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TMI Blog1984 (7) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... ratives Ltd. and some others. The Director of Industries and Commerce scrutinised the scheme and approved the same. The State Government sanctioned Rs. 2.5 lakhs for capital participation redeemable in 16 years. It also agreed to stand guarantee to LIC for a loan of Rs. 7.5 lakhs. The State Government further placed the services of an administrative officer of the cadre of an assistant estate engineer for the society. Further, 30 acres of land on 51 years lease was also placed at the disposal of the proposed society. These facts are found in G.O. No. 42, dated 10-1-1963, issued by the Industries Department. It was proposed to set up 50 units of three types (A, B and C). The Government's participation also was enhanced from Rs. 1.5 lakhs to Rs. 7.33 lakhs. The Government also agreed to guarantee the loan from LIC to larger extent of Rs. 21.98 lakhs. The Government undertook to provide common facilities such as development of land, construction of roads, water supply, drainage, watch and ward, fencing, etc., at a cost of Rs. 6.20 lakhs. This enlarged assistance was sanctioned by G.O. No. 442, dated 17-4-1965. The Co-operative Industrial Estate Ltd. had meanwhile been formed and regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the members solely for construction of the unit in accordance with the approved plan. The loan was to be repaid in 13 equal annual instalments starting from 15-6-1968. Interest was fixed at 6 per cent initially, liable to revision by the general body of the co-operative society, subsequently. The unit (the factory building, etc.) was to remain the property of the society till the loan is fully repaid. It was the duty of the members to insure the factory building at their own cost and that the insurance should cover the full value of outstanding loan and interest. The agreement provides for rebate for prompt settlement of the loan and penal interest in case of delay or default. It was on the basis of this agreement that the assessee had advanced loans to the unit-holders members. The outstanding amount was about Rs. 21 lakhs during the relevant periods. The amount of interest received or receivable was Rs. 90,857 for the year ending on 30-6-1978 and Rs. 1,21,390 for the year ending on 30-6-1979 the two years under consideration before us. The assessee had also received interest on fixed deposits to the extent of Rs. 63,784 for the first year and Rs. 58,548 for the second year. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1975] 100 ITR 472. He, therefore, rejected the main plea of the assessee for exemption as a society engaged in the business of provision of credit. He, however, directed depreciation on particulars being furnished by the assessee. He also directed relief in respect of godown for the assessment year 1979-80. The assessee has come up in second appeal. 5. The learned counsel for the assessee took us over the relevant Government orders, the bye-laws, the accounts, the lease agreements, the board resolutions and other relevant facts. He argued that the fact that it was classified as a miscellaneous society cannot, by itself, be taken as conclusive against the assessee. He pointed out that apart from banking, provision of credit also qualifies for exemption. He claimed that the decisions cited by the first appellate authority are far off the mark. In the Allahabad High Court's case the relief was refused merely because the loans were to non-members. This position, according to him, supports the assessee's case. In the case before the Andhra Pradesh High Court, it was found that there was no banking business, but the High Court had rejected the revenue's plea that there was not even pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not lent, as pointed out by the first appellate authority, would, according to him, buttress the departmental inference. Even the resolution of the board of directors, dated 23-8-1964, merely mentions the money being advanced for a consideration. It is in this context, he stated that a number of decisions relied on by the department would come to its aid. In the case of Rodier Mill Employees' Co-operative Stores Ltd., it was found that provision of credit at the time of sale of consumer goods would not make the co-operative society eligible for relief under section 80P(2)(a)(i), because it was primarily a consumer society. In the assessee's case, there was hardly any difference as the finance, instead of being for consumer goods, is for construction. He pointed out to the clauses which make it necessary that the funds should be utilised only for construction. He also pointed out that the Madras High Court in a recent decision in CIT v. Madras Autorickshaw Drivers' Co-operative Society Ltd. [1983] 143 ITR 981, had similarly rejected hire purchase finance as constituting provision of credit. In this case, the High Court has laid stress on the bye-laws. He claimed that the bye-laws in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither consumer credit or hire purchase could not be treated as sufficient qualification for the benefit. There is no doubt that the assessee should carry on business of providing credit facilities. Since the words ' providing credit facilities ' are preceded by the word ' banking ', the principle of ejusdem generis should apply. Though the institution itself may not carry on the business of banking, as such the provision of credit should, more or less, be in the nature of a banking activity. In other words, the co-operative institution need not be a banker, but its activity must be in the nature of banking. There is also no doubt that though exemptions and deductions may be intended to promote State policy such as extension of co-operative sector in provision of credit and other State policy goals, the exemption clauses themselves have to be strictly interpreted inasmuch as it is the burden of the taxpayer to show that the exemption claimed falls within the four corners of the statute. It is in this view, we approach the assessee's claim for exemption. 9. The assessee-co-operative society has been classified as a miscellaneous society. Its object is to promote an industrial estat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... might be the business of the co-operative society. However, in matters of provision of credit facilities, this should be, more or less, the business of the co-operative society. For an inference as to whether a co-operative society is in such business, one may, no doubt, look into the bye-laws. But bye-laws themselves are not conclusive. There may be a co-operative credit society which may not actually do banking business and may derive income from investment. Such a society cannot obviously be declared exempt. On the other hand, a miscellaneous society may utilise its funds substantially on provision of credit to its members. If it does by way of large number of loans and if it happens to be the primary or one of the main objects of such society, utilising substantial part of its funds, we find it difficult to see bow we can hold that such a society is not engaged in the business of providing credit facilities. No doubt, the ultimate object is to encourage small industries in the co-operative sector. So is the intention of many other Government agencies and co-operative institutions. If this intention is actually carried out by the provision of credit in the co-operative society, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that there are substantial activities constituting a business of providing credit facilities to its members. 10. We have, however, to meet the revenue's objections to our inference that the assessee is in the business of providing credit facilities to its members. The decision in Andhra Pradesh Co-operative Central Land Mortgage Bank Ltd.'s case was relied upon by the revenue under the mistaken belief that the dispute there related to income similar to the one under consideration here. The dispute there related to the question of earning income from interest on securities held as investment by the co-operative society which was, in that case, a Central Land Mortgage Bank. In that case, while holding that the assessee was not in the business of banking, the High Court observed " it is clear that its prime intendment and object is undoubtedly to provide long-term credit facilities to member mortgage banks. . ." Even on this finding, the particular income was not found exempt. It is in this context that the Andhra Pradesh High Court observed in the passage reproduced earlier that it is not all categories of income of a society providing credit to its members, that would be exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of providing credit facilities. His business will be the business of purchase and sale of goods which he supplies. Banking business is a wide term and includes many activities like discounting bills, hundis, cheques, accepting deposits and advancing loans, etc. Thus, it includes the providing of credit facility. A person or a society may not be a banker, in that wide sense, yet he may be providing credit facilities which is a part of a banking business. The expression ' providing credit facility ' thus takes its colour from the activity of banking. In order that a banking or providing of credit facility 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 banking or providing credit facilities. In order that a person may be engaged in the business of providing credit facilities, it must be shown that the providing of credit facility is his business in the sense that the interest earned by him is the main source of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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