Income Tax Appellate Tribunal - Chennai
Income Tax Officer, Ward-I(1), ... vs Kanchipuram Silk Handloom Weavers' ... on 20 May, 2005
Equivalent citations: [2006]7SOT446(CHENNAI)
ORDER
Chandra Poojari, A.M. These appeals by the revenue are directed against different orders of the Commissioner of Income Tax (Appeals) for the above assessment years on the solitary ground that the Commissioner of Income Tax (Appeals) has erred in directing the assessing officer to grant deduction under section 80P(2)(a)(i) of the Income-Tax Act, in respect of the interest received by the assessee from monies advanced to its members.
2. The brief facts of the case are that the assessee is a co-operative marketing society which has claimed deduction under section 80P(2)(a)(i) of the Income Tax Act on the interest received from its members. The assessing officer disallowed the claim on the ground that the society is engaged in marketing of finished goods of the assessee/members and the assessee is not a credit society. The assessee has advanced money against finished goods manufactured by its members and interest was received on such advance which is incidental to the main marketing activities of the assessee. However, on appeal, the Commissioner of Income Tax (Appeals) allowed the claim of the assessee for the reason that the assessee has earned interest on the money advanced to its members against security of hypothecation of raw materials and the members purchased raw materials out of the money advanced by the assessee and produced the finished products. Aggrieved, the revenue is in appeal before us.
3. The learned Departmental Representative submitted that similar issue came up for consideration in the assessee's own case Kancheepuram Silk Handloom Weavers Co-operative Marketing Society Ltd. v. ITO (1994) 49 ITD 453 (Mad) wherein this Tribunal has dismissed the claim of the assessee and there is no change in the facts and circumstances of the case even in the present appeals. Therefore, he prayed that status quo may be maintained. He further submitted that though the amendment was made to the bye law of the co-operative society, the character of the society was not changed and there was no document to show that the assessee was a credit society. if the contention of the assessee is accepted, then all the co-operative societies will become entitled for this deduction, which is not the intention of the Legislature.
4. On the contrary, the learned counsel for the assessee submitted that the facts and circumstances between the case relied upon by the learned Departmental Representative and the one for consideration before the Tribunal are entirely different. After the issue of the order of the Tribunal (supra), with effect from 5-5-1994, there was an amendment to the object clause of the Bye law of the society. The society was termed as service society by the Registrar of Co-operative Societies. He drew our attention to the amendment which reads as follows --
"(i) With effect from 5-5-1994 one of the main objectives of the society is providing credit facility. The relevant portions of the amended bye law No. 2 runs as under :
Preamble 2: The object of the society is the improvement of handloom industry and of the economic condition of the weavers residing in the area of operations mentioned in bye law No. 1.
(a) Hence, the main objects of the society shall be,
1. To provide credit facilities to its members, (ie.) to advance secured loans to members on the terms and conditions fixed by the Board of Directors;
2. To own or hire godowns for letting out to members on rent for storage, processing or facilitating the marketing of their finished goods'." [Emphasis supplied]
5. He also drew our attention to section 80P(2)(a)(i) and submitted that the co-operative society engaged in the business of banking or providing credit facility to its members is entitled for deduction. In other words, his contention is that by just providing credit facilities to its members, the co-operative society becomes entitled for this deduction. He contended that the Statute never requires any statutory documentary evidence to be produce to prove that the society provides credit facilities to its members. He further drew our attention to the form of loan application and submitted that the assessee lends money on hypothecation of raw materials purchased out of the loan received from the society including silk jerry and other raw materials including finished and semi-finished goods. The assessee, in addition to marketing activities, is also engaged in providing credit facilities to its members and the earlier order of the Tribunal in Kancheepuram Silk Handloom Weavers Co-operative Marketing Society Ltd. case (supra) is not applicable to the facts of the present case since there was no amendment to the bye law at the time of issue of that order and also at that time, the assessee has advanced money not for the purpose of raw materials but advanced money against future sale consideration of the goods intended for sale on deposit of finished goods with the assessee. But, during the assessment years under consideration, the assessee instead of advancing money against deposit of finished goods for sale, advanced money for purchase of raw materials out of which the assessee has produced silk sarees.
6. We have heard the rival submissions and perused the material on record. Section 80P(2)(a)(i) of the Income Tax Act entities deduction to the co-operative societies which are engaged in carrying on business of banking or providing credit facilities to its members. The tax relief under this section is granted by the Parliament not to a specific category of income but to the category of the assessee, viz., Co-operative society engaged in carrying on business of credit facility to its members. The true preliminary object of the assessee shall be providing credit facility to its members. In the present case, the true primary object of the assessee is not providing credit facility but to facilitate marketing facilities of the products of its members. The credit society is distinguished from the marketing society. As per Tamilnadu Co-operative Societies Rules, 1963, credit society refers to a society which has its principal object as raising funds, give loan to its members, primarily for production or for any useful purpose. It is settled law that every word in the statute should be construed in the context in which it occurs only 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 or coupled together, they should be understood in the cognate sense. Therefore, the words 'providing credit facilities' mentioned in section 80P(2)(a)(i) of the Income Tax Act should be construed as similar to or akin to the carrying on business of banking. if the assessee has given loan to its members to procure raw material while facilitating marketing activities, it cannot, however, be said to be one of providing credit facilities to its members as envisaged in section 80P(2)(a)(i) of the Act.
7. Section 80P(2)(a)(i) only refers to credit society, whose primary object is to provide loans or other credit facilities to its members. It does not include any society whose primary object is something other than providing loan or other credit facilities. The true nature and object of the society is the predominant factor to decide the allowability of this deduction. The assessee cannot become entitled to deduction under this section without having the primary object, but having only the secondary object of advancing loans for the purchase of raw materials to its members. This view is supported by the judgment of Hon'ble Supreme Court in the case of Madras Auto Rickshaw Drivers' Co-operative Society v. CIT (2001) 249 ITR 330 (SC), wherein the judgment of the Hon'ble Jurisdictional High Court in the above case CIT v. Madras Autorickshaw Drivers' Co-operative Society Ltd. (1983) 143 ITR 981 (Mad) has been confirmed.
8. In view of the above legal position, we are of the considered opinion that the assessee is only a marketing society not engaged in credit facilities as the words "providing credit facilities" should be interpreted in the right of the expression "business of banking" as held in the case of Additional CIT v. UP Co-operative Cane Union (1978) 114 ITR 70 (All). We are also of the opinion that the amendment brought into force in the bye law of the co-operative society has no bearing on the issue as the true character of the society remains as a marketing society only and the order of the Tribunal (supra) squarely applies to the facts of the present case. Accordingly, we reverse the order of the Commissioner of Income Tax (Appeals) on this issue and allow the ground taken by the Revenue.
9. In the result, the appeals filed by the Revenue are allowed.