Kerala H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the credit sales to the tune of Rs. 5,43,084 to the members of the assessee-society will not come under s. 80P(2)(a)(i) of the IT Act and hence the exemption claimed by the assessee is not sustainable in law ?

Counsel Appeared

K.K. Ravindranath, for the Assessee : P.K.R. Menon & K.P. Balasubramonyam, for the Revenue

K.S. PARIPOORNAN, J.:

These three references are at the instance of the same assessee. The Revenue is the respondent in these three cases. IT Ref. No. 97 of 1982 relates to the asst. yr. 1976-77. IT Ref. No. 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 IT Ref. No. 97 of 1982: “Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the credit sales to the tune of Rs. 5,43,084 to the members of the assessee-society will not come under s. 80P(2)(a)(i) of the IT Act and hence the exemption claimed by the assessee is not sustainable in law ?”

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

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. In the course of its business, the assessee had effected credit sales to its members. The business is in the purchase and sale of consumer goods. In the returns filed for the various assessment years, the credit sales were shown as receipts falling under s. 80P(2)(a)(i) of the IT Act and hence liable to be exempted while computing the assessable income. The ITO rejected the claim. On appeal, the CIT(A) held that the business of the assessee is just a business in the purchase and sale of consumer articles and that these transactions do not amount to providing credit facilities to its members. The assessee filed appeals before the 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 Tribunal held that a co-operative society, like the assessee, selling goods to its members on credit, is not engaged in any business of providing credit facilities. It took the view that the expression “providing credit facilities” takes its colour from the preceding expression “banking ” and thus the assessee is not entitled to the exemption claimed since the activity carried on by the assessee is not one of providing credit facility to its members. Thereafter, an application was made before the Tribunal under s. 256(1) of the IT Act to refer the question of law, formulated hereinabove, for the decision of this Court. Accordingly, for all the three years, the Tribunal has referred the above question for the decision of this Court.

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 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 our acceptance the view that prevailed with the 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.

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 cognate 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 CIT vs. Parukutty Mooppilamme (1984) 38 CTR (Ker) 354 : (1984) 149 ITR 131 (Ker). We are of the view that the words “providing credit facilities” occurring in s. 80P(2)(a)(i) of the IT Act, should be construed as similar to, or akin to “carrying on the business of banking “, the preceding clause in the same sub-section.

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 the business. It cannot be said to be one of “providing credit facilities to its members” as envisaged by s. 80P(2)(a)(i) of the IT 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 & 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 said to be carrying on the business of providing credit facilities. To similar effect are the observations in Sampath Iyengar’s Law of Income-tax, vol. 3, 7th edn., page 2850. The Madras, Allahabad and Madhya Pradesh High Courts have taken the same view [vide CIT vs. Coral Mills Workers Co-operative Stores Ltd. 1976 CTR (Mad) 46 : (1977) 106 ITR 868 (Mad) : TC26R.735, Rodier Mill Employees’ Co-operative Stores Ltd. vs. CIT (1982) 29 CTR (Mad) 74 : (1982) 135 ITR 355 (Mad) : TC26R.733, Addl. CIT vs. U.P. Co-operative Cane Union 1975 CTR (All) 225 : (1978) 114 ITR 70 (All) : TC26R.720 and Malwa Mills Karamchari Paraspar Sahakari Sanstha vs. CIT (1982) 134 ITR 505 (MP) : TC26R.726]. In the light of the above discussion, we hold that the Tribunal was justified in negativing the claim of the assessee that it is entitled to deduction under s. 80P(1) r/w s. 80P(2)(a)(i) of the IT Act.

6. 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 costs. Advocate’s fee Rs. 500 in each case.

[Citation : 170 ITR 455]