SURAT VENKAR SAHAKARI SANGH LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE short question which arises for consideration in this reference turns on the true interpretation of section 14(3) (iv) of the Income -tax Act, 1922 and section 81(iv) of the Income -tax Act, 1961. The facts giving rise to the reference are few and undisputed and way be briefly stated as follows. The assessee is a co -operative society registered under the Bombay Co -operative Societies Act, 1925. The main activities of the assessee are : (1) processing, that is, dyeing, bleaching and finishing of grey cloth on 'labour basis' and (2) purchasing of grey cloth from the local market and after processing selling the same to the members a well as outsiders. During the previous years relevant to the assessment years 1961 -62 and 1963 -64, the assessee earned income from processing grey cloth on 'labour basis', and also from processing its own grey cloth. So also the assessee earned income from processing grey cloth on 'labour basis' during the previous years relevant to the assessment years 1962 -63 and 1964 -65. The assessee had also some income from facilitating the marketing of commodities of its members during the previous ears relevant to the last three assessment years, namely, 1962 -63 to 1964 -65. In the course of assessment of the assessee to Income -tax for the assessment years 1961 -62 to 1964 -65, the assessee claimed exemption from tax in respect of income from processing and facilitating the marketing of commodities under section 14(3) (iv) of the Income -tax Act, 1922, for the assessment year 1961 -62 and under section 81(iv) of the Income -tax Act, 1961, for the remaining three assessment years. The Income -tax Officer negative claim on the view that neither section 14(3) (iv) or section 81(iv) was income from letting out godowns or warehouses for any of the following three purposes, namely, storage, processing and facilitating the marketing of commodities and, since the claim for exemption was in respect of income not falling within this category, it was not sustainable under section 14(3) (iv) or section 81(iv). This view taken by the Income -tax Officer was assailed in appeal before the Appellate Assistant Commissioner, but the appeal was unsuccessful and the Tribunal in further appeal also took the same view. Hence, the present reference at the instance of the assessee.

(2.) THOUGH apparently two questions of law are referred for our opinion, there is in effect and substance only one question and that relates to the true construction of section 14(3) (iv) and section 81(iv). It may be noted at the outset that section 81(iv) is in identical terms as section 14(3) (iv) and so are the other clauses of sections 81 and 14(3) and, therefore, what we say in regard to the interpretation of section 81(iv) would apply equally in the interpretation of section 14(3) (iv). Section 81(iv) enacts a simple provision but in order to arrive at its proper meaning it is necessary to read it in the context of the other clauses of section 81. Section 81 grant exemption in respect of income of a co -operative society in the following terms :

(3.) TURNING first to the language of section 81(iv), it exempts a co -operative society from tax in respect of income derived from the letting of godowns or warehouses of storage, processing or facilitating the marketing of commodities. Two possible constructions of this provision were suggested before us in the course of the argument, one by the assessee and the other by the revenue. The construction put forward by the assessee and the other by the revenue. The construction put forward by the assessee was that the words 'letting of godowns and warehouses for storage', 'processing' and 'facilitating the marketing of commodities' constituted different alternatives and income derived from three different sources was, therefore, sought to be exempted under section 81(iv), namely, (1) income derived from the letting of godowns and warehouses for storage; (2) income derived from processing; and (3) income derived from facilitating the marketing of commodities. The revenue on the other hand urged that income which was sought to be exempted was only income derived from the letting of godowns or warehouses if they were let for any of the three purposes, namely, storage, processing or facilitating the marketing of commodities. The words 'storage, processing or facilitating the marketing of commodities', according to the revenue, were governed by the preposition 'for' and they denoted the purposes for which godowns or warehouses should be let in order that the income derived from such letting should be exempt from tax. Now, on the plain grammatical construction of the language used by the legislature, it appears that the construction of the language used by the legislature, it appears that the construction suggested on behalf of the revenue is more commendable than that canvassed on behalf of the assessee. As we read the words of the clause, it is apparent that there is no break in the continuity of idea after the word 'storage'; the idea flows on into the words 'processing or facilitating the marketing of commodities'. As a matter of fact, if we read the clause as a whole, there is no doubt that the words 'storage, processing or facilitating the marketing commodities' constitute one single composite clause governed by the preposition 'for' signifying that the letting of godowns or warehouses contemplated by the section is letting for any of the three purposes, namely, storage, processing or facilitating the marketing of commodities. If the intention of the legislature was that 'letting of godowns or warehouses for storage', 'processing' and 'facilitating the marketing of commodities' should be read distinctively as constituting different alternative sources of income, the legislature would have, according to the dictates of plain grammar, used the words 'income derived from letting of godowns or warehouses for storage or from processing or from facilitating the marketing of commodities.' The introduction of the words 'or from' before 'processing' and 'facilitating the marketing of commodities' would have brought about the disjunctive effect so as to relate the three alternatives to the words 'income derived from.' But the legislature instead used words which clearly go of to suggest that the words 'storage, processing or facilitating the marketing of commodities' are merely purposes for which godowns or warehouses should be let to attract the exemption under section 81(iv). The presence of the definite article 'the' before letting and its absence before the words 'processing' aid 'facilitating the marketing of commodities' considerably reinforces this conclusion. It is again difficult to see why the legislature should have indiscriminately mixed up in section 81(iv) widely different sources of income such as 'letting of godowns or warehouses for storage, processing and facilitating the marketing of commodities'. The conclusion appears to be clear on a plain natural construction of the language used in section 81(iv) that what is exempted under that section is income derived from the letting of godowns or warehouse provided the letting is for any of the three purposes, namely, 'storage', 'processing' or 'facilitating the marketing of commodities'.