JUDGMENT
M.K. Chawla, J.
1. In this writ petition under article 226 of the Constitution of India, read with section 482 of the Code of Criminal Procedure, the petitioner is seeking the quashing of the prosecutions lodged against him in the court of the Chief Metropolitan Magistrate, Delhi, entitled : ITO v. Dr. M. L. Passi, for non-deposit of tax deducted at source, for the years 1969-70 and 1970-71, and the quashing of instruction No. 1317 dated March 11, 1980 issued by respondent No. 1/Central Board of Direct Taxes in taking away the powers of the Commissioner of Income-tax in the matter of compounding of the offences as being ultra vires the powers given to respondent No. 1 under section 119 of the Income-tax Act. Income
2. To appreciate the submissions in support of the relief claimed, we have first to state a few relevant facts.
3. The petitioner, Dr. M. L. Passi, is a physician and surgeon by profession. After practicing for some time, he joined the service of the Delhi Municipal Committee in the year 1944 and retired as Deputy Health Officer in the year 1965. Immediately after his retirement, he joined inspire Auto Industries (P.) Ltd., which was virtually controlled by his father-in-law, Shri I. S. Vedi, as its managing director. The company was engaged in the manufacture of carburetors and fuel pumps and their parts from its very inception. The company had set up a factory at 14/6, Mathura road, Faridabad (Haryana), for the manufacture of its products.
4. In the year 1966, the sales of the company stood at Rs. 18,95 lakhs but, unfortunately, in the next year, due to recession, the manufacturers to whom bulk supplies were being made by the company suffered a setback. The company got into further serious financial difficulties in the year 1973 due to worldwide abnormal rise in prices of vehicles on account of which the demand for vehicles was seriously affected. In fact, as on June 30, 1973, the net loss that the company has suffered stood at Rs. 6 lakhs and odd and the share capital of the company of Rs. 5 lakhs got completely wiped out.
5. In the face of the financial difficulties, one of the directors of the company initiated liquidation proceedings. The company also put up a scheme of arrangement under section 391 of the Companies Act. This scheme of arrangement was ultimately passed by the requisite majority of unsecured creditors of the company. This court finally sanctioned the scheme of arrangement on December 7, 1979. Under this scheme of arrangement, the company was liable to pay only 40 per cent. of the amount due to the unsecured creditors in full and final settlement of their claims. This amount came to Rs. 11,74,395.77. The payment in accordance with the said schemes of arrangement has since been made in full and no amount remains payable to any of the unsecured creditors including the Income-tax Department.
6. During the period the company was in financial crisis, salaries and wages of its employees were paid somehow or the other but only a notional deduction of income-tax at source was shown. The tax so deducted at source could not be deposited for want of funds. The Income-tax Department, by using the penal provisions of section 276B, pressurised the officers of the company to make payment of the entire amount with interest. Fearing prosecution, the company deposited the entire dues of income-tax together with interest as payable under the rules by May, 1983. In spite of that respondent No. 3, the Income-tax Officer, Company Circle I, filed three complaints under section 276 of the Income-tax Act, 1961, for default in not depositing the amount of tax deducted at source for the assessment years, i.e., 1969-70 and 1970-71, in the court of the Chief Metropolitan Magistrate, Delhi.
7. On January 5, 1985, the company approached respondent No. 3, the Income-tax officer, to drop the proceedings as the Department had already recovered a heavy amount of interest on the amount due. By an application dated May 11, 1978, the petitioner had explained the circumstances in which the default had been committed and prayed for the withdrawal of the criminal complaints under section 276B of the Income-tax Act. The Department did not take any action on the said request.
8. Subsequently, the petitioner on March 12, 1979, filed an application under section 279B of the Act, through
building, is to lend money to the members of the society, though for purposes of house building, and that would be sufficient to make it an independent and organized business activity of the assesses-society carried on systematically.
9. We find on a perusal of the objects of the society in annexure-D that the objects set out are independent and distinct objects of the society. Clause 2(j) of the bye-laws says that one of the objects of the society is lending moneys to its members. The carrying on of the activity of lending moneys to its members by the assesses-society has to be regarded as an activity relating to the provisions of credit facilities by the society to its members, as one of those objects. The availability of credit facilities provided by the assesses-society is not restricted only to such members as have secured a site from the assesses-society. Even other members, who had their own sites, had been given the benefit of credit facilities by the assesses-society and that activity had been carried on by the assesses-society purely as a business activity pursuant to the object set out in clause 2(j) of the bye-laws of the society. Further, it is seen that to secure a loan from the assesses-society, it is not necessary that the member should either have the house constructed through the efforts of the society or under its supervision. Our attention has also not been drawn to any bye-laws to this effect.
10. The restriction imposed on the user of the credit facilities extended by the assesses-society for house building cannot be construed as a means intended to secure the object of the society, viz., house building. at best, it can be regarded only as the imposition of a condition for obtaining credit facilities and would not in any manner affect the character of the activity or detract from the activity being one of providing credit facilities. The need for taking a security over the house property in the form of a mortgage from the member to whom credit facilities had been extended establishes that it is only for the purpose of ensuring prompt repayment of the loan advanced and this does not also in any manner alter the character of the assesses-society as an institution giving financial aid or providing credit facilities. The activity of the assesses-society in making available funds to a credit facilities to its members. We have carefully considered the entire bye-laws of the society and we are of the view that the object of the assesses-society as set out in clause 2(j) of the bye-laws in annexure-D is not one intended to serve as a means to secure a principal object, viz., house building. We hold that the object set out in clause 2(j) of the bye-laws of the society is a separate, distinct and independent activity of the assesses-society.
