltd. : 106ITR868(Mad) , had occasion to construe the section incidentally, although the main point which arose before them was the validity of certain reassessment proceedings under the I.T. Act, 1961. In that case a co-operative society registered under the State Co-operative Societies Act was dealing in grocery articles and piece-goods, selling those goods on credit to its members. A contention similar to the addressed by the assessee's learned counsel before us was urged before the Bench in that case too. It was contended that since goods were sold by the society on credit to its members it must be regarbed as a society providing credit faciliti- es. The following passage from that judgment discloses the ground on which this contention was rejected (p. 871) :
'It is seen from the evidence now available that the society is dealing in grocery articles and piece-goods and that it is neither carrying on the business nor providing credit facilities to its members. The contention of the assessee that it sells goods on credit to its members and should, therefore, be taken as providing credit facilities to its members is merely to be stated for rejection. A 'credit society' within the meaning of section 14(3)(i) of the old Act and section 81(i) of the new Act could only mean a society which provides credit by way of loans of money to its members and not a society which sells goods on credit.'
6. To a certain extent we agree with the contention of the learned counsel for the assessee that providing credit facilities is a larger conception than a mere provision of loans. Indeed, the Allahabad High Court in CIT v. U. P. Co-operative Cane Union Federation Ltd. : 122ITR913(All) , held that a co-operative society which stood guarantee for the loans borrowed by its members for pumping sets must be regarded as a co-operative society providing credit facilities within the meaning of s. 80P(2)(a)(i) of the I.T. Act, 1961. But, however liberal the construction of the expression 'providing credit facilities' may be, it cannot, in our opinion, include the mere sale of goods on credit by an out and out consumer co-operative society as the assessee in the present case is. The Allahabad High Court itself had earlier considered a similar question in the case of Addl. CIT v. U. P. Co-operative Cane Union : 114ITR70(All) . In that case, a co-operative society, which ran a printing press, supplied printed stationery, on credit, to its members. The Appellate Tribunal took the view that this society must be regarded as one which provided credit facilities to its members. Disagreeing with that view, the Allahabad High Court held that selling goods on credit is only a mode of carrying on the business. It does not thereby become a business of providing credit facilities.
7. In view of this clear position under the law both as a matter of construction and on the authorities our answer to the question of law is that the assessee is not entitled to the exemption under s. 80P(2)(a)(i) of the I.T. Act, 1961, as a co-operative society engaged in providing credit facilities to its members. Thus our answer is against the assessee. The assessee will pay the costs of the department. Counsel fee Rs. 500 (rupees five hundred only).