11. We may now make a brief reference to two decisions strongly relied on by learned counsel for the Revenue in Rodier Mill Employees’ Co-operative Stores Ltd. v. CIT [1982] 135 ITR 355 (Mad) and CIT v. Madras Autorickshaw Drivers’ Co-operative Society Ltd. [1983] 143 ITR 981 (Mad). In the first case, a co-operative society sold consumer goods on credit to its members and claimed that its entire profits were exempt under section 80P(2)(a) (i) of the Act. That claim was negative by the Income-tax Officer, but accepted on appeal by the Appellate Assistant Commissioner, whose conclusion was reversed by the Tribunal. On further reference to this court, it was pointed out that there is a well-merited distinction between credited societies and consumer societies and the reference section 80P(2)(a)(i) of the Act is to a co-operative society whose primary object is the provision of loans or other credit facilities to its members and not to a society whose primary object is something other than the provision of loans and that the provision of credit facilities would not includes sale of goods on credit by an out and out consumer co-operative society, as the assessed was in that case. We have earlier referred to the objects of the assesses-society and its objects are not confined to the activity of house building only, but extends to other spheres of activity as well, like maintenance of social, recreative, educational, public health or medical institutions, etc., and other activities as well. Under those circumstances, the decision in rodier Mill Employees’ Co-operative Stores ltd. v. CIT [1982] 135 ITR 355 (Mad), which related to a co-operative society dealing in consumer goods only, cannot have any application here. Similarly, the reliance placed upon CIT v. Madras Autorickshaw Drivers’ Co-operative Society Ltd. [1983] 143 ITR 981 (Mad) is of no avail to the Revenue. The object of the assesses-society in that case was purchase and sale of autorickshaws and the Society had come into being only for that purpose. It was under those circumstances, it was held that the entering into of a hire-purchase agreement for the purpose of the sale of autorickshaws cannot be regarded as providing credit facilities, but only to further the sole object of the society, viz., purchase of autorickshaws by the society initially in its own name and re-selling them to its members on hire purchase terms ad that would not enable the society to claim the benefit of exemption under section 80P(2)(a)(i) of the Act. We are of the view that that decision also does not assist the Revenue on the state of the object clause of the assesses-society in this case relating to different and distinct objects of the society. We may observe in passing that, in Kerala co-operative Consumers’ Federation Ltd. v. CIT [1988] 170 ITR 455 (Ker), also credit sales by a consumer co-operative society whose business was purchase and sale of consumer goods were held not to fall within the meaning of the expression “providing credit facility by way of loans”, but only sale of goods on credit. In arriving at this conclusion, the decision in Rodier Mill Employees’ Co-operative Stores Ltd. v. CIT [1982] 135 ITR 355 (Mad), referred to earlier, was relied upon and we have already held that that decision has no application to this case and, therefore, the decision in Kerala Co-operative Consumer’s Federation Ltd. v. CIT [1988] 170 ITR 455 (Ker), also does not help the Revenue in any manner. We have, therefore, no hesitation in answering the second question referred to us in the affirmative and against the Revenue.
12. We now proceed to a consideration of the first question. Under section 80P(2)(a)(i) of the Act, in order to claim the benefit of deduction under section 80P(1) of the Act, the co-operative society should be engaged in carrying on the business of banking or providing credit facilities to its members. The nature of the credit facilities provided by the assesses-society to its members in furtherance of its object clause 2(j) has already been referred to. We have earlier pointed out that that activity is a distinct and separate activity of the assesses-society and that activity carried on by the assesses-society would make it a society engaged, among others, in carrying on the business of providing credit facilities to its members,, attracting section 80P(2)(a)(i) of the Act. We may, in this connection, refer to the nature of construction to be put upon section 80P(2)(a)(i) of the Act. The corresponding provision in the Indian Income-tax Act, the Supreme Court, in CIT v. South Arcot District co-operative Marketing Society Ltd. [1989] 176 ITR 117, laid down that, as the provision for exemption was intended to encourage co-operative societies, a liberal construction should be given to the language employed in the provision. To similar effect is another decision of the Supreme Court reported in Broach District Co-operative Cotton Sales, Ginning and Pressing Society Ltd. v. CIT [1989] 177 ITR 418, though the reference was to section 81(i)(c) of the Act. It was reiterated that section 81(i) of the Act was intended to encourage and promote the growth of co-operative societies and, consequently, a liberal construction must be given to the operation of that provision. Construing section 80P of the Act in the manner indicated by the decision of the Supreme Court referred to above, we are of the view that if the co-operative society is engaged in carrying on the business of providing credit facilities to its members as we have found in this case, that would suffice to attract the benefit of deduction under section 80P(1) and (2) (a) (i) of the Act. We have earlier found that the assesses-society in this case had been engaged in carrying on the business of providing credit facilities to its members, amongst its other activities. In the case of a co-operative society have several objects, as the assesses-society in this case, if it is established that the co-operative society is engaged in any one of the activities falling under section 80P(1) and (2) (a) of the Act, that would suffice to enable the society to claim the benefit of deduction, subject, of course, to such other provisions as may be applicable as enumerated in the other parts of section 80P(2) of the Act. We, therefore, answer the first question referred to us in the affirmative and against the Revenue. The assessed will be entitled to the costs of these references. Counsel’s fee Rs. 500. One set.
